the nature of international business part 1 s5

7/29/2019 The Nature of International Business Part 1 S5

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Section One

The Nature of International Business

by Ball, McCulloch, Frantz,Geringer, and Minor


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1

The Rapid Change of

International Business

McGraw-Hill/Irwin Copyright 2006 The McGraw-Hill Companies, Inc. All rights reserved.

This chapter covers:

Internationalization of

markets

Various names given to

firms in multiple countries

Effect of the internet on

international business

Drivers leading firms to

globalization of productDifferences between

domestic and international

businesses

Three environments of

international business

International Business

by Ball, McCulloch, Frantz,

Geringer, and Minor


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Chapter Objectives

Appreciate the dramatic internationalization of markets.

Understand the various names given to firms that havesubstantial operations in more than one country.

Appreciate the profound effect of the Internet on many

international business firms. Understand the five kinds of drivers that are leading

international firms to the globalization of their operations.

Comprehend why international business differs from

domestic business. Describe the three environments--domestic, foreign, and

international--in which an international company operates

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International Business Experience

Seventy-nine percent of CEOs believe all businessmajors should have an introductory internationalbusiness course

Seventy percent will consider expertise in foreignlanguage and international exposure in hiringdecisions

The majority of CEOs consider courses related to

international business relevant to their company Managers wanting to advance will need to have

foreign experience1-3


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International Business Terminology

The United Nations uses transnational instead of multinational to

describe a firm doing business in more than onecountry.

Business people define a transnational as a company formed by a

merger of two firms of approximately the same sizethat are from two different countries

Unilever (Dutch-English) Dunlop-Pirelli (English-Italian)

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Definitions

International Business is a business whose activities are carried out across

national borders.

includes international trade and foreignmanufacturing

also includes a growing service industry in areas suchas

transportation, tourism, advertising, construction,retailing, wholesaling, and mass communication.

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Definitions

Foreign Business domestic operations within a foreign country

A Multidomestic Company has multicountry affiliates, each of which formulates

its own business strategy based on perceived marketdifferences.

A Global Company attempts to standardize and integrate operations

worldwide in all functional areas. International Company

describes both global and multidomestic companies1-6


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Global Company- By Whose Definition?

Have a worldwide presence in its market

Allen-Edmonds produces all shoes in Port Washington,Wisconsin ships to over 33 nations

Standardize operations worldwide in one or more functional

areas P&G has operations in more than 70 countries and sells

essentially the same products in over 140 countries

Integrate operations worldwide

Multicultural multinationals respond to local markets,produce products worldwide, exploit knowledge andtechnology on a global basis

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History of International Business

Phoenician and Greek merchants sent abroad beforetime of Christ

1600s British East India Company establishedbranches in Asia

1700s American colonial traders begin operations

FDI prior to Civil War by Colt Fire Arms and Ford

1800s Singer Sewing Machine first foreignproduction

1914 at least 37 American companies producingoverseas

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Globalization

Economic Globalization is the international integration of goods, technology,

labor, and capital.

refers to the implementation of global strategies

which link and coordinate a firms internationalactivities on a worldwide basis.

definition continues to broaden to include political, social, environmental, historical, geographical,

and cultural implications

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Globalization Forces

There are five major kindsof drivers that are leadinginternational firms to theglobalization of theiroperations.

Political Technological

Market

Cost

Competitive

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Political

There is a trend toward the unification and

socialization of the global community.

Preferential trading agreements NAFTA

European Union

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Technological Advancements in computers and communication

technology are permitting an increased flow of ideasand information across borders. The Internet and network computing enables small

companies to compete globally.

Business to business commerce is experiencingsignificant savings by using the Internet for businessexchanges. Web is used to find suppliers Web is used to process purchase orders

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Market As companies globalize,

they also become globalcustomers.

Companies followcustomers abroad

Saturation of the homemarket

Customer tastes and

lifestyles areconverging

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Cost

Economies of scale to reduce unit cost are always a

management goal.

Globalizing product lines can reduce development,

production, and inventory costs can help achieve

economies of scale.

Companies can also locate production in countrieswhere production costs are lower.

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Competitive

Competition continues to increase in intensity.

Newly industrialized and developing countries

Companies are defending their home markets fromcompetitors by entering the competitors homemarkets to distract them.

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Explosive Growth

Foreign Direct Investment

One commonly used measure of growth

Refers to direct investment into equipment,structures, and organizations in a foreigncountry sufficient to obtain managementcontrol

World stock of FDI rose from $519 billion in 1980 to$6.6 trillion in 2001.

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Explosive Growth

ExportingRefers to the transportation of any domestic

good or service to a destination outside the

home country or regionThe level of world merchandise exports more

than tripled from 1980 to 2002.

The level of service exports worldwide more

than quadrupled in the same period.

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Number of International Companies

In 2002, the United Nations estimated there were

over 63,800 companies with a total of over 866,000

foreign affiliates accounting for two-thirds of world

trade.

Foreign affiliates sales were $17.7 trillion in 2002.

Growth due in part to liberalization of governmentpolicies toward foreign investment

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2002 Top International Firms

Ranking Nation or Firm1. United States

2. Japan

3. Germany

4. United Kingdom5. France

6. China

7. Italy

8. Canada9. Mexico

10. Spain1-19

Total Sales for 2002 ($billion)$10,207.0

4,323.9

1,876.3

1,510.81,362.1

1,234.2

1,100.7

702.0597.0

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The Globalization Debate

Supporting

Free trade advances

economic development

Reduces poverty,

improves education,

health and life

expectancy

Expanded trade creates

more and better jobs Must manage the costs

and transition of workers

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Globalization Concerns produces uneven results

across nations and people

Increases gap between

rich and poor has negative effects on

labor and labor standards

Jobs migrate todeveloping nations

contributes to decline inenvironment and healthconditions


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Forces in the Environment

Environment The sum of all forces

surrounding andinfluencing the life anddevelopment of the firm.

