Chapter 1 The World Business Challenge John S. Hill.

Chapter 1Chapter 1The World Business ChallengeThe World Business Challenge

John S. Hill

Figure1-1: Chapter OutlineFigure1-1: Chapter Outline The World Business Challenge

The World Business

Challenge

Globalization: Historic

Perspectives

The Globalization Movement since 1980

Responding to the International Business

Challenge

International Business Topics and the Organization of this Text

The World Business ChallengeThe World Business Challenge

The Diverse International Marketplace

The Changing International Marketplace

The Diverse International The Diverse International MarketplaceMarketplace

Political diversity: Autocracies-democracies Economic diversity: $100 per capita to

$40,000 Regional diversity:North America 5-6%

world population, 30% GDP; Asia 60% world population ¼ world GDP

Cultural/Linguistic diversity: 10,000 cultural groups and 200 nations

Diversities in Country Size and Populations Developmental diversities

The Changing World MarketplaceThe Changing World Marketplace

Political change: nations seek political stability but elections, governmental and leadership changes problematic

Economic change: economic growth, inflation, unemployment problems; governmental economic mismanagement; currency fluctuations

Cultural change: e.g. religious or ethnic conflict creates uncertainties for political and economic climates

Financial changes: conduct transactions in a world marketplace with over 180 currencies

Responding to the International Business Challenge: Responding to the International Business Challenge:

How Executives Cope with Global Diversity and ChangeHow Executives Cope with Global Diversity and Change From Cultural

Ignorance to Cultural Understanding

Analytic Tools: The Multi-Disciplinary Nature of International Business

From Cultural Ignorance to Cultural From Cultural Ignorance to Cultural UnderstandingUnderstanding

Cultural ignorance: when individuals have no knowledge of cultural differences

Cultural awareness: when people know there are cultural differences and are looking for them

Cultural knowledge: know appropriate behaviors but not why they occur

Cultural understanding: when businesspeople not only know what behaviors are appropriate but also understand why those behaviors are occurring

Analytic Tools: The Multi-Disciplinary Nature of Analytic Tools: The Multi-Disciplinary Nature of International Business International Business

Political science: the study of politicians, political institutions and their effects on business and society

Anthropology: study of the evolution of mankind in its various environments: traditional to modern

Economic Development: changes in institutions and values as countries progress economically

Sociology: the study of group behaviors in society—social class, gender behaviors

Analytic Tools: The Multi-Disciplinary Nature of Analytic Tools: The Multi-Disciplinary Nature of International Business International Business

Religion: the primary determinant of behaviors and lifestyles in non-Christian countries e.g. Islam, Buddhism, Hinduism, Confucianism, Taoism

Geography: a known quantity in firms’ national markets, unknown in foreign markets—climate, topography, resources and their effects

History: a key tool in understanding a country’s current political, economic and cultural circumstances

Globalization: Historic Globalization: Historic BackgroundBackground

Globalization: Definition and Components

The Exploration Era to 1500

1500-1900:The Colonial Era

1900-today: The Era of the Modern International Corporation


Globalization: Definition The globalization movement is the trend

towards increasing interdependencies among world markets, and the diffusion of new ideas, technologies, products, services and lifestyles through international markets


Globalization: ComponentsModernization: the upgrading of technologies and

living standards that occur as ideas, products, and services diffuse through world markets

Westernization: the emulation of lifestyles and behaviors of Western societies, most notably those of North America and Western Europe


The Exploration Era to 1500 Civilization of Latin America (Incas, Mayans,

Aztecs), Asia (India & China), Western Europe (Romans) and Egypt (pharaohs and pyramids)

Sixth century B.C.: Silk Road from Middle East to China

Roman Empire established trade routes and common currency

12th & 13th centuries: Major navigational advances for sail ships

15th century: Major period of exploration to Americas, Africa and Asia


1500-1900:The Colonial Era The development of mega languages: early on Latin

& Chinese; later, English & European languages Advances in arms and military capabilities Writing and printing technologies Transportation innovations: the steam engine The industrial revolution: machines & electricity Communications Advances: telephone/telegraph Retail establishments: access to products/services


1900-today: The Era of the Modern International Corporation

1900-1945: Company Internationalization “Companies began to replace countries as the major catalysts

of economic and cultural change” Aided by air travel, automobiles, radio and television

1945-1980: Era of Increasing International Competition

“Corporations began to reassert themselves in international markets” European and Japanese companies challenge US corporations in international markets

The Globalization Era Since 1980The Globalization Era Since 1980

The Major Catalysts of Post 1980 Globalization

Globalization and the Developing World

Reasons for Developmental Differences: The Diffusion Process in International Business

