1. MODULE 7 GLOBALIZATION AND INTERNATIONAL BUSINESS
“The world isn’t just for travelers”
There is no doubt that globalization is here to stay. However, success is not easily accomplished. There is a lot to learn about doing business internationally.
What is the nature of international business?
What are multinational corporations and how do they work?

2. Globalization creates international business opportunities.
GLOBALIZATION AND INTERNATIONAL BUSINESS The Nature of International Business MODULE GUIDE 7.1
Globalization creates international business opportunities.
International business is done by global sourcing, import/export, licensing, and franchising.
International business is done by joint ventures and wholly owned subsidiaries.
International business is complicated by different legal and political systems.
This is just a small but important list of considerations.

3. THE NATURE OF INTERNATIONAL BUSINESS Globalization
Global Economy
Resources, markets and competition are worldwide in scope.
Globalization
The process of growing interdependence among elements of the global economy.
Global Sourcing
Firms purchase products and services from around the world for local use.
There are many ways to do business on a global scale. Not all of them require major investments but they all require a significant effort.

4. THE NATURE OF INTERNATIONAL BUSINESS Globalization
Conducting commercial transactions across national boundaries
Five Reasons to Pursue International Business
1. Expanded profit potential
2. More customers
3. More capital
4. Lower cost suppliers
5. Lower costs of labor
There are also reasons to stay at home. One of the most important is having a strong home base before you attempt to go international.

5. GLOBALIZATION International Business
Exporting
Local products are sold abroad
Importing
The process of acquiring products abroad and selling them in domestic markets.
Licensing
one firm pays a fee for rights to make or sell another company’s products.
Franchising
a firm pays a fee for rights to use another company’s name and operating methods.
Licensing and franchising represent low cost / low risk methods of entering international markets IF YOU CHOOSE THE RIGHT PARTNERS.

6. GLOBALIZATION International Business
Joint Venture
A firm operates in a foreign country through co-ownership with local parties.
Strategic Alliance
each partner hopes to achieve through cooperation things they couldn’t do alone.
Foreign Subsidiary
a local operation completely owned by a foreign firm.
All of these require substantial investments in capital and time. joint ventures and strategic alliances are the most risky because you do not have complete control. Foreign subsidiaries require large investments and may not be allowed depending on the country.

7. GLOBALIZATION International Business
World Trade Organization
a global institution to promote free trade and open markets around the world.
Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations ( )   Membership: 149 countries (on 11 December 2005) Budget: 175 million Swiss francs for 2006 Secretariat staff: 635 Head: Pascal Lamy (Director-General)
The WTO has been the target of numerous protests in the U.S. because of the loss of jobs caused by outsourcing labor to foreign countries.

8. Multinational corporations can be controversial at home and abroad.
GLOBALIZATION AND INTERNATIONAL BUSINESS Multinational Corporations MODULE GUIDE 7.2
Multinational corporations do substantial business in several countries.
Multinational corporations can be controversial at home and abroad.
Multinational corporations face a variety of ethical challenges.
Planning and Controlling are complicated in multinational corporations.
Organizing is complicated in multinational corporations.
Leading is complicated in multinational corporations.
Multinational firms typically have operations such as manufacturing and or engineering located within foreign countries. These are part of the reason for the complexity.

9. GLOBALIZATION AND INTERNATIONAL BUSINESS Multinational Corporations
Multinational Corporation (MNC)
A business with extensive foreign operations in more than one county.
Transnational Corporation
A MNC that operates worldwide on a borderless basis.
“Fortune’s” Top 10 Multinational Corporations
1. Wal-Mart Stores 6. DaimlerChrysler
2. BP Toyota Motor
3. Exxon Mobil General Electric
4. Royal Dutch Shell Group 9. Total
5. General Motors Chevron
Notice that these are all multibillion dollar organizations. The investment is generally to high for smaller companies.

10. MULTINATIONAL ORGANIZATIONS MNC Issues
The list of complaints is valid but can be avoided with advanced planning and reasonable agreements between the parties.

11. MULTINATIONAL ORGANIZATIONS MNC Issues
Protectionism
A call for tariffs and special treatment to protect domestic firms from foreign competition.
Corruption
Illegal practices to further one’s business interests.
Transparency International gives these countries its poorest corruption scores:
• Indonesia • Nigeria
• Tajikistan • Bangladesh
• Haiti • Paraguay
• Myanmar
These are all smaller companies but the more developed nations also have problems. The U.S., for example, is not one of the top 10 least corrupt countries.

12. MULTINATIONAL ORGANIZATIONS MNC Issues
Sweatshops
Employ workers at very low wages, for long hours, and in poor working conditions.
Child labor
The full-time employment of children for work otherwise done by adults.
Sustainable Development
Development that meets the needs of the present without hurting future generations.
It is sometimes difficult to understand the reasons for sweatshops and child labor when you are a developed prosperous nation like the U.S. What may be unethical in one country may be acceptable in another depending on cultural and economic conditions.

13. MULTINATIONAL ORGANIZATIONS MNC Issues
Currency Risk
The possible loss of profits because of fluctuating exchange rates.
Understanding Currency Risk in International Business
U.S. exporter makes a sale in France for Euro 100,000.
Scenario 1: Weak dollar
.95 Euros = 1 $US
Take home revenue = $105,263
Scenario 2: Strong dollar
1.25 Euros = 1 $US
Take home revenue = $80,000
To complicate the situation, the exchange rate between two countries is always changing. Thus, what looks like a profit today can be a loss tomorrow when the transaction actually takes place.

14. MULTINATIONAL ORGANIZATIONS MNC Organizations
Organizational structures can get so complicated that even the employees have trouble understanding them. Many MNCs are a combination of these two.

15. MULTINATIONAL ORGANIZATIONS MNC Organizations
Expatriate
An employee who lives and works in a foreign country.
Global Manager
A person who is culturally aware and informed on international affairs.
Personal Attributes for Expatriate Success
High degree of self-awareness
Cultural sensitivity
Desire to live and work abroad
Family flexibility and support
Technical job competence
Are you willing to admit that the world isn’t just for traveling anymore, and to embrace it as a career opportunity? Is it possible that you might stand out to a potential employer as someone with the skills to excel as a global manager?
Cultural sensitivity and a bit of humility are important factors for expatriates.

16. Management Tips
Criteria for choosing a partner for successful joint ventures
• Familiar with your firm’s major business
• Employs a strong local workforce
• Values its customers
• Has potential for future expansion
• Has strong local market for its own products
• Has good profit potential
• Has sound financial standing
This is a good list. In some ways, choosing a business partner is similar to choosing a personal friend. Goods ones are difficult to find.