ch01 gone globalization

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International BusinessChapter One

Globalization & International Business

2004 Prentice Hall, Inc


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CHAPTER OBJECTIVES

To define globalization and international business and hoaffect each othersTo understand why companies engage in international business anwhy international business growth has acceleratedTo comprehend criticisms of globalizationTo become familiar with modes a companies can use to accomplits global objectivesTo grasp the role social science discipline play in understandinwhy international business is different from domestic business


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WHY ARE GLOBALIZATION ANDINTERNATIONAL BUSINESS IMPORTANT ?

Globalization is process of growing interdependenceamong countriesInternational Business is all commercialtransactions between two or more countries

Private business: the goal is to make profitGovernment business: may or may not motivated byprofit


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Studying international business is important because:Most companies either are international or compete withinternational companiesMode of operation may differ from those used domesticallyThe best way of conducting business may differ by country

An understanding helps you make better career decisions An understanding helps you decide what governmentalpolicies to support


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The conduct of international business depends oncompanies objectives and the means with which they carrythem out. The operation affect and are affected by:

PhysicalSocietal

Competitive environmentSee Figure 1.1


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Operations and Influences


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The Force Behind GlobalizationRapid increase in and expansion of technology

Transportation is quicker while costs are lower Communication enables control from afar

Liberal of cross-border on trade and resources movement. Although global competition bring more efficiently, it also require us to work harder (See Figure 1.2 )

Development of service (bank, postal system, and packaging service)that support international tradeGrowing consumer pressures (they want more, new, better, anddifferentiated products)Increased global competitionPolitical relationships have improved among some major economipowers

Countries cooperate more on transnational issues


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Cross-National Cooperation

Countries willingly to cooperate for the following reasons:Gain reciprocal advantages by bilateral/multilateral agreement:

protect property, reduction in import restriction, etc. Attack problem jointly

Too big problem: Japan & U.S. ballistic missile defensetechnologySpill over problem: G8 coordinate economic policy (intererate)Environmental policy

Deal with extraterritorial concernNon coastal area of the ocean, outer space, and Antartica


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CRITICISMOF GLOBALIZATIONThreats to national sovereignty

Sovereignty is freedom from external control As international difference diminish, countries can no longer maintain thetraditional ways of life that help unify generation and people within their community and therefore they lose their ability to act according their local bestinterest

Economic growth hurt the environment

Unless the positive consequences of globalization keep up with negative costsfrom growth, the sustainability of economic improvement will be problematic ithe future

Growing income inequalityWhenever people lose, absolutely or relatively, because of globalization, theyapt to be critics of globalization


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Why Companies Engage in International Business

Expand salesVolkswagen (Germany)

Ericsson (Sweden)Nestle (Switzerland)

Acquire resources: foreign sourcingBetter components, services, productsForeign capitalTechnologies

InformationMinimize risk

Take advantage of the business cycle for products/servicesDiversify among international marketsDefense the domestic market


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MODES OF INTERNATIONAL BUSINESS

Importing and exportingo Merchandiseso Services :

- Tourism and transportation(airlines, shipping companies, travel agencies, and hotels)

- Performance of services(banking, insurance, rental, engineering/turnkey operation,management services/ management contract)

- Use of assets : licensing and franchisingInvestmento Direct and portfolio investment


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International Operations


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Terms of International Companies

Multinational Enterprise (MNE): global approach tomarkets and production or one with operations in more thanone country:

Multinational Corporation (MNC)Transnational Company (TNC) used by UN

O S SS S


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WHY INTERNATIONAL BUSINESS DIFFERSFROM DOMESTIC BUSINESS

Manager in international business must understand socialscience disciplines and how they affect all functional businessfieldsPolitical Policies:

Often determines where and how business can take placeLegal Policies:

Each country has its own laws regulating business. Agreements among countries setinternational law.

Behavioral / Cultural Factors:The interpersonal norms of a country may necessitate a companys alteratiooperations.Exp: The best outcome of a baseball game Japan: tie, U.S.: win

Economic Forces:Economic explain country differences in costs, currency value, and market size

Geographical Influences:

Natural conditions affect what can be produced and where


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Influences on International Business


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Competitive Environment

A companys situation may differ amongcountries by:

Advantage in price , marketing , innovationNumber and comparative capabilities (market leader vschallenger)

Countries competitive differences

Exp: U.S. (big) vs Swedish (small) GE vs ElectroluxDependent on products , strategies , and countries inwhich the business operates


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Competitive Environment


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CHAPTER REVIEW

Define international business and how it differs from domesticbusinessExplain why companies engage in international businessIntroduce different international business models companies useIllustrate the role social science plays in understanding internationalbusinessProvide an overview of patterns for international expansionDescribe the forces that affect international business


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INFLUENCES ON INTERNATIONAL BUSINESS

External InfluencesPhysical/Societal factors

Political policies and legalpracticesCultural factors

Economic factorsGeographical influences

Competitive environment

OperationsObjectivesStrategyMeans


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Globally integrated company : integrated operationslocated in different countriesMultidomestic company : multinational companies thatallow local responsiveness


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National Operations for InternationalCompanies

Multidomestic strategy: countries operate autonomouslyGlobal strategy: integrate various country operations into ainternational headquarters controlTransnational strategy: integrate various countryoperations while dispersing the location of control


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Management in International Business

In additional to domestic business managementskills , international business managementrequires

Social science understandingPolitical science appreciationLegal awareness

And an innate ability in:

AnthropologySociologyPsychologyEconomicsGeography


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EVOLUTION OF STRATEGY IN THEINTERNATIONALIZATION PROCESS

Most of the patterns in Figure 1.7 are product of riskminimization behavior. A company typically does not abandon its early modes ofoperating abroad when it adopts other mean of operatinginternationally.Leapfrogging of expansion : many new companies are beginninwith a global basisExp: Inns and bed-and-breakfast enterprises(Put Web pages on the Internet and have attracted some of theirclients from abroad)


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Patterns of Internationalization

Figure 1.7


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COUNTERVAILING FORCES

1.Standardized vs Responsive Practices

Global standardization advantagesReduced costs in development and manufacturingEconomies of scale since fixed costs are spread over more units of production

Responding to national preferences Adjusting operating, marketing, and design to meet specificnational preferences


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COUNTERVAILING FORCES (Cont)

2. Country vs Company CompetitivenessCountry moderate companies fulfillment of global efficiencyobjectives because of those countries rivalry with other countrInternational business manager must balances dual roles :o they are managers with global efficiency objectives;

o they are a member of a given society that hasnational rather than global objectives.


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Maximizing Global Profits

Profits must be balancedby:

International rivalryCross-national treatiesand agreementsEthics

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