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PART ONE

BACKGROUND 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 and

broadens the relationships and inter-dependencies amongst nationstheirpeople, their firms, their organizations,

and their governmentsInternational business facilitates theglobalization process.

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International Business Defined

International business: all commercialtransactions between parties in two or

more countriesPrivate 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

Increased expansion and technologicalimprovements in transportation andcommunications networks

Liberalization of cross-border trade and resourcemovements Development of services that support international

business activities

Growing consumer demand for foreign products Increased global competition Changing political and economic situations Expanded cross-national treaties and agreements

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The Criticisms of Globalization

Threats to national sovereignty

Negative costs of economic growth Increasing income inequality

Antiglobalization forces may use both

peaceful and violent means to stop or slowthe globalization process. Offshoring (thetransferring of production to foreign sites)is particularly controversial.

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Reasons That Firms Engage in

International Business

To expand sales

Volkswagen [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 cycledifferences amongst countries Diversify suppliers across countries Counter competitors advantages

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Modes of Entry into International

Business Merchandise exports and imports Service exports and imports

Use of assets [licensing agreements]

[Foreign investment] Foreign direct investment [Portfolio investment]

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Fig. 1.3: Means for Conducting

International 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 firm

that 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 science Anthropology Sociology Psychology Economics

Geography Must be knowledgeable about the competitive

dimensions of the international businessenvironment

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Fig. 1.4: Physical and SocietalInfluences on International Business

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Fig. 1.5: Competitive Factors

Affecting 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 strategyinfluences how and where it can bestoperate.

From one country to another, a companysrelative competitiveness will vary becauseof the differences in the local and foreigncompetitors that are present.