Chap01 the Rapid Change of International Business
Transcript of Chap01 the Rapid Change of International Business
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The Rapid Change of The Rapid Change of International BusinessInternational Business
Chapter One
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning ObjectivesLearning Objectives
Understand definitions for firms that operate in several
countries
Understand drivers that lead firms to internationalize
Appreciate the dramatic internationalization of markets Comprehend why international business differs from
domestic business
Describe the domestic, foreign, and international
environment in which a company operates
internationally
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International Business TerminologyInternational Business Terminology
International business terms
Foreign business
Multidomestic company (MDC)
Global company (GC)
International company (IC)
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International Business TerminologyInternational Business Terminology
International Business
A business whose activities are carried out acrossnational borders
Foreign Business
The operations of a company outside its home or domestic market
Multidomestic Company
An organization with affiliates in many countries
Each formulates its own business strategy
Strategy based on perceived differences inmarkets
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International Business TerminologyInternational Business Terminology
Global Company
Attempts to standardize and integrate operations
worldwide in most or all functional areas
International Company Denotes a global or multidomestic company
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History of History of International BusinessInternational Business
Early traders
Early BC Mesopotamian, Phoenician and Greek
merchants
China stimulated the emergence of aninternationally integrated trading system
³all roads lead to China´
Ottoman Empire
17th Century mercantilism/colonialism British East India Company
Dutch East India Company
Portugal and France
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GlobalizationGlobalization
The world economic globalization process
Theodore Levitt¶s (1983) view--now seen assimplistic:
Tech advances altered communication,transportation, travel to create a globalconsumer who prefers standardized products
The entire world [or major regions of it] is now asingle entity; an organization can sell the samethings in the same way everywhere
Today¶s view
International integration of goods, technology,information, labor, and capital
The process of making this integration happen
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Globalization¶s Outcome: GlobalityGlobalization¶s Outcome: Globality
Globality: describes economic globalization¶s
unavoidable outcome
Nothing that happens on our planet is only a
limited local event All inventions, victories, and catastrophes
affect the whole world
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Globalization¶s Outcome: GlobalityGlobalization¶s Outcome: Globality
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Globalization ForcesGlobalization Forces
Globalization is a result of
Political forces that
reduce barriers to trade and foreign investmentby governments
induce privatization of industries of former communist nations
Technological forces that
lead to advances in computers andcommunications technology
allow low cost network computing and ubiquitousInternet collaboration across borders
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Globalization ForcesGlobalization Forces
Globalization is a result of
Market forces
lead to globalizing companies¶ need for their suppliers toglobalize too
allow easier revenue seeking activity abroad due to homemarket saturation
Cost forces
demand economies of scale -- product line and manufacturing-- to reduce unit costs
lower cost production factor seeking efforts in other countries
Competitive forces
more intense due to explosive growth internationally of smalland new businesses
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Globalization ForcesGlobalization Forces
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Globalization ForcesGlobalization Forces
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What is International Business?What is International Business?
International Business (IB): any business transaction across
national borders
Trade in goods
Cross-border services
consulting, advertising, legal, financial, accounting tourism, banking, communications/media, construction
management, etc.
Company activity inputs may involve IB activity even if outputs
do not
Firm¶s revenues may come entirely from the home country
Key raw materials, knowledge, processes may come
partially or entirely from other countries
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Ways A CompanyWays A Company
May Be InternationalizedMay Be Internationalized A company can become internationalized when
its top managers come from different countries
it operates abroad through subsidiaries, joint
ventures, or strategic alliances
it generates revenues, owns assets, or employs
people in many countries
it raises capital in financial markets abroad
it has major shareholders from many countries
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Ways A Company May Be InvolvedWays A Company May Be Involvedin International Businessin International Business
A company is involved in international business by
working with others who are abroad
Managers of its own subsidiaries
Customers, suppliers, agents
Overseas service providers: bankers,
advertising executives, lawyers, auditors,
government officials, transportation managers
Service providers from home country who work
with with the company¶s overseas operations
traveling overseas for company businessLO3LO3
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Rapid Growth of Rapid Growth of International BusinessInternational Business
The rapid growth of international business is a result
of
dramatic increases of foreign direct investment
(FDI) and exportsFDI: A firm invests in equipment, structures,
and organizations in another country while
retaining significant management control
Exports: Sale and transfer of any good or service from the firm¶s home country to another
country
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Rapid Growth of Rapid Growth of International BusinessInternational Business
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Globalization DebateGlobalization DebateSupporting Free TradeSupporting Free Trade
Free trade
enhances socioeconomic development
promotes more and better jobs
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Concerns With GlobalizationConcerns With Globalization
Produces uneven results across nations and
people
Has deleterious effects on labor and labor
standards Contributes to the decline of environmental and
health conditions
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Environment of Environment of International BusinessInternational Business
Two sets of forces in the IB environment influence the
development and operations of a firm
External Forces (Uncontrollable)Those that management cannot control
Internal Forces (Controllable)
Those that management can develop and use
to formulate and execute the firm¶s strategygiven particular external forces
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External Forces That Affect IBExternal Forces That Affect IBDue To CrossDue To Cross--Border DifferencesBorder Differences
1. Competitive
Competitor kinds, number, locations, activities
2. Distributive
National and international agencies thatdistribute goods and services
3. Economic
Factors such as GNP, unit labor cost, andpersonal consumption expenditures that matter
to business and vary among countries
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External Forces That Affect IB DueExternal Forces That Affect IB DueTo CrossTo Cross--Border DifferencesBorder Differences
4. Socioeconomic
Characteristics and distribution of humanpopulation
5. Financial
Interest rates, inflation rates, and taxation
6. Legal
Foreign, domestic, and international lawsgoverning a firm¶s IB operations
7. Physical
Natural elements: natural resources (i.e.,factors of production), topography, climate
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External Forces That Affect IB DueExternal Forces That Affect IB DueTo CrossTo Cross--Border DifferencesBorder Differences
8. Political
Government forms, international organizations
9. Sociocultural
National culture similarities or differences thataffect international managers
10. Labor
Composition, skills, attitudes of labor
11. Technological Technical skills and equipment that affect how
resources are converted to productsLO5LO5
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Internal Forces That Managers CanInternal Forces That Managers Can
Influence Across BordersInfluence Across Borders
Factors of production
Capital, raw materials, people
Activities of the organization Personnel management, finance,
production, marketing
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Why Is IB Different?Why Is IB Different?
In IB a firm operates in multiple environments
Domestic environment - uncontrollable forces
Has forces that surround and influence the firm¶s
behavior in the home country
These remain mostly the same regardless of
where in the country the firm operates
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Why Is IB Different?Why Is IB Different?
In IB a firm operates in multiple environments
Foreign environment country-by-country
uncontrollable forces influence the firm¶s behavior
and are
different from those of the domestic environment
based on values that differ
difficult to assess for the firm¶s home managers
interrelated
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Why Is IB Different?Why Is IB Different?
The international environment is characterized byinteraction
between domestic and foreign countryenvironmental forces
among foreign country environmental forces
Hence, decision making is more complex due to
environment force differences and interactions
culture differences that are difficult to learn
the tendency of manager¶s to rely on their ownculture¶s reference points
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