Transcript Slide 1
Section One
The Nature of International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
This chapter covers:
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•Internationalization of
markets
•Various names given to
firms in multiple countries
The Rapid Change of
International Business
•Effect of the internet on
international business
•Drivers leading firms to
globalization of product
•Differences between
domestic and international
businesses
•Three environments of
international business
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
Appreciate the dramatic internationalization of markets.
Understand the various names given to firms that have
substantial operations in more than one country.
Appreciate the profound effect of the Internet on many
international business firms.
Understand the five kinds of drivers that are leading
international firms to the globalization of their operations.
Comprehend why international business differs from
domestic business.
Describe the three environments--domestic, foreign, and
international--in which an international company operates
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International Business Experience
Seventy-nine percent of CEOs believe all business
majors should have an introductory international
business course
Seventy percent will consider expertise in foreign
language and international exposure in hiring
decisions
The majority of CEOs consider courses related to
international business relevant to their company
Managers wanting to advance will need to have
foreign experience
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International Business Terminology
The United Nations
uses transnational instead of multinational to
describe a firm doing business in more than one
country.
Business people
define a transnational as a company formed by a
merger of two firms of approximately the same size
that are from two different countries
Unilever (Dutch-English)
Dunlop-Pirelli (English-Italian)
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Definitions
International Business
is a business whose activities are carried out across
national borders.
includes international trade and foreign
manufacturing
also includes a growing service industry in areas such
as
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transportation, tourism, advertising, construction,
retailing, wholesaling, and mass communication.
Definitions
Foreign Business
domestic operations within a foreign country
A Multidomestic Company
has multicountry affiliates, each of which formulates
its own business strategy based on perceived market
differences.
A Global Company
attempts to standardize and integrate operations
worldwide in all functional areas.
International Company
describes both global and multidomestic companies
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Global Company- By Whose Definition?
Have a worldwide presence in its market
Allen-Edmonds produces all shoes in Port Washington,
Wisconsin – ships to over 33 nations
Standardize operations worldwide in one or more functional
areas
P&G has operations in more than 70 countries and sells
essentially the same products in over 140 countries
Integrate operations worldwide
Multicultural multinationals respond to local markets,
produce products worldwide, exploit knowledge and
technology on a global basis
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History of International Business
Phoenician and Greek merchants sent abroad before
time of Christ
1600’s British East India Company established
branches in Asia
1700’s American colonial traders begin operations
FDI prior to Civil War by Colt Fire Arms and Ford
1800’s Singer Sewing Machine first foreign
production
1914 at least 37 American companies producing
overseas
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Globalization
Economic Globalization
is the international integration of goods, technology,
labor, and capital.
refers to the implementation of global strategies
which link and coordinate a firm’s international
activities on a worldwide basis.
definition continues to broaden to include
political, social, environmental, historical, geographical,
and cultural implications
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Globalization Forces
There are five major kinds
of drivers that are leading
international firms to the
globalization of their
operations.
Political
Technological
Market
Cost
Competitive
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Globalization Forces
Political
There is a trend toward the unification and
socialization of the global community.
Preferential trading agreements
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NAFTA
European Union
Globalization Forces
Technological
Advancements in computers and communication
technology are permitting an increased flow of ideas
and information across borders.
The Internet and network computing enables small
companies to compete globally.
Business to business commerce is experiencing
significant savings by using the Internet for business
exchanges.
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Web is used to find suppliers
Web is used to process purchase orders
Globalization Forces
Market
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As companies globalize,
they also become global
customers.
Companies follow
customers abroad
Saturation of the home
market
Customer tastes and
lifestyles are
converging
Globalization Forces
Cost
Economies of scale to reduce unit cost are always a
management goal.
Globalizing product lines can reduce development,
production, and inventory costs can help achieve
economies of scale.
Companies can also locate production in countries
where production costs are lower.
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Globalization Forces
Competitive
Competition continues to increase in intensity.
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Newly industrialized and developing countries
Companies are defending their home markets from
competitors by entering the competitors’ home
markets to distract them.
Explosive Growth
Foreign Direct Investment
One commonly used measure of growth
Refers to direct investment into equipment,
structures, and organizations in a foreign
country sufficient to obtain management
control
World stock of FDI rose from $519 billion in 1980 to
$6.6 trillion in 2001.
