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Buongiorno

Come Stai?

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2

BUS 231 - International

BusinessWeek 3

Mohibul Islam Masum

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Todays Agenda

Attendance & the profile

Text Books and an introduction to the course

What is International Business (IB)?

Globalization and its impact on IB.

Case study: McDonalds in China

Tasks for the next class

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Formal education will make you a living; self-education will

make you a fortune.Jim Rohn

Jim Rohn(September 17, 1930 - December 5, 2009) was an American

entrepreneur, author and motivational speaker. Jim authored countless books

and audio and video programs, and helped motivate and shape an entire

generation of personal-development trainers and hundreds of executives from

America's top corporations. Jim shared his message with more than 6,000audiences and over 5 million people all over the world.

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Introduction This subject provides an introduction to business in an

international context.

Business is becoming increasingly global and firms requiremanagers who understand and can resolve the challenges

faced in surviving and succeeding in this competitiveenvironment.

Greater internationalization of business requires firms tobe more competitive, dynamic, and interdependent.Managers must understand the complexities of globaleconomic, political, socio-cultural, and financial forces andrecognize how they affect their firm.

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Management challenges include dealing with theuncertain external environment, managing culturaldiversity, handling the increased risk ofinternational operations, and developingappropriate international strategies.

Managers capable of operating in thisenvironment will have truly global skills and willenhance their career prospects in todays exciting

international business context.

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What is international business?

International business involves any businesstransaction between parties from more than

one country.

International business is different from

domestic business in that it necessarily

involves transactions that cross nationalborders while domestic business does not.

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What is international business?

Is international business more complex than

domestic business?1. Competition

2. Distribution

3. Economic

4. Socio-economic

5. Financial

6. Legal

7. Physical

8. Political

9. Socio-cultural

10. Labor

11. Technological

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What is Globalization?

Globalization refers to the shift toward a more integratedand interdependent world economy.

It has several facets, including :the globalization of markets

the globalization of production

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The Globalization of Markets

Refers to the merging of historically distinct and separatenational markets into one huge global marketplace.

Declining trade barriers

Global taste and preferences of consumers creating a

global market

However, significant differences still exist among national

markets

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The Globalization of Production

Refers to the sourcing of goods and services from locationsaround the globe to take advantage of national differences

in the cost and quality of factors of production (labor,

energy, land, capital).

Boeing 7778 Japanese suppliers make parts for the

fuselage (body), doors and wings; a supplier in Singapore

makes the doors for the nose landing gear; 3 suppliers inItaly manufacture wing flaps.

30% is built by foreign companies.

For 787, 65% is built by foreign companies.

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Emergence of Global Institutions!

As markets globalize and an increasing proportion of

business activity transcends national borders, institutionsare needed to help manage, regulate, and police the global

marketplace and to promote the establishment of

multinational treaties to govern the global business

system.

GATT: General Agreement on Tariffs and Trade.

WTO: World Trade Organization.IMF: International Monetary Fund

The World Bank, UN: United Nations.

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GATT: General Agreement on Tariffs and Trade

GATT was signed in 1947 and lasted until 1993, when it wasreplaced by the World Trade Organization (WTO) in

1995.

The original GATT (GATT 1947) is still in effect under the

WTO framework.

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WTO: World Trade Organization

Responsible for policing the world trading system.

Facilitating the establishment of additional multinational

agreements between WTO member states.

Promoted lowering barriers to cross-border trade and

investment.

As of 2007, 150 nations that collectively accounted for

97% of world trade were WTO members.

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IMF: International Monetary Fund

and

World Bank

Both were created in 1944 by 44 nations.

IMFmaintain order in the international monetary system.

Loans granted with requirements to adopt specific economicpolicies aimed at returning troubled economies to stability

and growth (controversial?!).

WBpromote economic development by granting low-

interest loans to cash-strapped governments in poornations.

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UN: United Nations

Established on Oct 24, 1945 by 51 countries; today, there

are 192 members.

Four purposes of the UN:

To maintain international peace and security,

To develop friendly nations among nations,

To cooperate in solving international problems and in

promoting respect for human rights,

To be a center for harmonizing the actions of nations.

Also promotes higher standard of living, full employment,

economic and social progress.

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Drivers of Globalization

Declining trade and investment barriers

International trade: occurs when a firm exports goods or

services to consumers in another country.

Foreign Direct Investment (FDI): occurs when a firm

invests resources in business activities outside its home

country.

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Countries erected formidable barriers to international trade

and FDI through high tariffs on imports of manufactured

goods in order to protect domestic industries from

foreign competition.

Countries raised trade barriers against each other and

ultimately this depressed world demand and contributedto the Great Depression of the 1930s.

After WW2, nations committed to remove the barriers.Average tariff rates have fallen significantly since 1950 and

now stand at about 4% (manufactured goods).

Average agricultural tariffs rates are still high40%.

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Countries have also been removing restrictions to FDI.

94% of the 2,266 changes made worldwide between 1992and 2005 in the laws governing FDI created a more

favorable environment for FDI.

There has been a dramatic increase in the number of

bilateral investment treaties designed to protect and

promote investment between two countries.

As of 2005, 2,495 treaties involved more than 160

countries, 12-fold increase from the 181 treaties in 1980.

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Such trends have been driving both the globalization of

markets and the globalization of production.

