Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-1 International Business Environments & Operations 14e Daniels ● Radebaugh ● Sullivan

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-2 Chapter 1 Globalization and International Business

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-3 Learning Objectives  To define globalization and international business and show how they affect each other  To understand why companies engage in international business and why international business growth has accelerated  To discuss globalization’s future and the major criticisms of globalization  To become familiar with different ways in which a company can accomplish its global objectives  To apply social science disciplines to understanding the differences between international and domestic business

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-4 Introduction Learning Objective 1: To define globalization and international business and show how they affect each other

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-5 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 1-6 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 1-7 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 1-8 Introduction Factors in International Business Operations

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-9 Forces Driving Globalization 1. Increase in and application of technology 2. Liberalization of cross-border trade and resource movements 3. Development of services that support international business 4. Growing consumer pressures 5. Increased global competition 6. Changing political situations 7. Expanded cross-national cooperation

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-10 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 1-11 Costs of Globalization Learning Objective 3: To discuss globalization’s future and the major criticisms of globalization

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-12 Costs of Globalization  Threats to national sovereignty lose freedom to “act locally”  Economic growth and environmental stress 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 1-13 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 1-14 Why Companies Engage in IB Learning Objective 2: To understand why companies engage in international business and why international business growth has accelerated

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-15 Why Companies Engage in IB  To expand sales pursuing international sales increases the potential market and potential profits  To acquire resources 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 1-16 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 1-17 Modes of Operations in IB Learning Objective 4: To become familiar with different ways in which a company can accomplish its global objectives

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-18 Modes of Operations in IB  Merchandise exports goods that are sent out of a country  Merchandise imports goods that are brought into a country  Sometimes referred to as visible exports and imports

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-19 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 1-20 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 1-21 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 1-22 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 1-23 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 1-24 Why IB is Different Learning Objective 5: To apply social science disciplines to understanding the differences between international and domestic business

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-25 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 1-26 Physical and Social Factors  Geographic influences natural conditions influence production locations  Political policies determines where and how business occurs  Legal policies influence how a company operates  Behavioral factors may require changes in operations  Economic forces explain differences in costs, currency values, market size

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-27 The Competitive Environment  Competitive strategy for products Cost strategy Differentiation strategy Focus strategy  Company resources and experience 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 1-28 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 1-29 Looking to the Future Learning Objective 3: To discuss globalization’s future and the major criticisms of globalization

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall 1-30 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 1-31 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.