Part One:

three Concepts and Theories in IB.

Part One: Concepts and
One

Learning Themes for This Section

Chapter

reading this chapter, you should be able to:

in IB.

1. Understand the major theories of why trade

occurs.
Theories

2. Comprehend the differences between

traditional and contemporary trade theory.
3. Explain why FOREIGN DIRECT
INVESTMENT is important to International
Business.

Copyright, John Wiley and Sons, Inc.

 Part One:
three Concepts and Theories in IB.
Part One: Concepts and
One

Learning Themes for This Section (cont)

Chapter

reading this chapter, you should be able to:

in IB.

4. Know the general trends in FOREIGN

DIRECT INVESTMENT stock and flow
Theories

worldwide.
5. Identify the major organizational forms in
international business.

Copyright, John Wiley and Sons, Inc.

 One International
Business in an Age
three of Globalization
Chapter One

Learning Concepts – Chapter 1 :

Chapter

1. Understand globalization and why it is

important.
2. Comprehend why and how globalization can
be perceived as a benefit and as a threat.
3. Explain the differences between important
international business terms.

Copyright, John Wiley and Sons, Inc.

 One International
Business in an Age
three of Globalization
Chapter One

Learning Concepts – Chapter 1 (cont)

Chapter

4. State the differences between international

business and domestic business practices.
5. Appreciate why firms expand internationally.

Copyright, John Wiley and Sons, Inc.

Chapter One An Age of Globalization

Globalization is everywhere. For consumers, it

means more choice, lower prices, and blurred
national identities. For business, it means lower
costs, better supply, and more markets.

Copyright, John Wiley and Sons, Inc.

 Globalization – Who benefits?

Developing countries benefit from globalization

Chapter One
−
with increased employment, tax revenues, and
international relations.
− Developed countries benefit from globalization
with increased production, imports, exports, and
corporate growth.

Copyright, John Wiley and Sons, Inc.

 Globalization and Corporate
Monopoly
Chapter One

There is an argument that governments will surrender

their sovereignty to global corporations. This is not
true – globalization does, however, open
governments to the reality of trade and pluralistic
influence.

Copyright, John Wiley and Sons, Inc.

 Globalization and the
Environment
Chapter One

Does globalization hurt the natural environment?

Probably not. Resources show that globalization
actually helps the natural environment through the
national development it fosters.

Copyright, John Wiley and Sons, Inc.

 Globalization – The Social Impact

− Globalization can cause job transitions in

Chapter One

home and host countries.

− Globalization causes wages to go up in
developing countries and can put downward
wage pressure among unskilled workers at
home.
− Globalization also causes capital to enter and
exit economies easier and more frequently,
which causes economic uncertainty.

Copyright, John Wiley and Sons, Inc.

 Globalization and International
Business
Chapter One

Some suggest that globalization causes cultural

homogenization. This isn’t true. Globalization
causes people to be more aware of their national
culture and background, not less.

The challenge, is to lever resources to maintain

productivity in light of increasing nationalism and
cultural awareness.

Copyright, John Wiley and Sons, Inc.

Chapter One What is International Business?

International business (IB) refers to business activities

that involve the transfer of resources, goods,
services, knowledge, skills, or information across
national boundaries.

IB uses raw materials, capital and people to

accomplish these goals.

Copyright, John Wiley and Sons, Inc.

 IB – Some Key Terms
− International Transactions are economic
Chapter One

transactions that cross borders.

− International Trade occurs when
companies imports or export across
borders.
− International Investment occurs when a
company invests its resources across
national boundaries.
− International Firms are those engaged in
international business.
− A Multinational Enterprise (MNE) invests
globally and actively controls those
investments.
Copyright, John Wiley and Sons, Inc.
 International U.S. Domestic
Business
Chapter One

IB is an outgrowth of domestic practice. Most

international firms started as domestic ones.
Toyota, Honda, Mitsubishi, Renault, Jaguar; all
started as domestic business. As these firms grew,
they became MNEs.

Copyright, John Wiley and Sons, Inc.

Chapter One Why Do Firms Go Global?

− Market Motives can gain, protect, or hold a

market position.
− Economic Motives occur when firms seek
higher returns on investments or lower costs.
− Strategic Motives help a firm capitalize on
distinctive resources or develop capabilities that
are rare, imitable, valuable, and not
substitutable.

Copyright, John Wiley and Sons, Inc.

Chapter One Examples of Global Motives

− Market Motives -
where a firm
seeks to gain,
protect, or hold
market position.
− Amway gains
market position in
China.
− Honda protects
market share by
building cars in
the USA.

Copyright, John Wiley and Sons, Inc.

Chapter One Examples of Global Motives

− Economic
Motives - where
a firm seeks to
increase ROI or
decrease costs.
− Scania moves
production to
Mexico to lower
costs.
− Michelin improves
by building tires in
Canada.

Copyright, John Wiley and Sons, Inc.

Chapter One Examples of Global Motives

− Strategic
Motives - where
firms seek to
leverage
distinctive
competencies.
− Exxon drills for oil
in Asia and the
Middle East.
− Procter and
Gamble sell food
in China.

Copyright, John Wiley and Sons, Inc.

Chapter One Globalization – In summary

− Globalization is complex and expensive. It

forces business firms to adopt strategies and
operations to different cultures and climates.
When business can do this, and this is what this
class is all about, it can achieve a very good
return on investment and useful global
operations.

Copyright, John Wiley and Sons, Inc.