Download chapter 2 - understanding the global context of business

UNDERSTANDING THE GLOBAL
CONTEXT OF BUSINESS
CHAPTER 4
Department of Business Administration
EMU
This slide set is prepared by Ömer Yağız for use with Ebert and Griffin, Business Essentials. Fifth
Edition. Prentice Hall, New Jersey, 2003.
1
Topics Summary
• The Rise of International Business
• International Business Management
• Barriers to International Trade
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THE RISE OF INTERNATIONAL
BUSINESS
• The volume of world trade is around $8
•
trillion these days..
Globalization : process by which the
world economy is becoming a single
interdependent economic system
(küreselleşme)
– a great diversity (çeşitlilik) of goods and
services available today as a result of
international trade
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THE RISE OF INTERNATIONAL
BUSINESS
• Imports and exports -- already
•
discussed in Chapter 1.
The Contemporary Global Economy
– World Trade Organization (WTO) (Dünya
Ticaret Örgütü)
• Came into being January 1995
• 140 member countries open their markets to
international trade
• Goals:
– fair trade policies and practices
– reduce trade barriers
– procedures for resolving disputes
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THE RISE OF INTERNATIONAL
BUSINESS
– Capital Mobility: the movement of
money/capital from country to country
– The “global economy” is typified by
• a fast growth in the exchange of information
• a fast growth of trade in services
Sometimes, the term “digital economy” is used
– Two conclusions about the global
economy:
• Information technology will be the centerpiece
of the new global economy
• The growth in the service sector will help to fuel5
its development
THE RISE OF INTERNATIONAL
BUSINESS
• General Agreement on Tariffs and Trade
(GATT)
– Signed after WWII to reduce trade barriers
• North American Free Trade Agreement
(NAFTA)
– U.S., Canada and Mexico
– eliminate tariffs and other trade barriers
– agreed to eliminate tariffs (gümrük vergisi)
and other trade barriers (ticaret engelleri) 6
THE RISE OF INTERNATIONAL
BUSINESS
– increase mutual trade
– will probably expand in the future (most
likely Chile will become a member)
• European Union (EU)
– originally Common Market
– now has 27 members
– Turkey – God knows!!
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THE RISE OF INTERNATIONAL
BUSINESS
• Major World Markets
– North America
– Europe
– Pacific Asia
8
THE RISE OF INTERNATIONAL
BUSINESS
Business, of course, is not conducted solely
in these markets. Think of South America,
Eastern Europe, China, and India with large
numbers of consumers.
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THE RISE OF INTERNATIONAL
BUSINESS
• The World Bank (Dünya Bankası)
– an agency of the United Nations
– has 184 countries as members (owned by
these countries)
www.worldbank.org
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THE RISE OF INTERNATIONAL
BUSINESS
Categorizing Economies (Textbook)
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
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THE RISE OF INTERNATIONAL
BUSINESS
•
In the most recent World Bank grouping, the
groups are (according to 2002 GNI per
capita):
–
–
–
–
high income, $9,076 or more
upper middle income, $2,976 - $9,075
lower middle income, $736 - $2,975
low income, $735 or less
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THE RISE OF INTERNATIONAL
BUSINESS
High-income economies (52)
Andorra
Germany
New Caledonia
Aruba
Greece
New Zealand
Australia
Greenland
Northern Mariana Islands
Austria
Guam
Norway
Bahamas, The
Hong Kong, China
Portugal
Bahrain
Iceland
Qatar
Belgium
Ireland
San Marino
Bermuda
Israel
Singapore
Brunei
Italy
Slovenia
Canada
Japan
Spain
Cayman Islands
Korea, Rep.
Sweden
Channel Islands
Kuwait
Switzerland
Cyprus
Liechtenstein
United Arab Emirates
Denmark
Luxembourg
United Kingdom
Faeroe Islands
Macao, China
United States
Finland
Monaco
Virgin Islands (U.S.)
