Globalization and International Business Chapter One Globalization and International Business

Introduction The international dimension of management and business due mainly to Globalization has become a major challenge to governments, institutions and Organizations. This helps explain why the area of international management (IM) is becoming more important within the academic setting.

Introduction The best way of doing business abroad may not be the same as the best way at home because (1) when a company operates internationally, it will engage in modes of business such as exporting and importing that differ from those in which it engages domestically and (2) physical, social, and competitive conditions differ among countries and affect the best ways to conduct business. Thus companies operating internationally have more diverse and complex operating environments than those that conduct business only at home

Need for International Business More and more firms around the world are going global, including: Manufacturing firms. Service companies (i.e. banks, insurance, consulting firms) Art, film, and music companies.

Why Studying International Business is Important? Most companies are either international or compete with international companies. Significant differences exist in countries such as: -Consumer tastes and preferences. -Distribution channels. -Culturally rooted value systems. -Business systems. -Legal systems. 5

Why Studying International Business is Important? These differences required that product features, product mix, marketing strategies and operating practices are customized to match conditions of a particular country.

Factors Contributing to Fast Growth of International Business Increase in and expansion of technology. Development of services that support international business. Growing consumer pressures. Increased global competition. Changing political situations. Expanded cross-national cooperation. 1. Population and economic growth allows for a larger portion of development to take place while advances in technology allow for increases in productivity using the same amount of inputs. Reducing costs and speeding up transactions, advances in communication and transportation allow more companies to expand their market base as well as obtain global resources and oversee foreign operations. 2. Most governments have reduced restrictions of cross-border trade for three reasons: -Their citizens want a greater variety of goods and services at lower prices. -Competition spurs domestic producers to become more efficient. -They hope to induce other countries to lower their barriers in turn. 3. As international business transactions have increased, so have services that help those transactions take place more quickly and easily. 4. Consumers today are more informed about foreign products and services and are better able to afford more luxury items. More consumers are able to comparison shop to find better deals worldwide. Companies look for growing markets where consumer pressures are highest such as China. 5. Companies continually look abroad to increase market share and reduce costs in order to better compete with other firms. Expansion abroad can take many forms: so-called born-global companies start out with a global focus because of their founders’ international experience and because advances in communications give them a good idea of where global markets and supplies are. Related to this, many new companies locate in areas where there are many competitors and suppliers—a situation known as clustering—which helps them to become quickly aware of foreign opportunities and to gain easier access to the resources needed to move internationally. 6. Countries of different political systems are more open than before to conducting international trade with each other. Governments are spending more resources on the improvement of infrastructure which increases the ease of transporting goods and resources. 7. Governments engage in international cooperation in order to satisfy three main needs: 1. Reciprocal advantages 2. To attack problems jointly that one country acting alone cannot solve 3. To deal with areas of concern that lie outside the territory of any nation Governments participate in treaties and trade agreements with other countries on behalf of their companies to ensure reciprocal advantages such as the use of certain ports and air-space as well as protection of intellectual property and lowering of trade restrictions to make it easier for their companies to operate internationally. Agreements may be bilateral or multilateral. Countries will share in activities along mutual borders that will benefit all parties. They also cooperate to solve problems they either cannot or will not solve on their own. One of the main reasons for this is because the amount of resources needed to solve the problem may be too great for one country to manage. Furthermore, the project or problem may affect more than one country and would require negotiation and possibly contribution of resources from all parties. Examples: Global warming, over-fishing, spread of disease (H1N1 virus, Avian Flue, Malaria…etc.), natural disasters.

What is International Business? International business: all commercial transactions between parties in two or more countries. These transactions include the transfer of goods, services, technology, and capital to other countries, and involves exports and imports.

Exporting and importing goods and services. An international business has many options for doing business, it includes: Exporting and importing goods and services. Giving license to produce goods in the host country. Starting a joint venture with a company. Opening a branch for producing & distributing goods in the host country. Providing managerial services to companies in the host country.

International business is either private or governmental business relationships conducted across political boundaries of the country . It may be for profit or non-profit oriented. This combine selling and buying goods/services across political boundaries of the country, and it generally require to deal with the maintenance and development of a multinational operation across national borders.

Factors Contributing to Rapid Growth of International Business: Increase in and expansion 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. 1.

Reasons That Firms Engage in International Business: 1. To expand sales: Ericsson [Sweden] Nestlé [Switzerland] IBM [USA] Sony [Japan]

2. To acquire resources: 3. To minimize risk: Products, components, services. Foreign capital. Technologies. Information. 3. To minimize risk: Take advantage of business cycle differences amongst countries Diversify suppliers across countries. Counter competitors’ advantages.

What is International Business Management ? The management of business operations for an organization that conducts business in more than one country. International management requires knowledge and skills more than normal business expertise, such as familiarity with the business regulations of the nations in which the organization operates, understanding of local customs and laws.

International Business Managers Must understand the importance of: Domestic and international law. Political science. Sociology. Psychology. Economics. Geography. Must be knowledgeable about the competitive dimensions of the international business environment.

International Business Managers International Business Managers should have the knowledge and the skills to manage and handle cross-cultural processes, stakeholders, the capability to conduct transactions that may involve multiple currencies and environments in a right way.

Globalization Defined The ongoing social, economic, and political process that extends the relationships and inter-dependencies amongst nations—their people, their firms, their organizations, and their governments. International business facilitates the globalization process.

Implications/Conclusions Managing an international business differs from managing a domestic business because of : 1. Countries and cultures are different. 2. International business operations are more complex than domestic operations. 3. From one country to another, a company’s relative competitiveness will vary because of the differences in the local and foreign competitors that are present.