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Chapter 1

Globalization andInternational

Business

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Objectives To define globalization and international

business and show how they affect each other To understand why companies engage in

international business and why international

business growth has accelerated To discuss globalizations future and the major

criticisms of globalization To become familiar with different ways in which

a company can accomplish its global objecties To apply social science disciplines to

understanding the differences betweeninternational and domestic business

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Introduction Globalizationis the ongoing process that

deepens and broadens the relationshipsand interdependence among countries

International business is a mechanism tobring about globalization

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Introduction International businessconsists of all

commercial transactions#including sales$inestments$ and transportation#that ta%e

place between two or more countries increasingly foreign countries are a source of

both production and sales for domesticcompanies

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Introduction It is important to study international

business because 'ost companies are either international or

compete with international companies 'odes of operations may differ from those used

domestically The best way of conducting business may differ

by country

(n understanding helps you ma%e better careerdecisions

(n understanding helps you decide whatgoernment policies to support

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Forces Driving Globalization

1 Increase in and application of technology

2 .iberalization of cross-border trade andresource moements

! /eelopment of serices that supportinternational business

" Growing consumer pressures

& Increased global competition) 0hanging political situations

, panded cross-national cooperation

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Measuring Globalization Globalization can be difficult to measure

The (T 4earney5*oreign 6olicyGlobalization Inde ran%s countries by

conomic dimensions Technological dimensions

6ersonal contact

6olitical dimensions recently ran%ed 7ingapore and 8ong 4ong

as most globalized

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Costs of Globalization Threats to national soereignty

lose freedom to :act locally;

conomic growth and enironmental

stress growth consumes nonrenewable natural

resources and increases enironmentaldamage

Growing income ine

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Why Companies ngage in I! To epand sales

pursuing international sales increases thepotential mar%et and potential profits

To ac

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Why Companies ngage in I! These three reasons

sales epansion

resource ac

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Modes of Operations in I! Merchandise exports

goods that are sent out of a country

Merchandise imports goods that are brought into a country

7ometimes referred to as isible eportsand imports

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Modes of Operations in I! Service exports

proider and receier of payment Service imports

recipient and payer of payment amples Tourism and transportation 7erice performance

turnkey operations and managementcontracts (sset use

licensing andfranchising

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Modes of Operations in I! Inestments

Foreign Direct Investment (FDI

inestor ta%es a controlling interest in a

foreign company!oint venture

"ortfolio Investmenta non-controlling financial interest in

another entity

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"ypes of InternationalOrganizations

#ollaborative arrangements >oint entures .icensing arrangements

'anagement contracts 'inority ownership .ong-term contractual arrangements

Strategic alliance

companies that wor% together$ but theagreement is critical to at least one partner

an agreement that does not inole jointownership

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"ypes of InternationalOrganizations

Multinational enterprises (M$%s ta%e a global approach to mar%ets and

production or hae operations in more than

one country 7ometimes they are referred to as

multinational corporations (M$#s

multinational companies (M$#s

transnational companies (&$#s

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Why I! is Different The eternal enironment affects a

companys international operations

'anagers must understand social science

disciplines and how they affect functionalbusiness fields

0onsider physical factors

social factors

competitie factors

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#hysical and $ocial Factors Geographic influences

natural conditions influence production locations

6olitical policies determines where and how business occurs

.egal policies influence how a company operates

Behaioral factors may re

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"he Competitive nvironment

0ompetitie strategy for products 0ost strategy

/ifferentiation strategy

0ompany resources and eperience mar%et leaders hae more resources for

international operations

0ompetitors faced in each mar%et local or international

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"he Competitive nvironment

7o$ a companys competitie strategyinfluences how and where it can bestoperate

Its competitie situation may differ fromcountry to country in terms of its relatiestrength and which competitors it faces

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%oo&ing to the Future Three major perspecties on the future of

international business and globalization *urther globalization is ineitable

International business will grow primarily alongregional rather than global lines

*orces wor%ing against further globalizationand international business will slow down both

trends

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