France
Netherlands
French Polynesia
Netherlands Antilles
Source: World Bank
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THE RISE OF INTERNATIONAL
BUSINESS
Upper-middle-income economies (38)
American Samoa
Grenada
Palau
Antigua and Barbuda
Hungary
Panama
Argentina
Isle of Man
Poland
Barbados
Latvia
Puerto Rico
Botswana
Lebanon
Saudi Arabia
Brazil
Libya
Seychelles
Chile
Lithuania
Slovak Republic
Costa Rica
Malaysia
St. Kitts and Nevis
Croatia
Malta
St. Lucia
Czech Republic
Mauritius
Trinidad and Tobago
Dominica
Mayotte
Uruguay
Estonia
Mexico
Venezuela, RB
Gabon
Oman
Source: World Bank
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THE RISE OF INTERNATIONAL
BUSINESS
Lower-middle-income economies (38)
Albania
Guyana
Russian Federation
Algeria
Honduras
Samoa
Belarus
Iran, Islamic Rep.
South Africa
Belize
Iraq
Sri Lanka
Bolivia
Jamaica
St. Vincent and the Grenadines
Bosnia and Herzegovina
Jordan
Suriname
Bulgaria
Kazakhstan
Swaziland
Cape Verde
Kiribati
Syrian Arab Republic
China
Macedonia, FYR
Thailand
Colombia
Maldives
Tonga
Cuba
Marshall Islands
Tunisia
Djibouti
Micronesia, Fed. Sts.
Turkey
Dominican Republic
Morocco
Turkmenistan
Ecuador
Namibia
Vanuatu
Egypt, Arab Rep.
Paraguay
West Bank and Gaza
El Salvador
Peru
Yugoslavia, Fed. Rep.
Fiji
Philippines
Guatemala
Romania
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Source: World Bank
Low income economies (38)
Source: World Bank
Afghanistan
Ghana
Niger
Angola
Guinea
Nigeria
Armenia
Guinea-Bissau
Pakistan
Azerbaijan
Haiti
Papua New Guinea
Bangladesh
India
Rwanda
Benin
Indonesia
Sao Tome and
Principe
Bhutan
Kenya
Senegal
Burkina Faso
Korea, Dem Rep.
Sierra Leone
Burundi
Kyrgyz Republic
Solomon Islands
Cambodia
Lao PDR
Somalia
Cameroon
Lesotho
Sudan
Central African
Republic
Liberia
Tajikistan
Chad
Madagascar
Tanzania
Comoros
Malawi
Timor-Leste
Congo, Dem. Rep
Mali
Togo
Congo, Rep.
Mauritania
Uganda
Cote d'Ivoire
Moldova
Ukraine
Equatorial Guinea
Mongolia
Uzbekistan
Eritrea
Mozambique
Vietnam
Ethiopia
Myanmar
Yemen, Rep.
Gambia, The
Nepal
Zambia
Georgia
Nicaragua
Zimbabwe
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The North American Marketplace (NAFTA)
Canada
United States
Mexico
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Copyright ©2003 Prentice Hall, Inc.
THE RISE OF INTERNATIONAL
BUSINESS
1. North America
– USA is the largest market. Many American
firms dominate world markets.
GM, Procter and Gamble, Microsoft, Ford
are just a few examples.
– Mexico has become a manufacturing
center because of cheap labor and low
transportation costs. Many U.S. companies
have plants in Mexico.
– Canada is another country with great
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economic power in the region.
THE RISE OF INTERNATIONAL
BUSINESS
• NAFTA - North American Free Trade
Agreement
– USA, Canada, and Mexico
– agreed to eliminate tariffs (gümrük vergisi)
and other trade barriers (ticaret engelleri)
– increase mutual trade
– will probably expand in the future (most
likely Chile will become a member)
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THE RISE OF INTERNATIONAL
BUSINESS
2. Europe
Two regions of Europe : Western Europe
and Eastern Europe.
– Western Europe is dominated by
Germany, the United Kingdom, France,
and Italy.
– European Union has become a powerful
bloc, both economically and politically.
– Giant companies such as Unilever,
Renault, Shell, Michelin, Siemens are all 20
based in Western Europe.
THE RISE OF INTERNATIONAL
BUSINESS
– Eastern Europe, communist till the early
1990’s, is gaining importance as a
marketplace. Poland and Hungary are fast
becoming free market economies.
• Poland and Hungry became members of EU in
2004
• Even in Albania, a former bastion (kale) of
Communism, Coca-Cola began producing soft
drinks these days.
• Both Poland and Hungary are ahead of Turkey
in privatizing their state-owned industries!! They
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are also attracting lots of foreign capital.
