Globalization and International Business

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

To define globalization and international business and show how they affect each other

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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

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

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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

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IntroductionFactors in International Business Operations

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Forces Driving Globalization

1. Increase in and application of technology2. Liberalization of cross-border trade and

resource movements3. Development of services that support

international business4. Growing consumer pressures5. Increased global competition6. Changing political situations7. Expanded cross-national cooperation

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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

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Costs of Globalization

Learning Objective :

To discuss globalization’s future and the major criticisms of globalization

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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

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

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Why Companies Engage in IB

Learning Objective :

To understand why companies engage in international business and why

international business growth has accelerated

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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

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Why Companies Engage in IB These three reasons

sales expansion resource acquisition risk minimizationguide all decisions about whether, where, and how to engage in international business

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Modes of Operations in IB

Learning Objective :

To become familiar with different ways in which a company can accomplish its

global objectives

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Modes of Operations in IB Merchandise exports

goods that are sent out of a country Merchandise imports

goods that are brought into a countrySometimes referred to as visible exports and imports Service exports

provider and receiver of payment Turnkey Operation and Management Contracts

Asset Use Licensing and Frenchising Service imports

recipient and payer of payment Examples

Tourism and transportation Service performance

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Modes of Operations in IBInvestments:Foreign Direct Investment (FDI)

investor takes a controlling interest in a foreign company

Joint VenturePortfolio Investment

a non-controlling financial interest in another entity

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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

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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)

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

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Why IB is Different

Learning Objective :

To apply social science disciplines to understanding the differences between

international and domestic business

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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

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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

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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 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

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Looking to the Future

Learning Objective :

To discuss globalization’s future and the major criticisms of globalization

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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

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Thank You

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