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Fourth Edition
International
Business
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CHAPTER 1
Globalization
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The Global Retail MarketWhat Drives Globalization
Decline in cross-border
investment barriers.
Top 25 Retailers
Market Share
%
2000 2009
16
40
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The Global Retail MarketWhat Drives Globalization
Decline in cross-border
investment barriers.Saturation and slow growth inlocal markets.
Top 25 Retailers
Market Share
%
2000 2009
16
40
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The Global Retail MarketWhat Drives Globalization
Decline in cross-border
investment barriers.Saturation and slow growth inlocal markets.
Retailers believed they wouldbenefit from economies of scalefrom global buying power.
Top 25 Retailers
Market Share
%
2000 2009
16
40
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The Global Retail MarketWhat characterizes these
retailers is that they all heldstrong domestic market positions.
Top 25 Retailers
Market Share
%
2000 2009
16
40
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The Global Retail MarketGlobalization Strategies
Carrefour, WalMart, Ahold, and
Tesco have led the Globalization ofretail stores with differentstrategies:
Top 25 Retailers
Market Share
%
2000 2009
16
40
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The Global Retail MarketGlobalization Strategies
Carrefour, WalMart, Ahold, and
Tesco have led the globalization ofretail stores with differentstrategies:
Ahold: “going global with a localface”
Top 25 Retailers
Market Share
%
2000 2009
16
40
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The Global Retail MarketGlobalization Strategies
Carrefour, WalMart, Ahold, and
Tesco have led the globalization ofretail stores with differentstrategies:
Ahold: “going global with a localface”
WalMart: “Global retail brand”
Top 25 Retailers
Market Share
%
2000 2009
16
40
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But, It Isn‟t Easy
National differences intastes and preferences
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But, It Isn‟t Easy
National differences intastes and preferencesDistribution channels
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But, It Isn‟t Easy
National differences intastes and preferencesDistribution channelsCulturally embedded value systems
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But, It Isn‟t Easy
National differences intastes and preferencesDistribution channelsCulturally embedded value systemsDifficulty in establishing common retail model suchas:
Ahold: “going global with a local face”
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But, It Isn‟t Easy
National differences intastes and preferencesDistribution channelsCulturally embedded value systemsDifficulty in establishing common retail model suchas:
Ahold: “going global with a local face” WalMart: “Global retail brand”
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But, It Isn‟t Easy
National differences intastes and preferencesDistribution channelsCulturally embedded value systemsDifficulty in establishing common retail model such as:
Ahold: “going global with a local face”
WalMart: “Global retail brand” As well as factors like Labor costs, Desirablelocations, Sophistication of local supply base.
Cause problems for globalization. Therefore, weshould not assume globalization is a done deal.
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GlobalizationTrade and investmentbarriers are disappearing .
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GlobalizationTrade and investment barriers aredisappearing .
Perceived distances areshrinking due to advances intransportation andtelecommunications.
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GlobalizationTrade and investment barriers aredisappearing .Perceived distances are shrinking due toadvances in transportation andtelecommunications.
Material culture is beginningto look similar .
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GlobalizationTrade and investment barriers aredisappearing .Perceived distances are shrinking due toadvances in transportation andtelecommunications.Material culture is beginning to looksimilar .
National economies merginginto an interdependent globaleconomic system .
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Globalization: Pros& ConsPros
Increased revenueopportunity through globalsales.
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Globalization: Pros& ConsPros
Increased revenue opportunitythrough global sales.
Reduced costs byproducing in „low cost‟countries.
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Globalization: Pros& ConsPros
Increased revenue opportunitythrough global sales.Reduced costs by producing in „lowcost‟ countries.
ConsDifferent nations =different problems.
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Globalization: Pros& ConsPros
Increased revenue opportunitythrough global sales.Reduced costs by producing in „lowcost‟ countries.
ConsDifferent nations = differentproblems.
Similarities betweennations may be superficial.
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Globalization: Pros& ConsPros
Increased revenue opportunitythrough global sales.Reduced costs by producing in „lowcost‟ countries.