Europe and the Nations of the European Union
• Austria
• Luxembourg
• Portugal
• Sweden
• Belgium
• Netherlands
• Spain
• United Kingdom
• Denmark
• Finland
• France
• Germany
• Greece
• Italy
• Ireland
Copyright ©2003 Prentice Hall, Inc.
2 - 22
THE RISE OF INTERNATIONAL
BUSINESS
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THE RISE OF INTERNATIONAL
BUSINESS
3. Pacific Asia
– sometimes called the “Pacific rim”
– consists of Japan, China, Thailand,
Malaysia, Singapore, Indonesia, South
Korea, Taiwan, Hong Kong, the Philippines,
and Australia.
– especially powerful in the automobile,
electronics, and banking industries.
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THE RISE OF INTERNATIONAL
BUSINESS
– Japan (Toyota, Honda, Toshiba, Nippon
Steel, Matsushita); South Korea
(Samsung, Hyundai); Taiwan (many firms
in computers and electronics) and Hong
Kong (financial and banking center) are the
strongest economies of the region.
– China is a true giant with a lot of
potential..It is the the third largest economy
in the world; after the U.S. and Japan.
A population of 1.2 billion is a huge market25
by any standard.
The Nations of ASEAN
(Association of Southeast Asian Nations)
• Brunei
• Indonesia
• Malaysia
• Philippines
• Singapore
• Thailand
• Vietnam
population of
400 million
26
THE RISE OF INTERNATIONAL
BUSINESS
• Forms of Competitive Advantage
– No country can produce all the goods and
services that its people need.
– That is why countries need to export and
import.
– Import and export decisions depend on
whether a country enjoys an absolute or
comparative advantage in the production of
goods and services
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THE RISE OF INTERNATIONAL
BUSINESS
– Absolute advantage: the ability to produce
goods and services more efficiently (at
lower cost) than any other country can
(mutlak üstünlük)
•
•
•
•
•
•
absolute advantage is quite rare (it is relative)
China --- hand-made toys (cheap labor)
US and Japan -- computer chips
Brazil and Colombia-- coffee
Turkey -- meerschaum pipes (lüle taşı pipo)
Saudi Arabia -- oil
Talent, experience, climate, technology
may lead to absolute advantage.
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THE RISE OF INTERNATIONAL
BUSINESS
– Comparative Advantage: the ability of a
country to produce some products or
services more efficiently (at lower cost)
than other goods or services
(karşılaştırmalı üstünlük)
•
•
•
•
•
very few countries produce computer chips
U.S. -- computers, farming
Japan and Korea -- electronics
Switzerland -- watches, chocolate
why does not Turkey produce watches?
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National Competitive Advantage
 Four conditions
• Factor conditions
•
factors of production
•
large domestic consumer
base (demand) for
innovative products
• Demand conditions
• Related and supporting
industries
•
strong local or regional
suppliers and/or industrial
customers
• Strategies, structures,
and rivalries
•
cost reduction, quality, high
productivity, innovation
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THE RISE OF INTERNATIONAL
BUSINESS
– Michael E. Porter’s “National Competitive
Advantage” concept
• Ability of a nation’s industries to be innovative
and move to a higher level of technology and
productivity
• According to this theory, a nation can be
competitive in the world market by making best
use of innovation and technology
– Japan --- consumer electronics, chip making
– Holland --- flowers (60 % of cut flowers in the world)
NOT IN TEXTBOOK ( but a little extra
knowledge does not hurt!!)
31
RECOMMENDED READING
THE COMPETITIVE ADVANTAGE OF
NATIONS, FREE PRESS, 1998
BY
MICHAEL E. PORTER
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THE RISE OF INTERNATIONAL
BUSINESS
•
Import - Export Balances
– Balance between imports and exports of
a country is important.
– Two measures are used:
1. balance of trade
2. balance of payments
– Balance of Trade: Economic value of all
products a country imports minus the
economic value of all products it exports.
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(Dış Ticaret Dengesi)
THE RISE OF INTERNATIONAL
BUSINESS
– If Imports > Exports we have Trade deficit
(dış ticaret açığı)
– If Imports < Exports we have Trade surplus
(dış ticaret fazlası)
– Trade deficit is also called “negative trade
balance”
• Japan and Taiwan have trade surplus, while Turkey
and the U.S.(some years) experience a trade deficit.
