ckr chs 1 & 2 overview cavusgil
TRANSCRIPT
Globalization & International Business:Fundamental Concepts
Chs. 1 & 2 from Cavusgil, Knight, Riesenberger, 3rd Ed, Pearson
Education
Agenda
1. What are the key concepts in international trade and investment?
2. How does international business differ from domestic business? Key risks in IB?
3. Who participates in international business?
4. Why do firms internationalize? What is ‘globalization penalty’?
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Facets of IB
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Key Concepts in International Business
• International business: Performance of trade and investment activities by firms across national borders.
• Globalization of markets: Ongoing economic integration and growing interdependency of countries worldwide.
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Phases of Globalization
• 1st Phase: 1830, peaking around 1880; Aided by railroads, ocean transport; resulting in the rise of manufacturing and trading companies
• 2nd Phase: 1900, peaking late 1920s; Fueled by electricity and steel; early MNEs
• 3rd Phase: 1948, peaking around 1970; GATT, end of WW II, Marshall Plan; gradual reduction of barriers to trade
• 4th Phase: 1980, peaking around 1997; Fueled by Internet and other technologies: rapid liberalization in Emerging Markets
• Next phase?
Globalization is Not a New Phenomenon!
Key Concepts (cont’d)
• International trade: Exchange of products and services across national borders; typically through exporting and importing.
• Exporting: Sale of products or services to customers located abroad from a base in the home country or a third country. Boeing and Airbus export billions in commercial aircraft every year.
• Importing or Global Sourcing: Procurement of products or services from suppliers located abroad for consumption in the home country or a third country. Toyota imports many parts from China when it manufactures cars in Japan.Copyright © 2014 Pearson Education Inc.
Key Concepts (cont’d)
Foreign Direct Investment (FDI): Transfer of assets to another country or the acquisition of assets in that country. Amounts to equity investment.
International portfolio investment: Passive owner-ship of foreign securities such as stocks and bonds in order to generate financial returns.
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Brand AcquirerCountry of
OriginDate of
AcquisitionNew York Stock
Exchange Euronext ICE
Euronext acquisition
Deutsche Börse (failed)
Netherlands
Germany
2007
2011
Godiva Yildiz Holding
(Ulker)Turkey 2008
Anheuser-Busch (Budweiser)
In-Bev Brazil 2008
Burger King Holdings
3G Capital Brazil 2010
Sara LeeJBS SA Brazil pending
Acquisition of Some American Companies
Do You Recognize These Brands? - 1
Brand AcquirerCountry of
OriginDate of
AcquisitionPurina
Nestle Switzerland 2001
7-ElevenIto-Yokado Japan 2005
GerberNestle Switzerland 1996
Car & Driver French Hachette Filipacchi Médias,
S.A.France
Alka_Seltzer Bayer Schering Pharma
Germany 1979
ThinkPadLenovo China 2005
Acquisition of Some American Companies
Do You Recognize These Brands? - 2
Globalization of Markets
• Unprecedented growth of international trade. In 1960, global trade was $100 billion per year. Today, world exports amount to some $14 trillion annually!
• Trade between nations, accompanied by substantial flows of capital, technology, and knowledge.
• Development of sophisticated global financial systems and mechanisms that facilitate the cross-border flow of products, money, technology, and knowledge.
• Greater collaboration among nations through multilateral regulatory agencies such as the World Trade Organization (WTO; www.wto.org) and the International Monetary Fund (IMF; www.imf.org).
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World Trade Is Growing Faster than GDP
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FDI Inflows into World Regions (in Billions of U.S. Dollars per Year)
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International vs. Domestic Business
International Business: Cross-border Cross national Cross-cultural Multiple currencies …
Pose new risks, in addition to commercial risk: Country/Political risk Cross-cultural risk (incl. ethical risks) Currency risk
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The Four Risks of International Business
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Google received over 1,000 requests from governments to remove objectionable material• Complied with ~ 54%
“Google’s Censorship Juggle,” WSJ, June 18, 2012
Examples of Country Risk
Source: Daalen, R. V., Mock, V. and Morris, B. (2013) “UPS quits takeover in Europe” The Wall Street Journal: Deals & Deal Market, January 14.
