- 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
- 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,
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
- 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
- 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
- - Reduction in
- - Removal of
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
National Origin of Largest Multinational
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
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