Diffusion Effects on Strategy Formulation and Implementation

The Major Catalysts of Post 1980 The Major Catalysts of Post 1980

GlobalizationGlobalization International Trade: GATT and WTO. Trade

increases to about $8 trillion in 2002 Trade Blocs: Trade blocs to facilitate commercial

interactions among members: EU, NAFTA Foreign Direct Investments (FDI): International

companies make investments in factories, plant and machinery in non-domestic markets. 10 fold increase over 1980-2002 to over $7 trillion

Global Movements towards Capitalism: Demise of communism in the 1980s and 1990s

Technology and Global Media: The advent of satellite, computer and Internet technology

Globalization and the Developing World Globalization and the Developing World

Up to 1985, the Triad nations of North America, Western Europe, and Japan were dominant in world commerce

As developing markets opened up to trade and investments, so new ideas and technologies began to contribute to economic and cultural change

The diffusion of technologies and consequent modernization processes have barely impacted many emerging markets

Reasons for Developmental Differences: Reasons for Developmental Differences: The Diffusion Process in International The Diffusion Process in International

Business Business The International Diffusion Process Figure 1-4: Diffusion Across Markets

1 2 3 Time Figure 1-5: Diffusion Within Markets

a b c

Global market diffusion

1: Advancing countries2: Industrializing countries3: Less advanced countries

National market diffusion

a: Urban centersb: Semi-urban centersc: Rural-areas

Reasons for Developmental Differences: Reasons for Developmental Differences: The Diffusion Process in International The Diffusion Process in International

Business Business The Diffusion Process in National Markets:

Determined by: Country Openness to External Influences Education and Literacy levels: low levels retard

diffusion rates; high levels facilitate diffusion The Importance of National Infrastructures: poor

roads, rails, energy grids slow down diffusion rates Effects of National Ethnic and Linguistic

Compositions: multi-ethnic/lingual societies slow down diffusion rates

How disruptive innovations are on national lifestyles

Diffusion Effects on Strategy Formulation Diffusion Effects on Strategy Formulation and Implementation and Implementation

The Arguments for Standardized Strategies While companies make some adaptations (voltage changes for

electronic goods; right/left hand drives and minor stylistic changes for autos; labeling changes for consumer products), essentially products and services are similar from market to market

Take advantage of customer demand homogenized through trade, commercial contacts, international media

Often the industrialized nations and advanced sectors of LDCs

The Arguments for Localized Strategies This involves taking full account of national cultures, values and

behaviors Necessary in countries with strong national cultures and nations

relatively untouched by the forces of globalization. Companies must adapt to be successful

Most companies need to adapt to greater or lesser degrees

World Business Topics and the World Business Topics and the Organization of this TextOrganization of this Text

Chapter 1 introduces key world business concepts, globalization, its history, background and general effects

Chapter 2 examines the forces contributing to the globalization movement: the United Nations, private sector contributions, trade blocs and privatization programs

Chapter 3 looks at globalization effects: how technology transfers affect nations and the transitions from traditional to modern societies

Chapter 4 tackles regional development issues Chapter 5 shows how individual markets are analyzed Chapter 6 looks at how firms analyze industries and

competitors on a worldwide scale

International Business Topics International Business Topics and the Organization of this Textand the Organization of this Text Chapter 7 brings industry and company analyses into the

corporate planning process Chapter 8 describes companies’ globalization processes Chapter 9 looks at the creation of global and multi-market

strategies: global brands, competitive and financial strategies Chapter 10 shows how firms choose to enter and service

individual markets Chapter 11: examines how companies manage multi-market

supply chains Chapter 12 looks at how cultural differences are managed Chapter 13 discusses the management of local stakeholders

and supply chains

Key PointsKey Points

World business is the performing of commercial activities to promote the sale of goods and services across national boundaries

The world business challenge is to use tools from political science, anthropology, economic development, sociology, religious studies, geography and history to understand the diversity and change inherent in world markets

The globalization movement is the trend towards increasing interdependencies among world markets and the diffusion of new ideas, technologies, products, services, and lifestyles through international markets

Key PointsKey Points

Modern corporations date from the 19th century, but grew dramatically in the post-1945 era, with US, European, and Japanese companies taking the lead

The diffusion process of new technologies and products starts with developed countries and moves over time into developing markets; within national markets, diffusion starts with urban markets and moves into semi-urban and then into rural areas

The diffusion process affects strategy formulation and implementation, with standardized strategies more likely in developed markets; and adaptation strategies more likely in rural and developing markets

Thank YouThank You

Chapter 1 The World Business Challenge John S. Hill.

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