Chapter 1

Globalization and International Business

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Learning Objectives

To define globalization and international business and show how they affect each other To understand why companies engage in international business and why international business growth has accelerated To discuss globalizations future and the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives

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Introduction
Learning Objective 1: To define globalization and international business and show how they affect each other

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Introduction
Globalization is the ongoing process that deepens and broadens the relationships and interdependence among countries International business is a mechanism to bring about globalization

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Introduction

International business consists of all commercial transactionsincluding sales, investments, and transportationthat take place between two or more countries

increasingly foreign countries are a source of both production and sales for domestic companies

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Introduction

It is important to study international business because

Most companies are either international or compete with international companies Modes of operations may differ from those used domestically The best way of conducting business may differ by country An understanding helps you make better career decisions An understanding helps you decide what government policies to support
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Introduction
Factors in International Business Operations

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Forces Driving Globalization

1.

2.
3. 4. 5.

6.
7.

Increase in and application of technology Liberalization of cross-border trade and resource movements Development of services that support international business Growing consumer pressures Increased global competition Changing political situations Expanded cross-national cooperation
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Measuring Globalization
Globalization can be difficult to measure The A.T. Kearney/Foreign Policy Globalization Index ranks countries by

Economic dimensions Technological dimensions Personal contact Political dimensions recently ranked Singapore and Hong Kong as most globalized
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Costs of Globalization
Learning Objective 3: To discuss globalizations future and the major criticisms of globalization

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Costs of Globalization

Threats to national sovereignty

lose freedom to act locally

Economic growth and environmental stress

growth consumes nonrenewable natural resources and increases environmental damage

Growing income inequality and personal stress

promotes global superstars at the expense of others

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Costs of Globalization

Offshoring involves the transferring of production abroad

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

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Why Companies Engage in IB

Learning Objective 2: To understand why companies engage in international business and why international business growth has accelerated

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Why Companies Engage in IB

To expand sales

pursuing international sales increases the potential market and potential profits
may give companies lower costs, new and better products, and additional operating knowledge international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage
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To acquire resources

To diversify or reduce risks

Why Companies Engage in IB

These three reasons

sales expansion resource acquisition risk minimization

guide all decisions about whether, where, and how to engage in international business

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Modes of Operations in IB
Learning Objective 4: To become familiar with different ways in which a company can accomplish its global objectives

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Modes of Operations in IB

Merchandise exports

goods that are sent out of a country

goods that are brought into a country

Merchandise imports

Sometimes referred to as visible exports and imports

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Modes of Operations in IB

Service exports provider and receiver of payment Service imports recipient and payer of payment Examples Tourism and transportation Service performance turnkey operations and management contracts Asset use licensing and franchising
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Modes of Operations in IB

Investments

Foreign Direct Investment (FDI) investor takes a controlling interest in a foreign company joint venture Portfolio Investment a non-controlling financial interest in another entity

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Types of International Organizations

Collaborative arrangements

Joint ventures Licensing arrangements Management contracts Minority ownership Long-term contractual arrangements
companies that work together, but the agreement is critical to at least one partner an agreement that does not involve joint ownership
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Strategic alliance

Types of International Organizations

Multinational enterprises (MNEs)

take a global approach to markets and production or have operations in more than one country
multinational corporations (MNCs) multinational companies (MNCs) transnational companies (TNCs)

Sometimes they are referred to as

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Types of International Organizations

In foreign markets, companies may have to adapt their typical methods of doing business

foreign conditions may dictate a particular method operating modes may be different from those used domestically

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