1. Slide content created by Charlie Cook, The University of West Alabama Copyright © Houghton Mifflin Company. All rights reserved. Chapter Five The Global Environment

2. Copyright © Houghton Mifflin Company. All rights reserved.5–2 Learning Objectives After studying this chapter, you should be able to: 1.Describe the nature of international business, including its meaning, recent trends, management of globalization, and competition in a global market. 2.Discuss the structure of the global economy and describe the GATT and the WTO. 3.Identify and discuss the environmental challenges inherent in international management. 4.Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.

3. Copyright © Houghton Mifflin Company. All rights reserved.5–3 Figure 5.1: Levels of International Business Activity

4. Copyright © Houghton Mifflin Company. All rights reserved.5–4 The Meaning of International Business Domestic Business –acquires all of its resources and sells all of its products or services within a single country. International Business –is primarily based in a single country yet acquires a meaningful share of its resources and/or revenues from other countries. Multinational Business –transcends national boundaries and buys raw materials, borrows money, and manufactures and sells its products in a world-wide marketplace. Global Business –transcends national boundaries and is not committed to a single home country.

5. Copyright © Houghton Mifflin Company. All rights reserved.5–5 Trends in International Business Economic Recovery –Industrialized nations in Europe and Asia have rebuilt their economic systems that were devastated in WWII. Decreasing Isolation from Foreign Competition –U.S. consumer goods markets are open to overseas competitors. Increasing Globalization of World Markets –Volume of international trade has increased more than 3,000% from 1960 to 2000.

6. Copyright © Houghton Mifflin Company. All rights reserved.5–6 Table 5.1: Advantages and Disadvantages of Different Approaches to Internationalization

7. Copyright © Houghton Mifflin Company. All rights reserved.5–7 The Structure of the Global Economy Mature Market Economies and Systems –Based on the private ownership of business and allows market factors to determine business strategy. A mature economy, well-developed infrastructures, and individual wealth. Trade Agreements –North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada. –European Union (EU) of western European countries. –Pacific Asia countries in Southeast Asia.

8. Copyright © Houghton Mifflin Company. All rights reserved.5–8 Figure 5.2: The Global Economy

9. Copyright © Houghton Mifflin Company. All rights reserved.5–9 Market Economies and Systems High Potential/High Growth Economies –Underdeveloped and immature markets with a weak industrial base, weak currency, and poor consumers People’s Republic of China, India, Vietnam, Brazil, Russia –Challenges to market development: The need for large investments in distribution systems The need to educate/train consumers in product usage A lack of infrastructure for support operations Unfavorable policy changes affecting investments

10. Copyright © Houghton Mifflin Company. All rights reserved.5–10 Market Economies and Systems (cont’d) Other Economies –Economies that defy classification due to their possession of critical and valuable resources or other social or political factors which distort their internal economies and markets. –Challenges of other economies Political instability Cultural differences Ethnic violence

11. Copyright © Houghton Mifflin Company. All rights reserved.5–11 The Role of the GATT and the WTO General Agreement on Tariffs and Trade (GATT) –Promoted international trade by reducing trade barriers and making it easier for all nations to compete. Most Favored Nation (MFN) principle The World Trade Organization (WTO) –Organization (replacing GATT) with the goals of: Promoting trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies Reducing remaining trade barriers through multilateral negotiations Establishing impartial procedures for resolving trade disputes among its members

12. Copyright © Houghton Mifflin Company. All rights reserved.5–12 Figure 5.3: Environmental Challenges of International Management

13. Copyright © Houghton Mifflin Company. All rights reserved.5–13 Controls on International Management Key Concepts –Tariffs Taxes collected on goods shipped across national boundaries. –Quotas Limits placed on the number or value of goods that can be traded as exports or imports. –Export restraint agreements Voluntary limits on the volume or value of goods exported to or imported from another country.

14. Copyright © Houghton Mifflin Company. All rights reserved.5–14 Figure 5.4: Individual Differences Across Cultures Source: R. W. Griffin/M. Pustay, International Business 4th Ed. © 2005. Reprinted by permission of Pearson Education, Inc. Upper Saddle River, NJ 07458.

15. Copyright © Houghton Mifflin Company. All rights reserved.5–15 Competing in a Global Economy Globalization and Organization Size –Multinational Corporations (MNCs) Adopt a global perspective and compete in the global marketplace. –Medium-Size Businesses Remain primarily domestic organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets. –Small Businesses Participate in global markets when they serve as local suppliers for MNCs.

16. Copyright © Houghton Mifflin Company. All rights reserved.5–16 Table 5.2: The World’s Largest MNCs: Industrial Corporations

17. Copyright © Houghton Mifflin Company. All rights reserved.5–17 Management Challenges in a Global Economy Planning in a Global Economy –Understanding of both environmental issues and competitive issues. Organizing in a Global Economy –Addressing issues of creating and managing operations on a world-wide scale. Leading in a Global Economy –Learning how to interact with and motivate persons of different cultural, social, and economics backgrounds. Controlling in a Global Economy –Integrating global operations that encompass time-zone differences, cultural factors, and varying communication methods.

18. Copyright © Houghton Mifflin Company. All rights reserved.5–18 Key Terms domestic business international business multinational business global business importing exporting licensing joint venture direct investment maquiladoras market economy market systems Pacific Asia GATT WTO NAFTA infrastructure nationalized tariff export restraint agreements economic community social orientation

19. Copyright © Houghton Mifflin Company. All rights reserved.5–19 Key Terms (cont’d) power orientation uncertainty orientation goal orientation time orientation