International Business

• To understand the basics of international business and its environment • To develop the analytical skills required to compete effectively in this environment

Evaluation and Grading

Internal Evaluation 50:

Individual assignments: 20% Mid term: 20% Project work: Module Test: 10% 10% End Term: -------------------------------------------------------------- TOTAL 40% 100% •

External Evaluation 50:

PU Board Exam: 100%

Please note that number of assignments can be more than two & some might be in form of test/case study in the class

•

itself

•Project work case analysis and presentation

Late submission of assignment will result in grade reduction

Reference Books

1. Hill, Charles W.L. & Jain, Arun Kumar (2007): International Business (Competing in the Global Marketplace); Sixth Edition: Tata McGraw Publishing Company Ltd. 2. Bennett, Roger (2006): International Business; Second Edition: Pearson Education 3. Daniels John D., Radebaugh Lee H., Sullivan Daniel P. & Salwan P. (2010): International Business (Environments and Operations); Twelfth Edition: Pearson Education - Please make good use of

INTERNET

- Please do keep update with the changes

Overview of Global Business

• Meaning of international business and globalization • Drivers of globalization • Overview of changing global picture • Declining trade barriers • Change in communication, information and transportation technologies

International Business

International Business involves

• Commercial activities that cross national frontiers • International movement of goods, capital, services, employees & technology, import and export • • • licensing and franchisee investment in physical infrastructure buying and selling in foreign countries

•

International Business

Political risk • Commercial risk (market failure, product not appeal to customers) • Financial risk (inflation, tax rate, exchange rate) • Manager skill should be broad range • Dependence on foreign consultant, intermediaries, advisers • Difficult to monitor trends and activities in foreign countries

International Business & Domestic business

• Special problems and cases that arises in IB that normally not experienced in domestic • Deals carried out in foreign language under foreign law, customs and regulations • Information on foreign countries required difficult to obtain - Exchange rate - Cultural differences - Complex control and communication - High risk level

Why IB?

Expand Sales Acquire source from foreign countries Diversify activities Saturation in domestic market Discovery of lucrative opportunity in foreign market Obtain economics of scale and also economics of scope might also be available

Why IB?

High cost of new product development process Cross border trade is easier to organize than in past (better communication, visit) Spreading commercial risk in several countries Involvement in IB can facilitate ‘experience curve’ effect

Globalization

-

Globalization: the trend towards a more integrated and interdependent global economic system - Effects of globalization can be seen everywhere: - the cars people drive - the food people eat - the jobs where people work - the clothes people wear

Globalization

Globalization of markets:

-Historically distinct and separate national markets are merging into one huge global marketplace - Tastes and preferences of consumers in different nations are beginning to converge upon some global norm Examples: Sony Playstation Citicorp credit cards , Coca-Cola, McDonald's hamburgers

Globalization Globalization of production:

-

Source goods and services from different

locations around the globe -

Take advantage of national differences in

the cost and quality of factors of production (such as land, labor, capital and energy) Compete more effectively against their rivals. Examples: Boeing, Adidas, Nike

Globalization

Emergence of

GLOBAL INSTITUTIONS

like WTO, IMF, World Bank, UN Help to regulate, manage and police the global market place and promote the establishment of multinational treaties to govern global business system

Globalization

Drivers of globalization

Declining trade and investment barriers Technological change Development of services that support IB Growing consumer pressure Increased global competition Changing political situation Expanded Cross-national Cooperation

Drivers of Globalization

Declining Trade and Investment Barriers

- Industrialized countries of the West began the process of removing barriers to the free flow of goods, services, and capital between nations after World War II - Under General Agreement of Tariffs and Trade GATT, over 100 nations negotiated further decreases in tariffs & also non-tariff barriers

-

Drivers of Globalization

Under the WTO: dispute resolution and the enforcement of trade laws, and cut tariffs on industrial goods, services, and agricultural products Removal of barriers to trade has contributed to increased

international trade

(the export of goods or services to consumers in another country), world output, and

foreign direct investment

With removal of trade barriers many countries have also removal of restrictions in FDI Growth of FDI outflow increased from $ 25 billion in 1975 to projected $1.4-1.6 trillion in 2011