• Instability– Ex: Mexico– Firms limiting investments in
Mexico due to drug-related violence
– Electrolux chose to build appliance factory ($190 million) in Memphis, TN. rather than Mexico
– Whirlpool chose to build factory in Cleveland, TN. Rather than Mexico
“Companies Shun Violent Mexico,” WSJ, Dec. 17, 2010
Commercial Risk
• Less than optimal formulation and/or implementation of strategies, tactics or procedures, e.g. partnering selections, market entry timing, pricing, product features, and promotional themes • Ex: Danone (France) & Hangzhou Wahaha Group Co. China
• Failures in int’l markets are far more costly than domestic business blunders
In 2007, Danone’s JV with a local Chinese partner (Wahaha) failed after the Chinese firm set up a mirror business in which it sold, on the side, the products that the JV was marketing
“Danone Pulls Out of Disputed China Venture,” WSJ, Oct. 1, 2009
If IB was Risk-Free …
Wal-Mart’s SEC problems -- bribes to obtain permits in Mexico
Foxconn’s challenges with labor, riots, and government in China
UPS offers $ 7 b. to acquire TNT in Europe but runs into antitrust barriers
Home Depot and Best Buy abandon their plans in China
Says Ms.Tomé: “…the Chinese culture is very different from Western culture. Their way of doing business and their way of interacting with others is different … the Chinese are used to “haggling” when they go shopping. And that’s not part of Home Depot’s business model.” Copyright © 2014 Pearson Education Inc.
Seek opportunities for growth (IBM expects to earn 30% of its revenues from EMs by 2015; at Unilever EMs already make up 56% of business. Aditya Birla Group operates in 40 countries, earns more than ½ of its revenues from outside India)
Earn higher margins and profitsExploit brand equity on a global scale Better serve customers abroadMonitor & learn from competition abroadGain from new business partners Be closer to supply sources, gain flexibility in
the sourcing of products
Why Go International?
Efficiency (configure optimal supply chains) Flexibility (better cope with diversity and
volatility of countries – diversify risks) Learning (benefit from ideas, know-how,
partners, etc.; more MNEs have initiated R&D centers abroad; vast reserves of skills & knowledge, experience embedded in a global workforce is a real asset!) (See CKR Ch 12)
Three Strategic Benefits Accruing to Firms from Global Operations
Global companies scored lower than locally focused ones on: ‘executing on the ground;’ and building relationships with governments and business partners (McKinsey 2012)
Where Firms struggle: No single organizational model is best for all companies Difficult to adapt products & services to local needs, given fairly
standardized business models of MNEs Four tensions: Managing strategy, people, costs, and risks on a
global scale Transferring lessons learned in one market to another Deploying & developing talent in EMs
Global footprint magnifies complexity! Diversity of markets, customers, and channels…
Is There Such a Thing as ‘Globalization Penalty’?
Geographically diverse business portfolio works as a hedge against the volatility of local growth, country risk, and currency risk. But…
Pursuing so many markets (including high-risk EMs) takes global companies into unchartered waters …
Calling for new risk-management infrastructure and skills …
Which, if they generate excessively risk-aversive processes, will slow down decision making and cause the firm to miss out on fast-developing opportunities!
Risk Mitigation Rises to the Top of MNE Agenda
F-35 Lightning IILM Aero’s F-35 Joint Strike ForceLM Aero’s F-35 Joint Strike Force
Who Participates in International Business?
• Multinational enterprise (MNE)
• Small and Medium-Sized Enterprise (SME)
• Born global firms
• State agencies & state-owned companies
• Not-for-Profit organizations; NGOs
• Logistics & shipping firms
• Service providers (banks, ad agencies, research firms, law firms, payment facilitators)
• Investment firms; sovereign wealth funds
Geographic Locations of the500 Largest Multinational Enterprises
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EM Firms in Fortune Global 500(2012)
Brazil: 8
Russia: 7
India: 8
China: 73Turkey: 1
S. Korea: 13
Taiwan: 6
Malaysia: 1
Mexico: 3Thailand: 1
Poland: 1
Colombia: 1 Venezuela: 1
Hungary: 1
2011 2012 Change
China 61 73 +12
BRICs 83 96 +13
All EMs 114 125 +11
Examples of Born Global Companies
• Groupon– 2010: Groupon
expanded from one country to 35 countries
– Groupon has more than 40 million users in 300 global markets
“What’s Next for Groupon?,” Advertising Age, Dec. 13, 2010
Examples of Born Global Companies - 2
• Groupon– 40% JV with Gao
Peng in China– Recently closed more
than 10 offices in China, laid off hundreds of employees
“Groupon Stumbles in China, Closes Some Offices,” WSJ, August 24, 2011