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Fourth Edition PART 1 . . . . . . . . . . . . . . . . . . . . . . . . Understanding the Contemporary Business Environment Copyright ©2003 Prentice Hall, Inc. Chapter 2 The Global Context of Business Copyright ©2003 Prentice Hall, Inc. 1-2 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 Copyright ©2003 Prentice Hall, Inc. 1-3 “We are in the midst of a great transition from narrow nationalism to international partnership.” ~ Lyndon Baines Johnson Copyright ©2003 Prentice Hall, Inc. 1-4 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 Copyright ©2003 Prentice Hall, Inc. 1-5 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 Copyright ©2003 Prentice Hall, Inc. 1-6 Globalization Is Gaining Speed The world economy is becoming a single, interdependent system Export: Domestic product sold abroad Import: Foreign product sold domestically Copyright ©2003 Prentice Hall, Inc. 1-7 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? Copyright ©2003 Prentice Hall, Inc. 1-8 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? Copyright ©2003 Prentice Hall, Inc. 1-9 Major World Marketplaces North America NAFTA Europe EU Pacific Asia Do we have any economic agreement with other countries. What are they? Copyright ©2003 Prentice Hall, Inc. 1 - 10 The North American Marketplace (NAFTA) Canada United States Mexico Copyright ©2003 Prentice Hall, Inc. 2 - 11 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 Copyright ©2003 Prentice Hall, Inc. 2 - 12 The Nations of ASEAN • Brunei • Indonesia • Malaysia • Philippines • Singapore • Thailand • Vietnam Copyright ©2003 Prentice Hall, Inc. 2 - 13 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 2 - 14 Forms of 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 Copyright ©2003 Prentice Hall, Inc. 1 - 15 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. Copyright ©2003 Prentice Hall, Inc. 1 - 16 Competitive advantage It can be created in certain industrial field, through the adoption of low-costdifferentiation strategy. .M. Porter Copyright ©2003 Prentice Hall, Inc. 1 - 17 National Competitive Advantage Factor conditions Demand conditions Related and supporting industries Strategies, structures, and rivalries Qui. Evaluate Palestine? Copyright ©2003 Prentice Hall, Inc. 1 - 18 Import/Export Balances Balance of Trade Trade Deficits Trade Surpluses Balance of Payments The total flow of money into or out of an economy Copyright ©2003 Prentice Hall, Inc. 1 - 19 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? Copyright ©2003 Prentice Hall, Inc. 1 - 20 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? Copyright ©2003 Prentice Hall, Inc. 1 - 21 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 Copyright ©2003 Prentice Hall, Inc. 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 2 - 22 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 2 - 23 Levels of International Involvement Importer & Exporter International Firms: Their main concern domestic market but they have international operations. Multinational Firms: They do not have domestic markets but produce for many nations. They do not have headquarter. Copyright ©2003 Prentice Hall, Inc. 1 - 24 International Organizational Structures INVOLVEMENT HIGH LOW Copyright ©2003 Prentice Hall, Inc. Foreign Investment Strategic Alliances Branch Offices Licensing Arrangements Independent Agents 1 - 25 Discussion Select a product they would like to market to Golf and to choose whether to export, license, franchise, establish a joint venture, or build a production facility in Golf. Have each group write a list of questions they would want answered before beginning business, and compare the lists. Copyright ©2003 Prentice Hall, Inc. 1 - 26 Barriers to International Trade Social & Cultural Differences Copyright ©2003 Prentice Hall, Inc. Legal & Political Differences Economic Differences 1 - 27 Take Time to Learn the Culture Thoroughly! Este es nuestro nuevo auto: el NOVA! Copyright ©2003 Prentice Hall, Inc. Ha, ha, ha, ha, ha, ha!!! 1 - 28 Cultural and social differences include language, social values, and traditional buying patterns. Whether differences are obvious or subtle, ignorance of them can be embarrassing and expensive. The classic example: General Motors introduced the Chevy Nova in Spanish speaking countries— where “no va” means “doesn’t go.” The original translation of the Intel Pentium IV computer chip in Korean was “chip of death.” (!!!) Discussion: identify other examples from your personal experience. Copyright ©2003 Prentice Hall, Inc. 1 - 29 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 Copyright ©2003 Prentice Hall, Inc. 1 - 30 Economic Differences To operate effectively in another country, businesses must know when, and to what extent, the government is involved in a given industry. Copyright ©2003 Prentice Hall, Inc. 1 - 31 Legal & Political Differences Quotas, Tariffs, & Subsidies Protectionism Local Content Laws Business Practice Laws Day to day operations Cartels: association of producers whose purpose is to control supply and price. Dumping: selling the product abroad with less price than its production cost. Copyright ©2003 Prentice Hall, Inc. 1 - 32 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. Copyright ©2003 Prentice Hall, Inc. 1 - 33 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. Copyright ©2003 Prentice Hall, Inc. 1 - 34 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. Copyright ©2003 Prentice Hall, Inc. 1 - 35