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Alan M Rugman and Simon Collinson, International Business,5thEdition, Pearson Education Limited 2009

INTERNATIONAL BUSINESS

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IB- Course objectives

The course is designed for those students who

have a definite interest in pursuing

a career in international businessas well as

those who seek a broadening of theirknowledgein this growing and vital area

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Course objectives To introduce students to the contemporary issues in International

Business that illustrate the unique challenges faced by manages inthe international business environment.

To cover a broad range of international business issues from aninterdisciplinary viewpoint and emphasizing the key concerns of the

multinational and global corporation To assist students to integrate into their thinking the important

societal dimensions of diversity, environmental concerns, ethics,and technological change.

To develop knowledge and skills to analyze cross cultural variables

and their impact on international business.

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Table of Contents

PART ONE: THE WORLD OF INTERNATIONAL BUSINESS

1 Regional and Global Strategy

2 The Multinational Enterprise

3 The Triad and International Business

PART TWO: THE ENVIRONMENT OF INTERNATIONAL BUSINESS

4 International Politics

5 International Culture

6 International Trade

7 International Financial Markets and Institutions

PART THREE: INTERNATIONAL BUSINESS STRATEGIES

8 Multinational Strategy

9 Organizing Strategy

10 Production Strategy

11 Marketing Strategy

12 Human Resource Management Strategy

13 Political Risk and Negotiation Strategy

14 International Financial Management

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INTERNATIONAL BUSINESS

TEXTBOOK

International Business, 5/EAlan M. RugmanSimon Collinson

ISBN-10: 0273716549ISBN-13: 9780273716549

Publisher: Prentice HallCopyright: 2009

Format: Paper; 752 ppPublished: 12/19/2008

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Additional references

International Business, 12/EJohn DanielsLee RadebaughDaniel Sullivan

ISBN-10: 0136029655ISBN-13: 9780136029656

Publisher: Prentice HallCopyright: 2009

Published: 07/30/2008

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assignments

50% exam (multiple choice questions and/or

short open questions - case)

40% seminar (study cases, individual project,

multiple-chice questions, active participation)

10% for granted

100% total

Extra points (10)

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Regional and global strategy

Chapter 1

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Regional and global strategy

Objectives Introduction

World business: a brief overview

Todays international environment

Globalization and strategic management

The study of international business

Framework for this book

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Objectives

Definethe terms international business andMNE. Discuss thetwo primary ways in which internationalbusiness occurs: trade and FDI.

Examinethe impact of the triad on international trade andinvestment.

Describe the current state of world economies and the roleof government and trade regulations in the conduct ofinternational business.

Discuss the importance of technology and the role of SMEs

in the international business arena. Examine how MNEs use triad/regional strategies tocompete effectively in the international marketplace.

Discussthe determinants of national competitiveadvantage.

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Study case

Coca-Cola

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Introduction

International business:the study of transactionstaking place across national borders for the purpose

of satisfying the needs of individuals and

organizations.

Multinational enterprises (MNEs):a companyheadquartered in one country but having operations

in other countries.

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World business: a brief overview

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Most MNE activity can be classified into two majorcategories:(1) Trade (exports and imports): More than 50% of all

trade is made by the worlds largest 500 MNEs.

(2) Foreign direct investment (FDI): 80% of allFDI is made by the worlds largest 500 MNEs.

MNE activity

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Trade and investment

Tradeconsists of exports and imports: Exports:goods and services produced in one country

and then sent to another country.

Imports:goods and services produced in one country

and bought in another country.

Foreign Investment:consists of companies investing

funds to start or improve operations in another

country.

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Table 1.1 World Trade, 2005Note: Data for European Union include intra-EU trade. Exports are calculated by including freight and insurance while imports do not include freight and insurance.

As a result data might not be consistent with other data in this book

Source: Adapted from International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 25

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Table 1.2 Intra-regional trade in the triad, 19802005Note: Asia data were calculated using information for exports from Japan, China, India, Indonesia, South Korea, Malaysia, Singapore, Thailand and Australia to the

Asian region and the world. Data for EU are for intra-EU exports in 2000 and 2005 and intra-EEC Exports in 1980

Source: Authors calculations based on the IMF, Direction of Trade Statistics Yearbook, 2006 and 1985

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Table 1.3a Foreign direct investment in the United States, 2005Note: Data are on a historical-cost basis. Numbers might not add up due to rounding

Sources: Authors calculations and US Department of Commerce, Survey of Current Business, June 2007, p. D67

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Table 1.3b Foreign direct investment by the United States, 2005Note: Data are on a historical-cost basis. Numbers might not add up due to rounding

Sources: Authors calculations and US Department of Commerce, Survey of Current Business, June 2007, p. D65

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Q1: Why did Coca-Cola engage in FDI in Europe?

Coke make these investments to improve itsmarket position. This is being done in threeways. First, the construction of the new

bottling plants is helping the companyproduce a low-cost product. Second,marketing expenditures are helping the firmgain the product recognition needed for

growth. Third, FDI in facilities closer to themarket are reducing delivery time andeliminating associated expenses.

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The triad

Most global transactions take place within andbetween three key regions: the United States, the

European Union and Japan; these are referred to as:

the triad.

