Chapter 1 Globalization and International Business 1 1

Chapter 1 Globalization and International Business 1 -1

Introduction Globalization is the widening set of interdependent relationships among people from different parts of a world divided into nations p The term sometimes refers to the elimination of barriers to international movement of goods, services, capital, technology, and people that influence the integration of world economies p Copyright © 2015 Pearson Education, Inc. 1 -2

Introduction p International business consists of all commercial transactions—including sales, investments, and transportation—that take place between two or more countries n n n increasingly foreign countries are a source of both production and sales for domestic companies Reduced restrictions resulting in increasing interactions between countries Process of interaction and integration. Copyright © 2015 Pearson Education, Inc. 1 -3

Introduction p It is important to study international business because n n n Most companies are either international or compete with international companies Global events and competition affect almost all companies, regardless of industry International companies have more complex environments than domestic firms. An understanding of IB helps you make better career decisions An understanding helps you decide what government policies to support Copyright © 2015 Pearson Education, Inc. 1 -4

Introduction Factors in International Business Operations Copyright © 2015 Pearson Education, Inc. 1 -5

Why Companies Engage in IB p To expand sales n p To acquire resources n p pursuing international sales increases the potential market and potential profits may give companies lower costs, new and better products, and additional operating knowledge To diversify or reduce risks n international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage Copyright © 2015 Pearson Education, Inc. 1 -6

Why Companies Engage in IB p These three reasons n n n sales expansion resource acquisition risk minimization guide all decisions about whether, where, and how to engage in international business Copyright © 2015 Pearson Education, Inc. 1 -7

Modes of Operations in IB p Merchandise exports n p Merchandise imports n p goods that are sent out of a country goods that are brought into a country Sometimes referred to as visible exports and imports Copyright © 2015 Pearson Education, Inc. 1 -8

Modes of Operations in IB p p p Service exports n provider and receiver of payment Service imports n recipient and payer of payment Examples n Tourism and transportation n Service performance p turnkey operations and management contracts n Asset use p licensing and franchising Copyright © 2015 Pearson Education, Inc. 1 -9

Modes of Operations in IB p Investments n n Foreign Direct Investment (FDI) p investor takes a controlling interest in a foreign company § joint venture Portfolio Investment p a non-controlling financial interest in another entity § Mutual funds often include international companies Copyright © 2015 Pearson Education, Inc. 1 -10

Types of International Organizations p Multinational enterprises (MNEs) n p take a global approach to markets and production or have operations in more than one country Sometimes they are referred to as n n n multinational corporations (MNCs) multinational companies (MNCs) transnational companies (TNCs) Copyright © 2015 Pearson Education, Inc. 1 -11

Why IB is Different The external environment affects a company’s international operations p Managers must understand social science disciplines and how they affect functional business fields p Consider p n n n physical factors social factors competitive factors Copyright © 2015 Pearson Education, Inc. 1 -12

Physical and Social Factors p Geographic influences n n p Political policies n n p influence how a company operates Behavioral factors n p countries determine where and how business occurs within their borders Political crises disrupts foreign transactions Legal policies n p natural conditions influence business locations Summer Vs. Winter Olympics may require adaptation in to local conditions Economic forces n 1 -13 explain differences in costs, currency values, market size

The Competitive Environment p Competitive strategy for products n n n p Company resources and experience n p Cost strategy Differentiation strategy Focus strategy market leaders have more resources for international operations Competitors faced in each market n local or international Copyright © 2015 Pearson Education, Inc. 1 -14

The Competitive Environment So, a company’s competitive strategy influences how and where it can best operate p Its competitive situation may differ from country to country in terms of its relative strength and which competitors it faces p Copyright © 2015 Pearson Education, Inc. 1 -15