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CHAPTER 1
THE INTERNATIONAL
BUSINESS
IMPERATIVE
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Copyright © 2011 John Wiley & Sons
1. Understand the history and impact of
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Learning
Objectives
international business
2. Learn the definition of international
business
3. Recognize the growth of global linkages
today
4. Understand the U.S. position in world trade
and the impact international business has
on the United States
5. Appreciate the opportunities and challenges
offered by international business
6. To identify the relationships between the
text’s structure and the theoretical, political,
and strategic aspects of international
business.
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Czinkota: International Business, 8e
The Need for International Business

Students are likely to be involved in international
business in their careers

International business offers companies more new
markets

International business causes the flow of ideas, services,
and capital across the world

International business offers consumers, workers, and
investors more choices
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Top Ten Global Companies in 2009
Each year, Fortune publishes a ranking of the world’s largest corporations.
The 2009 World’s biggest companies are:
1. Royal Dutch Shell
2. Exxon Mobil
3. Wal-Mart Stores
4. BP
5. Chevron
6. Total
7. ConocoPhillips
8. ING Group
9. Sinopec
10. Toyota Motor
Source:
Fortune.com: http://money.cnn.com/magazines/fortune/global500/2009/index.html
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Impact on Consumers
More
Choices
As international business
continues to grow,
consumers benefit
from greater
choices, higher
quality, and
lower costs
International
Business
Lower
Costs
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Higher
Quality
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International Business Defined
International business consists of
transactions that are devised and carried
out across national borders to satisfy the
objectives of individuals, companies, and
organizations
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Direct
Foreign
Investment
ImportExport
Trade
Types
of
International
Business
Franchising
Managing
Contracts
Licensing
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Czinkota: International Business, 8e
 Success in the art of business
International
Business is
an Art and a
Science
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depends on a firm grounding in
its scientific aspects
 An understanding of both aspects
is necessary to incorporate
international business
considerations into thinking and
planning
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The Roman Empire
 International business played a vital role in the
formation of the Roman Empire:

Pax Romana – Roman peace guaranteed peaceful travel

Common coinage simplified business transactions

Systematic law and central market locations through the
founding of cities

Effective communication system
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The Roman Empire
 International business played a role in the
decline of the Roman Empire as well:

The empire was weakened at its foundations because of
infighting and increasing decadence

Pax Romana was no longer enforced

Use and acceptance of the common coinage had declined

Former Roman allies became willing to cooperate with
invaders
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The Han Empire
 While Rome flourished, the Han empire in
China provided a similar stability for nearly
four centuries

Trade expanded with the development of a system of
trade routes to Central Asia that became known as the
Silk Road

Trade between the Roman and Chinese empires was not
direct and occurred through many intermediaries in
India, Arabia, and central Asia
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The British Empire
 The British Empire grew mainly through its
effective international business policy:

Efficient transportation

Intensive trade

An insistence on open markets
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The United States

The United States became a world leader by championing
market-based transactions, encouraging communication,
and promoting the flow of ideas, goods, and services
across national borders

Pax Americana –American peace from 1945 - 1990 that
led to increased international business transactions

Smoot-Hawley Act of 1930 – Raised import duties to
promote domestic production
Resulted in a trade war
 Contributed to the ensuing worldwide depression and collapse of
the world financial system

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Recent Growth in Trade and GDP
Growth in World Merchandise Trade & GDP (1998 – 2008)
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Global Links Today
 International business creates a network of global links that
binds all countries, institutions, and individuals together
 The following changes have affected the international
financial position of countries and the ownership of
economic activities:




Enhanced communication on a global scale
Global reorientation in production strategies
Service firm participation in the international marketplace
Recognizing the effects of globalization on the environment
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Global Links Today
 Shifts in financial flows have a major effect on foreign
direct investment, which is the establishment or
expansion of operations of a firm in a foreign country.
 Technology is increasing the rate of changes in
international business.
 The composition of trade is changing:



1960s to the 1990s: primary commodities versus manufactured
goods
More recently, there has been a shift in manufacturing
Increasingly, shifts are occurring in services trade
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India’s Economy Grows Despite Recession
India’s economic growth accelerated as GDP rose 8.6 percent in the three
months ended March 31, 2010 from a year earlier. Emerging nations such as
India are weathering the global recession better than developed nations, and
are a source of strength for the world economy.
Growth in India’s $1.2 trillion economy, Asia’s largest after Japan and China,
is accelerating as rising incomes boost demand for cars, mobile phones and air
travel. Salaries in India may increase at the fastest pace in the Asia Pacific in
2010, according to Hewitt Associates Inc.
Source: Bloomberg.com:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aw74LJGGrRGw
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Focus on Culture:
Make that a Caffé Latte Please
Over the last 30 years, one of the greatest
transformations in daily life has been the global
proliferation of chain restaurants and the food choices
available to consumers w orldwide.
International business has brought diversity of choice,
quality food, clean environments, and fast, efficient
service to locations around the w orld.
H o w e ve r, s o m e c r i t i c i z e r e s t a u r a n t f r a n c h i s e s f o r
spreading industrialized food processes and junk food
to other parts of the world.
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Global Manufacturing Output
Share of Global Manufacturing Output for the United States,
Japan, China, and the rest of the World (1995 – 2007)
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Current U.S. International Trade
Position
 The U.S. has gained in prominence as a market for
the world, but has lost some of its importance as a
supplier

U.S. exports have grown rapidly and successfully

However, there is a decline in global market share of U.S.
products

The growth in U.S. exports in recent years pales in comparison
to the international trade performance of other nations
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Apple iPad Goes International
Apple's iPad debuted in the U.S. on April 3, 2010. The result of the launch was
a resounding success, as the company is handling iPad shortages by ramping
production of the new device.
Despite the shortages, the iPad was launched in nine more countries on May 28:
Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the
U.K.
Before the first day of sales, thousands of customers in these countries lined up
outside of Apple stores to be the first to pick up an iPad.
Source:
Fortune.com: http://tech.fortune.cnn.com/2010/05/28/ipad-madness-in-munich/
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Table 1.3
Export and Import Comparison
Exports and Imports of Goods and Services per Capita for
Selected Countries
Country
Exports per
Capita
Australia
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Imports per
Capita
$4,296
$4,525
Brazil
379
428
China
222
199
Japan
4,165
3,622
Kenya
91
125
United Kingdom
4,767
5,500
United States
3,472
4,962
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Impact on the United States
 U.S. international business outflows are important
on the macroeconomic level to balance the trade
account
 On the microeconomic level, participation in
international business can help firms achieve
economies of scale and hone their competitive skills
 Globalization is the increased mobility, services,
labor, technology, and capital throughout the world
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Structure
of this
Book
 This book addresses the
international concerns of
beginning internationalists and
multinational corporations
 Topics include:
 International trade and investment
 Culture and politics
 International business strategy
 Operational issues surrounding
international business
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Focus on Ethics:
Students Against Sweatshops
In 1997, students at several universities learned that
the oversees w orkers w ho made university logo
merchandise endured long hours, deplorable working
c o n d i t i o n s , a n d l o w a n d u n e q u a l p a y.
The students at these institutions formed the Workers
Rights Consortium (WRC) to ensure that factories
where school apparel was made adopted basic labor
s t a n d a r d s a n d f a i r p a y.
As of 2009, 186 colleges and universities had joined
the WRC.
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