Globalization and International Business

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Learning Objectives
To define globalization and international business and show how they affect each other To understand why companies engage in international business To become familiar with modes of operation in IB To understand the differences between international and domestic business To discuss the major costs of globalization and globalizations future

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Introduction
What is the most globalized business in the world?

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Introduction
The effects of this trend can be seen in the cars people drive in the food people eat in the jobs where people work in the clothes people wear in many other ways

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Introduction
Globalization is the ongoing process that deepens and broadens the relationships and interdependence among countries International business is a mechanism to bring about globalization Two key facets of globalization are: the globalization of markets the globalization of production
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The Globalization of Markets

The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace In many markets today, the tastes and preferences of consumers in different nations are converging upon some global norm Examples of this trend include Coca Cola, Starbucks, Sony PlayStation, and McDonalds hamburgers
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The Globalization of Production

The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor energy, land, and capital) The goal for companies is to lower their overall cost structure or improve the quality or functionality of their product and gain competitive advantage Examples of companies doing this include Boeing and Vizio

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Introduction
International business consists of all commercial transactionsincluding sales, investments, and transportationthat take place between two or more countries increasingly foreign countries are a source of both production and sales for domestic companies

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Introduction
It is important to study international business because
Most companies are either international or compete with international companies Modes of operations may differ from those used domestically The best way of conducting business may differ by country An understanding helps you make better career decisions An understanding helps you decide what government policies to support
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Introduction
Factors in International Business Operations

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Forces Driving Globalization

Increase in and application of technology Liberalization of cross-border trade and resource movements Development of services that support international business Growing consumer pressures Increased global competition Changing political situations Expanded cross-national cooperation

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Measuring Globalization
Globalization can be difficult to measure The A.T. Kearney/Foreign Policy Globalization Index ranks economies by Economic dimensions Technological dimensions Personal contact Political dimensions recently ranked Singapore and Hong Kong as most globalized, and India and Iran as the least
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Why Companies Engage in IB

To expand sales pursuing international sales increases the potential market and potential profits To acquire resources may give companies lower costs, new and better products, and additional operating knowledge To diversify or reduce risks international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage
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Why Companies Engage in IB

These three reasons sales expansion resource acquisition risk minimization guide all decisions about whether, where, and how to engage in international business

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Modes of Operations in IB
Merchandise exports goods that are sent out of a country Merchandise imports goods that are brought into a country Sometimes referred to as visible exports and imports

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Modes of Operations in IB
Service exports provider and receiver of payment Service imports recipient and payer of payment Examples Tourism and transportation Service performance turnkey operations and management contracts Asset use licensing and franchising
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Modes of Operations in IB
Investments Foreign Direct Investment (FDI) investor takes a controlling interest in a foreign company joint venture Portfolio Investment a non-controlling financial interest in another entity
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Modes of International Operations

Indirect exporting Exporting Direct exporting Direct branch/subsidiary Other Licensing Franchising Management contracts Collaborative Strategies Construction/turkey projects Contract manufacturing Co-production agreement Other International portfolio investment International investments Greenfield investment FDI Brownfield investment WOSs IJVs Acquisition Merger 1-18

Types of International Organizations

Collaborative arrangements Joint ventures Licensing arrangements Management contracts Minority ownership Long-term contractual arrangements Strategic alliance companies that work together, but the agreement is critical to at least one partner an agreement that does not involve joint ownership
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Types of International Organizations

Multinational enterprises (MNEs) take a global approach to markets and production or have operations in more than one country Sometimes they are referred to as multinational corporations (MNCs) multinational companies (MNCs) transnational companies (TNCs)
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Types of International Organizations

In foreign markets, companies may have to adapt their typical methods of doing business foreign conditions may dictate a particular method operating modes may be different from those used domestically

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Why IB is Different
The external environment affects a companys international operations Managers must understand social science disciplines and how they affect functional business fields Consider physical factors social factors competitive factors
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Physical and Social Factors

Geographic influences - natural conditions influence production locations Political policies - determines where and how business occurs Legal policies - influence how a company operates Behavioral factors - may require changes in operations Economic forces - explain differences in costs, currency values, market size

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The Competitive Environment

Competitive strategy for products Cost strategy Differentiation strategy Focus strategy Company resources and experience market leaders have more resources for international operations Competitors faced in each market local or international
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The Competitive Environment

So, a companys competitive strategy influences how and where it can best operate Its competitive situation may differ from country to country in terms of its relative strength and which competitors it faces

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Costs of Globalization
Threats to national sovereignty lose freedom to act locally Economic growth and environmental stress growth consumes nonrenewable natural resources and increases environmental damage Growing income inequality and personal stress promotes global superstars at the expense of others
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Costs of Globalization
Offshoring involves the transferring of production abroad
it can be beneficial because it reduces costs but, it also means that jobs move abroad

Yet, offshoring may also create new, better jobs at home

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Looking to the Future

Three major perspectives on the future of international business and globalization Further globalization is inevitable International business will grow primarily along regional rather than global lines Forces working against further globalization and international business will slow down both trends

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