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Section OneThe Nature of International Business
by Ball, McCulloch, Frantz, Geringer, and Minor
1
The Rapid Change ofThe Rapid Change of International BusinessInternational Business
McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
This chapter covers:
•Internationalization of markets
•Various names given to firms in multiple countries
•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 Businessby Ball, McCulloch, Frantz,
Geringer, and Minor
Chapter ObjectivesChapter Objectives 2
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
1-2
International Business ExperienceInternational Business Experience 3
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
1-3
International Business TerminologyInternational Business Terminology 5
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)
1-4
DefinitionsDefinitions 8
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 transportation, tourism, advertising,
construction, retailing, wholesaling, and mass communication.
1-5
DefinitionsDefinitions 8
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
1-6
Global Company- By Whose Definition?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
1-7
History of International BusinessHistory 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
1-8
GlobalizationGlobalization
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
1-9
Globalization ForcesGlobalization Forces 1111
There are five major kinds of drivers that are leading international firms to the globalization of their operations. Political Technological Market Cost Competitive
1-10
Globalization ForcesGlobalization Forces 1111
Political
There is a trend toward the unification and socialization of the global community.
Preferential trading agreements NAFTA European Union
1-11
Globalization ForcesGlobalization Forces 1111
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. Web is used to find suppliers Web is used to process purchase orders
1-12
Globalization ForcesGlobalization Forces 1212
Market As companies
globalize, they also become global customers. Companies follow
customers abroad Saturation of the
home market Customer tastes
and lifestyles are converging
1-13
Globalization ForcesGlobalization 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.
1-14
Globalization ForcesGlobalization Forces
Competitive
Competition continues to increase in intensity. Newly industrialized and developing countries
Companies are defending their home markets from competitors by entering the competitors’ home markets to distract them.
1-15
Explosive GrowthExplosive Growth 1313
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.
1-16
Explosive GrowthExplosive 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.
1-17
Number of International CompaniesNumber 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 $17.7 trillion in
2002.
Growth due in part to liberalization of
government policies toward foreign investment
1-18
2002 Top International Firms2002 Top International Firms
Ranking Nation or Firm1. United States2. Japan3. Germany4. United Kingdom5. France6. China7. Italy8. Canada9. Mexico10. Spain
1-19
Total Sales for 2002 ($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 DebateThe Globalization Debate
Supporting Free trade advances
economic development Reduces poverty,
improves education, health and life expectancy
Expanded trade creates more and better jobs Must manage the costs
and transition of workers
1-20
Globalization Concerns produces uneven
results across nations and people Increases gap between
rich and poor has negative effects on
labor and labor standards Jobs migrate to
developing nations contributes to decline in
environment and health conditions
Forces in the EnvironmentForces in the Environment 1818
Environment 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
1-21
External Environmental ForcesExternal Environmental Forces 1818
Competitive Kind, number, location
Distributive For goods and
services Economic
GNP, labor cost Socioeconomic
Characteristics of population
Financial Interest rates,
inflation, taxes1-22
Legal Laws governing
business Physical
Topography, climate Political
Form of government Sociocultural
Attitudes, beliefs Labor
Skills, attitudes Technological
Equipment, skills
Internal Environmental ForcesInternal Environmental Forces
Factors of production
Capital, raw material, and people
Activities of the organization
Personnel, finance, production, and marketing
1-23
Domestic EnvironmentDomestic Environment 1919
Composed of all the uncontrollable forces
originating in the home country that
surrounds and influences the life and
development of the firm
Managers most familiar
May affect foreign operations
1-24
Foreign EnvironmentForeign Environment 1919
Operates differently than the domestic environment for the following reasons
Different force values
Changes difficult to assess
Particularly political and legal forces
Forces interrelated
1-25
International EnvironmentInternational Environment 2121
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
1-26
International Business ModelInternational Business Model
International business transactions take place across national borders and may involve three environments.
Domestic
Foreign
International
Figure 1.2 here
1-27
United States Commercial ServiceUnited 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)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/pubs
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*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
Ecommerce Trademark and Patent ServicesEcommerce Trademark and Patent Services
Trademarks Trademark eBusiness
Search File Assign Ownership Search
Assignments Status File TTAB
Documents Search & View
TTAB Proceedings
www.ecommerce.gov
Patents Patent Electronic
Business Center Electronic Filing
(EFS) Status Information
(PAIR) Assign Ownership Search Assignments Patent Searches Sequence Searches
(biotech) Software