chapter 1 intenational business economy

7/26/2019 Chapter 1 Intenational Business Economy

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Alan M Rugman and Simon Collinson, International Business,5thEdition, Pearson Education Limited 200

Regional and global strategy

Chapter 1


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Regional and global strategy

Objectives

Introduction

World business: a brief overview

Todays international environment Globalization and strategic management

The study of international business

ramewor! for this boo!


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Objectives

Defnethe terms international business andMNE.

Discuss thetwo "rimary ways in whichinternational business occurs: trade and #I$

Examinethe im"act of the triad oninternational trade and investment$

Describe the current state of world economiesand the role of government and traderegulations in the conduct of international

business$ Discuss the im"ortance of technology and the

role of %&'s in the international businessarena$

Examine how &('s use triad)regionalstrategies to com"ete e*ectively in the


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Introduction

International business:the study oftransactions ta!ing "lace across nationalborders for the "ur"ose of satisfying theneeds of individuals and organizations$

Multinational enterprises (MNEs):acom"any head+uartered in one country buthaving o"erations in other countries$


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World business: a brief overview


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&ost &(' activity can be classi,ed into twomajor categories:-./ Trade -e0"orts and im"orts/: &ore than

123 of all trade is made by the worlds largest

122 &('s$-4/ oreign direct investment -#I/: 523 of all#I is made by the worlds largest 122 &('s$

MNE activity


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Trade and investment

Tradeconsists of e0"orts and im"orts: Exports:goods and services "roduced in

one country and then sent to anothercountry$

Imports:goods and services "roduced inone country and bought in another country$

Foreign Investment:consists ofcom"anies investing funds to start orim"rove o"erations in another country$


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Table .$. World Trade6 4221(ote: #ata for 'uro"ean 7nion include intra8'7 trade$ '0"orts are calculated by including freight and insurance while im"orts do notinclude freight and insurance$ 9s a result data might not be consistent with other data in this boo!

Source: 9da"ted from International &onetary und6 Direction o Trade Statistics Yearbook, 2006 -Washington6 #: I&6 422;/6 ""$ 4


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Table .$4 Intra8regional trade in the triad6 .=52


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Table .$@a oreign direct investment in the 7nited %tates6 4221

(ote: #ata are on a historical8cost basis$ (umbers might not add u" due to rounding

Sources: 9uthors calculations and 7% #e"artment of ommerce6 Sur$e% o &urrent 'usiness6 >une 422A6 "$ #;A


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&a'le 1.!' (oreign direct in)estment '* the +nited States, 2005ote- ata are on a historical/cost 'asis. um'ers might not add u due to rounding

Sources- Authors calculations and +S eartment o Commerce, Survey of Current Business, 3une 200$, . #5

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The triad

&ost global transactions ta!e "lace withinand between three !ey regions: the 7nited%tates6 the 'uro"ean 7nion and >a"anBthese are referred to as: the Ctriad$

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The triad: the 7nited %tates -7%/

The 7% has the largest economy in theworld with a G#D of over E.2 trillion$

The 7% is "art of the (orth 9merican reeTrade 9greement -(9T9/ with anada and

&e0ico$

The 7% economy is signi,cantly larger thanthat of its two trading "artners and is

therefore a triad member on its own$

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The triad: the 'uro"ean 7nion -'7/

The '7 -or '74A/ is com"osed of thecountries in the '7.1 -9ustria6 Felgium6#enmar!6 inland6 Germany6 Greece6rance6 Ireland6 Italy6 u0embourg6 the

(etherlands6 Dortugal6 %"ain6 %weden6 andthe 7?/ and twelve new6 mainly entral'uro"ean6 countries that joined in 422H and422A$

The collective G#D of the '7 is greater thanthat of the 7% and >a"an$

The '74A is the worlds largest im"orter and

e0"orter$

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The triad: >a"an

>a"an is the largest economy in 9sia$ >a"an is the Hth largest im"orter and Hth

largest e0"orter in the world$

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Todays international environment

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The international business environment haschanged ra"idly in recent years as a resultof:

an overall slowdown of triad economiesB

increased trade liberalization through tradeagreementsB

im"rovements in technologyB

the emergence of %&'s$

International business environment

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%lowdown of triad economies

In the late .==2s and early 4222s6 the7nited %tates6 the '7 and >a"an alle0"erienced a reduction in economicactivity6 which in turn decreased

international business activity$

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International trade regulation

9n im"ortant international business trendhas been the emergence of regional andglobal trade and investment liberalizationand international regulation$

The World Trade Organization -WTO/$ General 9greement on Tari*s and Trade

-G9TT/$

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The world trade organization

'stablished on >anuary .6 .==1$ 9n international organization that deals with

rules of trade among member countries$

'nforces the "rovisions of the General9greement on Tari*s and Trade -G9TT/$

9cts as a dis"ute8settlement mechanism$

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The general agreementon tari*s and trade -G9TT/

'stablished in .=HA to liberalize trade andto negotiate trade concessions amongmember countries$

Today6 the WTO is enforcing the "rovisionsof the G9TT$

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Im"roved technology

&ore "owerful and a*ordable technologyhas "romoted fast easy worldwidecommunication and im"roved "roductionca"abilities enabling organizations to

o"erate more e*ectively in theinternational mar!et"lace$

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%mall and medium8sizedenter"rises -%&'s/

The de,nition of %&'s varies according tothe nation$ In general6 it refers to com"anieswith between .. and 122 em"loyees withsales of less than E1 million$

&('s often "urchase from %&'s$ This isbecause their s"ecialized wor!forces6innovation and technology allows %&'s to

"rovide goods and services more ecientlythan if the &(' were to source theseinternally$

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Globalization and strategicmanagement

Regional triad strategies

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&isconce"tions about &('s

ommon misconce(tionsabout &('s: &('s have far8Jung o"erations or earn most

of their revenues overseas$

&('s are globally monolithic and e0cessively

"owerful in "olitical terms$ &('s "roduce homogeneous "roducts for

the world mar!et and through their ecient

techni+ues are able to dominate local

mar!ets everywhere$

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)n act6 &('s earn most of their revenues in their

home regions$

The largest 122 &('s are not s"read around

the world but clustered around the triad$ These &('s engage not in global

com"etition but in triad)regionalcom"etitionB this rivalry e*ectively

eliminates enduring "olitical advantage$ &('s ada"t their "roducts for the local

mar!et$

&isconce"tions about &('s -ontinued/

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Globalization and strategic

management

Maintaining economic competitiveness

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Dorters determinants ofnational com"etitive advantage

Why are some ,rms able to innovateconsistently while others are notK

actor conditions

#emand conditions

Related and su""orting industries

irm strategy6 structure6 and rivalry$

'ach of these determinants de"ends on the

others as a system$

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From general to strategic emphasis

The study o international business

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&a'le 1." Comarati)e dierences in the stud* o international 'usiness, 15042010

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Frame!or" or this boo"

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(igure 1.1 Model or this 'oo

chapter 1 intenational business economy

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