Firms can now view the world as one large market.

Base production at the best location (resources).

Design in one country, produce parts in a few countries,

assemble in another country and then market or export

the finished product around the world.

Firms are able to reduce production costs and increase

product quality. Economies are becoming intertwined, countries are

becoming dependant on each other for goods and

services.

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Firms are also finding their home markets under attack from

foreign competitors.

In JapanKodak, Proctor & Gamble.

In USAJapanese cars have taken market share away from

General Motors and Ford.

In EuropePhilips now shares the market of consumer

electronics industry with JVC, Matsushita, Sony, Samsung,

LG.

Intensity of competition is increasing.

Therefore, demands for protection from foreign competitors

are still often heard in countries around the world.

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The Role of Technological Change

Microprocessors and Telecommunications

Important innovationMicroprocessor.

Enabled the growth of high-power, low-costcomputing.

Also underlies many recent advances in Telecom.

Technology .

Developments in satellite, optical fiber, wireless

technologies, internet and WWWrevolutionized

global communications.

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The Internet and World Wide Web

1990less than 1 M users.199550 M.

2006747 M.

In the US$ 250 B of goods and services are expected to

be sold online to retail customers2007,

up from almost nothing in 1997.

The Web makes is easier for buyers and sellers to find

each other; it allows businesses, both small and large, to

expand their global presence at a lower cost than ever.

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Transportation Technology

Development of commercial jet aircraft,containerization, super freighters

has revolutionized the transportation industry

significantly lowering the costs of shipping goods

over long distances and

made it easier to move goods from one mode of

transportation to another.

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Implications for the Globalization of Production

Firms can create and manage globally dispersedproduction system.

Dell holds only 3 days worth of inventory at its

assembly locations.

Its internet based system records orders, then immediately

transmits orders for components to various suppliers

worldwide, who can have a real-time look at Dells order flow

and can adjust their production schedules accordingly.

Air transportation to speed up delivery, modern communication

technology to outsource customer service operations to India.

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Implications for the Globalization of Markets

Low-cost transportation has made shipping productsaround the world more economical, thereby helping

to create global markets.

Roses grown in Ecuador can be sold in New York 2

days later while they are still fresh.

This has given rise to an industry in Ecuador that didnot exist 20 years ago and that now supplies a global

market for roses.

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Low cost travel has resulted in the mass movement of

people between countries, reducing cultural distance and

bringing convergence of consumer tastes and preferences.

Global media creating a global cultureemergence of

global markets for consumer products.

But still significant national differences remain in culture,

consumer preferences and business practices.

When internationalizing, firms must be aware of suchcultural differences

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Management challenges!

Is it any different being a manager in a domestic

environment compared with an internationalenvironment?

Countries are different Management problems are more complex

Different rules of the game (limits imposed by

government intervention in the international trade and

investment system).

Different money transactions

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Culture: system of values and norms that are shared

among a group of people.

Values:Abstract ideas about what a group believes to

be good, right and desirable; form bedrock of a culture.

Freedom, democracy, justice, love, religion.

Norms:The social rules and guidelines that prescribe

appropriate behavior in a particular situation.

Dress code, correct utensils, neighborly behavior,time.

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One big challenge for IB Managers

The Case of McDonalds in China

Guanxiwang

Opened in 1992 in Beijing after a decade of

market research.

Largest, 2 blocks from Tiananmen Square.

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The Tiananmen Square protests of 1989, referred to in

much of the world as the Tiananmen Square

massacre and in Chinese as the June FourthIncident or "June Fourth Movement or "Six Four

Incident.

There were a series of demonstrations in and near

Tiananmen Square in Beijing beginning on 14 April1989; led mainly by students and intellectuals; against

the government's authoritarianism and voiced calls

for economic changeand democratic reform within

the structure of the government.

The protests were sparked by the death of Hu Yaobang,

a political leader (6thGeneral Secretary of the CPC).

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By the eve of Hu's funeral, 100,000 people had gathered

at Tiananmen Square.

The movement lasted seven weeks after Hu's death on

15 April. In early June, the People's Liberation Army

moved into the streets of Beijing with troops and

tanks and cleared the square with live fire.

Some of the early estimates were based on reports of a

figure of 2,600 from the Chinese Red Cross. Theofficial Chinese government figure is 241 dead,

including soldiers, and 7,000 wounded.

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i h l i hi

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High sales within 2 years.

Beijing City Govt. vacate for Hong Kong developer

Li Ka- shing.

McDonalds still had 18 years left.

In the court refusal, had to move. Lacked the guanxi of Li Ka- shing.

The lawsuit reduced whatever guanxi Mc had with

Govt.

The key to getting things donepersonal powers,relationships, connections rather than the rule of law.

Guanxi means relationships ; in business context

connections.

Guanxiwang means relationship network.

Th i d l d i Chi l h

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The concept is deeply rooted in Chinese culture, the

Confucian philosophy of valuing social hierarchy and

reciprocal obligations (2000 years old).

Importance of relationships.

Confucian thoughtpeople are not created equal.Loyalty and obligations to ones superiors (or to

family) is sacred duty, at the same time loyalty has itsprice.

Guanxiwang for business.

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References:

International Business Competing in the GlobalMarketplace by Charles W. Hill.

Internet.

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Grazie!

Any Questions?