Chapter One The Rapid Change of International Business

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

Understand definitions for firms that operate in several countries Understand drivers that lead firms to internationalize Appreciate the dramatic internationalization of markets Comprehend why international business differs from domestic business Describe the domestic, foreign, and international environment in which a company operates internationally

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International Business Terminology

International

business terms Foreign business Multidomestic company (MDC) Global company (GC) International company (IC)

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International Business Terminology

International Business A business whose activities are carried out across national borders Foreign Business The operations of a company outside its home or domestic market Multidomestic Company An organization with affiliates in many countries Each formulates its own business strategy Strategy based on perceived differences in markets
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International Business Terminology

Global Company Attempts to standardize and integrate operations worldwide in most or all functional areas International Company Denotes a global or multidomestic company

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History of International Business

Early traders Early BC Mesopotamian, Phoenician and Greek merchants China stimulated the emergence of an internationally integrated trading system all roads lead to China Ottoman Empire 17th Century mercantilism/colonialism British East India Company Dutch East India Company Portugal and France
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Globalization

The world economic globalization process Theodore Levitts (1983) view--now seen as simplistic: Tech advances altered communication, transportation, travel to create a global consumer who prefers standardized products The entire world [or major regions of it] is now a single entity; an organization can sell the same things in the same way everywhere Todays view International integration of goods, technology, information, labor, and capital The process of making this integration happen
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Globalizations Outcome: Globality

Globality: describes economic globalizations unavoidable outcome Nothing that happens on our planet is only a limited local event All inventions, victories, and catastrophes affect the whole world

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Globalizations Outcome: Globality

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Globalization Forces
Globalization is a result of Political forces that reduce barriers to trade and foreign investment by governments induce privatization of industries of former communist nations Technological forces that lead to advances in computers and communications technology allow low cost network computing and ubiquitous Internet collaboration across borders
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Globalization Forces
Globalization is a result of Market forces lead to globalizing companies need for their suppliers to globalize too allow easier revenue seeking activity abroad due to home market saturation Cost forces demand economies of scale -- product line and manufacturing -- to reduce unit costs lower cost production factor seeking efforts in other countries Competitive forces more intense due to explosive growth internationally of small and new businesses
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Globalization Forces

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Globalization Forces

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What is International Business?

International Business (IB): any business transaction across national borders Trade in goods Cross-border services consulting, advertising, legal, financial, accounting tourism, banking, communications/media, construction management, etc. Company activity inputs may involve IB activity even if outputs do not Firms revenues may come entirely from the home country Key raw materials, knowledge, processes may come partially or entirely from other countries
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Ways A Company May Be Internationalized

A company can become internationalized when its top managers come from different countries it operates abroad through subsidiaries, joint ventures, or strategic alliances it generates revenues, owns assets, or employs people in many countries it raises capital in financial markets abroad it has major shareholders from many countries

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Ways A Company May Be Involved in International Business

A company is involved in international business by working with others who are abroad Managers of its own subsidiaries Customers, suppliers, agents Overseas service providers: bankers, advertising executives, lawyers, auditors, government officials, transportation managers Service providers from home country who work with with the companys overseas operations traveling overseas for company business
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Rapid Growth of International Business

The rapid growth of international business is a result of dramatic increases of foreign direct investment (FDI) and exports FDI: A firm invests in equipment, structures, and organizations in another country while retaining significant management control Exports: Sale and transfer of any good or service from the firms home country to another country
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Rapid Growth of International Business

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Globalization Debate Supporting Free Trade

Free trade enhances socioeconomic development promotes more and better jobs

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Concerns With Globalization

Produces uneven results across nations and people Has deleterious effects on labor and labor standards Contributes to the decline of environmental and health conditions

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Environment of International Business

Two sets of forces in the IB environment influence the development and operations of a firm External Forces (Uncontrollable) Those that management cannot control Internal Forces (Controllable) Those that management can develop and use to formulate and execute the firms strategy given particular external forces
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External Forces That Affect IB Due To Cross-Border Differences Cross1. 2.

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Competitive Competitor kinds, number, locations, activities Distributive National and international agencies that distribute goods and services Economic Factors such as GNP, unit labor cost, and personal consumption expenditures that matter to business and vary among countries

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External Forces That Affect IB Due To Cross-Border Differences Cross4.

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Socioeconomic Characteristics and distribution of human population Financial Interest rates, inflation rates, and taxation Legal Foreign, domestic, and international laws governing a firms IB operations Physical Natural elements: natural resources (i.e., factors of production), topography, climate
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External Forces That Affect IB Due To Cross-Border Differences Cross8.

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Political Government forms, international organizations Sociocultural National culture similarities or differences that affect international managers Labor Composition, skills, attitudes of labor Technological Technical skills and equipment that affect how resources are converted to products
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Internal Forces That Managers Can Influence Across Borders

Factors of production Capital, raw materials, people Activities of the organization Personnel management, finance, production, marketing

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Why Is IB Different?

In IB a firm operates in multiple environments Domestic environment - uncontrollable forces Has forces that surround and influence the firms behavior in the home country These remain mostly the same regardless of where in the country the firm operates

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Why Is IB Different?

In IB a firm operates in multiple environments Foreign environment country-by-country uncontrollable forces influence the firms behavior and are different from those of the domestic environment based on values that differ difficult to assess for the firms home managers interrelated
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Why Is IB Different?

The international environment is characterized by interaction between domestic and foreign country environmental forces among foreign country environmental forces Hence, decision making is more complex due to environment force differences and interactions culture differences that are difficult to learn the tendency of managers to rely on their own cultures reference points
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