Chapter 1 IB

8/12/2019 Chapter 1 IB

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PART ONEBACKGROUND FOR INTERNATIONAL BUSINESS

International Business

Chapter One

Globalization andInternational Business


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Chapter Objectives

To define globalization and international business andexplain how they affect each other

To explain why companies engage in internationalbusiness and why the growth of international businesshas accelerated

To comprehend the criticisms of globalization To introduce the different modes a company can use to

accomplish its global objectives To illustrate the role the social science disciplines play in

understanding the environment of international business


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Globalization Defined

Globalization: the ongoing social, economic,and political process that deepens andbroadens the relationships and inter-

dependencies amongst nationstheirpeople, their firms, their organizations,and their governments

Globalization of production Globalization of markets

International business facilitates the

globalization process.


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International Business Defined

International business: all commercialtransactions between parties in two ormore countries

Private firms are profit-oriented.

Government organizations may or maynot be profit-oriented.

The international business environment

is more complex and diverse than the

domestic business environment.


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Fig. 1.1: International Business:Operations and Influences


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The Forces Behind Globalization

Most sales still local

Globalization Index: economic, technological,personal contact and political

Increased expansion and technologicalimprovements in transportation andcommunications networks Cost reduction and speed

Liberalization of cross-border trade and resourcemovements Consumer and producer pressure

Reciprocal reduction in barriers

GATT and EU etc.


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Development of services that support international

business activities

Growing consumer demand for foreign products Greater information and access for consumers

Competitors forced to respond with higher quality andcost-effectiveness

Increased global competition Market expansion

Operational effectiveness and resources Born global companies


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Changing political and economic situations China & Russia

Improved infrastructure and trade-related services

Expanded cross-national treaties and agreements Reciprocal advantages

Joint problem solving

Territories outside borders UN, IMF, World Bank, WTO


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The Criticisms of Globalization Threats to national sovereignty

Think globally, act locally Political independence

Environmental hazards

Dependence on large companies

Homogenization of culture

Negative costs of economic growth

Increasing income inequality Offshoring


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Reasons That Firms Engage inInternational Business

To expand salesVolkswagen [Germany]

Ericsson [Sweden] Michelin [France] Nestl [Switzerland]

IBM [USA] Seagram [Canada] Sony [Japan]

[continued]


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To acquire resources Products, components, services Foreign capital Technologies Information

To minimize risk Take advantage of business cycle

differences amongst countries Diversify suppliers across countries Counter competitors advantages


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Modes of Entry into InternationalBusiness

Merchandise exports and imports Service exports and imports

Use of assets [licensingand franchisingaggreements agreements]

[Foreign investment] Foreign direct investment & JVs

[Portfolio investment]


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Fig. 1.3: Means for ConductingInternational Operations


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International Business Terminology

Strategic alliance: a collaborativearrangement of critical importance to

one or more of the alliance partners Multinational enterprise [MNE]: a firmthat takes a global approach to its foreignmarkets and production

Multinational corporation [MNC] andtransnational company [TNC]

may be used in this samecontext.


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International Business Managers

Must understand the relevance of: Domestic and international law Political scienceAnthropology Sociology Psychology Economics

Geography

Must be knowledgeable about the competitivedimensions of the international businessenvironment


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Fig. 1.4: Physical and Societal

Influences on International Business


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Fig. 1.5: Competitive FactorsAffecting International Business


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Implications/Conclusions

Managing an international business differsfrom managing a domestic business

because:-countries and cultures are different

-international business operations

are more complex than domesticoperations

[continued]


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A companys own competitive strategy

influences how and where it can bestoperate.

From one country to another, a companys

relative competitiveness will vary becauseof the differences in the local and foreigncompetitors that are present.

Chapter 1 IB

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