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PART ONEBACKGROUND FOR INTERNATIONAL BUSINESS
International Business
Chapter One
Globalization andInternational Business
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Chapter Objectives
To define globalization and international business andexplain how they affect each other
To explain why companies engage in internationalbusiness and why the growth of international businesshas accelerated
To comprehend the criticisms of globalization To introduce the different modes a company can use to
accomplish its global objectives To illustrate the role the social science disciplines play in
understanding the environment of international business
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Globalization Defined
Globalization: the ongoing social, economic,and political process that deepens andbroadens the relationships and inter-
dependencies amongst nationstheirpeople, their firms, their organizations,and their governments
Globalization of production Globalization of markets
International business facilitates the
globalization process.
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International Business Defined
International business: all commercialtransactions between parties in two ormore countries
Private firms are profit-oriented.
Government organizations may or maynot be profit-oriented.
The international business environment
is more complex and diverse than the
domestic business environment.
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Fig. 1.1: International Business:Operations and Influences
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The Forces Behind Globalization
Most sales still local
Globalization Index: economic, technological,personal contact and political
Increased expansion and technologicalimprovements in transportation andcommunications networks Cost reduction and speed
Liberalization of cross-border trade and resourcemovements Consumer and producer pressure
Reciprocal reduction in barriers
GATT and EU etc.
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The Forces Behind Globalization
Development of services that support international
business activities
Growing consumer demand for foreign products Greater information and access for consumers
Competitors forced to respond with higher quality andcost-effectiveness
Increased global competition Market expansion
Operational effectiveness and resources Born global companies
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The Forces Behind Globalization
Changing political and economic situations China & Russia
Improved infrastructure and trade-related services
Expanded cross-national treaties and agreements Reciprocal advantages
Joint problem solving
Territories outside borders UN, IMF, World Bank, WTO
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The Criticisms of Globalization Threats to national sovereignty
Think globally, act locally Political independence
Environmental hazards
Dependence on large companies
Homogenization of culture
Negative costs of economic growth
Increasing income inequality Offshoring
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Reasons That Firms Engage inInternational Business
To expand salesVolkswagen [Germany]
Ericsson [Sweden] Michelin [France] Nestl [Switzerland]
IBM [USA] Seagram [Canada] Sony [Japan]
[continued]
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To acquire resources Products, components, services Foreign capital Technologies Information
To minimize risk Take advantage of business cycle
differences amongst countries Diversify suppliers across countries Counter competitors advantages
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Modes of Entry into InternationalBusiness
Merchandise exports and imports Service exports and imports
Use of assets [licensingand franchisingaggreements agreements]
[Foreign investment] Foreign direct investment & JVs
[Portfolio investment]
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Fig. 1.3: Means for ConductingInternational Operations
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International Business Terminology
Strategic alliance: a collaborativearrangement of critical importance to
one or more of the alliance partners Multinational enterprise [MNE]: a firmthat takes a global approach to its foreignmarkets and production
Multinational corporation [MNC] andtransnational company [TNC]
may be used in this samecontext.
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International Business Managers
Must understand the relevance of: Domestic and international law Political scienceAnthropology Sociology Psychology Economics
Geography
Must be knowledgeable about the competitivedimensions of the international businessenvironment
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Fig. 1.4: Physical and Societal
Influences on International Business
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Fig. 1.5: Competitive FactorsAffecting International Business
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Implications/Conclusions
Managing an international business differsfrom managing a domestic business
because:-countries and cultures are different
-international business operations
are more complex than domesticoperations
[continued]
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A companys own competitive strategy
influences how and where it can bestoperate.
From one country to another, a companys
relative competitiveness will vary becauseof the differences in the local and foreigncompetitors that are present.