chap 3 global context of business

Copyright ©2003 Prentice Hall, Inc.

Memoona Qadeer

Today’s PlanLet’s improve- quiz

The companyLesson part 1BreakLesson part 1Let’s improve- exercise

The companyForesee: Next class

The Global Context of Business

Chapter 2

Exercise Give me stories of different products and

marketing approaches in other countries, and compare them in Palestine?

What evidence have we seen in the last ten years of growing international business partnership?

Trade agreements- global mergers- joint ventures- licensing

“We are in the midst of

a great transition from

narrow nationalism to

international

partnership.”

~ Lyndon Baines Johnson

Key TopicsThe rise of global businessMajor world marketplaces and Palestine

trading partnersInfluences on international businessInternational business managementThe impact of differences among nations

The key drivers to globalization

Drivers:

Global market

Convergence

Global Competition

GovernmentInfluence

Cost Advantages

GlobalStrategies

Similar customer needs,Global customers, Transferable marketing

Trade policies, TechnicalStandards, host government,

policies

Scale economies,Sourcing efficiencies

Countries costs,High product development costs

Interdependence, Competitors globalHigh exports/imports,

Globalization Is Gaining Speed

The world economy is becoming a single, interdependent system

Export: Domestic product sold abroad

Import:Foreign product sold domestically

Globalization Is Gaining SpeedExample: Asian financial markets in the late

90s directly affects stock markets worldwide.

Discussion: what product from other countries do you use\consume? Why have you chosen it? Why not Palestinian product?

Categorizing Economies

High Income Countries: Per capita income greater than $9,386

Middle Income Countries: Per capita income between $765 and $9,386

Low Income Countries: Per capita income of less than $765

Discussion: what countries fall into each category?

Major World Marketplaces

North America NAFTAEurope EUPacific AsiaDo we have any

economic agreement with other countries. What are they?

The North American Marketplace (NAFTA)

Canada

United States

Mexico

Copyright ©2003 Prentice Hall, Inc. 2 - 13

Europe and the Nations of the European Union

Copyright ©2003 Prentice Hall, Inc. 2 - 14

• Austria

• Belgium

• Denmark

• Finland

• France

• Germany

• Greece

• Ireland

• Italy

• Ireland

• Italy

• Luxembourg

• Netherlands

• Portugal

• Spain

• Sweden

• United Kingdom

The Nations of ASEAN

• Brunei

• Indonesia

• Malaysia

• Philippines

• Singapore

• Thailand

• Vietnam

Copyright ©2003 Prentice Hall, Inc. 2 - 15

Pacific Asia RepresentsEnormous Business Potential

In less than a decade, Asian language speakers on the web will far exceed English speakers

Source: Time Global Business, Nov. 2001

English Japanese Chinese Korean0

50

100150200

250300350

400

450500

415

96

432

34

Projections for 2010 (in millions)

2 - 16

Competitive Advantage Absolute Advantage: when one country can produce a product cheaper and\or higher

quality than any other country. Ex. OPEC Comparative Advantage: when one country can produce certain goods or services more

efficiently and effectively than others. Ex. US software

Competitive advantages When competitive advantage is

materialized?When a firm earns persistently higher rate of

profit over its rivals. Determinants of profit level1- Value of company products in customers’

eyes. 2- Company production cost.

Competitive advantage It can be created in certain industrial field,

through the adoption of low-cost-differentiation strategy. . M. Porter

National Competitive Advantage

Factor conditionsDemand conditionsRelated and

supporting industriesStrategies,

structures, and rivalries

Qui. Evaluate Palestine?

Import/Export Balances

Balance of TradeTrade DeficitsTrade Surpluses

Balance of Payments

The total flow of money into or out of an economy

Exchange RatesHeavily Impact Global Trade

When an economy’s currency is strong:Domestic companies find it harder to export

productsForeign companies find it easier to import

productsDomestic companies may move production

to cheaper sites in foreign countriesImplications for balance of trade?

Exchange RatesHeavily Impact Global Trade

When an economy’s currency is weak:Domestic companies find it easier to export

productsForeign companies find it harder to import

productsForeign companies may invest in production

facilitiesImplications for balance of trade?

The U.S. Economy Has a Growing Trade Deficit

Copyright ©2003 Prentice Hall, Inc. 2 - 24

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

$400,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

U.S. Trade Deficit(in billions)

78,8

57 28,2

66

35,6

66

68,9

49 97,0

39

95,9

47

102,

113

105,

932

166,

898

255,

971

344,

716

0

200

400

600

800

1000

1200

1400

1600

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Imports Exports

U.S. Imports & Exports(in billions)

Does It Make Sense to Go International?Does It Make Sense to Go International?

Copyright ©2003 Prentice Hall, Inc. 2 - 25

YES

Is there international demand for

the firm’s product?

NO

Stay Domestic

Can the product be

modified to fit a foreign market?

NO

YES

Is the foreign business

climate suited to imports?

NO

Does the firm have or can it get thenecessary skills and

knowledgeto do

business abroad?

YES

NO

YES

Go International

Levels of International Involvement

Importer & Exporter International FirmsMultinational Firms

International Organizational Structures

Foreign Investment

Strategic Alliances

Branch Offices

Licensing Arrangements

Independent Agents

INV

OLV

EM

EN

THIGH

LOW

Barriers to International Trade

Social & Cultural Differences Economic

Differences

Legal & Political Differences

Take Time to Learn the Culture Thoroughly!

Este es nuestro nuevo auto:

el NOVA!

Ha, ha, ha, ha, ha, ha!!!

The Customer’s LanguageA Critical Business Success Factor

In the U.S. alone, 18% of the population does not speak English at home.

Only 48% of the world’s Web users are native English speakers.

Consumers are four times more likely to buy a product on the Internet if the website is in their preferred language.

Source: Time Global Business, Nov. 2001

Economic Differences

To operate effectively in another country, businesses must know when, and to what extent, the government is involved in a given industry.

Legal & Political Differences

Quotas, Tariffs, & SubsidiesProtectionismLocal Content LawsBusiness Practice Laws

Day to day operationsCartelsDumping

Definitions Quota: restriction on the number of certain

type of product that can be imported into a country.

Embargo: complete ban on imports and exports, imposed by a government for political reasons.

Tariff: tax levied on imported products.Subsidy: government payments to help a

domestic business compete with foreign firms.Protectionism: the practice of protecting

domestic business against foreign competition.

Chapter Review

Discuss the rise of international business, describe the major world marketplaces.

Explain how competitive advantage, import-export balances, exchange rates, and foreign competition shape international business strategies.

Chapter ReviewDiscuss what factors influence whether a

company should engage in international business.

Identify different levels of international involvement and international organizational structure.

Describe key barriers to international trade.