Drivers of Globalization

Drivers of Globalization

- Firms are dispersing parts of their overall production to different parts of location around the globe to drive down production costs and increase product quality - Economies of the world`s nation-sates are becoming more intertwined and expansion of trade nations are becoming increasingly dependent on each other for important goods and services

Drivers of Globalization Average Tariff Rates on Manufactured Product as Percent of Value

France Germany Italy Japan Holland Sweden Britain United States

1913

21% 20 18 30 5 20 44 -

1950

18% 26 25 11 9 23 14 -

1990

5.9% 5.9

5.9

5.3

5.9

4.4

5.9

4.8

2003

4% 4 4 3.8

4 4 4 4

Drivers of Globalization

The Role of Technological Change The lowering of trade barriers made globalization of markets and production a theoretical possibility, technological change made it a tangible reality Microprocessors and Telecommunications: Major advances in communications and information processing have lowered the cost of global communication and therefore the cost of coordinating and controlling a global organization

Drivers of Globalization

• The Internet and the World Wide Web: Web-based transactions have grown from virtually zero in 1994 to nearly $7 trillion in 2004 • Transportation Technology: the most important developments are probably development of commercial jet aircraft and super freighters and the introduction of containerization, which greatly simplifies trans-shipment from one mode of transport to another • Improvements in transportation technology have enabled firms to better respond to international customer demands London – New York 1930: Steam ships, 10 days 1950s: Propeller Aircraft 200-300 mph, 2 days 1960s: Jet Aircraft 500-700mph, 8 hours 1990s: Supersonic Jets, 3 hours

Current Internet Users Data Country (Latest data) Penetra tion

Japan 99.14 million 78.2%

Growth

110.6% 2000-2010 India EU USA 100 million 475.06 million 266.22 million 8.5% 1520.0% 58.4% 352.0% 77.4% 146.3% 2000-2010 2000-2010 2000-2010 World 2095 million

www.internetworldstats.com

30.2% 480.4% 2000-2011

The Shrinking Globe

Drivers of Globalization

Development of services that support IB Companies and government developed variety of services that facilitate conduct IB Examples are sale of goods & services in foreign country & currency Bank arrangements, credit arrangements Growing consumer pressure Consumers are aware and can afford newly offered goods and services Want more, newer, better products/services

Drivers of Globalization

Growing consumer pressure Consumers do always search worldwide for better, newer services & goods via internet, trade fairs, trips abroad etc. Increased global competition The pressure, both present and potential of increased foreign competition persuade to buy and sell aboard More companies have merged with or been acquired by foreign companies to gain operating efficiencies and larger market share

Drivers of Globalization

Changing political situation End of schism between non communist world and once communist world Business between two camps used to be minimal and even within communist bloc minimal Governments willingness to support programmes favourable to international trade Expanded cross-national cooperation Treaties, agreements, consultations among different countries express and realise the interests of Governments

Drivers of Globalization

Expanded cross-national cooperation The main reasons for this to gain reciprocal advantages to attack problems jointly that one country acting alone cannot solve to deal with areas of concern that lie outside the territory of any nation

Changing Demographics Of Global Economy

In the 1960s: -U.S. dominated the world economy and the world trade picture -U.S. multinationals dominated the international business scene -About half the world-- the centrally planned economies of the communist world-- was off limits to Western international business

Changing World Output and World Trade Picture

In the early 1960s, the U.S. - world's dominant industrial power , 40.3 percent of world manufacturing output By 2005 the United States accounted for only 20.1 percent Rapid economic growth is now being experienced by countries such as China, Thailand, and Indonesia with share of world output Decline in the share of world output by industrialized countries such as Britain, Japan, and the United States