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The triad: the United States (US)

The US has the largest economy in the world with aGDP of over $10 trillion.

The US is part of the North American Free Trade

Agreement (NAFTA) with Canada and Mexico.

The US economy is significantly larger than that of itstwo trading partners and is therefore a triad member

on its own.

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The triad: the European Union (EU)

The EU (or EU27) is composed of the countries in theEU15 (Austria, Belgium, Denmark, Finland, Germany,

Greece, France, Ireland, Italy, Luxembourg, the

Netherlands, Portugal, Spain, Sweden, and the UK) and

twelve new, mainly Central European, countries thatjoined in 2004 and 2007.

The collective GDP of the EU is greater than that of the

US and Japan.

The EU27 is the worlds largest importer and exporter.

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The triad: Japan

Japan is the largest economy in Asia. Japan is the 4th largest importer and 4th largest

exporter in the world.

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Todays international environment

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The international business environment has changedrapidly in recent years as a result of:

an overall slowdown of triad economies;

increased trade liberalization through trade

agreements; improvements in technology;

the emergence of SMEs.

International business environment

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Slowdown of triad economies

In the late 1990s and early 2000s, the United States,the EU and Japan all experienced a reduction in

economic activity, which in turn decreased

international business activity.

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International trade regulation

An important international business trend has beenthe emergence of regional and global trade and

investment liberalization and international regulation.

The World Trade Organization (WTO).

General Agreement on Tariffs and Trade (GATT).

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The world trade organization

Established on January 1, 1995. An international organization that deals with rules of

trade among member countries.

Enforces the provisions of the General Agreement on

Tariffs and Trade (GATT).

Acts as a dispute-settlement mechanism.

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The general agreement

on tariffs and trade (GATT)

Established in 1947 to liberalize trade and to negotiatetrade concessions among member countries.

Today, the WTO is enforcing the provisions of the

GATT.

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Improved technology

More powerful and affordable technology haspromoted fast easy worldwide communication and

improved production capabilities enabling

organizations to operate more effectively in the

international marketplace.

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Small and medium-sized

enterprises (SMEs)

The definition of SMEs varies according to the nation.In general, it refers to companies with between 11 and

500 employees with sales of less than $5 million.

MNEs often purchase from SMEs. This is because their

specialized workforces, innovation and technology

allows SMEs to provide goods and services more

efficiently than if the MNE were to source these

internally.

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Globalization and strategic management

Regional triad strategies

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Misconceptions about MNEs

Common misconceptionsabout MNEs: MNEs have far-flung operations or earn most of their

revenues overseas.

MNEs are globally monolithic and excessively powerful

in political terms. MNEs produce homogeneous products for the world

market and through their efficient techniques are able

to dominate local markets everywhere.

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In fact, MNEs earn most of their revenues in their home

regions.

The largest 500 MNEs are not spread around the world

but clustered around the triad. These MNEs engage not in global competition but in

triad/regional competition; this rivalry effectively

eliminates enduring political advantage.

MNEs adapt their products for the local market.

Misconceptions about MNEs (Continued)

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Globalization and strategic

management

Maintaining economic competitiveness

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Porters determinants of

national competitive advantage

Why are some firms able to innovate consistentlywhile others are not?

Factor conditions

Demand conditions

Related and supporting industries

Firm strategy, structure, and rivalry.

Each of these determinants depends on the others as

a system.

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Q2: How did Coke improve its factor conditions in Europe?

Factor conditions include land, labor and

capital. The company is using land and capital

to built new bottling plants that are more

efficient and better suited to meet marketdemand. It is working to improve the

effectiveness of the labour force by getting the

personnel to become more market orientedand to sell the product more vigorously

throughout Europe.

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Q3: How is local rivalry helping to improve Cokes

competitive advantage?

Coke faces strong comeptition in Europe. European donot drink as much Coke as do Americans; as a result,Coke has had to modify its strategy to address thismarket. This includes the building of new bottling plantsthat can help drive down costs and make the companymore price-competitive, and new marketing campaignsthat are designed to draw customers away fromcompeting products. Coke is also working to developnon-carbonated drinks to address local tastes. Finally,competition from locals who better understand theirmarket is forcing Coke to think local, act local.

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Q4: Is the Coca- Cola Company a multinational enterprise?

Is it global? Why?

Coke is an MNE. The firm conducts products and distribution activitiesin nations other than its home country. And in terms of strategy andmanagement orientation, Coca-Cola does three things that illustrate itsmultinational nature. First, the company modifies its operations tomeet local needs. The firm markets on a country-by-country basis.Second, Coke has international partners who help to run the

operations and do not report directly to the company on day-to-daymatters. Third, the MNE relies heavily on teamwork by all involvedparties and, to a large degree, serves more as a coordinator andcheerleader for the product than as an on-site manager.

Coke is a global company. Together, the US and Canada account for justa third of its revenues. European and Asian operations are just as

important for the company. No one region absolutely dominates.Unlike MNEs that depend predominantly on their home market, Cokehas a global view and a global strategy.

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From general to strategic emphasis

The study of international business

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Table 1.4 Comparative differences in the study of international business, 19502010

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Framework for this book

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Figure 1.1 Model for this book

lecture 1 ib - 9 oct 2012

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