Download Chapter 2 The Global Context of Business

Fourth Edition
PART 1 . . . . . . . . . . . . . . . . . . . . . . . .
Understanding the Contemporary
Business Environment
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Chapter 2
The Global Context of
Business
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Exercise
Give me stories of different products and
marketing approaches in other countries, and
compare them in Palestine?
What evidence have we seen in the last ten
years of growing international business
partnership?
Trade agreements- global mergers- joint
ventures- licensing
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“We are in the midst of a
great transition from narrow
nationalism to international
partnership.”
~ Lyndon Baines Johnson
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Key Topics
The rise of global business
Major world marketplaces and Palestine
trading partners
Influences on international business
International business management
The impact of differences among nations
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The key drivers to globalization
Drivers:
Global
market
Convergence
Similar customer needs,
Global customers, Transferable marketing
Scale economies,
Sourcing efficiencies
Cost
Countries costs,
Advantages
High product development costs
Trade policies, Technical
GovernmentStandards,
host government, Global
Influence
policies
Strategies
Interdependence, Competitors global
High exports/imports,
Global
Competition
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Globalization Is Gaining Speed
The world economy is
becoming a single,
interdependent system
Export:
Domestic product sold abroad
Import:
Foreign product sold
domestically
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Globalization Is Gaining Speed
Example: Asian financial markets in the late
90s directly affects stock markets
worldwide.
Discussion: what product from other
countries do you use\consume? Why have
you chosen it? Why not Palestinian product?
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Categorizing Economies
High Income Countries:
Per capita income greater than $9,386
Middle Income Countries:
Per capita income between $765 and $9,386
Low Income Countries:
Per capita income of less than $765
Discussion: what countries fall into each category?
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Major World Marketplaces
North America NAFTA
Europe EU
Pacific Asia
Do we have any economic
agreement with other
countries. What are they?
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The North American Marketplace (NAFTA)
Canada
United States
Mexico
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Europe and the Nations of the European Union
• Austria
• Luxembourg
• Portugal
• Sweden
• Belgium
• Netherlands
• Spain
• United Kingdom
• Denmark
• Finland
• France
• Germany
• Greece
• Ireland
• Italy
• Ireland
• Italy
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The Nations of ASEAN
• Brunei
• Indonesia
• Malaysia
• Philippines
• Singapore
• Thailand
• Vietnam
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Pacific Asia Represents
Enormous Business Potential
Projections for 2010 (in millions)
In less than a
decade, Asian
language
speakers on
the web will
far exceed
English
speakers
500
450
400
350
300
250
200
150
100
50
0
96
34
English
Source: Time Global Business, Nov. 2001
432
415
Japanese
Chinese
Korean
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Competitive Advantage
Absolute Advantage:
when one country can produce a product cheaper and\or higher quality than any
other country. Ex. OPEC
Comparative Advantage:
when one country can produce certain goods or services more efficiently and
effectively than others. Ex. US software
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Competitive advantages
When competitive advantage is
materialized?
When a firm earns persistently higher rate of
profit over its rivals.
Determinants of profit level
1- Value of company products in customers’
eyes.
2- Company production cost.
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Competitive advantage
It can be created in certain industrial field,
through the adoption of low-costdifferentiation strategy. .M. Porter
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National Competitive Advantage
Factor conditions
Demand conditions
Related and supporting
industries
Strategies, structures, and
rivalries
Qui. Evaluate Palestine?
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Import/Export Balances
Balance of Trade
Trade Deficits
Trade Surpluses
Balance of Payments
The total flow of money into or out of an economy
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Exchange Rates
Heavily Impact Global Trade
When an economy’s currency is strong:
Domestic companies find it harder to export
products
Foreign companies find it easier to import
products
Domestic companies may move production to
cheaper sites in foreign countries
Implications for balance of trade?
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Exchange Rates
Heavily Impact Global Trade
When an economy’s currency is weak:
Domestic companies find it easier to export
products
Foreign companies find it harder to import
products
Foreign companies may invest in production
facilities
Implications for balance of trade?
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The U.S. Economy Has a Growing Trade Deficit
U.S. Trade Deficit
(in billions)
(in billions)
$400,000
1400
350,000
1200
300,000
1000
250,000
800
255,971
1600
344,716
U.S. Imports & Exports
200,000
600
Imports
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Exports
1999
2000
1998
1997
1996
1995
1994
1993
1992
1991
1990
105,932
102,113
95,947
97,039
68,949
0
28,266
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
50,000
1990
200
78,857
100,000
35,666
400
166,898
150,000
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Does It Make Sense to Go International?
Is there
international
demand for
the firm’s
product?
YES
Can the
product be
modified to fit
a foreign
market?
NO
NO
YES
Is the foreign
business
climate suited
to imports?
YES
NO
NO
Does the
firm have or
can it get the
necessary
skills and
knowledge
to do
business
abroad?
YES
Stay Domestic
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Go International
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Levels of International Involvement
Importer & Exporter
International Firms
Multinational Firms
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International Organizational Structures
INVOLVEMENT
HIGH
LOW
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Foreign Investment
Strategic Alliances
Branch Offices
Licensing Arrangements
Independent Agents
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Barriers to International Trade
Social & Cultural
Differences
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Legal & Political
Differences
Economic
Differences
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Take Time to Learn the Culture Thoroughly!
Este es nuestro
nuevo auto:
el NOVA!
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Ha, ha, ha, ha,
ha, ha!!!
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The Customer’s Language
A Critical Business Success Factor
In the U.S. alone, 18% of the population
does not speak English at home.
Only 48% of the world’s Web users are
native English speakers.
Consumers are four times more likely to buy
a product on the Internet if the website is in
their preferred language.
Source: Time Global Business, Nov. 2001
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Economic Differences
To operate effectively in another country,
businesses must know when, and to what
extent, the government is involved in a
given industry.
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Legal & Political Differences
Quotas, Tariffs, & Subsidies
Protectionism
Local Content Laws
Business Practice Laws
Day to day operations
Cartels
Dumping
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Definitions
Quota: restriction on the number of certain type of
product that can be imported into a country.
Embargo: complete ban on imports and exports,
imposed by a government for political reasons.
Tariff: tax levied on imported products.
Subsidy: government payments to help a domestic
business compete with foreign firms.
Protectionism: the practice of protecting domestic
business against foreign competition.
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Chapter Review
Discuss the rise of international business,
describe the major world marketplaces.
Explain how competitive advantage, importexport balances, exchange rates, and foreign
competition shape international business
strategies.
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Chapter Review
Discuss what factors influence whether a
company should engage in international
business.
Identify different levels of international
involvement and international organizational
structure.
Describe key barriers to international trade.
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