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Page 1: Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one

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

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Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999

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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.

Page 4: Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one

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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)

Page 6: Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one

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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)

Page 9: Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one

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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

Page 10: Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one

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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

Page 18: Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one

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

1-17

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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

1-18


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