• You may get the latest figures for Turkey from
Turkish State Institute of Statistics (DIE)
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THE RISE OF INTERNATIONAL
BUSINESS
– Balance of Payments = total inflow of
money - total outflow of money in a country
in a period (Ödemeler Dengesi) DIE
– includes balance of trade plus
• investments
• purchase of businesses
• workers’ remittances (işçilerin ülkeye
gönderdiği paralar)
• transfer payments (foreign aid, pension
payments)
• debt payments
• tourism
35
THE RISE OF INTERNATIONAL
BUSINESS
• Balance of trade is affected by the rate
•
of exchange.
Exchange Rate -- rate at which the
currency of one nation can be
exchanged for the currency of another
nation (döviz kuru; parite)
– 1 US $  1.3YTL
– 1 EUR  2,05 YTL
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THE RISE OF INTERNATIONAL
BUSINESS
– Fixed exchange rate - the value of a
country’s currency relative to that of
another country remains constant (sabit
döviz kuru)
– Floating exchange rate - the value of a
country’s currency relative to that of
another country varies with market
conditions (değişken döviz kuru)
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THE RISE OF INTERNATIONAL
BUSINESS
– Fluctuations in the exchange rates can
have important effects on the balance of
trade
• Levi’s Jeans costs 30 dollars. At 1 dollar = 1.30
YTL, the cost is 39 YTL
• If 1 dollar = 1.6 YTL, then the jean costs 48
YTL..
– Exchange Rates and Competition
• Companies watch closely the fluctuations in
exchange rates, because it affects their sales
both inside and outside the country. Generally,
exports increase and imports decrease as the 38
currency of a country loses value.
THE RISE OF INTERNATIONAL
BUSINESS
– Adjustments in Currency Values
• strong weapon for enabling domestic
companies to compete internationally
• Devaluation (devalüasyon): lowering the value
of the national currency helps make that
nation’s goods & services cheaper in world
markets, thus increases exports. The opposite
action leads to decreases in exports. HOW
ABOUT IMPORTS ?
• Foreign Exchange --foreign currency that is
traded for domestic currency of equal value
39
“döviz, yabancı para”
INTERNATIONAL BUSINESS
MANAGEMENT
•
•
•
The success of a business depends
largely on how it is managed.
Managing a business is more difficult
when that business operates in
several markets (countries) around the
world.
Three decisions must be made when a
company is faced with “globalization”
1. “to go international” or not
2. level of international involvement
40
3. the most suitable organizational structure
INTERNATIONAL BUSINESS
MANAGEMENT
1. Going International
The following questions must be
answered:
– Is there international demand for the firm’s
product?
– Can the product be modified (changed) to fit a
foreign market?
– Is the foreign business climate suited to
imports?
– Does the firm have or can it get the
necessary skills (beceriler) and knowledge to
41
do business abroad (in other countries)?
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
Copyright ©2003 Prentice Hall, Inc.
Go International
42
INTERNATIONAL BUSINESS
MANAGEMENT
– Some examples:
• Honda cars with Qiblah (Kıble) indicator
(gösterge) sold in Saudi Arabia and other Arab
countries
• Prayer carpets with built in compass (pusula)
made in Taiwan and sold in Arab countries
• McDonald’s, Toys “R” Us, Carrefour, Metro,
Marks and Spencer stores in Turkey
• Consulting firms such as Andersen, Price and
Waterhouse in Turkey
43
INTERNATIONAL BUSINESS
MANAGEMENT
– Adapting to Consumer Needs
Sometimes products must be adapted
(uyarlamak) to meet the special demands
of foreign buyers and markets.
– Some examples:
• GM’s “Joy” sold in Mexico to young buyers of
cars; the same car sold in the Czech Republic
under the brand name “Opel Corsa” to buyers
in their thirties because younger buyers “can
not even afford to buy bicycles”. Opel Corsa is
also sold in Turkey; and many young people do
own Corsa’s.
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• McDonalds in Turkey -- buttermilk (ayran)
example
INTERNATIONAL BUSINESS
MANAGEMENT
2. Level of International Involvement
•
•
•
•
Exporter: firm that sells products to foreign
countries (ihracatçı; dışsatımcı)
Importer: firm that buys products in foreign
countries and imports them for resale in its
home country (ithalatçı; dışalımcı)
International Firm: Firm that conducts a
significant portion of its business in foreign
countries (uluslararası iş yapan şirket)
Multinational Firm: Firm that designs,
produces, and markets products in many
countries (çokuluslu şirket)
45
INTERNATIONAL BUSINESS
MANAGEMENT
3. International Organizational Structures
• Independent Agents: foreign individual or
organization that agrees to to represent an
exporter’s interests (temsilci)
• Licensing Arrangement: firm chooses foreign
individuals or organizations to manufacture or
market their products in another country (lisans
anlaşması). Fee (bir defalık ödeme) plus royalty
(lisans ücreti) is usualy paid by the licensee.
– franchising is a special form of licensing
• Branch Offices: Foreign office set up by an
international or multinational company (Yabancı
46
Şube)
INTERNATIONAL BUSINESS
MANAGEMENT
• Strategic Alliances: a company finds a foreign
partner to establish and operate a new
business in the partner’s country (ortak girişim).
Because of its importance in the organizational
strategies of companies, the term strategic
alliance is frequently used.
• Foreign Direct Investment (FDI): An
arrangement in which a company buys or
establishes tangible assets (varlıklar) in another
country. (Doğrudan yatırım)
– TOYOTA, HONDA in Turkey; Dell Computer in
Europe, VW in Brasil
47
BARRIERS TO INTERNATIONAL
TRADE
• The success of a company doing
business in foreign markets will depend
on how it responds to social, economic,
and political barriers to international
trade.
– Social and Cultural Differences:
•
•
•
•
language
physical characteristics (tall, short. slim, fat)
age groups (young, old)
shopping and eating habits
48
BARRIERS TO INTERNATIONAL
TRADE
– Economic Differences:
• the kind of economic system in the country
• the extent of government involvement (devlet
müdahalesi) in a given industry
– Legal and Political Differences:
• Governments can
– set conditions for doing business in their country
– control flow of capital
– use tax legislation (vergi yasaları) to encourage or
discourage international activity in a given industry
– even confiscate (el koymak) the property of foreign
owned companies
49
BARRIERS TO INTERNATIONAL
TRADE
– There are various barriers to international
trade. Chief among them are:
• Quotas: restriction on the number or amount of
products of a certain type that can be imported
into the country (kota). Often determined by
treaties (anlaşmalar)
• Embargo: government order banning
exportation and/or importation of a particular
product or all products from a particular country
(ambargo). Example: Cuba and Iran are under
embargo by the U.S.
50
BARRIERS TO INTERNATIONAL
TRADE
•
Tariff: tax levied on imported products
(gümrük vergisi). There are two kinds of
tariffs:
1. Revenue tariffs: imposed to raise revenue for
governments (gelir amaçlı gümrük vergisi)
2. Protectionist tariffs: imposed to discourage the
import of particular products into the country
(koruma amaçlı gümrük vergisi)
•
Subsidy: government payment to help a
domestic business compete with foreign firms
(teşvik, subvansiyon). Subsidies are common
in many countries.
51
BARRIERS TO INTERNATIONAL
TRADE
– The Protectionism Debate: In many
countries, protectionism - the practice of
protecting domestic business at the
expense of free market competition - has
long been an issue of debate.
• supporters argue that tariffs and quotas protect
domestic firms and jobs and help new
industries until they are able to compete
internationally
• supporters also argue in terms of national
security (ulusal güvenlik)
52
BARRIERS TO INTERNATIONAL
TRADE
• Those who are against protectionism say that it
is a source of friction (sürtüşme) between
nations
• Those against protectionism also charge that it
drives up (increases) prices by reducing
competition and say that although jobs in some
industries would be lost as a result of free
trade, jobs in other industries would be created
if all nations abandoned protectionist policies.
53
BARRIERS TO INTERNATIONAL
TRADE
• Local Content Laws : many countries have
local content laws to protect their own industry.
A local content law requires that products sold
in a particular country be at least partly
(kısmen) made there.
• Business Practice Laws: Laws or regulation
governing business practices in a given
country.
– Wal-Mart stores in Germany cannot open before 7
A.M, must close by 8 P.M. on weeknights, and must
remain closed on Sundays.
• Dumping : Practice of selling a product in
another country for less than the cost of
production. It is forbidden in many countries.
(Damping)
54