WEEK 1

Background for International

Business
Globalization and International
Business
 Chapter Objectives
• To define globalization and international
business and show how they affect each
other
• To understand why companies engage in
international business and why
international business growth has
accelerated

2-2
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Why we should study international
business?
• Most companies today compete with each
other to be more competitive
• Understand Mode of business operation
differ than before
• Understand different ways of conducting
business in various countries
• Helps us to make better career decisions
• Helps us to understand what government
policies involve in international business
2-3
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Definition of Globalization

The broadening set of

interdependent relationships
among people from different
parts of a world that happens
to be divided into nations

2-4
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Definition of Globalization
Also refers to integration of world
economies through reduction of
barries to the movement of trade,
capital, technology and people

Enables us to get more variety, better

quality or lower price of product or
services.

2-5
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
The forces Driving Globalization
1. Economic – international trade and
investment (25% of world production
is sold outside its country origin)
2. Technology – internet connectivity
3. Personal contact – international travel
4. Political – participation in international
organization and government
monitory transfer
Globalization Index 2009
2-6
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Factors in Increased Globalization

1. Increase in and expansion of technology –

advances in transportation and
communication (product can be develop at
any part of the world)

2. Liberalization of cross-border trade and

resource movements

3. Development of services that support

international business
Click for Video

2-7
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Factors in Increased Globalization

4. Growing consumer pressures

5. Increased global competition – many

companies merged or acquired

6. Changing political situations – end of

communist world
7. Expanded cross-national cooperation –
trading block Click for Video

2-8
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 The Criticisms of Globalization
1. Threats to national sovereignty –
diminish local freedom and control,
objective and policies, culture changes
2. Economic growth and environmental
stress
3. Growing income inequality and personal
stress

2-9
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Definition of International Business

All commercial transactions—including sales,

investments, and transportation—that take
place between two or more countries

Business (firm) that engages in international

(cross-border) economic activities or the action
of doing business abroad

2-10
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 International Business:
Operations and Influences

2-11
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
LEADING TRADING NATION 2008

2-12
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Best Global brand 2009

2-13
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Examples of Global Brand – Top Global Brand 2008
Asian Brands Value USD billion Country Origin Main Product
Toyota 24.8 Japan services
Honda 15.8 Japan Automobile
Samsung 15.0 South Korea Automobile
Sony 10.7 Japan Consumer electronic
Canon 9.0 Japan Consumer electronic
Copier, camera
European Brands Value USD billion Country Origin Main Product
Nokia 26.5 Finland services
Mercedes-Benz 20.0 Germany Cell Phone devices
BMW 17.1 Germany Automobile
Louis Vuitton 16.1 France Automobile
Nescafe 12.2 Switzerland Fashion accessories
Coffee
US Brands Value USD billion Country Origin Main Product
Coca-cola 67.5 US services
Microsoft 59.9 US Soft drink
IBM 53.4 US Software
GE 47.0 US IT services 2-14
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Appliances/
Hall Jet
Intel 35.6 US
 Reasons That Firms Engage in
International Business
1. Expanding sales
2. Acquiring resources
3. Minimizing risk

2-15
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Reasons That Firms Engage in
International Business
• To expand sales • Malaysian Companies
• Volkswagen [Germany] • Petronas (SEA, Africa,
• Ericsson [Sweden] middle East)
• Michelin [France]
• Nestlé [Switzerland]
• Telekom ( SEA, Africa,
• IBM [USA] India, Bangladesh)
• Seagram [Canada] • Sime Darby ( SEA)
• Sony [Japan] • YTL ( Africa, UK)
[continued]
• UEM ( India )
• KFC Holdings
• Ranhill Construction

2-16
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Why firm engage IB ? (cont..)
• To acquire resources
• Products, components, services
• Foreign capital
• Technologies
• Information

• To minimize risk
• Take advantage of business cycle
differences amongst countries
• Diversify suppliers across countries
• Counter competitors’ advantages
2-17
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Modes of Operation in
International Business
• Merchandise exports and imports
• Service exports and service imports
 Tourism and Transportation
 Service Performance
 Asset Use (trademarks, patterns, copyrights) –
franchising, licensing, royalties
• Investments
 Direct investment (FDI) - controlling financial interest
 JV
 Portfolio investment – no controlling financial interest

2-18
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
Types of International Organizations

• Collaborative arrangements
• Strategic Alliance
• Multinational Enterprise (MNE)

2-19
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Why international business differ
from domestic business
Because of two reasons
1. Physical and social factors
2. Competitive factors

2-20
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Why international business differ
from domestic business
1. Physical and social factors
 Geography influence
 Political policies
 Legal policies
 Behavioral factors
 Economic forces

2-21
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
 Why international business differ
from domestic business
2. Competitive factors
 Competitive strategy for
product/services - branding, image,
unique characteristics
 Company resources and experience –
large companies more resource and
experience than small companies
 Competitors faced in each market –
competition
2-22
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall