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Master TEW

International Business

samenvatting - Van Hoof

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Inhoudsopgave

Chapter 1: What is international business? Chapter 2: Globalization of markets and the internationalization
Chapter 1: What is international business?
Chapter 2: Globalization of markets and the internationalization of the Firm
Chapter 3: Organizational Participants that make International Business happen
Chapter 4: Theories of international Trade and Investment
Chapter 5: the cultural environment of international business
Chapter 6: Political and Legal systems in national environments
Chapter 7: Government Intervention in International Business
Chapter 8: Regional Economic Integration
Chapter 9: Understanding emerging markets
Chapter 10: The international Monetary and Financial environment
Chapter 11: Global Strategy and Organization
Chapter 12: Global Market Opportunity assessment
Chapter 13: Exporting and Countertrade
Chapter 14: Foreign Direct Investment and Collaborative Ventures
Chapter 15: Licensing, Franchising and other Contractual strategies
Chapter 16: Global Sourcing
Chapter 17: Marketing in the global firm
Chapter 18: Human Resource Management in the firm
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Chapter 1: What is international business?

Ici Paris XL => chinese (HongKong) 1. What is international business ? Firms seek for
Ici Paris XL => chinese (HongKong)
1.
What is international business ?
Firms seek for international market opportunities
They must have value adding activities otherwise you are out of business
The subjects of cross border trade can be products, services, capital, technology, know how and labor
International business refers to the trade and investment activities by companies across national
borders. => cross border business
Firms internationalize through exporting, foreign direct investment, franchising, licensing, joint ventures
Exchange of goods and services around the world is typically made through exporting and importing
Globaliziation of markets refers to ongoing economic integration and growing interdependency of
countries worldwide
Leads to free movement of capital, labour, knowhow and goods and services
Globalization of markets has several trends:
1. Unprecedented growth of international trade
2. Trade between nations is accompanied by substantial flows of capital, technology and
knowledge
3. Development of highly sophisticated global financial systems and mechanisms that facilitate
cross border flow of products, money, technology and knowledge
4. Brought a greater degree of collaboration among nations through multilateral regulatory
agencies such as IMF and WTO
Going international for a firm has become easier than ever before
2.
What are the key concepts in international trade and investment ?
International trade refers to cross border exchange of products (merchandise) and services (intangibles)
Exporting is the sale of products/services to customers located abroad.
Importing (global sourcing) is the procurement of products/services from foreign suppliers for
consumption at home.
Exporting and importing may include both intermediate (raw materials and components) and finished
typically through exporting and importing
products.
International investment refers to the transfer of assets to another country or the acquisition of assets in
another country. These assets include capital, technology, managerial talent and manufacturing
infrastructure => factors of production
There are 2 types of cross border investment:
o
International portfolio investment (typically short term) is the passive ownership of foreign
securities such as stocks and bonds for the purpose of generating financial returns.
o
Foreign direct investment (FDI) (typically long term) is an internationalization strategy in which
the firm establishes a physical presence abroad through acquisition of productive assets such as
capital, technology, labor, land, plant, and equipment.
GDP is the total value of products and services in a country over the course of a year
Privatization is giving back state property to private actors
Firms undertake FDI for a variety of strategic reasons:
3

o

To set up manufacturing or assembly operations

o

To open a sales or representative office or other facility to conduct marketing or distribution activities

o

To establish regional headquarters

For example: Mital&Arcelor= steel firm, Lukos= Russian oil and gas firm Large, resourceful companies with substantial international operations are able to leverage FDI to:

o Manufacture/assemble products in low cost labor countries, i.e. India, Russia, Brazil, China, and Mexico;

o Invest in western markets, even though they may originate from emerging economies themselves Developed economies = Australia, Canada, Japan, the United States, and most countries in Western Europe. Developing economies = Parts of Africa, Asia, and Latin America. Of particular significance is the growth of FDI into developing economies despite widespread poverty and less investment capital than advanced economies. See figure 1.3 p 8

International trade in services accounts for about one quarter of all global trade and is growing faster than

products, however the absolute value of merchandise trade is still much greater than the value of services trade. Challenges unique to services:

o

Not all services can be exported.

o

Physical presence in host country is a prerequisite for many services.

Banking and financial services are the most active cross border services. Explosive growth of global capital markets is attributed to: (1) Money internationally into portfolio investments and pension funds (2) Banks/financial institutions internationalization increased amount of cheap, local investment capital, stimulating local financial markets and encouraging savings. Barter trade (ruilhandel) comes back by monetary problems Figure 1.5 p 10 ( Turkish are well known for construction )

3. How does international business differ from domestic business ?

The four risks in internationalization

Internationalizing firms are routinely exposed to 4 major types of risk: cross cultural risk, country risk/political risk, commercial risk and currency risk. => take a look at figure 1.6 p 11

Cross cultural risk

= a situation or event where a cultural miscommunication puts human value at stake

Differences in language, lifestyles, attitudes, customs, and religion, where a cultural miscommunication jeopardizes a culturally valued mindset or behavior.

Cultural blunders hinder the effectiveness of foreign managers. Language critical dimension of culture a window to people’s values Language differences impede effective communication. Cultural differences may lead to suboptimal business strategies.

Eskimo => various words for snow Aztecs same word for ice, cold, snow Chapter 5

Country risk/political

4

= potentially adverse effects on company operations and profitability caused by developments in the political,

legal and economic environment in foreign countries. Differences in host country political, legal and economic regimes may adversely impact firm profitability. Also, laws, regulations and indigenous factors e.g. property rights, intellectual property protection, product liability, taxation policies, inflation, national debt, and unbalanced international trade, may encumber firm operations and performance. Government intervention: restricts market access; imposes bureaucratic procedures hindering business transactions; and limits the amount of earned income that firms may repatriate from foreign operations. Economic freedom differs among nations Hong Kong, Singapore and Ireland are known as having the highest levels of economic freedom, see: (http://www.heritage.org).

Currency risk = the risk of adverse fluctuations in exchange rates Risk of adverse exchange
Currency risk
= the risk of adverse fluctuations in exchange rates
Risk of adverse exchange rate fluctuations, inflation and other harmful economic conditions create uncertainty
of returns.
Commercial risk
=
firm’s potential loss or failure from poorly developed or executed business strategies, tactics or procedures
4. Who participates in International business ?
Focal firms are those companies that directly initiate and implement international business activity.
There are 2 types of focal firms:
Multinational enterprise (MNE)
Medium sized enterprise (SME)
Multinational enterprises are the most important type of focal firm; add value in multiple countries,
through a network of subsidiaries, leveraging manufacturing, R&D, procurement, and marketing
activities, to yield the most economic sense.
Belgium has 4 multinationals: InBev, Solvay, Bekaert and Delhaize Group
Examples Caterpillar, Kodak, Nokia, Samsung, Unilever, Citibank, Vodafone, Carrefour, Bechtel, Four
Seasons Hotels, Disney, DHL, & Nippon Life Insurance.
The largest MNE’s are found in the oil industry (Exxon Mobile, Shell, …), automative sector(GM, Toyota,
Ford, …) and retailing(Walmart)
Examples of Fortune’s Global 500 Exxon Mobil, Royal Dutch Shell, BP, General Motors, DaimlerChrysler,
Toyota, Ford, and Wal Mart.
SME’s have limited managerial and other resources => are the drivers of innovation
SME is a company with 500 or fewer employees.
Small firms comprise 90 95 percent of all firms in most economies.
Small firms:
o
Are the drivers for innovation.
o
Account for one third of exports from Asia; a quarter of the exports from the affluent countries
in Europe and North America
Contribute more than 50 percent of total national exports in Italy, South Korea, and China.
One type of contemporary international SME is the born global firm = young entrepreneurial company
that initiates international business activity very early in its evolution, moving rapidly into foreign
markets
o
o
Example: DLP, medical products for heart surgery
SME Strategies for success:
(1) SMEs are often more innovative, adaptable, and have quicker.
(2) SMEs are better able to serve niche markets.
(3) Smaller firms can better leverage the Internet.
(4) Due to limited resources, SMEs tend to minimize fixed costs and outsource.
(5) Smaller firms tend to flourish on private knowledge that they cultivate through their knowledge networks
and international social capital.
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Global Trend: DIESEL S.p.A.: A Smaller Firm’s Smashing Success in International Markets This global trend profiles Diesel, an SME based in Italy. With annual sales of more than US$1 billion, some 3,000 employees, distribution to over 80 countries, 1,500 new designs every 6 months and a first mover in launching an Internet presence, Diesel's fashions are a gas. Their international success has been propelled with some controversial advertising. Diesel represents a classic success story of a smaller firm in the international business arena.

Non governmental organizations(NGO’s) Non profit international organizations include non governmental
Non governmental organizations(NGO’s)
Non profit international organizations include non governmental organizations (NGOs) and charitable groups.
They serve special causes, the arts, education, politics, religion and research.
Examples: (Nonprofit Organizations)
Bill and Melinda Gates Foundation
CARE dedicated to reducing poverty
British Wellcome Trust supports health and education
GlaxoSmithKline (GSK)
Canada, Czech Republic, France, Italy, Romania, Spain & U.S
Barretstown Ireland and L’Envol (France) for seriously ill children
Slovakian children promotes healthy eating/exercise
Spain healthcare for homeless children
Russia Children with disabilities
Ethiopia reduction of preventable children’s’ diseases
Vietnam birthing support
Other examples: Fair Trade, Oxfam
5.
Why do firms pursue internationalization strategies ?
Some motives are strategic others are reactive.
Example of strategic: tap foreign market opportunities or acquire new knowledge
Example of reactive: need to serve a key customer who has expanded abroad
There are 9 specific motivations to expand abroad:
1.
Seek growth opportunities through market diversification.
2.
Earn higher margins and profits.
3.
Gain new ideas about products, services, and business methods.
4.
Better serve key customers who have relocated abroad.
5.
Locate closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of

products.

6. Get access to lower cost or better value factors of production. 7. Develop economies
6.
Get access to lower cost or better value factors of production.
7.
Develop economies of scale in production, marketing, and other activities.
8.
Confront global competitors effectively or thwart the growth of competition in the home market.
9.
Invest in a potentially rewarding relationship with a foreign partner
6.
Why should you study international business ?
GATT(General Agreement on Tariffs and Trade) growth in international trade and investment
Emerging markets => new impetus to worldwide economic interconnectedness
Advances in technology, has also served to transform the global economy
International trade is a critical engine for job creation
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There is a strong relationship between a nations’ level of prosperity and its participation in cross border trade and investment International trade and investment can also help reduce poor economic conditions in developing economies European Union raise living standards and is making international trade and investment much easier for European businesses NAFTA the same (North American Free Trade Agreement)

Internationalizing firms are always under public scrutiny. Their actions are closely monitored and held to
Internationalizing firms are always under public scrutiny. Their actions are closely monitored and held to
local ethical standards
o Examples: Coca Cola Company, Mc Donald’s and Citibank
Firms are proactively developing socially responsible policies and practices. => example Starbucks
Starbucks will only sell coffee from Rain Forest Alliance certified growers.
Philips, Unilever, and Wal Mart have signed on for sustainable development practices.
McDonald’s will sell organic milk and purchase beef from farmers certified for animal welfare and
environmental standards.
Requirements for managers going internationals:
Open mindedness
Tolerance for ambiguity
Perceptiveness
Premium on personal relationships
Flexibility, adaptability, self reliance
Good sense of humor
Warmth in human relationships
A curious mind
Recent Grad in IB: Ashley Lumb
International Marketing Specialist
Ashley’s international experience was an impressive asset to prospective employers in the U.S.
Success factors in working abroad were hard work and networking.
CASE 1: WHIRLPOOL
Chapter 2: Globalization of markets and the internationalization of the Firm
The value chain is central in this chapter!
Bangalore: The New Silicon Valley
The globalization of business and the integration of functions across the value chain and across countries is
illustrated by companies such as Accenture, AOL, Intel, Cisco, Oracle, Philips, and Ernst & Young which have
relocated their customer service centers, software development, chip design, computer systems maintenance,
X ray diagnosis, mortgage processing, tax form preparation, and lost luggage tracking to Bangalore, Delhi,
Chennai, Hyderabad, and other emerging high tech centers across India.
Uniqueness of the situation described
The advantages of sourcing to India are unique:
(1) India is home to several million highly educated knowledge workers.
(2) English is widely spoken.
(3) Indians are paid one fifth or one quarter of what Westerners expect for similar work, and in many
cases they do it better.
(4) India is located on the other side of the world from Europe and the U.S., allowing Indians to take
advantage of time sharing.
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Example: Infosys => leading software firm in India

Two mega trends are underscored that have altered the international business landscape: the globalization of markets or economies and technological advances . Market globalization is a broad term referring to the interconnectedness of national economies and the growing interdependence of buyers, producers, suppliers, and governments in different countries. Globalization allows firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge. Globalization of markets refers to the economic integration and growing interdependency of national economies. Example: Neogen => diagnostic kits to test for food safety; were able to internationalize quickly and acquired a worldclientele

1. Why globalization is Not a New Phenomenon

Advanced technologies such as Internet and modern transportation systems, have accelerated the pace of globalization

Phases of Globalization

Exhibit 2.1 p 32 summarizes the Phases of Globalization. Since the 1800s, in the evolution of market globalization has witnessed four distinct phases, each triggered by global events and technological discoveries: The First phase of globalization

1830 1880 .

