international bussines 1st lecture

What is globalization? 

• The shift towards  a more integrated and interdependent world  economy

• Two components:
• The globalization of markets
• The globalization of production

 Globalization of  Markets 

• The  merging  of distinctly separate national markets into  a global marketplace
• Tastes and preferences converge onto a global norm
• Firms offer standardized products worldwide creating a world market

 Globalization of  Markets Con’t.. 

• Significant differences  still exist between national markets on  many relevant dimensions

 

• These differences  require that marketing and operating strategies  and product features be customized to  best match conditions in a country.

 Globalization of  Markets Can’t.. 

• Countries are  different
• Range of problems are wider and more complex
• Government intervention in trade and investment creates problems
• International investment is impacted by different currencies

 Globalization of  Production 

• Refers to sourcing  of goods and services from locations around  the world to take advantage of  
• Differences in cost or quality of the factors of production
• Labor
• Land
• Capital

 International Business 

• International Business  is all business transactions that involve  two or more countries. 

 

• International Business  comprises a large and growing portion  of the world’s total business. 

   

• International Business usually takes place within a more diverse external environment.

 Why Companies  Engage in International Business? 

• To Expand  Sales: companie’s sales are dependent on  two factors: the consumers’ interest in  their product or services and the consumers’ ability  and willingness to buy them.  
• Acquire  Resources: products, services, technology, and  information 
• Diversify  Sources of Sales and Supplies 
• Minimize  Competitive Risk: companies move internationally  for defensive reasons. Profits from one  market can be used to expand operations  in other markets.  

 

 Reasons  for Recent International  Business Growth 

Expansion of  Technology:

transportation,  telecommunications; 

Transportation  and telecommunications costs are more conducive  for international operations.  

Liberalization  of Cross-Border Movements:

goods, services,  labour, Capital 

Development of  Supporting Institutional Arrangements: development  by business and governments of institutions  that enable us to effectively apply that  technology.  

Increase in  Global Competition: 

new products  become global; Globalization of production

 Modes of International  Business  

• Merchandise  Exports and Imports: visibles and invisibles  
• Performance  of Services: fees; turnkey operations; management  Contracts
•  Use  of Assets: licensing agreements; royalties;  franchising  
• nvestments: 

 Modes of International  Business Con’t 

1) Foreign  Direct Investment: gives the investor a  controlling Interest in a foreign company.  It gives access to: 

- foreign markets

- foreign resources

- higher profits  than exporting

• partial ownership

 

2) Portfolio  Investment: stock in a company or loans  to a company or country in the form  of bonds, bills, or notes that the  investor purchases. 

E - Other Operational  Definitions   

- Strategic Alliances 

F – MNCs, MNEs,  TNCs, Global Company, Multidomestic Company 

 External Influences  on International Business 

 

  Understanding a Company’s Physical and Societal Environment Managers need a working knowledge of business operations, a working Knowledge of political sciences, law, anthropoly, sociology, economics, and geography. 

 Evolution of  Strategy in the Internationalization Process 

• Patterns  of Expansion: passive; external to internal  handling of the business; limited to extensive  modes of operations 
• Deepening mode of  Commitment 
• Geographic Diversification  (similar cultural background) 
• Leapfrogging of Expansion:  companies are starting with a global focus.  

 

Volume  of world trade and production 1950-2002

 Emergence of  Global Institutions 
    Globalization  has created the need for institutions  to help manage, regulate and police the  global marketplace

• GATT
• WTO
• IMF
• World bank
• United Nations

 Global drivers 

• Macro factors  that underlie trend towards greater globalization
• Decline in trade barriers
• Technological change

 Decline in  Trade Barriers 

    Globalization  of markets and production has been facilitated  by  

          - Reduction in trade barriers

          - Removal of restrictions  to foreign        direct investment 

 Technological Change 

• Microprocessors and  telecommunications
• The internet and world wide web
• Transportation technology

 Changing Demographics  of the World Economy 

• World output and  trade
• Changing foreign direct investment
• Changing nature of multinationals
• Mini multinationals
• Non US multinationals

 Pattern of  Declining Tariffs



 The Changing  Pattern of World Output and Trade



 National Origin  of Largest Multinational Corporations



 Globalization Debate-Pro 

• Lower prices for  goods and services
• Economic growth stimulation
• Increase in consumer income
• Creates jobs
• Countries specialize in production of goods and services that are produced most efficiently

 Globalization Debate-Con 

• Destroys manufacturing  jobs in wealthy, advanced countries
• Wage rates of unskilled workers in advanced countries declines
• Companies move to countries with fewer labor and environment regulations
• Loss of sovereignty