ConsDifferent nations = differentproblems.Similarities between nations may besuperficial .Global planning may beeasy, but global executionis not.
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What is “ Globalization ”?
“The shift toward amore integrated andinterdependent world
economy.”
Markets
Production
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Globalization of Markets
Globalization means“Merging of historically distinctand separate national markets into one huge globalmarketplace.”
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Globalization of MarketsGlobalization is
Facilitated by offering standardized products:Citicorp
Coca-ColaSony PlayStationMcDonalds
Does not have to be a big company to participate:Over 200,00 U.S. companies with less than 100employees had foreign sales in 2000.
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Globalization
Where willglobalization most likely prosper better?
In consumer goodsOr
In industrial goods and materials
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The Largest Global Markets
NotConsumer
Goods
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The Largest Global Markets
NotConsumer
Goods
Industrial Goods andMaterials
Commodities such asaluminum, oil and wheat.Industrial products such asmicroprocessors, aircraft.
Financial assets such asU.S. Treasury bills and
Eurobonds.
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Globalization of Production
Why doesglobalization of production take place?
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Why Globalization of Production?“The sourcing of goods andservices from locationsaround the globe to takeadvantage of national
differences in the cost andquality of factors ofproduction (labor,energy,land and capital).”
“Global Products”
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Why Globalization of Production?“The sourcing of goods and services fromlocations around the globe to takeadvantage of national differences in thecost and quality of factors ofproduction (labor,energy, land andcapital).” This also increasesthe company’s chance toobtain those countriesmarket for their productsas well.
“Global Products”
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Why Globalization of Production?“The sourcing of goods and services fromlocations around the globe to take advantageof national differences in the cost andquality of factors of production(labor,energy, land and capital).”
Companies hope to lower
their overall cost structureand/or improve the qualityor functionality of theirproduct offering -
increasing theircompetitiveness.
“Global Products”
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International Trade: When a firm exports goodsor services to consumers in another country.
Foreign Direct Investment: When a firm investsresources in business activities outside its home
country.
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General Agreement on Tariffs and Trade
Member states (140) in eight negotiating „rounds‟worked to lower barriers to the free flow ofgoods and services.
In the most recent round, the Uruguay Round,nations agreed to enhanced patent, copyright andtrademark protections and established theWorld Trade Organization .
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Average Tariff Rates on Manufactured
Products as Percent of Value1913 1950 1990 2000
France 21% 18% 5.9% 3.9% Germany 20 26 5.9 3.9
Italy 18 25 5.9 3.9 Japan 30 5.3 3.9 Holland 5 11 5.9 3.9 Sweden 20 9 4.4 3.9 Britain 23 5.9 3.9U.S.A. 44 14 4.8 3.9
Table 1.1
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Fewer FDI Restrictions Between 1991 and 2000
of the 1,121 changes worldwide in laws
governing FDI, 95% created a morefavorable investment environment.
During 2000, 69 countries made 150changes to FDI regulations, 147 or 98%
were more favorable to investment.
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The Growth of World Trade and
Output
0500
1000
1500
2000
2500
1950 1960 1970 1980 1990 2000
Trade
Output
GDP
Trade
Figure 1.1
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The Role of Technological ChangeEven though the lowering of
trade barriers made
globalization atheoretical possibility,the new technologiesmade it a reality.
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The Role of Technological ChangeInvention and innovations in
Microprocessors and
telecommunications
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The Shrinking Globe1500-1840
1850-1930
1950s
1960s
Best average speed ofhorse-drawn coaches and
sailing ships, 10mph.Steam locomotives average 65mph.
Steamships average 36mph.
Propeller aircraft300-400 mph.
Jet passenger aircraft500-700mph.
Figure 1.2
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The Role of Technological ChangeInvention and innovations in
Microprocessors and
telecommunicationsContainer transportationThe Internet and WorldWide Web
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Worldwide E-Commerce Growth
Forecast
0100020003000400050006000
70008000
2000 2001 2002 2003 2004
Rest of World
Latin America
W.Europe
Asia Pacific
North America
Figure 1.2
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Implications for Globalization of Production
Production dispersed toeconomical locations
due to transportation and communication advances.It has allowed firms to create and manage a globally
Dispersed production system, further facilitatingGlobalization of production
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Implications for Globalization of Markets
•New markets opened through WWW .•Jet aircrafts move people and goods.•Global media such as
(CNN, HBO, MTV) are creating a worldwide culture.
