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GlobalizationGlobalization

The world economic globalization process Theodore Levitt’s (1983) view--now seen as

simplistic: Tech advances altered communication,

transportation, travel to create a global consumer who prefers standardized products

The entire world [or major regions of it] is now a single entity; an organization can sell the same things in the same way everywhere

Today’s view International integration of goods, technology,

information, labor, and capital The process of making this integration happen

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Globalization ForcesGlobalization Forces

Globalization is a result of Political forces that

reduce barriers to trade and foreign investment by governments

induce privatization of industries of former communist nations

Technological forces that lead to advances in computers and

communications technology allow low cost network computing and ubiquitous

Internet collaboration across borders

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Globalization ForcesGlobalization Forces

Globalization is a result of Market forces

lead to globalizing companies’ need for their suppliers to globalize too

allow easier revenue seeking activity abroad due to home market saturation

Cost forces demand economies of scale -- product line and manufacturing

-- to reduce unit costs lower cost production factor seeking efforts in other countries

Competitive forces more intense due to explosive growth internationally of small

and new businesses

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Globalization ForcesGlobalization Forces

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What is International Business?What is International Business?

International Business (IB): any business transaction across national borders Trade in goods Cross-border services

consulting, advertising, legal, financial, accounting tourism, banking, communications/media, construction

management, etc. Company activity inputs may involve IB activity even if outputs

do not Firm’s revenues may come entirely from the home country Key raw materials, knowledge, processes may come

partially or entirely from other countries

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Ways A Company May Be Involved Ways A Company May Be Involved in International Businessin International Business

A company is involved in international business by working with others who are abroad

Managers of its own subsidiaries Customers, suppliers, agents Overseas service providers: bankers,

advertising executives, lawyers, auditors, government officials, transportation managers

Service providers from home country who work with with the company’s overseas operations

traveling overseas for company businessLO3LO3

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Rapid Growth of Rapid Growth of International BusinessInternational Business

The rapid growth of international business is a result of dramatic increases of foreign direct investment (FDI)

and exports FDI: A firm invests in equipment, structures, and

organizations in another country while retaining significant management control

Exports: Sale and transfer of any good or service from the firm’s home country to another country

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Globalization Debate Globalization Debate Supporting Free Trade Supporting Free Trade

Free trade enhances socioeconomic development promotes more and better jobs

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Concerns With GlobalizationConcerns With Globalization

Produces uneven results across nations and people

Has deleterious effects on labor and labor standards

Contributes to the decline of environmental and health conditions

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Environment of Environment of International Business International Business

Two sets of forces in the IB environment influence the development and operations of a firm External Forces (Uncontrollable)

Those that management cannot control Internal Forces (Controllable)

Those that management can develop and use to formulate and execute the firm’s strategy given particular external forces

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External Forces That Affect IB External Forces That Affect IB Due To Cross-Border DifferencesDue To Cross-Border Differences

1. Competitive Competitor kinds, number, locations, activities

2. Distributive National and international agencies that

distribute goods and services3. Economic

Factors such as GNP, unit labor cost, and personal consumption expenditures that matter to business and vary among countries

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External Forces That Affect IB Due External Forces That Affect IB Due To Cross-Border Differences To Cross-Border Differences

4. Socioeconomic Characteristics and distribution of human

population5. Financial

Interest rates, inflation rates, and taxation6. Legal

Foreign, domestic, and international laws governing a firm’s IB operations

7. Physical Natural elements: natural resources (i.e.,

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External Forces That Affect IB Due External Forces That Affect IB Due To Cross-Border DifferencesTo Cross-Border Differences

8. Political Government forms, international organizations

9. Sociocultural National culture similarities or differences that

affect international managers

10. Labor Composition, skills, attitudes of labor

11. Technological Technical skills and equipment that affect how

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Internal Forces That Managers Can Internal Forces That Managers Can Influence Across BordersInfluence Across Borders

Factors of production Capital, raw materials, people

Activities of the organization Personnel management, finance,

production, marketing

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Why Is IB Different?Why Is IB Different?

In IB a firm operates in multiple environments Domestic environment - uncontrollable forces

Has forces that surround and influence the firm’s behavior in the home country

These remain mostly the same regardless of where in the country the firm operates

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Why Is IB Different?Why Is IB Different?

In IB a firm operates in multiple environments Foreign environment country-by-country

uncontrollable forces influence the firm’s behavior and are different from those of the domestic environment based on values that differ difficult to assess for the firm’s home managers interrelated

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Why Is IB Different?Why Is IB Different?

The international environment is characterized by interaction between domestic and foreign country

environmental forces among foreign country environmental forces

Hence, decision making is more complex due to environment force differences and interactions culture differences that are difficult to learn the tendency of manager’s to rely on their own

culture’s reference points

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