International Business Environments Operations Chapter 1 Globalization and

International Business Environments & Operations Chapter 1 Globalization and International Business Daniels ● Radebaugh ● Sullivan 1 -1

Globalization p p p Human contacts expanded variety of resources, products, services, and markets We have altered the way we want and expect to live We buy products from all over the world Globalization: Globalization p p p Enables variety, better quality, and lower prices Enables products availability all round the year (even out of seasons) Due to consumer demands, many countries have removed restrictions on international movement of goods and services 1 -2

Defining Globalization p Globalization is the broad set of interdependent relationships among people from different parts of a world divided into nations n n Restrictions on imports has decreased Foreign ownership of assets as a percentage of world production has increased p p 25% of world production is sold outside its country of origin The term refers to the elimination of barriers to international movement of goods, services, capital, technology, and people that influence the integration of world economies n That is, integration of world economies 1 -3

Measuring Globalization p Two problems in measuring globalization: n n p Degree of two countries’ interdependence must be measured indirectly When national boundaries shift, domestic business transaction can become international or vice versa Some countries are more globalized than others. Some are globalized on one dimension more than on other dimensions n Dimensions p p Economic: International trade and investment Technological: Internet connectivity Personal contact: Intl travel and tourism, telephone traffic, personal transfers of funds Political: Participation in intl organizations and governement monetary funds 1 -4

What is International Business? p International business consists of all commercial transactions—including sales, investments, and transportation—that take place between two or more countries n increasingly foreign countries are a source of both production and sales for domestic companies p n n The ‘Made in’ label is no more correct The private businesses seek profit The governments seek profit and/or politics 1 -5

Why Study Intl Business? p It is important to study international business because IB is now a large proportion of world’s total business n Most companies are either international or compete with international companies (secure supplies, sell output, compete) n Global events and competition affect almost all companies, regardless of industry (need to approach operating strategies from international standpoint) n n n International companies have more complex environments than domestic firms. An understanding of IB helps you make better and informed career decisions An understanding helps you decide what government 1 -6 policies to support

IB: Complex set of relationships among conditions and operations 1 -7

International Business Doing business at home may not be the same as doing it in another country p Differences: p n n n p Modes of business Physical, social, competitive conditions Diverse and complex operating environments Effects n n Profits Employment security and wages Consumer prices National security 1 -8

Forces Driving Globalization 1. Increase in and application of technology Developing and not just producing; innovations Improving pace of production and transport of perishable goods 2. Liberalization of cross-border trade and resource movements Reasons: reduce uncertainty, more variety at lower prices, competition increases efficiency, other countries remove barriers in return 3. Development of services that support international business Bank credits, currency exchanges, insurances; Universal Postal Union 4. Growth of consumer pressures Demand more, newer, better, differentiated products and services 1 -9

Forces Driving Globalization 5 Increased global competition Some businesses are ‘Born Global’ 6 Changing political situations and government policies Transformation of policies, bridging countries (communists and noncommunists), open seaports and airports and other transport channels 7 Expanded cross-national cooperation Treaties, agreements, and consultations To gain reciprocal advantage, seek joint problem solving, deal with concerns that are outside country boundaries (e. g. , diseases and natural disasters) 1 -10

Globalization vs Anti-globalization p Most of the world’s goods and services are still sold in the countries where they are produced p Principal source of capital in most countries is domestic and not international 1 -11

Costs of Globalization p Threats to national sovereignty n n n p Economic growth and environmental stress n p lose freedom to “act locally” Threat to national interests, objectives, and policies Cultural homogeneity (customs, traditions, values, language) growth consumes nonrenewable natural resources and increases environmental damage Growing income inequality and personal stress n promotes global superstars at the expense of others 1 -12

Costs of Globalization p Offshoring, a type of outsourcing, involves the transferring of production abroad n n p it can be beneficial because it reduces costs but, it also means that jobs move abroad Yet, offshoring may also create new, better jobs at home 1 -13

Why Companies Engage in IB p To expand sales p To acquire resources and willingness) n pursuing international sales increases the potential market and potential profits n p (depends on consumer interests may give companies lower costs, new and better products, and additional operating knowledge (services, resources, and components) To diversify or reduce risks n international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage n Different business cycles; price swings and shortages from place to place 1 -14

Why Companies Engage in IB p Advanced communication systems have enabled better control and supervision of global operations p Three reasons (sales expansion, resource acquisition, risk minimization) Guide all decisions about whether, where, and how to engage in international business 1 -15

Modes of Operations in IB p p p Merchandise exports n Tangible goods that are sent out of a country Merchandise imports n Tangible goods that are brought into a country Sometimes referred to as visible exports and imports p Flag of convenience: The registration of a ship by shipping company that charges low taxes p When national borders shift (countries’ merge or separate), physical barriers to exporting and importing are created 1 -16

Modes of Operations in IB Non-product international earnings p Service exports n provider of services and receiver of payment p Service imports n recipient of services and payer of payment p Examples/ Forms of services n Tourism and transportation n Service performance p turnkey operations (construction projects performed under contract) and management contracts (personnel offered) n Asset use p licensing (use patents, copyrights, and expertise for royalty) and franchising 1 -17

Modes of Operations in IB p p Dividends and interests paid on foreign investments are also service exports and imports Investments n Foreign Direct Investment (FDI) p investor takes a controlling interest in a foreign company § joint venture n Portfolio Investment p a non-controlling financial interest in another entity (e. g. , stocks in a company or loans in the form of bonds, bills, or notes) § Mutual funds often include international companies 1 -18

Modes of Operation in IB p International companies operate internationally Variety of Terms but together they can be called as collaborative arrangements p p Collaborative arrangements n Joint ventures n Licensing arrangements n Management contracts n Minority ownership n Long-term contractual arrangements Strategic alliance n companies that work together, but the agreement is critical to at least one partner n an agreement that does not involve joint ownership 1 -19

Types of International Organizations p Multinational enterprises (MNEs) p n take a global approach to markets and production or have operations in more than one country p p Usually BIG size Typically uses most of the modes of intl business Sometimes they are referred to as n n n multinational corporations (MNCs) multinational companies (MNCs) transnational companies (TNCs) 1 -20

Types of International Organizations p In foreign markets, companies often have to adapt their typical methods of doing business n n foreign conditions may dictate a particular method operating modes may be different from those used domestically 1 -21

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 (geography) social factors (politics, law, culture, economics) competitive factors (number and strength of suppliers, customers, and competitors 1 -22

Physical and Social Factors p Geographic influences n p Political policies n p influence how a company operates Behavioral factors n n p countries determine where and how business occurs within their borders Legal policies n p natural conditions influence business locations may require adaptation in to local conditions High individualist are competitive and high masculine people ‘live to work’ Economic forces n 1 -23 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 1 -24

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 1 -25

Looking to the Future p Three major perspectives on the future of international business and globalization n Further globalization is inevitable International business will grow primarily along regional rather than global lines Forces working against further globalization and international business will slow down both trends 1 -26

Summary Globalization is the widening set of interdependent relationships among people from different parts of a world divided into nations p International business consists of all commercial transactions—including sales, investments, and transportation—that take place between two or more countries p 1 -27

Summary 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 helps you make better career decisions An understanding helps you decide what government policies to support 1 -28

Summary p p The factors of International Business include: Geographic influences n p Political policies n p influence how a company operates Behavioral factors n p Countries determine where and how business occurs within their borders Legal policies n p natural conditions influence business locations may require adaptation in to local conditions Economic forces n explain differences in costs, currency values, market size 1 -29