Globalization and Prentice Hall

International
Business
Environments & Operations
14e
Daniels ● Radebaugh ● Sullivan

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-1

Chapter 1
Globalization and
International
Business
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-2

Introduction
Globalization is the ongoing process that deepens and broadens the relationships and interdependence among countries
 International business is a mechanism to bring about globalization


Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-3

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-4

Introduction


It is important to study international business because






Most companies are either international or compete with international companies
Modes of operations may differ from those used domestically
The best way of conducting business may differ by country
An understanding helps you make better career decisions
An understanding helps you decide what government policies to support
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-5

Introduction
Factors in International Business Operations

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-6

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
Growing consumer pressures
Increased global competition
Changing political situations
Expanded cross-national cooperation
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-7

Measuring Globalization
Globalization can be difficult to measure
 The A.T. Kearney/Foreign Policy
Globalization Index ranks countries by







Economic dimensions
Technological dimensions
Personal contact
Political dimensions
 recently ranked Singapore and Hong Kong as most globalized
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-9

Costs of Globalization


Offshoring 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-11

Why Companies Engage in IB


These three reasons




sales expansion resource acquisition risk minimization

guide all decisions about whether, where, and how to engage in international business Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-12

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-13

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-14

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

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-15

Types of International
Organizations


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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-16

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-17

Types of International
Organizations


In foreign markets, companies may 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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-18

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-19

Physical and Social Factors


Geographic influences




Political policies




influence how a company operates

Behavioral factors




determines where and how business occurs

Legal policies




natural conditions influence production locations

may require changes in operations

Economic forces


explain differences in costs, currency values, market size

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-20

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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-21

The Competitive Environment
So, a company’s competitive strategy influences how and where it can best operate  Its competitive situation may differ from country to country in terms of its relative strength and which competitors it faces


Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-22

Looking to the Future


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 © 2013 Pearson Education, Inc. publishing as Prentice Hall

1-23