For use with International Business by Mike Peng and Klaus Meyer

1408019566 © 2011 Cengage Learning

CHAPTER 1GLOBALISING BUSINESS

For use with International Business by Mike Peng and Klaus Meyer

1408019566 © 2011 Cengage Learning

For use with International Business by Mike Peng and Klaus Meyer

1408019566 © 2011 Cengage Learning

What is Global Business?International business

business (firm) that engages in international (cross-border) economic activities or the action of doing business abroad

global businessbusiness around the globe including both international (cross-border) activities and domestic business activities

multinational enterprise (MNE)firm that engages in foreign direct investments

foreign direct investment (FDI) investments in, controlling, and managing value-added activities in other countries

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Opening Case:Thomas Friedman’s notebook

How does Dell manage to deliver its computers fast and at low cost?

International business has become an integral part of many Businesses. Managing international business activities – for example coordinating multiple suppliers of 30 major components – is challenging.

This book is about the challenges faced by managers of firms operating around the globe. It explores, what determines the success and failure of firms engaged in international business.

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Important Economic Terms• gross national product (GNP) –

– measured as the sum of value added by resident firms, households, and government operating in an economy.

• gross domestic product (GDP)– total market value of all final goods and services produced within a

country in a given period of time usually a calendar year.

• gross national income (GNI) – GDP plus income from nonresident sources abroad – the term used by

the World Bank and other international organizations to supersede the GNP term.

• purchasing power parity (ppp) – – adjustment made to the GDP to reflect differences in the cost of living.

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European and Global Business• International business (IB) is about:

– businesses (firms) engaging in international (cross-border) economic activities– the activity of doing business abroad.

• This book goes beyond traditional IB textbooks in two important ways:

1. We discuss issues worldwide as they are relevant to European businesses and managers focusing on:.

• business in nearby countries, • The institutions of the EU,• small and medium-sized enterprises (SMEs),• research by European scholars on these issues

2. We go beyond developed economies by devoting extensive space to emerging markets.

For use with International Business by Mike Peng and Klaus Meyer

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For use with International Business by Mike Peng and Klaus Meyer

1408019566 © 2011 Cengage Learning

Triad – North America, Western Europe and JapanBRIC – Acronym for the emerging economies of Brazil, Russia, India, and ChinaGroup of 20 – Leaders of 19 major countries + EU who meet on biannual basis to discuss global economic issues

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A Unified Framework

Our ‘big question’ is: “What determines the success and failure of firms around the globe?”

To answer this question, we focus on two core perspectives:1. an institution-based view2. a resource based view.

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Institutional Perspective• Doing business around the globe requires intimate knowledge about the

formal and informal rules of doing business in various countries.– Some formal rules, such as the requirements to treat domestic and

foreign firms as equals, enhance the potential odds for foreign firms’ success.

– informal rules such as culture, norms and values play an equally important part in shaping the success and failure of firms around the globe.

• an institution-based view suggests that the formal and informal rules of the game, known as institutions, shed light on what is behind firms’ performance around the globe.

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Resource-based View• An Institution based view which views performance as determined only by

external environments has its limitations.

• The resource-based view focuses on a firm’s internal resources and capabilities.

• the “liability of outsidership” infers the more a firm’s origins differ from the host environment, the less the firm has experience in the host country and the further away its nearest prior affiliate.

• Firms as Coca Cola and Microsoft possess firm-specific resources that enabled them to attain leadership positions around the globe.– Hence the primary weapon of foreign firms is

overwhelming resources and capabilities that, after offsetting the liability of outsidership, still result in some significant competitive advantage.

For use with International Business by Mike Peng and Klaus Meyer

1408019566 © 2011 Cengage Learning

For use with International Business by Mike Peng and Klaus Meyer

1408019566 © 2011 Cengage Learning

What is Globalization?

Guillén (2001) defines it as ‘a process leading to greater interdependence and mutual awareness (reflexivity) among economic, political and social units in the world, and among actors in general’

Many people talk about globalization, yet they do not necessarily mean the same thing.

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Trends in Globalisation

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The Global Economic Pyramid

The Base of the Pyramid: The majority ofhumanity, about four billion people, make less than €1500 a year.

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Closing Case:GE innovates from the base of the pyramid

Does it signal news ways of managing innovation, knowledge transfer and corporate growth in global companies?

The Mac 400 portable ultrasound by GE Healthcare is helping doctors in rural areas, www.gereports.com

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Chapter Summary1. Explain the concepts of international business (IB) and global business

• IB is defined as(1) a business (firm) that engages in international (cross border) economic activities, and (2) the action of doing business abroad.

• This book places special emphasis on the challenges faced by European businesses, and the challenges of emerging economies.

2. Articulate what you hope to learn by reading this book and taking this course.• To better compete in the corporate world that will require global expertise.• To enhance your understanding of what is going on in the global economy.

3. Identify one fundamental question and two core perspectives that provide a framework for studying this field

• Our most fundamental question is: What determines the success and failure of firms around the globe?

• The two core perspectives are (1) the institution-based view • and (2) the resource-based view.

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Chapter summary continued…4. Participate in the debate on globalization with a reasonably balanced and realistic

view.• Globalisation has created unprecedented contacts between nations and

cultures, with both positive and negative consequences for individuals.• Globalisation has been evolving in waves, with a major peak in the late

19th/early 20th century.• The recent wave of globalisation has accelerated with the rising powers of

emerging economies, yet it remains volatile.

5. Have a basic understanding of the global economy and broad trends.MNEs, especially large ones from developed economies, are sizable economic entities.

6. Draw implications for action and recognize your own biases.• Globalisation requires business leaders to stay up-to-date with

economic, social and political developments around the world.• Current and would-be business leaders need to be aware of their

own hidden pro-globalisation biases.

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Critical Discussion Questions

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