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Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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eInternational
BusinessDiverse, Competitive and Subject to
Rapid Technological Changes
International Business
Diverse, Competitive and Subject to Rapid Technological ChangesConcept Preview
After reading this chapter, you should be able to:
1. appreciate the dramatic internationalization of markets
2. understand the various names given to firms that have substantial operations in more than one country
3. appreciate the profound effect of the internet on many international business firms
4. understand the five kinds of drivers, all based on change, that are leading international firms to the globalization of their operations
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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one
chap
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eInternational
BusinessDiverse, Competitive and Subject to
Rapid Technological Changes
International Business
Diverse, Competitive and Subject to Rapid Technological ChangesConcept Preview continued
After reading this chapter, you should be able to:
5. comprehend why international business differs from domestic business.
6. describe the three environments—domestic, foreign, international —in which an international company operates.
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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1-3
Introduction
Why Study International Business? International Business Terminology History of International Business Why is International Business
Different? Focus of This Course
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Table 1.11-4
*At 1996 prices and exchange rates.Sources: “Gross Domestic Product,” National Accounts of OECD Countries, 1997, vol.. 1, February 1997; http://www.oecdwash.org/PRESS/CONTENT/gdpfeb97.htm (April 22, 1997); World Development Report 1995; National Accounts OECD 1997 , www.oecd.org/publications/observer/figures/TRADE_A.pdf
Import Penetration (%) Goods and Services GDP*
Exports Imports
1996 1970 1996 1970 1996 1970 1996 1970
United Kingdom 28.2% 23.4% $314 $25 $322 $25 $1,135 $107
Germany 23.5 19.3 570 39 550 35 2,361 185
France 21.4 15.5 361 23 324 22 1,548 143
United States 12.3 6.7 793 68 906 68 7,263 1,012
Japan 9.0 9.8 483 22 406 20 4,597 204
Import Penetration, 1970 versus 1996 ($ billions)
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International Business Terminology1-5
Multinational company is an organization with multi-country affiliates, each of which formulates its own business strategy based on perceived market differences
Global company is an organization that attempts to standardize operations worldwide in all functional areas
International company refers to both global and multinational companies International business is business whose activities involve the crossing of national borders
Foreign business denotes the domestic operations within a foreign country
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1-6 Global Management
Searches the world for: market opportunities threats from competitors sources of products, raw materials, and financing personnel
Seeks to maintain a presence in key markets Looks for similarities, not differences, among
markets
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1-7
History of International Business
International trade is not a new aspect of business Globalization forces
computers and communications reduction of barriers to trade unification of the global community
International business as a business practice is not new
1600 British East India Company Shipping routes to the east opened by Dutch
companies in 1590 American colonial traders of the 1700’s Singer Sewing Machine 1868 (Scotland)
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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oneGlobalization Forces1-8
Political Unification and socialization of the
global community NAFTA European Union Progressive reduction of barriers to
foreign trade and investment by most governments
Privatization of much of the industry in former communist nations
Market As companies globalize, they become global
customers Finding the home market saturated is sending
companies to foreign markets Convergence of customer tastes and lifestyles
Technology Advances in computers and
technology Internet and network computing Ease of obtaining information
and making transactions Company web sites to furnish
information
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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oneGlobalization Forces
Cost Economies of scale reduce unit
costs Globalize product lines to reduce
development production inventory costs
Locate production in countries where the costs of the factors of production are lower
Competitive Competition continues to
increase in intensity New firms have entered world
markets Companies are defending their
home markets form competitors by entering the competitors’ home markets
Larger trading groups (countries) offer attractive, large markets
1-9
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Foreign Direct Investment1-10 Table 1.2
Increase of FDI in U.S. as a percentage of global FDI increase, 1980 versus 1996 ($ billion)
Global FDI Increase FDI in U.S. Increase FDI in U.S.