Forces can be classified as External forces

Management canexert influence butcannot control

Internal forces Management must

administer and adapt

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External Environmental Forces

Competitive Kind, number, location

Distributive

For goods and services

Economic GNP, labor cost

Socioeconomic

Characteristics ofpopulation

Financial Interest rates, inflation,

taxes1-22

Legal Laws governing business

Physical

Topography, climate

Political Form of government

Sociocultural

Attitudes, beliefs

Labor

Skills, attitudes

Technological

Equipment, skills


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Internal Environmental Forces

Factors of production

Capital, raw material,and people

Activities of theorganization

Personnel, finance,production, and

marketing

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Domestic Environment

Composed of all the uncontrollable forces

originating in the home country that surrounds and

influences the life and development of the firm

Managers most familiar

May affect foreign operations

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Foreign Environment

Operates differently than the domestic environmentfor the following reasons

Different force values

Changes difficult to assess

Particularly political and legal forces

Forces interrelated

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International Environment

The International Environment is the interaction between the domestic environmental

forces and the foreign environmental forces.

the interaction between the foreign environmentalforces of two countries when an affiliate in onecountry does business with customers in another.

Decision making is more complex

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International Business Model

International businesstransactions take place acrossnational borders and may

involve three environments. Domestic

Foreign

International

Figure 1.2 here

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United States Commercial Service

The U.S. Commercial Service offers four ways togrow your international sales:

world-class market research

trade events that promote your product or service toqualified buyers

introductions to qualified buyers and distributors

counselingthrough every step of the export process

www.export.gov/comm_svc/
http://www.buyusainfo.net/adsearch.cfm?search_type=int&loadnav=nohttp://www.export.gov/comm_svc/tradeevents.htmlhttp://www.export.gov/comm_svc/cs_products_services.htmlhttp://www.export.gov/comm_svc/consulting_advocacy.htmlhttp://www.export.gov/comm_svc/consulting_advocacy.htmlhttp://www.export.gov/comm_svc/cs_products_services.htmlhttp://www.export.gov/comm_svc/tradeevents.htmlhttp://www.buyusainfo.net/adsearch.cfm?search_type=int&loadnav=no


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The Language of Trade (Examples)

AD VALOREM EQUIVALENT The duty collected under aspecific tariff or a compoundtariff expressed as a percentageof the value of the importeditem. Since a specific tariff is

calculated on the basis of units(of volume or weight), ratherthan value, and since prices canchange over time, the advalorem equivalent could differwhen calculated for differenttime periods.

www.usinfo.state.gov/products/pubs

AGREEMENT ON RULES OFORIGIN A WTO agreementaddressing the rules thatdetermine the country of originof an imported product. Rulesof origin play an important role

in international trade due to thefact that the application ofduties and other restrictions onentry often depends on thedeemed source of the imports.The agreement provides forharmonization in the practicesof WTO members indetermining the country oforigin of products.


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Top Five Global Companies*

Europe BP

Royal Dutch/ShellGroup

Daimler Chrysler

Total

Allianz

*According to Fortune 500

Asia Toyota Motor

Nippon Telegraphand Telephone

Hitachi

Honda Motor

Sony


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Ecommerce Trademark and Patent Services

Trademarks Trademark eBusiness

Search

File

Assign Ownership Search Assignments

Status

File TTAB Documents

Search & View TTABProceedings

www.ecommerce.gov

Patents Patent Electronic

Business Center

Electronic Filing(EFS)

Status Information(PAIR)

Assign Ownership

Search Assignments

Patent Searches Sequence Searches

(biotech)

Software
http://www.uspto.gov/main/trademarks.htmhttp://www.uspto.gov/main/trademarks.htmhttp://www.uspto.gov/main/trademarks.htmhttp://tess2.uspto.gov/bin/gate.exe?f=login&p_lang=english&p_d=trmkhttp://www.uspto.gov/teas/index.htmlhttp://etas.uspto.gov/http://assignments.uspto.gov/assignments/http://tarr.uspto.gov/http://estta.uspto.gov/http://ttabvue.uspto.gov/ttabvue/http://www.uspto.gov/ebc/index.htmlhttp://www.uspto.gov/ebc/index.htmlhttp://www.uspto.gov/ebc/index.htmlhttp://www.uspto.gov/ebc/efs/index.htmlhttp://portal.uspto.gov/external/portal/pairhttp://epas.uspto.gov/http://assignments.uspto.gov/assignments/q?db=pathttp://www.uspto.gov/patft/index.htmlhttp://seqdata.uspto.gov/http://seqdata.uspto.gov/http://www.uspto.gov/patft/index.htmlhttp://assignments.uspto.gov/assignments/q?db=pathttp://epas.uspto.gov/http://portal.uspto.gov/external/portal/pairhttp://www.uspto.gov/ebc/efs/index.htmlhttp://www.uspto.gov/ebc/index.htmlhttp://www.uspto.gov/ebc/index.htmlhttp://www.uspto.gov/ebc/index.htmlhttp://ttabvue.uspto.gov/ttabvue/http://estta.uspto.gov/http://tarr.uspto.gov/http://assignments.uspto.gov/assignments/http://etas.uspto.gov/http://www.uspto.gov/teas/index.htmlhttp://tess2.uspto.gov/bin/gate.exe?f=login&p_lang=english&p_d=trmkhttp://www.uspto.gov/main/trademarks.htmhttp://www.uspto.gov/main/trademarks.htmhttp://www.uspto.gov/main/trademarks.htm