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The Changing Paradigm of the Global Economy
Old:U.S. dominance of the world economy and worldtrade.
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The Changing Paradigm of the Global Economy
Old:U.S. dominance of the world economy and world trade.
U.S. dominance in world FDI.
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The Changing Paradigm of the Global Economy
Old:U.S. dominance of the world economy and world trade.U.S. dominance in world FDI.
U.S. firms dominance of international business.
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The Changing Paradigm of the Global Economy
Old:U.S. dominance of the world economy and world trade.U.S. dominance in world FDI.U.S. firms dominance of international business.
½ of the world economies (Communist dominated)were off-limits to western businesses.
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COUNTRY SHARE OF
WORLD OUTPUT
1963
SHARE OF
WORLD OUTPUT
2000
SHARE OF
WORLD EXPORTS
2000
United States 40.3% 27% 12.3%
Japan 5.5 14.2 7.54
Germany 9.7 (W. Ger.) 7.3 8.7
France 6.3 5.2 4.7
UnitedKingdom
6.5 4.1 3.7
Italy 3.4 4.1 3.7
Canada 3.0 2.0 4.4
China NA 3.2 3.92
South Korea NA 1.4 2.7
The Changing Pattern of World Output andTrade
Table 1.2
Output measured by GNP.
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Percentage Share of Total FDI Stock, 1980-2000
05
1015202530354045
U.S.A. Japan France Dev.Countries
1980
1990
2000
U . K .
G e r m a n y
N e t h e r l a n d s
Figure 1.4
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FDI Inflows, 1988-2000($ Billions)
0
200
400
600
800
1000
Developed CountriesDeveloping CountriesUnited StatesChina
Figure 1.5
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The National Composition of the Largest Multinationals
1973 1990 1997 2000U.S.A. 48.5% 31.5% 32.4% 26%
Japan 3.5 12 15.7 17
U.K. 18.8 6.8 6.6 8
France 7.3 10.4 9.8 13Germany 8.1 .9 12.7 12
Table 1.3
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The Changing World OrderThe fall of Communism in Eastern Europe and theformer Soviet Union.Czechoslovakia has divided itself into two states.
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The Changing World OrderThe fall of Communism in Eastern Europe and theformer Soviet Union.Czechoslovakia has divided itself into two states.Yugoslavia has divided into 5 (often warring) successorstates.
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The Changing World OrderThe fall of Communism in Eastern Europe and theformer Soviet Union.Czechoslovakia has divided itself into two states.Yugoslavia has divided into 5 (often warring) successorstates.Pro-democracy movement (suppressed) in China.
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Hopes and Fears of the 21st Century
1. Will economic andpolitical reforms hold?
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Hopes and Fears of the 21st Century
1. Will economic andpolitical reforms hold?
2. Economic problems areno longer isolated andcan become global.
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Globalization
Twin engines of prosperityLower trade barrier
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GlobalizationTwin engines of prosperity
Lower trade barriers
FDI
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GlobalizationJobs and Income
Firms move jobs to low costcountries.
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GlobalizationJobs and Income
Firms move jobs to low costcountries.Countries specialize in
efficiently produced goodsand import those they cannot efficiently produce.
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GlobalizationJobs and Income
Firms move jobs to low costcountries.Countries specialize in
efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.
May lead to incomeinequality.
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GlobalizationJobs and Income
Firms move jobs to low costcountries.Countries specialize in
efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.
May lead to incomeinequality.
Labor Policies and theEnvironment
Firms move to countrieswith weak laws.
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GlobalizationJobs and Income
Firms move jobs to low costcountries.Countries specialize in
efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.
May lead to incomeinequality.
Labor Policies and theEnvironment
Firms move to countrieswith weak laws.
