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International Business Environments & Operations 15e Daniels ● Radebaugh ● Copyright © 2015 Pearson Education, Inc. Sullivan 1-1 Chapter 1 Globalization and International Business Copyright © 2015 Pearson Education, Inc. 1-2 Learning Objectives Define globalization and international business and explain how they affect each other Grasp why companies engage in international business and why its growth has accelerated Discuss globalization’s future and the major criticisms of it Illustrate the different ways a company can accomplish its global objectives Recognize the need to apply social science disciplines to understand how international and domestic business differ Copyright © 2015 Pearson Education, Inc. 1-3 Introduction Globalization is the widening set of interdependent relationships among people from different parts of a world divided into nations The term sometimes refers to the elimination of barriers to international movement of goods, services, capital, technology, and people that influence the integration of world economies Copyright © 2015 Pearson Education, Inc. 1-4 Introduction International business consists of all commercial transactions—including sales, investments, and transportation—that take place between two or more countries increasingly foreign countries are a source of both production and sales for domestic companies Copyright © 2015 Pearson Education, Inc. 1-5 Introduction It is important to study international business because Most companies are either international or compete with international companies Global events and competition affect almost all companies, regardless of industry International companies have more complex environments than domestic firms. An understanding of IB helps you make better career decisions An understanding helps you decide what government policies to support Copyright © 2015 Pearson Education, Inc. 1-6 Introduction Factors in International Business Operations Copyright © 2015 Pearson Education, Inc. 1-7 Forces Driving Globalization 1. 2. 3. 4. 5. 6. 7. Increase in and application of technology Liberalization of cross-border trade and resource movements Development of services that support international business Growth of consumer pressures Increased global competition Changing political situations and government policies Expanded cross-national cooperation Copyright © 2015 Pearson Education, Inc. 1-8 Costs of Globalization Threats to national sovereignty Economic growth and environmental stress lose freedom to “act locally” growth consumes nonrenewable natural resources and increases environmental damage Growing income inequality and personal stress promotes global superstars at the expense of others Copyright © 2015 Pearson Education, Inc. 1-9 Costs of Globalization Offshoring, a type of outsourcing, involves the transferring of production abroad it can be beneficial because it reduces costs but, it also means that jobs move abroad Yet, offshoring may also create new, better jobs at home Copyright © 2015 Pearson Education, Inc. 1-10 Why Companies Engage in IB To expand sales To acquire resources pursuing international sales increases the potential market and potential profits may give companies lower costs, new and better products, and additional operating knowledge To diversify or reduce risks international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage Copyright © 2015 Pearson Education, Inc. 1-11 Modes of Operations in IB Merchandise exports Merchandise imports goods that are sent out of a country goods that are brought into a country Sometimes referred to as visible exports and imports Copyright © 2015 Pearson Education, Inc. 1-12 Modes of Operations in IB Service exports provider and receiver of payment Service imports recipient and payer of payment Examples Tourism and transportation Service performance turnkey operations and management contracts Asset use licensing and franchising Copyright © 2015 Pearson Education, Inc. 1-13 Modes of Operations in IB Investments Foreign Direct Investment (FDI) investor takes a controlling interest in a foreign company joint venture Portfolio Investment a non-controlling financial interest in another entity Mutual funds often include international companies Copyright © 2015 Pearson Education, Inc. 1-14 Modes of Operation in IB Collaborative arrangements Joint ventures Licensing arrangements Management contracts Minority ownership Long-term contractual arrangements Strategic alliance companies that work together, but the agreement is critical to at least one partner an agreement that does not involve joint ownership Copyright © 2015 Pearson Education, Inc. 1-15 Types of International Organizations Multinational enterprises (MNEs) take a global approach to markets and production or have operations in more than one country Sometimes they are referred to as multinational corporations (MNCs) multinational companies (MNCs) transnational companies (TNCs) Copyright © 2015 Pearson Education, Inc. 1-16 Types of International Organizations In foreign markets, companies often have to adapt their typical methods of doing business foreign conditions may dictate a particular method operating modes may be different from those used domestically Copyright © 2015 Pearson Education, Inc. 1-17 Why IB is Different The external environment affects a company’s international operations Managers must understand social science disciplines and how they affect functional business fields Consider physical factors social factors competitive factors Copyright © 2015 Pearson Education, Inc. 1-18 Physical and Social Factors Geographic influences Political policies influence how a company operates Behavioral factors countries determine where and how business occurs within their borders Legal policies natural conditions influence business locations may require adaptation in to local conditions Economic forces explain differences in costs, currency values, market size Copyright © 2015 Pearson Education, Inc. 1-19 The Competitive Environment Competitive strategy for products Company resources and experience Cost strategy Differentiation strategy Focus strategy market leaders have more resources for international operations Competitors faced in each market local or international Copyright © 2015 Pearson Education, Inc. 1-20 Future of Globalization Three major perspectives on the future of international business and globalization Further globalization is inevitable International business will grow primarily along regional rather than global lines Forces working against further globalization and international business will slow down both trends Copyright © 2015 Pearson Education, Inc. 1-21 Global Governance Politics/Peace- United Nations Trade- World Trade Organization (WTO) Money/Finance- International Monetary Fund (IMF) Development- World Bank Overall- G8 Nations (USA, Canada, UK, France, Germany, Italy, Japan, and Russia) Other international organizations and bodies 22 Chapter 1: Discussion Questions 1. 2. 3. 4. Define globalization and explain the forces driving globalization. Define globalization and explain the cost and future of globalization. What is global governance? Explain the role of each institution in Global Governance. What is Globalization Index? Explain the construct and methodology in evaluating the countries. 23 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2015 Pearson Education, Inc. 1-24