chapter 1 An Overview of International Business International Business, 6th Edition Griffin & Pustay 1-1 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Chapter Objectives Discuss the meaning of international business Explain the importance of understanding international business Identify and describe the basic forms of international business activities Discuss the causes of globalization Comprehend the growing role of emerging markets in the global economy 1-2 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

The Business of the Olympics The website of the International Olympics Committee explains the sources of revenue generated by the Olympics. More information on the business of the Olympics is on the next slide. 1-3 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

The Business of the Olympics (continued) Intense reflection of international business Government of games by IOC Competition for hosting Revenue sources for the Olympics Broadcast rights Corporate sponsorships The chapter opens with a discussion of the business behind the Olympic Games. Cities worldwide compete to host the games. The decision is made by the International Olympic Committee (IOC). The cities want to host the games because of the economic growth that can be generated. The Olympics generates revenue from television coverage and corporate sponsors. The highest level of corporate sponsorship for the Olympics costs $60-80 million. Companies are willing to pay these high fees for the opportunity to market their products to consumers worldwide. 1-4 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

What Is International Business? Business transactions between parties from more than one country Parties may include: Private individuals Individual companies Groups of companies Governmental agencies 1-5 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

How Does International Business Differ from Domestic? Currency conversion Legal systems Culture Availability of resources Domestic business involves transactions occurring within the boundaries of a single country, while international business transactions cross national boundaries. In addition, the countries may use different currencies, forcing at least one party to convert its currency for another. The legal systems may vary or even be incompatible. The cultures may differ and the resources may vary. For example, one country may be rich in natural resources, but poor in skilled labor. Still, the basic skills and knowledge needed to be successful are generally similar whether one is doing business domestically or internationally. 1-6 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Why Study International Business? Large organizations Foreign-owned subsidiaries Small businesses Competitors Business techniques and tools Cultural literacy Large organizations are likely to have international operations or at least be affected by the global economy. Student may work for a company that is owned by a foreign subsidiary. Small businesses are growing their businesses by selling in foreign markets, using foreign-made materials, and competing with foreign firms. Studying international business helps students to compete with students from other countries. It is also important for staying abreast of the latest business techniques and tools, such as JIT systems. Lastly, studying international business helps students to become culturally literate, meaning that they can better understand and appreciate the similarities and differences of the world’s people. 1-7 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

International Business Activities Exporting and Importing International Investments Licensing, Franchising, and Management Contracts These three international business activities will be presented on the following slides. 1-8 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Exporting and Importing Exporting: selling of products made in one’s own country for use or resale in other countries Importing: buying of products made in other countries for use or resale in one’s own country International business activity historically first took the form of exporting and importing. 1-9 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Visible and Invisible Trade Trade in Goods Merchandise exports and imports Visible trade Trade in Services Service exports and imports Invisible trade Exporting and importing activities are often divided into two groups: trade in goods and trade in services. The British call trade in goods visible trade. It is trade in tangible products such as clothing. Trade in services is known as invisible trade and it includes intangible products like banking and travel. 1-10 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

International Investments Capital supplied by residents of one country to residents of another Two categories: Foreign direct investments Portfolio investments The second major form of international business activity is international investments. Foreign direct investments (FDI) are investments made for the purpose of actively controlling property, assets, or companies located in host countries. For example, Ford’s investment in Sweden’s Volvo Corporation is a foreign direct investment. Portfolio investments are purchases of foreign financial assets (stocks, bonds, cds) for a purpose other than control. For example, a Danish pension fund purchased 1,000 shares of Sony common stock. 1-11 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 1.1 Exports as a % of GDP 1-12 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Other Forms of International Business Activity Management contracts Franchising Licensing In addition to exporting, importing, and investments, there are also other forms of international business activity. These include management contracts, licensing, and franchising. Licensing is a contractual arrangement in which a firm in one country licenses the use of its intellectual property to a firm in another country in exchange for a royalty payment. Franchising is a specialized form of licensing which occurs when a firm in one country authorizes a firm in another to utilize its operating systems as well as its brand names, trademarks, and logos for a royalty payment. A management contract is an arrangement wherein a firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed-upon fee. Examples include Marriott and Hilton which do not own all of the hotels that bear their brand names. 1-13 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Variations of Organizations Multinational Corporation Multinational Enterprise Multinational Organization There are different types of international organizations. The term multinational corporation (MNC) is used to identify firms that have extensive involvement in international business. MNCs typically own and control foreign assets, buy resources in a variety of countries, create goods or services, and then sell those goods and services in a variety of countries. Some international organizations are not true MNCs and they may be termed multinational enterprises (MNEs). The term multinational organization (MNO) may be used to describe any international organization, whether for-profit or not-for-profit. 1-14 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Multinational Corporations (MNCs) Engage in foreign direct investment Own and control foreign assets Buy resources in multiple countries Create goods and services in multiple countries Sell goods and services in multiple countries This slide describes the characteristics of MNCs. 1-15 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 1.1 The World’s Largest MNCs Wal-Mart Exxon Mobil Royal Dutch Shell BP Toyota Motor Chevron ING Group Total General Motors ConocoPhillips This table includes the world’s largest MNCs as of July 2006. 1-16 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

The Era of Globalization Globalization: the inexorable integration of markets, nation-states, and technologies…in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before 1-17 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 1.2 World Exports as a % of World GDP 1-18 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 1.3 Foreign Direct Investment Relative to World GDP 1-19 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Contemporary Causes of Globalization Strategic Imperatives To leverage core competencies To acquire resources and supplies To seek new markets To better compete with rivals 1-20 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Environmental Change and Globalization Changes in Political Environments Technological Changes 1-21 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Globalization and Emerging Markets BRIC Brazil / Argentina Russia India China 1-22 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Globalization and Emerging Markets (continued) Big Ten Argentina Brazil China South Korea Indonesia Mexico Poland Turkey India South Africa 1-23 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Framework of Book The World’s Marketplaces International Environment Managing International Business Managing International Business Operations 1-24 Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. publishing as Prentice Hall