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Explosive Growth
Exporting
Refers
to the transportation of any domestic
good or service to a destination outside the
home country or region
The level of world merchandise exports more
than tripled from 1980 to 2002.
The level of service exports worldwide more
than quadrupled in the same period.
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Number of International Companies
In 2002, the United Nations estimated there were
over 63,800 companies with a total of over 866,000
foreign affiliates accounting for two-thirds of world
trade.
Foreign affiliates’ sales were $17.7 trillion in 2002.
Growth due in part to liberalization of government
policies toward foreign investment
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2002 Top International Firms
Ranking Nation or Firm
1. United States
2. Japan
3. Germany
4. United Kingdom
5. France
6. China
7. Italy
8. Canada
9. Mexico
10. Spain
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Total Sales for 2002 ($billion)
$10,207.0
4,323.9
1,876.3
1,510.8
1,362.1
1,234.2
1,100.7
702.0
597.0
296.5
The Globalization Debate
Supporting
Free trade advances
economic development
Expanded trade creates
more and better jobs
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Reduces poverty,
improves education,
health and life
expectancy
Must manage the costs
and transition of workers
Globalization Concerns
produces uneven results
across nations and people
has negative effects on
labor and labor standards
Increases gap between
rich and poor
Jobs migrate to
developing nations
contributes to decline in
environment and health
conditions
Forces in the Environment
Environment
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The sum of all forces
surrounding and
influencing the life and
development of the firm.
Forces can be classified as
External forces
Management can
exert influence but
cannot control
Internal forces
Management must
administer and adapt
External Environmental Forces
Competitive
Kind, number, location
Distributive
For goods and services
Economic
GNP, labor cost
Socioeconomic
Characteristics of
population
Financial
Interest rates, inflation,
taxes
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Legal
Laws governing business
Physical
Topography, climate
Political
Form of government
Sociocultural
Attitudes, beliefs
Labor
Skills, attitudes
Technological
Equipment, skills
Internal Environmental Forces
Factors of production
Capital, raw material,
and people
Activities of the
organization
Personnel, finance,
production, and
marketing
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Domestic Environment
Composed of all the uncontrollable forces
originating in the home country that surrounds and
influences the life and development of the firm
Managers
May
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most familiar
affect foreign operations
Foreign Environment
Operates differently than the domestic environment
for the following reasons
Different force values
Changes difficult to assess
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Particularly political and legal forces
Forces interrelated
International Environment
The International Environment is
the interaction between the domestic environmental
forces and the foreign environmental forces.
the interaction between the foreign environmental
forces of two countries when an affiliate in one
country does business with customers in another.
Decision making is more complex
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International Business Model
Figure 1.2 here
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International business
transactions take place across
national borders and may
involve three environments.
Domestic
Foreign
International
United States Commercial Service
The U.S. Commercial Service offers four ways to
grow your international sales:
world-class market research
trade events that promote your product or service to
qualified buyers
introductions to qualified buyers and distributors
counseling through every step of the export process
www.export.gov/comm_svc/
The Language of Trade (Examples)
AD VALOREM EQUIVALENT
— The duty collected under a
specific tariff or a compound
tariff expressed as a percentage
of the value of the imported
item. Since a specific tariff is
calculated on the basis of units
(of volume or weight), rather
than value, and since prices can
change over time, the ad
valorem equivalent could differ
when calculated for different
time periods.
www.usinfo.state.gov/products/p
ubs
AGREEMENT ON RULES OF
ORIGIN — A WTO agreement
addressing the rules that
determine the country of origin
of an imported product. Rules
of origin play an important role
in international trade due to the
fact that the application of
duties and other restrictions on
entry often depends on the
deemed source of the imports.
The agreement provides for
harmonization in the practices
of WTO members in
determining the country of
origin of products.
Top Five Global Companies*
Europe
BP
Royal Dutch/Shell
Group
Daimler Chrysler
Total
Allianz
*According to Fortune 500
Asia
Toyota Motor
Nippon Telegraph
and Telephone
Hitachi
Honda Motor
Sony
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