chap01 the rapid change of international business

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The Rapid Change of The Rapid Change of International BusinessInternational Business

Chapter One

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.



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Learning ObjectivesLearning Objectives

Understand definitions for firms that operate in several

countries

Understand drivers that lead firms to internationalize

Appreciate the dramatic internationalization of markets Comprehend why international business differs from

domestic business

Describe the domestic, foreign, and international

environment in which a company operates

internationally



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International Business TerminologyInternational Business Terminology

International business terms

Foreign business

Multidomestic company (MDC)

Global company (GC)

International company (IC)

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International Business

A business whose activities are carried out acrossnational borders

Foreign Business

The operations of a company outside its home or domestic market

Multidomestic Company

An organization with affiliates in many countries

Each formulates its own business strategy

Strategy based on perceived differences inmarkets

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Global Company

Attempts to standardize and integrate operations

worldwide in most or all functional areas

International Company Denotes a global or multidomestic company

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History of History of International BusinessInternational Business

Early traders

Early BC Mesopotamian, Phoenician and Greek

merchants

China stimulated the emergence of aninternationally integrated trading system

³all roads lead to China´

Ottoman Empire

17th Century mercantilism/colonialism British East India Company

Dutch East India Company

Portugal and France



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GlobalizationGlobalization

The world economic globalization process

Theodore Levitt¶s (1983) view--now seen assimplistic:

Tech advances altered communication,transportation, travel to create a globalconsumer who prefers standardized products

The entire world [or major regions of it] is now asingle entity; an organization can sell the samethings in the same way everywhere

Today¶s view

International integration of goods, technology,information, labor, and capital

The process of making this integration happen

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Globalization¶s Outcome: GlobalityGlobalization¶s Outcome: Globality

Globality: describes economic globalization¶s

unavoidable outcome

Nothing that happens on our planet is only a

limited local event All inventions, victories, and catastrophes

affect the whole world

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Globalization¶s Outcome: GlobalityGlobalization¶s Outcome: Globality

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Globalization ForcesGlobalization Forces

Globalization is a result of

Political forces that

reduce barriers to trade and foreign investmentby governments

induce privatization of industries of former communist nations

Technological forces that

lead to advances in computers andcommunications technology

allow low cost network computing and ubiquitousInternet collaboration across borders

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Globalization is a result of

Market forces

lead to globalizing companies¶ need for their suppliers toglobalize too

allow easier revenue seeking activity abroad due to homemarket saturation

Cost forces

demand economies of scale -- product line and manufacturing-- to reduce unit costs

lower cost production factor seeking efforts in other countries

Competitive forces

more intense due to explosive growth internationally of smalland new businesses

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What is International Business?What is International Business?

International Business (IB): any business transaction across

national borders

Trade in goods

Cross-border services

consulting, advertising, legal, financial, accounting tourism, banking, communications/media, construction

management, etc.

Company activity inputs may involve IB activity even if outputs

do not

Firm¶s revenues may come entirely from the home country

Key raw materials, knowledge, processes may come

partially or entirely from other countries

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Ways A CompanyWays A Company

May Be InternationalizedMay Be Internationalized A company can become internationalized when

its top managers come from different countries

it operates abroad through subsidiaries, joint

ventures, or strategic alliances

it generates revenues, owns assets, or employs

people in many countries

it raises capital in financial markets abroad

it has major shareholders from many countries

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Ways A Company May Be InvolvedWays A Company May Be Involvedin International Businessin International Business

A company is involved in international business by

working with others who are abroad

Managers of its own subsidiaries

Customers, suppliers, agents

Overseas service providers: bankers,

advertising executives, lawyers, auditors,

government officials, transportation managers

Service providers from home country who work

with with the company¶s overseas operations

traveling overseas for company businessLO3LO3



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Rapid Growth of Rapid Growth of International BusinessInternational Business

The rapid growth of international business is a result

of

dramatic increases of foreign direct investment

(FDI) and exportsFDI: A firm invests in equipment, structures,

and organizations in another country while

retaining significant management control

Exports: Sale and transfer of any good or service from the firm¶s home country to another

country

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Rapid Growth of Rapid Growth of International BusinessInternational Business

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Globalization DebateGlobalization DebateSupporting Free TradeSupporting Free Trade

Free trade

enhances socioeconomic development

promotes more and better jobs

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Concerns With GlobalizationConcerns With Globalization

Produces uneven results across nations and

people

Has deleterious effects on labor and labor

standards Contributes to the decline of environmental and

health conditions

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Environment of Environment of International BusinessInternational Business

Two sets of forces in the IB environment influence the

development and operations of a firm

External Forces (Uncontrollable)Those that management cannot control

Internal Forces (Controllable)

Those that management can develop and use

to formulate and execute the firm¶s strategygiven particular external forces

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External Forces That Affect IBExternal Forces That Affect IBDue To CrossDue To Cross--Border DifferencesBorder Differences

1. Competitive

Competitor kinds, number, locations, activities

2. Distributive

National and international agencies thatdistribute goods and services

3. Economic

Factors such as GNP, unit labor cost, andpersonal consumption expenditures that matter

to business and vary among countries

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External Forces That Affect IB DueExternal Forces That Affect IB DueTo CrossTo Cross--Border DifferencesBorder Differences

4. Socioeconomic

Characteristics and distribution of humanpopulation

5. Financial

Interest rates, inflation rates, and taxation

6. Legal

Foreign, domestic, and international lawsgoverning a firm¶s IB operations

7. Physical

Natural elements: natural resources (i.e.,factors of production), topography, climate

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External Forces That Affect IB DueExternal Forces That Affect IB DueTo CrossTo Cross--Border DifferencesBorder Differences

8. Political

Government forms, international organizations

9. Sociocultural

National culture similarities or differences thataffect international managers

10. Labor

Composition, skills, attitudes of labor

11. Technological Technical skills and equipment that affect how

resources are converted to productsLO5LO5



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Internal Forces That Managers CanInternal Forces That Managers Can

Influence Across BordersInfluence Across Borders

Factors of production

Capital, raw materials, people

Activities of the organization Personnel management, finance,

production, marketing

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Why Is IB Different?Why Is IB Different?

In IB a firm operates in multiple environments

Domestic environment - uncontrollable forces

Has forces that surround and influence the firm¶s

behavior in the home country

These remain mostly the same regardless of

where in the country the firm operates

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In IB a firm operates in multiple environments

Foreign environment country-by-country

uncontrollable forces influence the firm¶s behavior

and are

different from those of the domestic environment

based on values that differ

difficult to assess for the firm¶s home managers

interrelated

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The international environment is characterized byinteraction

between domestic and foreign countryenvironmental forces

among foreign country environmental forces

Hence, decision making is more complex due to

environment force differences and interactions

culture differences that are difficult to learn

the tendency of manager¶s to rely on their ownculture¶s reference points

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chap01 the rapid change of international business

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