International commerce became widespread in this period due to the growth of railroads, efficient ocean transport, and the rise of large manufacturing and trading companies. + The inventions of the telegraph and telephone in the 1800s facilitated information flows between and within nations and greatly aided early efforts to manage companies’ supply chains.

The Second phase of globalization

1900

1930

was caused by the rise of electricity and steel production. The phase reached its height just before the Great Depression, a worldwide economic downturn that started in 1929. Western Europe was the most industrialized region + its colonization of countries worldwide led to establishment of the earliest subsidiaries of multinational firms. => European companies such as BASF, British Petroleum, Nestlé, Shell, and Siemens had established foreign manufacturing plants by 1900. The Italian manufacturer Fiat supplied vehicles to nations on both sides of the war.

The Third phase of globalization

1948 1970s followed World War II. => At war’s end demand existed for consumer products,
1948
1970s
followed World War II. => At war’s end demand existed for consumer products, as well as for input
goods to rebuild Europe and Japan.
the U.S. was least harmed by the war and became the world’s dominant economy.
Substantial government aid helped stimulate economic activity in Europe.
Commonplace were high tariffs, other trade barriers, with strict controls on currency and capital
movements. => Australia, the United States and the United Kingdom systematically sought to reduce
international trade barriers.
=> The result of this effort was the General Agreement on Tariffs and Trade (GATT) – the precursor to the World
Trade Organization (WTO).
GATT served as a global negotiating forum for liberalizing trade barriers, and annual meetings aimed at
reducing international trade and investment barriers.
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Participating governments recognized that liberalized trade would stimulate industrialization, modernization, and better living standards. Eventually, many more nations joined the GATT, and their efforts led to the formation of the WTO. (149 members) led to the formation of key international organizations such as the International Monetary Fund, the World Bank, and the United Nations. Firms like Unilever, Philips, Royal Dutch Shell, British Petroleum, and Bayer organized their businesses by establishing independent subsidiaries in each of the foreign countries where they did business. Numerous companies developed strong trade names, including Nestle, Kraft, John Deere, Gradually, large firms began to seek cost advantages by locating factories in developing countries with low labor costs. With the easing of trade barriers and currency controls, capital began to flow freely across national borders, leading to integration of global financial markets.

The Fourth and current phase of globalization 1980s – Present enormous growth in cross border
The Fourth and current phase of globalization
1980s – Present
enormous growth in cross border trade and investment activity. The following innovations caused this
phase:
o
Commercialization of the personal computer.
o
Arrival of the Internet and the web browser.
o
Advances in communication and manufacturing technologies.
o
Collapse of the Soviet Union and ensuing market liberalization in central and Eastern Europe.
Substantial industrialization and modernization efforts of the East Asian economies including
China.
Growing global prosperity began to reach emerging markets such as Brazil, India and Mexico.
Huge increases in FDI, especially in capital and technology intensive sectors. Geographically distant yet
electronically interconnected technological advances in information, communications, and
transportation made internationalization feasible.
Growing integration inspired mergers/acquisitions such as GM acquiring Saab in Sweden, Ford taking
over Mazda in Japan, and Daimler Benz acquiring Chrysler in the U.S.
Globalization and technological advances resulted in the “death of distance”. That is, a shrinking of
geographic and cultural distances that separate nations. (exhibit 2.2 p 34)
o
2. An organizing Framework for Market Globalization
Exhibit 2.3 p 35, presents an organizing framework for examining market globalization
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This model distinguishes between: (1) the drivers or causes of globalization; (2) the

This model distinguishes between: (1) the drivers or causes of globalization; (2) the many dimensions or manifestations of globalization; (3a) societal consequences of globalization; and (3b) firm level consequences of globalization which compel firms to proactively internationalize.

The double arrows illustrate the interactive relationship between market globalization and its consequences.
The double arrows illustrate the interactive relationship between market globalization and its
consequences.
Example Vodafone implements a proactive global strategy by selling standardized products,
emphasizing standardized products and services, and pursuing standardized marketing programs
around the world. Proactive firms are more succesfull than reactive firms.
Universal demand is key to a global strategy as standardization and economies of scale are central to the
global efficiencies underlying the advantages of a global strategy.
3. Dimensions of market globalization

In the context of international business, market globalization may be viewed simultaneously as:

(a) Consequences of economic, technological, and government trends; (b) Drivers of economic, political,
(a)
Consequences of economic, technological, and government trends;
(b)
Drivers of economic, political, and social phenomena; and
(c)
Drivers and consequences of firm level internationalization.
Globalization of markets has 5 major dimensions:
1.
Integration and interdependence of national economies.
Value chain activities = the sequence of value adding activities performed by the firm in the process of
developing, producing, marketing and servicing a product. => the aggregate activities => give rise to
economic integration
Governments contribute to this integration by:
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(1) Gradually lowering trade and investment barriers; (2) Increasingly harmonize their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), e.g. EU (3) devise and supervise supranational institutions such as IMF, WB, WTO

2. Rise of regional trading blocs and economic unions. the emergence of regional integration through
2.
Rise of regional trading blocs and economic unions.
the emergence of regional integration through trade blocs and economic unions
Trade bloc: A free trade area established by two or more countries through multiple tax, tariff, and
trade agreements, designed to reduce or eliminate barriers to cross border trade and investment.
Examples: the North American Free Trade Agreement area (NAFTA), the Asia Pacific Economic
Cooperation zone ( APEC ), and Mercosur in Latin America.
Economic and Monetary Union: A single market with a common currency. This is characteristic of more
advanced stages of economic integration. Only Example: EU
3
. Growth of global investment and financial flows .
Foreign direct investment (FDI) has grown dramatically due to global sourcing.

4.

Convergence of consumer lifestyles and preferences. Lifestyles and preferences are converging, i.e. increasingly standardized , resulting in global market segments. While converging tastes facilitate the marketing of standardized products/services to global consumers, they also signal the loss of traditional lifestyles and values in individual countries.

5. Globalization of production.

Intense global competition has made economies of scale a critical key success factor. Global players are forced to evaluate global sourcing to take advantage of national differences in the cost and quality of

factor inputs. => explains why offshoring to low labor cost locations such as China, Mexico, and Eastern Europe is so popular. The service sector is also global sourcing. Examples: real estate giant RE/MAX has established more than 5,000 offices in over 50 countries. The French firm Accor operates hundreds of hotels worldwide. If you make something handmade, there is a difference

Barco is smaller, niche,speciality products For example: Barco Sony is big, mass production,economies
Barco is smaller, niche,speciality products
For example:
Barco
Sony is big, mass production,economies of scale
vs
Sony
4. Drivers of Market Globalization
There are 5 drivers notable :
1
. Worldwide reduction of barriers to trade and investment .
National governments have sought to reduce trade and investment barriers, which has accelerated
global economic integration. => WTO has facilitated this
Extra: Joining the WTO in 2001, even China has committed to make its market more accessible to
foreign companies.
Market opening is closely associated with the emergence of regional trade blocs, a key dimension of
market globalization.
It was the transition of command economies to market driven economies that facilitated their
membership into the global economy.
With privatization of previously state owned industries, these countries have enjoyed greater economic
efficiency, simultaneously attracting foreign capital.

2. Market liberalization and adoption of free markets. The Berlin Wall, built in 1961, separated the communist East Berlin from the democratic West Berlin. => The tearing down of the Berlin Wall in 1989, the collapse of the Soviet Union’s economy that same year, and China’s free market reforms signaled the end of the 50 year Cold War between communist regimes and democracy.

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It was the transition of command economies to market driven economies that facilitated their membership into the global economy. These events opened roughly one third of the world to freer international trade and investment. China, India, and Eastern Europe have become some of the most cost effective locations for producing goods and services. => With privatization of previously state owned industries, these countries have enjoyed greater economic efficiency, simultaneously attracting foreign capital into their national economies.

3.

Industrialization, economic development, and modernization.

Industrialization transitions emerging markets Asia, Latin America, and Eastern Europe from being low value adding commodity producers, dependent on low cost labor, to sophisticated competitive producers and exporters of premium products (higher value products) such as electronics, computers, and aircraft. Gross National Income (GNI) one of the most important measures of economic development, i.e. standards of living & discretionary income (exhibit 2.4) The adoption of modern technologies, improvement of living standards, higher discretionary income levels and adoption of modern legal and banking practices increase the attractiveness of emerging markets as investment targets and facilitate the spread of ideas, products, and services across the globe.

4. Integration of world financial markets. Integration of world financial markets enables internationally
4.
Integration of world financial markets.
Integration of world financial markets enables internationally active firms to raise capital, borrow funds,
and engage in foreign currency transactions wherever they go.
Cross border transactions are made easier partly as a result of the ease with which funds can be
transferred between buyers and sellers through a network of international commercial banks.
The globalization of finance enables firms to pay suppliers and collect payments from customers
worldwide.
5.
Advances in technology .
Technological advances in communications, information, manufacturing, and transportation have
served as a remarkable facilitator of cross border trade and investment.
Advances in technology:
o
facilitates the development and spread of new products and technologies;
o
reduces the cost of doing business internationally;
o
enables even smaller firms to go international
o
helps coordinate worldwide activities;
o
mitigates geographic distance by providing virtual interconnectedness with customers,
subsidiaries, intermediaries, and suppliers
5. Technological advances as a driver of market globalization
Technological advances have greatly eased the management of international operations. Firms now
interact more efficiently with foreign partners and value chain members than ever before
Technological advances made the cost of international operations affordable for all types of firms
Technological advances has spurred the development of new products and services that appeal to global
audience => examples: PDA’s, Playstation
China and India are the new beachheads of technological advances => Top management at Intel and
Motorola, two of the world's premier technology companies, agree that China is the future when it
comes to technological progress.
The most important activity underlying technological advances is innovation (surveys!)
Technological advances have had the greatest impact in several key areas: information technology,
communications, manufacturing and transportation
Exhibit 2.5 illustrates the plummeting cost of global communications and the growing number of
Internet users.
Innovation Societies and organizations innovate in various ways, including new product designs, new
production processes, new approaches to marketing, and new ways of organizing or training.
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The effect of Information Technology (IT) on business has been nothing short of revolutionary. Smaller
The effect of Information Technology (IT) on business has been nothing short of revolutionary.
Smaller firms can leverage IT to design and produce customized products that can be targeted to narrow,
cross national niches.
The impact of IT on our daily lives has been profound cell phones, Google, Yahoo, etc.
IT supports strategic decisions such as the selection of qualified foreign business partners based on sound
information and intelligence.
The most profound technological advances have occurred in communications, especially telecommunications,
satellites, optical fiber, wireless technology, and the Internet.
The Internet, and Internet dependent communications systems such as intranets, extranets, and e mail,
connects millions of people across the globe.
The dot com boom led to massive investment in fiber optic telecommunications cable.
Transmitting voices, data, and images is essentially costless
The Internet opens up the global marketplace to companies that would normally not have the resources to do
international business, including countless SMEs. It
migration of jobs, particularly in the services sector.
is stimulating economic development and a massive, global
Revolutionary developments now permit manufacturing that is both low scale and low cost, with the support
of computer aided design of products (CAD), robotics, and production lines managed and monitored by
microprocessor based controls.
The decision to export or manufacture abroad rests with the transportation costs of raw materials,
components, and finished products.
The plunging costs of computing, communications, and transportation have greatly reduced the costs of doing
business internationally, and successful firms continually search for new sources of competitiveness.
Global Trend: Globalization and E Business in the Online World
This Global Trend profiles how information technology and the Internet are transforming international business
by leveling the playing field for all types of firms. Born global firms are among the most intensive users of the
Web for global selling, procurement, and customer service.
E business provides three types of competitive advantages:
o
Productivity and cost reductions via integrated and coordinated worldwide value chain
activities.
o
Value creation through flexibility, focus, marketing and entrepreneurial initiatives.
o
Improves knowledge and information flows.
Example Cisco uses e business to minimize costs and maximize effectiveness via its global supply chain.
6. Societal consequences of Market Globalization
Positive consequences of market globalization: Cross border trade and investment opened the world to
innovations and progress while increasing performance standards, currently known as global
benchmarking or world class.
Negative consequences of market globalization: The transition to an increasingly single, global
marketplace poses challenges to individuals, organizations and governments.
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Poverty is especially notable in Africa, Brazil, China and India where lower income countries have not been able to integrate with the global economy as rapidly as others. Globalization has created countless new jobs and opportunities around the world, but it has also cost many people their jobs. How freeer the society, how higher the income ( Belgium isn’t completely free, take a look at slide distribution of economic freedom) Globalization has produced some harmful consequences as well => low income countries are not able to integrate with the global economy as rapidly as others

Sovereignty is the ability of a nation to govern its own affairs Large market nationals
Sovereignty is the ability of a nation to govern its own affairs
Large market nationals can exert considerable influence on governments through lobbying or campaign
contributions, e.g. for the devaluation of the home currency which would give them greater price
competitiveness in export markets.
Still, even the largest firms are constrained by market forces .
Some argue that gradual integration of the global economy and increased global competition combined
with privatization of industries in various nations are making companies less powerful, for example
Ford, Chrysler, and General Motors once completely dominated the U.S. auto market. Today many
more firms compete in the U.S., including Toyota, Honda, Hyundai, Kia, Nissan, and BMW.
To minimize globalization’s harm and reap its benefits, governments should strive for an open and
liberalized economic regime:
(1) Freedom to enter and compete in markets;
(2) Protection of persons and intellectual property;
(3) Rule of law;
(4) Voluntary exchange imposed by markets rather than through the political process.
Transparency of business and regulatory agencies is critical.
Offshoring is the relocation of manufacturing and other value chain activities to cost effective
destinations abroad.
=> example: Ernst &Young, has much of its support work done by accountants in the Philippines.
Massachusetts General Hospital has its CT scans and X rays interpreted by radiologists in India. Many IT
support services for customers in Germany are based in the Czech Republic and Romania.
Offshoring has resulted in job losses in many mature economies with relatively high wages
Multinationals were quick to relocate production to countries that offer better comparative advantages.
=> Example Electrolux, a Swedish manufacturer of home appliances, moved its Greenville, Michigan,
based refrigerator plant to Mexico in 2005. Electrolux had provided 2,700 jobs in this western Michigan
community of 8,000. Despite repeated appeals by the local community, the labor union, and the State
of Michigan that offered incentives to the company to stay
Electrolux went with its decision to shift
manufacturing to Mexico.
Advantages of offshoring:
(1) Economies of scale by centralizing production locations;
(2) Low cost labor advantages in certain countries; and
(3) Knowledge sharing from contracting with experienced suppliers.
Exhibit 2.6 p 48 depicts the Growth of World GDP, 1997 2006. China, India and Turkey are the fastest
growing economies, registering annual GDP growth rates of 5% or more.
Multinationals are often critized for paying low wages, exploiting workers and employing child labor
Labor exploitation and sweatshop conditions are genuine concerns in many developing economies ;
however workconditions tend to improve over time => footwear industry in Vietnam
Most African countries continue to suffer low or negative GDP and alarming poverty
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Developing countries can engage in a number of proactive measures in order to reduce poverty:

Improve conditions for investment and saving; Seek market liberalization and promote increased trade and investment; Build strong institutions and government to foster good governance; and Invest in education and training to promote productivity. In turn advanced economies can play a role in reducing poverty by: Making their markets more accessible to low income countries Facilitating the flows of direct investment, other private capital and technology into low inome countries Providing debt relief to heavily indebted poor countries.

Globalization harms the environment by promoting increased manufacturing and other business activities that
Globalization harms the environment by promoting increased manufacturing and other business activities that
result in pollution, habitat destruction, and deterioration of the ozone layer.
Example: China is attracting much inward FDI and stimulating the growth of numerous industries, which
results in new factories whose activities spoil previously pristine environments; also, growing industrial
demand for electricity led to construction of the Three Gorges Dam, which flooded agricultural lands,
displaced one million inhabitants and permanently altered the natural landscape in Eastern China.
Another example is Japan, endured polluted rivers and smoggy cities in the early decades of its
economic development following World War II. As Japan’s economy grew, the Japanese passed tough
environmental standards, aimed at restoring natural environments.
Evolving company values and concern for corporate reputations also lead most firms to reduce or eliminate
practices that harm the environment
Globalization exerts strong pressures on national culture
Advertising leads to the emergence of societal value models on Western countries, globalization can
alter people’s norms, values and behaviors, which tend to homogenize over time
Information and communications technologies promote the homogenization of world cultures
As globalization standardizes superficial aspects of life across national cultures, people are resisting
these forces by insisting on their national identity and taking steps to protect it
Cultural imperialism is offset by the opposite trend of nationalism.
Governments try to block “cultural imperialism” and prevent the erosion of local traditions.
Global media have a pervasive effect on local culture, gradually shifting it toward a universal norm.
7. Firm level consequences of market globalization : internationalization of the Firm’s Value
Chain
Internationalization may take the form of global sourcing, exporting, or investment in key markets
abroad
The most direct implication of market globalization is on the firm’s value chain
Exhibit 2.8 p 52 illustrates a typical international firm’s value chain
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Nike outsources everything => only responsible for design and distribution CASE 2:

Nike outsources everything => only responsible for design and distribution CASE 2: Diverse Perspectives on Globalization of Markets

Chapter 3: Organizational Participants that make International Business happen Born Global firms: This
Chapter 3: Organizational Participants that make International Business happen
Born Global firms:
This vignette illustrates the increasingly important role that the small and medium sized enterprises
(SMEs) play in the global arena.
At the request of the United Nations, Geo Search designed the world’s first land mine detector, called
“Mine Eye,” in 1997, and had an immediate international market because of millions of mines buried in
countries like Kuwait, Cambodia, Afghanistan, and Lebanon.
Geo Search’s electromagnetic radar can distinguish between mines and other objects buried
underground. Images appear in three dimensions on a liquid crystal display, and there is no need to
touch the ground surface.
Geo Search is one example of an increasing number of SMEs that are active in international business.
Globalization and technological advances have made internationalization more attainable and
affordable, such that there are many more small, global firms.
Born global firms internationalize (typically through exporting) at or near their founding, developing a
“borderless” corporate culture.
Reasons for early internationalization:
Management may perceive big demand for the firm’s products abroad.
Management may also have a strong international orientation, and press the firm into foreign markets.
Firms may specialize in a product for which there is inadequate domestic demand.
Example Neogen Corporation is a born global in the United States that manufactures chemicals that kill
harmful bacteria and toxins in food crops. The fact that certain toxins are more common in foreign
locations led Neogen to internationalize shortly after its founding.
1. Three types of participants in international business
International business is a complex undertaking and requires numerous organizations to work together as a
coordinated team
There are 3 major categories of participants:
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1. A focal firm => takes center stage is the initiator of an international business
1. A focal firm => takes center stage is the initiator of an international business transaction, including
MNEs and SMEs, that conceives, designs, and produces the product/service intended for consumption
by customers worldwide.
2. A distribution channel intermediary => is a specialist firm that provides a variety of logistics and
marketing services for focal firms as part of the international supply chain, both in the home country
and abroad.
o
Intermediaries (independent businesses) such as distributors and sales representatives are
typically located in foreign markets and provide distribution and marketing services on behalf of
focal firms.
3. A facilitator => is a firm or an individual, with special expertise as legal advice, banking, and customs
clearance, or related support services that assists focal firms in the performance of international
business transactions.
A freight forwarder is a specialized logistics service provider that arranges international
shipping on behalf of exporting firms, much like a travel agent for cargo. Facilitators are found
both at home and foreign markets.
While these three types of participants make up the international business landscape, keep in mind that
international business transactions take place within political, legal, and regulatory environments.
Supply side focal firms, intermediaries, and facilitators
Demand side customers or buyers (individual and organizational)
o
2. Participants organized by value chain activity
The focal firms, intermediaries, and facilitators all are involved in one or more critical value adding
activities such as procurement, manufacturing, marketing, transportation, distribution, and support
configured across several countries.
Exhibit 3.1 p 64 shows the stages in the value chain where channel intermediaries and facilitators
typically operate. It also identifies intermediaries and facilitators critical to the functioning of
international business transactions that we discuss in this chapter.
Import side
export side
Upstream value chain activities
downstream value chain activities
In highly internationalized focal firms, the value chain is configured in numerous countries and often
from multiple suppliers, locating each activity in a country with the most favorable combination of cost,
quality, logistical considerations, and other criteria.
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Exhibit 3.2 p 65 illustrates the national and geographic diversity of suppliers that provide content for an automobile, a truly global value chain.

Exhibit 3.3 illustrates the value chain for the production and marketing of Dell notebook computers.
Exhibit 3.3 illustrates the value chain for the production and marketing of Dell notebook computers. In reality,
Dell makes a variety of products, each with its own value chain. The total supply chain for a notebook computer,
including multiple tiers of suppliers, involves about 400 companies, primarily in Asia, but also in Europe and the
Americas.
On a typical day, Dell processes orders for 150,000 computers, which are distributed to customers around the
world, with non U.S. sales accounting for 40 percent.
Shipping is handled via air transport, e.g. from the Dell Malaysia factory to the United States, Dell charters a
China Airlines 747 that flies to Nashville, Tennessee six days a week, with each jet carries 25,000 Dell notebooks
that weigh a total of 110,000 kilograms, or 242,500 pounds.
One of the hallmarks of Dell’s value chain is collaboration. CEO Michael Dell and his team constantly work with
their suppliers to make process improvements in
Dell’s value chain.
3. Focal firms in international business
A multinational enterprise (MNE) is a large company with substantial resources that performs various
business activities through a network of subsidiaries and affiliates located in multiple countries
Exhibit 3.4 p 67 highlights a sample of MNEs and illustrates the diverse industry sectors these focal firms
represent => which multinationals in which sector know some names!
In developing countries and centrally planned economies, some focal firms are partly or wholly owned
by the government
Focal firms in the services sector: Examples Citibank in banking, CIGNA in insurance, Bouygues in
construction, Accor in hospitality, Disney in entertainment, Nextel in telecommunications, and Best Buy
in retailing.
IKEA, Wal Mart, and Gap are considered focal firms, even though retailers are usually classified as
intermediaries. Also internet focal firms such as Amazon, …

SME are typically small