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McGraw-Hill/Irwin
International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
• International business
• Foreign business
• Multidomestic company (MDC)
• Global company (GC)
• International company (IC)
1-4
International Business Terminology,
cont’d.
• International Business
– A business whose activities are carried out
across national boarders
• Foreign Business
– The operations of a company outside its
home or domestic market
• Multidomestic Company
– An organization with multicountry affiliates
• Each formulates its own business
strategy on perceived market differences
1-5
International Business Terminology,
cont’d.
• Global Company
– an organization that attempts to standardize
and integrate operations worldwide in most
of all functional areas
• International Company
– A global or multidomestic company
1-6
History of International Business
• Early traders
– Well before the time of Christ, Phoenician
and Greek merchants
– China stimulated the emergence of an
internationally integrated trading system
• “all roads lead to China”
1-7
Globalization
• Globalization
– Coined by Theodore Levitt
• “as if the entire world (or major regions of
it) were a single entity; [such an
organization] sells the same things in the
same way everywhere”
• Economic Globalization
– International integration of goods,
technology, information, labor, and capital
– Process of making this integration happen
1-8
Table 1.1 Globalization Rankings: The KOF Index
of Globalization and the A.T Kearney/Foreign
Policy Globalization Index
1-9
Globalization Forces
• Political forces
– Reduction of barriers to trade and foreign
investment by governments
– Privatization of former communist nations
• Technological forces
– Advances in computers and communications
technology
– Internet and network computing
1-10
Globalization Forces, cont’d.
• Market forces
– Globalizing companies become global customers
• Cost forces
– Goal for economies of scale to reduce unit costs
• Competitive forces
– Increase in intensity due to explosive growth in
international business
1-11
Explosive Growth
1-12
Table 1.2 FDI Indicators and Multinational
Company Statistics (billions of dollars and
percentages)
1-13
Explosive Growth
Note: Belgium (B), China (PRC), France (F), Germany (G), Italy (It), Netherlands (N), Switzerland (S), United Kingdom (U.K.), and United
States (U.S.). Source: World Development Indicators database, http://devdata.worldbank.org/data-query/ (July 4, 2006); and Fortune
2005 Global 500, http://money.cnn.com/magazines/fortune/global500/2005 (July 4, 2006).
1-15
Environments of International
Business
• Environment
– All the forces influencing the life and
development of the firm
• Forces
– External Forces (Uncontrollable) – Forces
over which management has no direct
control
– Internal Forces (Controllable) – Forces that
management can use to adapt to external
forces
1-16
External Forces
• Competitive
– Kind, number, location
• Distributive
– For distributing goods and services
• Economic
– GNP, unit labor cost, personal consumption
expenditure
• Socioeconomic
– Characteristics of human population
• Financial
– Interest rates, inflation rates, taxation
1-17
External Forces, cont’d.
• Legal
– Laws governing how international firms must operate
• Physical
– Topography, climate, and natural resources
• Political
– Forms of government, and international organizations
• Sociocultural
– Attitudes, beliefs, and opinions
• Labor
– Skills, attitudes of labor
• Technological
– Equipment and skills that affect how resources are converted to
products
1-18
Internal Environmental Forces
• Factors of Production
– Capital, raw materials, and people
1-19
Why Is International Business
Different?
• Domestic Environment
– All the uncontrollable forces in the home country
that surround and influence the firm’s life and
development
• Foreign Environment
– All the uncontrollable forces originating outside the
home country that surround and influence the firm
• different values
• difficult to assess
• interrelated
1-20
Why Is International Business
Different? cont’d.
• International Environment
– Interaction between domestic and foreign
environmental forces or between sets of
foreign environmental forces
– Increased complexity for decision-making
1-21
International Business Model
1-22