Economic progress leads tostronger laws.
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GlobalizationJobs and Income
Firms move jobs to low costcountries.Countries specialize in
efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.
May lead to incomeinequality.
Labor Policies and theEnvironment
Firms move to countrieswith weak laws.
Economic progress leads tostronger laws.By creating wealth andincentives for technologyimprovements, world will be
better.
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GlobalizationJobs and Income
Firms move jobs to low costcountries.Countries specialize in
efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.
May lead to incomeinequality.
Labor Policies and theEnvironment
Firms move to countrieswith weak laws.
Economic progress leads tostronger laws.By creating wealth andincentives for technologyimprovements, world will be
better.Tie strong laws tointernational agreements.
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GlobalizationJobs and Income
Firms move jobs to low costcountries.Countries specialize in
efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.
May lead to incomeinequality.
Labor Policies and theEnvironment
Firms move to countrieswith weak laws.Economic progress leads tostronger laws.By creating wealth andincentives for technologyimprovements, world will bebetter.
Tie strong laws tointernational agreements.Firms are not amoral.
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Environmental Performance and Income
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Environmental Performance and Income
Figure 1.6
5.0
5.5
6.0
6.5
7.0
6 7 8 9 10 11
Ethiopia
BhutanTanzania Bangladesh
MalawiNigeriaKenya Egypt
IndiaChina
Thailand
Tunisia
Korea
S.AfricaTrinidad
BulgariaIreland
Finland
Jamaica
Germany
Netherlands
Income Index E n v
i r o n m e n
t a
l P e r f o r m a n c e
I n
d e x
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Globalization and National Sovereignty
Under the new system, many decisions that affect billions ofpeople are no longer made by local and national governmentsbut instead, if challenged by any WTO member nation, would
be deferred to a group of unelected bureaucrats sittingbehind closed doors in Geneva. The bureaucrats can decidewhether or not people in California can prevent the destructionof the last virgin forests or determine if carcinogenic pesticidescan be banned from their foods; or whether European countrieshave the right to ban dangerous biotech hormones in meat… At risk is the very basis of democracy and accountable decisionmaking. Ralph Nader.
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Globalization and National Sovereignty
WTOEU
UN
WTO Founded 1994 140 members Police GATT trading system
Supranational organizationsare limited to powers grantedby member countries and servethe collective interests of its
members.Power is derived fromthe organization‟s ability to sway members to action.
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Globalization and the World‟s Poor Critics argue that globalization has not helped poor.
1870: per capita income of 17 richest nations was2.4x that of all other countries.
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Globalization and the World‟s Poor Critics argue that globalization has not helped poor.
1870: per capita income of 17 richest nations was2.4x that of all other countries.
1990: it was 4.5x larger.
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Globalization and the World‟s Poor Other factors may have influenced the gap.
Totalitarian governments.
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Globalization and the World‟s Poor Other factors may have influenced the gap.
Totalitarian governments.Economic policies that destroyed wealth creation.
Little protection of property rights.
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Globalization and the World‟s Poor Other factors may have influenced the gap.
Totalitarian governments.Economic policies that destroyed wealth creation.
Little protection of property rights.Expanding populations.
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Globalization and the World‟s Poor Other factors may have influenced the gap.
Totalitarian governments.Economic policies that destroyed wealth creation.
Little protection of property rights.Expanding populations.War.
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Managing in the Global Marketplace
An International Business is any firm that engages ininternational trade or investment.
Managing an international business is differentthan managing a domestic business:1. Countries are different.
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Managing in the Global Marketplace
An International Business is any firm that engages ininternational trade or investment.
Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.
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Managing in the Global Marketplace
An International Business is any firm that engages ininternational trade or investment.
Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.3. Must work within government regulations.
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Managing in the Global Marketplace
An International Business is any firm that engages ininternational trade or investment.
Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.3. Must work within government regulations.
4. Currency conversion presents unique problems.
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Managing in the Global Marketplace
An International Business is any firm that engages ininternational trade or investment.
Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.3. Must work within government
regulations.4. Currency conversion presentsunique problems.