section one the nature of international business by ball, mcculloch, frantz, geringer, and minor

Section OneThe Nature of International Business

by Ball, McCulloch, Frantz, Geringer, and Minor

1

The Rapid Change ofThe Rapid Change of International BusinessInternational 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 product

•Differences between domestic and international businesses

•Three environments of international business

International Businessby Ball, McCulloch, Frantz,

Geringer, and Minor

Chapter ObjectivesChapter Objectives 2

Appreciate the dramatic internationalization of markets. Understand the various names given to firms that have

substantial 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 ExperienceInternational Business Experience 3

Seventy-nine percent of CEOs believe all business majors should have an introductory international business course

Seventy percent will consider expertise in foreign language and international exposure in hiring decisions

The majority of CEOs consider courses related to international business relevant to their company

Managers wanting to advance will need to have foreign experience

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International Business TerminologyInternational Business Terminology 5

The United Nations uses transnational instead of multinational

to describe a firm doing business in more than one country.

Business people define a transnational as a company

formed by a merger of two firms of approximately the same size that are from two different countries Unilever (Dutch-English) Dunlop-Pirelli (English-Italian)

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DefinitionsDefinitions 8

International Business is a business whose activities are carried

out across national borders. includes international trade and foreign

manufacturing also includes a growing service industry in

areas such as transportation, tourism, advertising,

construction, retailing, wholesaling, and mass communication.

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DefinitionsDefinitions 8

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 market differences.

A Global Company attempts to standardize and integrate

operations worldwide in all functional areas. International Company

describes both global and multidomestic companies

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Global Company- By Whose Definition?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 and technology on a global basis

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History of International BusinessHistory of International Business

Phoenician and Greek merchants sent abroad before time of Christ

1600’s British East India Company established branches in Asia

1700’s American colonial traders begin operations

FDI prior to Civil War by Colt Fire Arms and Ford

1800’s Singer Sewing Machine first foreign production

1914 at least 37 American companies producing overseas

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GlobalizationGlobalization

Economic Globalization is the international integration of goods,

technology, labor, and capital. refers to the implementation of global

strategies which link and coordinate a firm’s international activities on a worldwide basis.

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

geographical, and cultural implications

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Globalization ForcesGlobalization Forces 1111

There are five major kinds of drivers that are leading international firms to the globalization of their operations. 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 ideas and information across borders. The Internet and network computing enables

small companies to compete globally. Business to business commerce is

experiencing significant savings by using the Internet for business exchanges. Web is used to find suppliers Web is used to process purchase orders

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Market As companies

globalize, they also become global customers. Companies follow

customers abroad Saturation of the

home market Customer tastes

and lifestyles are converging

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Globalization ForcesGlobalization Forces

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

countries where production costs are lower.

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Globalization ForcesGlobalization Forces

Competitive

Competition continues to increase in intensity. Newly industrialized and developing countries

Companies are defending their home markets from competitors by entering the competitors’ home markets to distract them.

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Explosive GrowthExplosive Growth 1313

Foreign Direct Investment One commonly used measure of growth Refers to direct investment into

equipment, structures, and organizations in a foreign country sufficient to obtain management control

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

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Explosive GrowthExplosive Growth

Exporting Refers to the transportation of any domestic good or service to a destination outside the home country or region

The 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 CompaniesNumber 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

government policies toward foreign investment

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2002 Top International Firms2002 Top International Firms

Ranking Nation or Firm1. United States2. Japan3. Germany4. United Kingdom5. France6. China7. Italy8. Canada9. Mexico10. Spain

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Total Sales for 2002 ($billion)$10,207.0 4,323.9 1,876.3 1,510.8 1,362.1 1,234.2 1,100.7 702.0 597.0 296.5

The Globalization DebateThe 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 to

developing nations contributes to decline in

environment and health conditions

Forces in the EnvironmentForces in the Environment 1818

Environment The sum of all forces

surrounding and influencing the life and development of the firm.

Forces can be classified as

External forces Management can

exert influence but cannot control

Internal forces Management must

administer and adapt

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External Environmental ForcesExternal Environmental Forces 1818

Competitive Kind, number, location

Distributive For goods and

services Economic

GNP, labor cost Socioeconomic

Characteristics of population

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

Internal Environmental ForcesInternal Environmental Forces

Factors of production

Capital, raw material, and people

Activities of the organization

Personnel, finance, production, and marketing

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Domestic EnvironmentDomestic Environment 1919

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 EnvironmentForeign Environment 1919

Operates differently than the domestic environment for the following reasons

Different force values

Changes difficult to assess

Particularly political and legal forces

Forces interrelated

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International EnvironmentInternational Environment 2121

The International Environment is the interaction between the domestic

environmental forces and the foreign environmental forces.

the interaction between the foreign environmental forces of two countries when an affiliate in one country does business with customers in another.

Decision making is more complex

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International Business ModelInternational Business Model

International business transactions take place across national borders and may involve three environments.

Domestic

Foreign

International

Figure 1.2 here

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United States Commercial ServiceUnited States Commercial Service

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

world-class market research trade events that promote your product or

service to qualified buyers introductions to qualified buyers and

distributors counseling through every step of the export

process

www.export.gov/comm_svc/

The Language of Trade (Examples)The Language of Trade (Examples)

AD VALOREM EQUIVALENT — The duty collected under a specific tariff or a compound tariff expressed as a percentage of the value of the imported item. Since a specific tariff is calculated on the basis of units (of volume or weight), rather than value, and since prices can change over time, the ad valorem equivalent could differ when calculated for different time periods.

www.usinfo.state.gov/products/pubs

AGREEMENT ON RULES OF ORIGIN — A WTO agreement addressing the rules that determine the country of origin of an imported product. Rules of origin play an important role in international trade due to the fact that the application of duties and other restrictions on entry often depends on the deemed source of the imports. The agreement provides for harmonization in the practices of WTO members in determining the country of origin of products.

Top Five Global Companies*Top Five Global Companies*

Europe BP Royal Dutch/Shell

Group Daimler Chrysler Total Allianz

*According to Fortune 500

Asia Toyota Motor Nippon

Telegraph and Telephone

Hitachi Honda Motor Sony

Ecommerce Trademark and Patent ServicesEcommerce Trademark and Patent Services

Trademarks Trademark eBusiness

Search File Assign Ownership Search

Assignments Status File TTAB

Documents Search & View

TTAB Proceedings

www.ecommerce.gov

Patents Patent Electronic

Business Center Electronic Filing

(EFS) Status Information

(PAIR) Assign Ownership Search Assignments Patent Searches Sequence Searches

(biotech) Software