1980 1996 1996-1980 1980 1996 1996-1980 Global FDI
(1) (2) (3) (4) (4)/(2)
Canada $23 $111 $88 $10 $54 $44 50.0%
United Kingdom 81 356 275 12 143 131 47.6%
Netherlands 42 185 143 17 74 57 40.0
Japan 19 330 311 4 118 114 36.7
France 24 206 182 3 49 46 25.3
Switzerland 21 153 132 4 35 31 23.5
Germany 43 288 245 5 62 57 23.3
Sweden 6 76 70 6 9 3 4.3
Italy 7 118 111 <1 3 3 2.7
Note: = Increase
Sources: UNCTAD, World Investment Report 1997 (New York: United Nations, 1997), p. 319; and Survey of Current Business, July 1997, p. 39, and August 1982, p. 36
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Country FDI Stock as Percentage of Global FDI (1980 versus 1996)1-11
Figure 1.2
43.5
3.3
33
25
10.4
44.2
0
10
20
30
40
50
United States Japan European Union1980 1996 1980 1996 1980 1996
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Recent Developments
Lessening of American dominance -
The top 100 industrial firms ranked by sales
1-12
Table 1.3-I
1980 1996
45 United States 32 United States
42 Western Europe 38 Western Europe
8 Japan 23 Japan
1 South Korea 4 South Korea
1 Brazil 1 Brazil
1 Mexico 1 Mexico
1 Venezuela 1 Venezuela
1 Canada
100 100Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.
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Recent Developments1-13
Table 1.3 -II
1959 1981 1996
1. General Motors (U.S.) 1. General Motors (U.S.) 1. General Motors (U.S.)
2. Ford (U.S.) 2. Ford (U.S.) 2. Ford (U.S.)
3. Chrysler (U.S.) 3. Fiat (Italy) 3. Toyota (Japan)
4. American Motors (U.S.) 4. Renault (France) 4. Daimler-Benz (Germany)
5. Volkswagen (Germany) 5. Volkswagen (Germany) 5. Volkswagen (Germany)
6. British Motor (U.K.) 6. Daimler-Benz (Germany) 6. Daewoo (Korea)
7. Fiat (Italy) 7. Peugeot (France) 7. Chrysler (U.S.)
8. Daimler-Benz (Germany) 8. Toyota (Japan) 8. Nissan (Japan)
9. Renault (France) 9. Nissan (Japan) 9. Fiat (Italy)
10. Simca (France) 10. Mitsubishi (Japan) 10. Honda (Japan)
Change in leadership in sales volume - Automobile Industry
Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.
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Recent Developments1-14
Table 1.3 -III
Industry 1959 1996
Aerospace 8 United States 6 United States 2 European 2 European*
Chemicals 7 United States 7 European3 European 2 United States
1 Japanese
Metal Manufacturing 9 United States 3 European1 European 4 Japanese
1 Australian1 South Korean
Electronics 7 United States 1 United States 3 European 7 Japanese
3 European
Pharmaceuticals 7 United States 6 United States 3 European 4 European
Change in leadership in five other industries
*Only eight firms in this industry are in the Fortune Global 500.Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.
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Recent Developments1-15
Table 1.3 -IV
1996 1995 1989
United States 162 153 167
Japan 126 141 111
France 42 42 29
Germany 41 40 32
United Kingdom 34 32 43
Countries with the most companies on Fortune Global 500 List
Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.
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1-16 Why is International Business Different?
Environment all the forces surrounding and influencing the life and
development of the firm
Uncontrollable forces external forces over which management has no direct
control, although it can exert and influence
Controllable forces internal forces that management administers to adapt
to the changes in the uncontrollable forces
Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999
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oneUncontrollable Forces
Competitive kinds and numbers of competitors,
their locations, and their activities
Distributive national and international agencies
available for distributing goods and services
Economic variables (such as GNP, unit labor
cost, and personal consumption expenditure) that influence a firm’s ability to do business
Socioeconomic characteristics and distribution of the
human population Financial
variables such as interest rates, inflation rates and taxation
Legal the many kinds of foreign and domestic
laws by which international firms must operate
Physical elements of nature such as
topography, climate, and natural resources
Political elements of nations’ political climates
such as nationalism, forms of government, and international organizations
Sociocultural elements of culture (attitudes, beliefs,
and opinions) important to international business people
Labor composition, skills, and attitudes of
labor Technological
the technical skills and equipment that affect how resources are converted to products
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International Managers Must Deal With Three (3) Environments Instead of One
Domestic composed of all the
uncontrollable forces in the home country that influence the firm
managers are most familiar with these forces
domestic forces can influence foreign operations
Foreign forces are same as domestic
environment except they occur in foreign nation
different force values changes difficult to access forces are interrelated
International interactions between the domestic environmental
forces and the foreign environmental forces interaction between the foreign environmental forces
of two countries when an affiliate does business in one country does business with customers in another
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