INTERNATIONAL BUSINESS

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EXTRA UNIT The International Business Imperative

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Learning Objectives

To understand the history and impact of international business.

To learn the definition of international business.

To recognize the growth of global linkages today.

To understand the U.S. position in world trade and the impact international business has on the United States.

To appreciate the opportunities and challenges offered by international business.

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Need for International Business

More and more firms around the world are going global, including:

Manufacturing firms

Service companies (i.e. banks, insurance, consulting firms)

Art, film, and music companies

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Need for International Business

International business: causes the flow of ideas, services, and

capital across the world offers consumers new choices permits the acquisition of a wider

variety of products facilitates the mobility of labor,

capital, and technology provides challenging employment

opportunities reallocates resources, makes

preferential choices, and shifts activities to a global level 5

What is International Business?

International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

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Types of International Business

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Export-import trade

Foreign direct investment

Licensing

Franchising

Management contracts

International Business Questions

How will an idea, good, or service fit into the international market?

Should trade or investment be used to enter a foreign market?

Should supplies be obtained domestically or abroad?

What product adjustments are necessary to be responsive to local conditions?

What are the threats from global competitors, and how can these threats be counteracted?

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International Business and the Roman Empire

Pax Romana, or Roman Peace ensured that merchants were able to travel safely and rapidly.

Common coinage simplified business transactions.

Rome developed a systematic law, central market locations, and an effective communication system; all of which enabled international business to flourish in the Roman Empire.

The growth of the Roman Empire occurred mainly through the linkages of business 9

International Business and the Roman Empire (cont.)

The decline of the Roman Empire can be attributed in part to: infighting and increasing decadence

the Pax Romana being no longer enforced

the decline of use and acceptance of the common coinage

declining levels of communication

As a result, former Roman allies cooperated with invaders.

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United States: A Global Leader

The United States has developed a world leadership position due to: its use of market-based transactions in the

Western world a broad flow of ideas, goods, and services

across national borders an encouragement of international

communication and transportation Pax Americana, an American sponsored and

enforced peace 11

The Smoot-Hawley Act

The the 1930’s, the U.S. passed the Smoot-Hawley Act, which raised import duties to reduce the volume of goods coming into the U.S.

The act was passed in the hope that it would restore domestic employment.

The result was a worldwide depression and the collapse of the world financial system.

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Expansion of International Trade

In the past 30 years, the volume of international trade has expanded from $200 billion to over $7.5 trillion.

The sales of foreign affiliates of multinational corporations are now twice as high as global exports.

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Global Links Today

International business has created a network of global links that bind countries, institutions, and individuals with trade, financial markets, technology, and living standards. For example, a reduction in coffee production in

Brazil would affect individuals and economies worldwide.

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Recent Changes in International Business

Total world trade declined dramatically after 2000, but is again on the rise.

The rate of globalization is accelerating.

Regionalization is taking place, resulting in trading blocs.

The participation of countries in world trade is shifting.

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The Composition of Trade

Between the 1960’s and the 1990’s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased.

More recently, there has been a shift of manufacturing to countries with emerging economies.

There has been an increase in the area of services trade in recent years.

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The Current U.S. International Trade Position

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Exports and Imports of Goods and Services per Capita for Selected Countries

Country Exports per Capita Imports per Capita Australia Brazil China Japan Kenya United Kingdom United States

$4,296 379 222 4,165 91 4,767 3,472

$4,525 428 199 3,622 125 5,500 4,962

The Impact of International Business on the United States

U.S. international business outflows are important on the macroeconomic level in terms of balancing the trade account.

On the microeconomic level, participation in international business can help firms achieve economies of scale that cannot be achieved in domestic markets.

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Average Plant Salary and Wages (per worker, dollars per hour)

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0

5

10

15

20

25

30

All Plants Small Plants Large Plants

$ pe

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Non-Exporters Exporters

Globalization

Because of globalization, for the first time in history, the availability of international products and services can be accessed by individuals in many countries, from diverse economic backgrounds.

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The Structure of this Book

Part One introduces the importance of international business and its global linkages.

Part Two presents the environment of international business, addressing culture, policies, politics, and law.

Part Three provides coverage of the theory of international trade and investment and presents balance of payments issues.

Part Four discusses markets, financial systems, economic integration, and emerging market concerns. 21

The Structure of this Book (cont.)

Part Five presents the strategy considerations surrounding international business.

Part Six targets the operational issues surrounding international business, using an implementation-oriented perspective.

Part Seven concludes the book with a focus on the future of the field and the reader’s career.

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