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International Business.

We experience international transactions daily, Imports/exports reach us even in remote areas, technology and e-business promote trade and Global talent contributes to efficiency/competitiveness. E.g. 1. Idea for product hatched in Singapore. 2. Concept approved in Houston. 3. Concept design done in Singapore. 4. Engineering Design in Taiwan, where many computer components are made; initial manufacture by a Taiwanese contractor. 5. Final assembly in Singapore, Australia, China and India. Products made in Australia, China and India are primarily for those markets; machines made in Singapore go to all of Southeast Asia. What Is International Business? Business transactions between parties from more than one country Parties may include: Private individuals Individual companies Groups of companies Governmental agencies International business is becoming more important due to globalization. International Business Players. MNCs, SBEs and GBFs. Multinational Corporation - Business that has direct investments abroad in multiple countries. Small Businesses and Entrepreneurs Small companies and individuals becoming increasingly active in international trade and investment. Born Global Firm Adopts a global perspective and engages in international business from or near its inception. The revenue of the worlds 10 most global firms can beat GDP of many nations, like Royal Dutch Shell. An international business is any firm that engages in international trade or investment across national borders. Managing an international business differs from managing a domestic business because: Countries are different, the range of problems confronted in an international business is wider and the problems more complex than those in a domestic business, firms have to find ways to work within the limits imposed by government intervention in the international trade and investment systems, international transactions involve converting money into different currencies, many more uncertainties. Globalization. The world is advancing from self-contained, somewhat independent, national economies towards an interdependent, integrated global economic system. Globalization refers to the shift towards a more integrated and interdependent world economy. It changes the very nature of the firm such as firm strategy and structure. Impacts the forces of competition for the firm the competitive game is enlarged and intensified. Impacts the consumer and the buyer through democratization effects. Two forms of globalization. Globalization of markets Convergence in buyer preferences in markets around the world. Globalization of production Dispersal of production activities worldwide to minimize costs or maximize quality. The globalization of markets refers to the merging of historically distinct and separate national markets into one global marketplace. In many industries, it is no longer meaningful to talk about the German market, American market, Chinese market etc. Rather there is now one global market in some industries. Falling trade barriers make it easier to sell internationally. The tastes and preferences of consumers are converging to some global norms. Firms help create the global market by offering the same products worldwide. However, country differences do remain.

The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of productions such as land labor or capital. For example, Australian and New Zealand firms outsource and offshore manufacturing activity into china and services activity into India. The competitive imperative demands that firms compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offering. Benefits of global markets Reduces marketing costs, Creates new market opportunities, Levels income stream. Benefits of Global Production Lower cost labor, technical expertise, production inputs. Labor and resources Companies can access workers and resources in favorable business climates almost anywhere in the world. Challenges to business. Physical security Examine company vulnerability and create a disaster recovery plan. Digital security Guard proprietary information and confidential communications. Reputational risk Require ethical and lawful behavior from all employees and business partners in all countries. Emergence of global institutions needed to help manage, regulate and police the global marketplace. Promote the establishment of multinational treaties to govern the global business system. Institutions created over the past half century include: General Agreement on Tariffs and Trade (GATT), WTO, IMF, World Bank and UN. Drivers of globalization Two macro factors underlie the trend toward greater globalization: The decline in barriers to the free flow of goods, services and capital that has occurred since the end of WorldWar 2. Technological change across various dimensions, but essentially those that lubricate international transacting. Globalisation Drivers Falling barriers. Remove barriers to trade and investment. GATT, WTO and regional trade agreements. International trade occurs when a firm exports goods or services to consumers or other producers in another country. FDI occurs when a firm invests resources in business activities outside its home country. After World War 2, advanced countries made a commitment to lower barriers to trade and investment. Since 1950, average tariffs have fallen significantly and are not at about 4%. Countries have also been opening markets to FDI. Lower barriers to trade and investment mean that firms can view the world rather than a single country as their market the globalisation of markets. That firms can base production in the optimal location for that activity The globalisation of production. Technological Innovation. Email and videoconferencing = Better coordination and control. Internet, intranets and extranets = Improved communications and management. Transportation advancements = More efficient, dependable shipping. Technological change has made the globalisation of markets a reality. Important advances have occurred in: microprocessors and telecommunications the Internet and World-Wide-Web transportation technology. Implications of technological change for the globalisation of production include: lower transportation costs that enable firms to disperse production to economical, geographically separate locations, lower information processing and communication costs that enable firms to create and manage globally dispersed production systems.

The role of technological change. Implications of technological change for the globalisation of markets include low cost global communications networks help create an electronic global marketplace. Low cost transportation help create global markets. Global communication networks and global media are creating a worldwide culture and a global market for consumer products. Jobs and Wages Pros and Cons. Opponents of globalisation: Eliminates jobs in developed nations, lowers wages in developed nations and exploits works in developing nations. Supporters: Increases wealth and efficiency everywhere, generates labor market flexibility in developed countries, advances economies of developing nations. Globalisation critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries. Supporters of globalisation contend that the benefits of this trend outweigh the costs that countries will specialize in what they do most efficiently and trade for other goods and all countries will benefit. Labor, environment and Markets. Opponents of globalisation argue that globalization lowers labor standards, weakens protection of the environment and exploits workers in poor nations. Supporters claim that investment raises labor standards, open economies are most environment friendly and companies concerned for future markets. Globalisation critics argue that firms avoid costly efforts to adhere to labour and environmental regulations by moving production to countries where such regulations do not exist or are not enforced: the footloosedness of MNEs through the globalisation of production. Globalisation supporters claim that tougher environmental and labour standards are associated with economic progress, so as countries get richer from free trade, they get tougher environmental and labour regulations. National Sovereignty. Opponents Supranational institutions reduce autonomy of national, regional and local governments. Supporters Globalisation has benefited societies by helping to spread democracy worldwide. Critics of globalisation worry that todays interdependent global economy is shifting economic power away from national governments toward supranational organisations like the WTO, the EU and the UN. Supporters of globalisation contend that the power of these organisations is limited to what nationstates agree to grant, and that the power of the organisations lies in their ability to get countries to agree to follow certain actions. Critics of globalisation argue that the gap between rich and poor nations is widening. Supporters of globalisation claim that the best way for the poor nations to improve their situation is to reduce barriers to trade and investment, implement economic policies based on free market economies and to receive debt forgiveness for debts incurred under totalitarian regimes. Impact on Culture. Opponents Destroys cultural diversity, homogenizes our world, bankrupts local small businesses. Supporters Specialize and trade to obtain other goods. Import cultural goods from other nations. Protect deeper moral and cultural norms. Many former Communist nations in Europe and Asia are now committed to democratic politics and free market economies and so create new opportunities for international businesses. China and Latin America are also moving toward greater free market reforms. The global economy of the twenty-first century: The world is moving toward a more global economic system, but globalisation is not inevitable. Globalisation also brings risks like the financial crisis that swept through South-East Asia in the late 1990s.

GLOBAL BUSINESS ENVIRONMENT