2. STRATEGIZING AROUND THE GLOBE The International Business Environment Dr. Ellen A. Drost

3. Internationalization of business Why companies engage in international business? Why companies engage in international business? –expand sales –acquire resources –diversify sources of sales and supplies –minimize competitive risk 1-2

4. What Drives International Business? Positive Liberalization markets Declining Barriers Technology Economic Integration Peace Global competition Negative Closed markets Trade Barriers Poor Infrastructure Culture War Local Focus 1-3

5. Impact of GATT Tariff Rates Average Tariff Rates on Manufactured Products % of Value Table 1.1 1-5

6. Growth of World Trade and World Output 1950=100 1-6

7. ©The McGraw-Hill Companies, Inc., 2000 1-6 Figure 1.2 The Shrinking Globe

8. The Changing Pattern of World Output and Trade 1-7

9. Of the Top 260 in 1973Of the Top 100 in 2000 United States126 (48.4%) 24 (24%) Japan 9 (3.5%) 16 (16%) Britain 49 (18.8%) 14 (14%) France 19 (7.3%) 13 (13%) Germany 21 (8.1%) 10 (10%) The National Composition of the Largest Multinationals 1-10

10. Internationalization of Business How do companies internationalize? How do companies internationalize? –exports and imports –service exports and imports tourism, transportation, consulting, engineering/design, licensing tourism, transportation, consulting, engineering/design, licensing –Investments foreign direct investment (FDI) foreign direct investment (FDI) –Strategic alliances collaborative arrangements collaborative arrangements

11. What is Globalization? The shift towards a more integrated and interdependent world economy The shift towards a more integrated and interdependent world economy Two components: Two components: Globalization of markets Globalization of markets Globalization of production Globalization of production

12. Globalization of Markets One huge global market place One huge global market place –convergence of tastes and preferences –corporate strategy creates global markets standardized products and services standardized products and services Adaptation to local market Adaptation to local market –adaptation to tastes and preferences –think local, act global –corporate strategy adapts to local markets

13. Globalization of Markets

14. Globalization of Production Sourcing and manufacturing strategies Sourcing and manufacturing strategies –advantages of national differences costs and quality of resources costs and quality of resources government/business relations government/business relations

15. 14 Parts Assembly Advertising Design Sales Location Economies Pontiac LeMans Creating a Global Web

16. Ellen A. Drost, Summer 2007 The Automobile Goes Global: The GM Pontiac Le Mans Design:Germany (by Opel)Brakes: France, U.S. Sheetsteel:Japan S. Korea Stamping of body parts:S. KoreaTires: S. Korea Engines:1.6 literS. KoreaWindshield: S. Korea 2.0 literAustraliaBattery: S. Korea Fuel injection:U.S.Wiring harness: S. Korea Fuel pump:U.S.Radio: Singapore Transmission:Canada & U.S.Assembly: S. Korea Rear axle:U.S.Marketing & Steering:U.S. distribution: N. America

17. Globalization - Pros Lower prices for goods and services. Lower prices for goods and services. Economic growth stimulation. Economic growth stimulation. Increase in consumer income. Increase in consumer income. Creates jobs. Creates jobs. –Countries specialize in production of goods and services that are produced most efficiently.

18. Globalization - Cons Destroys manufacturing jobs in wealthy, advanced countries. Destroys manufacturing jobs in wealthy, advanced countries. Wage rates of unskilled workers in advanced countries declines. Wage rates of unskilled workers in advanced countries declines. Companies move to countries with fewer labor and environment regulations. Companies move to countries with fewer labor and environment regulations. –e.g. opposition to NAFTA Nations’ Loss of sovereignty. Nations’ Loss of sovereignty. –Economic power given to supranational organizations WTO, EU, UN, World Bank, IMF WTO, EU, UN, World Bank, IMF Widens the gap between the rich and poor nations Widens the gap between the rich and poor nations

19. International vs Domestic Business Countries are different. Countries are different. Range of problems are wider and more complex. Range of problems are wider and more complex. Government intervention in trade and investment creates problems. Government intervention in trade and investment creates problems. International investment is impacted by political and economic risk International investment is impacted by political and economic risk