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Chapter 1:An Overview ofInternationalBusiness

International Business, 4th Edition

Griffin & Pustay

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Salt LakeAthens Sydney Toronto China

Why do cities compete so hard for the Olympic Games?

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The Business of the Olympics

Intense reflection of international business Competition for hosting Revenue sources for the Olympics

– Broadcast rights– Corporate sponsorships– Licensing– Tourism

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The Business of the Olympics

How would the Olympics look if corporations were not allowed to participate?

Would the Olympics exist without the corporate sponsors?

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What is International Business?

Business transactions between parties from more than one country– Buying & selling raw materials, finished

goods, or services across borders.

– Operating factories or facilities overseas.

– Borrowing money in one country to finance operations in another.

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How Does International BusinessDiffer from Domestic?

Currency conversions are required Differing legal systems Cultural differences Economic differences Infrastructure differences

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Why Study International Business?

Most of us will work for companies that have international connections.

To develop cultural literacy. To keep in step with management

tools, production techniques, and technology that other countries are developing.

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Can you think of foreign-owned firms that have invested in the US?

Why do you think they have invested in the US?

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Why Companies Trade

To increase sales & broaden markets To seek cheaper raw materials or to

lower production costs To find goods not available in

domestic markets, or at a lower price than those available domestically

To seek better prices for their products

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International Business Activities

Exporting and Importing International Investments Licensing, Franchising, and

Management Contracts

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Exporting and Importing

Exporting: selling of products made in one’s own country for use or resale in other countries

Importing: buying of products made in other countries for use or resale in one’s own country

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53% of Boeing’s aircraft sales are to foreign airlines

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Visible and Invisible Trade

Trade in Goods– Merchandise exports and imports

– Visible trade

Trade in Services– Service exports and imports

– Invisible trade

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International Investments

Capital supplied by residents of one country to residents of another

2 categories:– Foreign direct investments

– Portfolio investments

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Other Forms of International Business Activity

Licensing: firm in one country licenses the use of its intellectual property to a firm in a second country in return for a royalty payment

Franchising: firm in one country authorizes a firm in another country to utilize its operating system and intellectual property

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Management Contracts

A firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed-upon fee

Common in upper-end international hotel industry

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This Beijing restaurant is one of 430 that McDonald’s has built in China

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Variations of Organizations

Multinational Corporation (MNC) Multinational Enterprise (MNE) Multinational Organization (MNO)

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Multinational Corporations (MNCs)

Engage in foreign direct investment Own and control foreign assets Buy resources in multiple countries Create goods and services in multiple

countries Sell goods and services in multiple

countries

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Table 1.1 The World’s Largest Corporations – 2002

Rank Name Country Revenues $Mil

1 Wal-Mart Stores U.S. 246,525

2 General Motors U.S. 186,763

3 Exxon Mobil U.S. 182,466

4 Royal Dutch/Shell Netherlands 179,431

5 BP Britain 178,721

6 Ford Motor U.S. 163,871

7 DaimlerChrysler Germany 141,421

8 Toyota Motor Japan 131,754

9 General Electric U.S. 131,698

10 Mitsubishi Japan 109,386

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Motives for Globalization

To leverage core competencies To acquire resources and supplies To seek new markets To better compete with rivals

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Environmental Change and Globalization

Changes in Political Environment Technological Changes