Changing World Output and World Trade Picture

Exports of Countries as % of Total World Exports Country

China* India Russia Canada USA Japan France Germany Italy

Year 1980 1985 1990 1995 2000 2004 2005 2006 2007 2008 2009

1.9

0.4

3.3

11.1

6.4

5.7

10.3

3.8

3.0

0.5

4.6

11.1

9.0

5.2

10.6

3.9

4.2

0.5

3.7

11.3

8.3

6.2

11.8

4.9

6.3

0.5

1.6

3.7

11.3

8.6

5.8

10.1

4.5

7.0

0.7

1.6

4.3

12.1

7.4

5.1

8.5

3.7

9.3

0.8

2.0

3.3

8.9

6.2

4.9

9.9

3.8

10.0

0.9

2.3

3.4

8.6

5.7

4.4

9.2

3.6

10.6

1.0

2.5

3.2

8.6

5.4

4.1

9.1

3.4

United Kingdom 5.4

5.1

5.3

4.6

4.4

3.8

3.7

*Exports form China includes of Hong Kong and Macau also

3.7

11.2

1.1

2.5

3.0

8.3

5.0

3.9

9.4

3.6

3.3

11.1

1.2

2.9

2.8

8.1

4.9

3.7

8.9

3.4

2.8

12.3

1.3

2.4

2.5

8.5

4.7

3.8

9.0

3.2

2.8

Source: UNCTAD Handbook of Statistics 2010

Imports of Countries as % of Total World Imports Country

China* India Russia Canada USA Japan France Germany Italy

Year 1980 1985 1990 1995 2000 2004 2005 2006 2007 2008 2009

2.1

0.7

3.6

0.8

3.8

0.7

6.2

0.7

6.6

0.8

8.8

1.1

8.9

1.3

9.1

1.4

9.3

1.6

9.3

2.0

10.8

2.0

3.0

12.4

6.8

6.6

10.0

4.8

4.0

17.3

6.4

5.4

8.9

4.3

3.4

14.4

6.5

6.7

9.6

5.1

1.3

3.2

14.7

6.4

5.7

8.9

3.9

0.7

3.7

18.9

5.7

5.1

7.4

3.6

1.1

3.0

16.1

4.8

5.0

7.5

3.7

1.3

3.1

16.1

4.8

4.7

7.2

3.6

1.5

2.9

15.5

4.7

4.4

7.3

3.6

1.7

2.7

14.2

4.4

4.3

7.4

3.6

2.0

2.5

13.2

4.6

4.3

7.2

3.4

1.7

2.6

12.8

4.4

4.4

7.4

3.2

United Kingdom 5.6

5.4

6.2

5.1

5.2

5.0

4.8

4.9

4.4

3.8

*Exports form China includes of Hong Kong and Macau also Source: UNCTAD Handbook of Statistics 2010

3.8

Changing Foreign Direct Investment Picture

-Share of world output generated by developing countries has been steadily increasing since the 1960s -Stock (total cumulative value of foreign investments) generated by rich industrial countries has been in decline - Flow of foreign direct investment (amounts invested across national borders each year) has been directed at developing nations especially China

Stock of FDI by the world’s six most important national sources

Changing Nature of Multinational Enterprises

- A multinational enterprise is any business that has productive activities in two or more countries.

Non-U.S. Multinationals

Expect the growth of new multinational enterprises from the world's developing nations e.g. Wipro, Infosys

Rise of Mini-Multinationals

- Number of mini-multinationals (small and medium-sized companies) is on the rise

The Changing World Order

Collapse of communism in Eastern Europe represents a host of export and investment opportunities for Western businesses - Economic development of China presents huge opportunities and risks (in spite of its continued Communist control) and also India is catching up Mexico and Latin America also present tremendous new opportunities both as markets and sources of materials and production Euro crisis in European Union countries In recent days there is some socialist movement/trend in Latin America (Bolivia, Venezuela) & recently Argentina nationalizes biggest oil company YPF in which majority of share is that of Repsol from Spain Lots of democratic movements in Arab World