PowerPoint Presentation by Charlie CookThe University of West Alabama

PowerPoint Presentation by Charlie CookThe University of West Alabama

© 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.© 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives

1. Describe the nature of international business, including its meaning, recent trends, management of globalization, and competition in a global market.

2. Discuss the structure of the global economy and describe the GATT and the WTO.

3. Identify and discuss the environmental challenges inherent in international management.

4. Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.

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The Nature of International Business

• Globalization means:Everyone is part of the global village.All organizations are affected by competition

in the global economy.Firms are reshaping themselves for

international competition and discovering new ways to exploit markets.

Failure to take a global perspective is one of the biggest mistakes managers can make.

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5.1 Levels of International Business Activity

Global Business

Multinational Business

International Business

Domestic Business

Level of International ActivityLowest Highest

The Meaning of International Business

• Domestic Business acquires all of its resources and sells all of its products or

services within a single country.

• International Business is based in a single country yet acquires a meaningful share of

its resources and/or revenues from other countries.

• Multinational Business transcends national boundaries and buys raw materials, borrows

money, and manufactures and sells its products in a world-wide marketplace.

• Global Business transcends national boundaries and is not committed to a single

home country.

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Trends in International Business

Decreasing Isolation from Competition

Increasing Globalization

of Markets

Economic Recovery and Development

Trends in International Business

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Managing the Process of Globalization

Exporting and Importing

Licensing

Strategic Alliance and Joint Venture

Direct Investment

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Approach to Internationalization Advantages Disadvantages

Importing or Exporting · Small cash outlay· Little risk· No adaptation necessary

· Tariffs and taxes· High transportation costs· Government restrictions

Licensing · Increased profitability· Extended profitability

· Inflexibility· Competition

Strategic Alliances and Joint Ventures

· Quick market entry· Access to materials and

technology

· Shared ownership (limits control and profits)

Direct Investment · Enhanced control· Existing infrastructure

· Complexity· Greater economic and

political risk· Greater uncertainty

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5.1 Advantages and Disadvantages of Different Approaches to Internationalization

The Structure of the Global Economy

• Mature Market Economies and SystemsEmploy market factors in allocating resources.Are based on the private ownership of

businessWell-developed infrastructures and individual

wealth.

• Trade AgreementsNorth American Free Trade Agreement

(NAFTA) covering the United States, Mexico, and Canada.

European Union (EU) of western European countries.

Pacific Asia countries in Southeast Asia.

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The global economy is dominated by three relatively mature market systems

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5.2 The Global Economy

Market Economies and Systems

• High Potential or High Growth EconomiesUnderdeveloped and immature markets with a

weak industrial base, weak currency, and poor consumers People’s Republic of China, India, Vietnam, Brazil,

Russia

Challenges to market development: Lack of consumers with personal wealth Underdeveloped infrastructure for support

operations Unfamiliarity with market economy mechanisms The need for large investments in distribution

systems Unfavorable policy changes distorting value of

investments

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Market Economies and Systems (cont’d)

• Other EconomiesDefy classification due to their possession of

critical and valuable resources or other social or political factors which distort their internal economies and markets.

Challenges of other economies Political instability Cultural differences Ethnic violence

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The Role of the GATT and the WTO

• General Agreement on Tariffs and Trade (GATT)Promoted international trade by reducing trade

barriers and making it easier for all nations to compete. Most Favored Nation (MFN) principle

• The World Trade Organization (WTO)Organization (replaced GATT) with the goals

of: Promoting trade flows by encouraging nations to

adopt nondiscriminatory and predictable trade policies

Reducing trade barriers through multilateral negotiations

Establishing impartial procedures for resolving trade disputes among its members

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Political and Legal Environment

Government stabilityProperty rights

Trade incentives, relations, and controls

Cultural EnvironmentValues, symbols, beliefs, language,

individual behaviors

Economic Environment

Economic systemNatural resources

Infrastructure

International Management Functions

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5.3 Environmental Challenges of International Management

Controls on International Trade

Tariffs

Export restraint agreements

Quotas

Subsidies and “buy national”

Key Trade Control Concepts

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Domestic Controls on International Trade

• Key ConceptsTariffs

Taxes on goods shipped across national boundaries.

Quotas Limits on the number or value of goods that

can be traded as exports or imports.Export Restraint Agreements

Voluntary limits on the volume or value of goods exported to or imported from another country.

Subsidies and “Buy National” Laws Protection for domestic businesses from

foreign competition.

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The Cultural Environment

• Individual differences across cultures:Social orientation

A person’s beliefs about the relative importance of the individual versus groups to which that person belongs.

Power orientation The beliefs that people in a culture hold about the

appropriateness of power and authority differences in hierarchies such as business organizations.

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5.4a Individual Differences Across Cultures

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5.4b Individual Differences Across Cultures

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5.4c Individual Differences Across Cultures

Competing in a Global Economy

• Globalization and Organization SizeMultinational Corporations (MNCs)

Adopt a global perspective and compete in the global marketplace.

Medium-Size Businesses Remain primarily domestic organizations that may

buy and sell abroad through trade specialists and compete with foreign companies in local markets.

Small Businesses Participate in global markets when they serve as

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Management Challenges in a Global Economy

Planning

Leading

Organizing

Understanding of both environmental issues and competitive issues.

Addressing issues of creating and managing operations on a world-wide scale.

Learning to interact with and motivate persons of different cultural, social, and economics backgrounds.

ControllingIntegrating operations across time-zones, cultural factors, and varying communication methods.

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