CHAPTER 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 the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives

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DEFINITION OF GLOBALIZATION
The broadening set of interdependent relationships among people from different parts of a world that happens to be divided into nations

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DEFINITION OF INTERNATIONAL BUSINESS

All commercial transactionsincluding sales, investments, and transportationthat take place between two or more countries.

Business transactions between parties from more than one country.

Parties may include: Private individuals Individual companies Groups of companies Governmental agencies

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REASONS THAT FIRMS ENGAGE IN INTERNATIONAL BUSINESS

Expanding sales: Companies like:
Volkswagen Ericsson IBM Sony Michelin Nestle

Acquiring resources Minimizing risk

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HOW DOES INTERNATIONAL BUSINESS DIFFER FROM DOMESTIC?

Currency conversion Legal systems

Culture
Availability of resources

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INTERNATIONAL BUSINESS ACTIVITIES

Exporting and Importing International Investments

Licensing, Franchising, and Management Contracts

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EXPORTING AND IMPORTING

Exporting: selling of products made in ones own country for use or resale in other countries

Importing: buying of products made in other countries for use or resale in ones own country

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VISIBLE AND INVISIBLE TRADE

Trade in Goods Merchandise exports and imports Visible trade Trade in Services Service exports and imports Invisible trade

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MODES OF OPERATION IN INTERNATIONAL BUSINESS

Merchandise exports and imports Service exports and imports Tourism and Transportation Service Performance: Turnkey Operations
Management Contracts

Asset Use Investments

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INTERNATIONAL INVESTMENTS
Capital supplied by residents of one country to residents of another

Two categories: Foreign direct investments Joint Venture Mixed Venture Portfolio investments

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EXPORTS AND IMPORTS OF PAKISTAN

FIGURE 1.1 EXPORTS AS A % OF GDP

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OTHER FORMS OF INTERNATIONAL BUSINESS ACTIVITY

Management contracts

Licensing

Franchising

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TYPES OF INTERNATIONAL ORGANIZATIONS AND VARIATIONS OF ORGANIZATIONS Multinational Corporation (MNC)

Multinational Enterprise (MNE) Multidomestic Company

Transnational Company (TNC)

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MULTINATIONAL CORPORATIONS (MNCS)

Engage in foreign direct investment Own and control foreign assets Buy resources in multiple countries Create goods and services in multiple countries Sell goods and services in multiple countries

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TABLE 1.1 THE LARGEST MNCS

ExxonMobil Wal-Mart Royal Dutch Shell BP General Motors Chevron DaimlerChrysler Toyota Motor Ford Motor ConocoPhillips

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MOTIVES FOR GLOBALIZATION

To leverage core competencies To acquire resources and supplies To seek new markets To better compete with rivals

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GLOBALIZATION AND EMERGING MARKETS

Argentina Brazil China India Indonesia

Mexico Poland South Africa South Korea Turkey

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VIEWS ON FUTURE OF INTERNATIONAL BUSINESS AND GLOBALIZATION

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.

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