CHAPTER 1

THE INTERNATIONAL BUSINESS IMPERATIVE

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Copyright 2011 John Wiley & Sons

1. Understand the history and impact of

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international business
2. Learn the definition of international

Learning Objectives

business
3. Recognize the growth of global linkages

today
4. Understand the U.S. position in world trade

and the impact international business has on the United States

5. Appreciate the opportunities and challenges

offered by international business

6. To identify the relationships between the

texts structure and the theoretical, political, and strategic aspects of international business.
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The Need for International Business

Students are likely to be involved in international business in their careers International business offers companies more new markets International business causes the flow of ideas, services, and capital across the world International business offers consumers, workers, and investors more choices

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Top Ten Global Companies in 2009

Each year, Fortune publishes a ranking of the worlds largest corporations. The 2009 Worlds biggest companies are: 1. Royal Dutch Shell 2. Exxon Mobil 3. Wal-Mart Stores 4. BP 5. Chevron 6. Total 7. ConocoPhillips 8. ING Group 9. Sinopec 10. Toyota Motor

Source: Fortune.com: http://money.cnn.com/magazines/fortune/global500/2009/index.html Chapter 1

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Impact on Consumers
As international business continues to grow, consumers benefit from greater choices, higher quality, and lower costs
Lower Costs More Choices

International Business
Higher Quality

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International Business Defined

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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Direct Foreign Investment

ImportExport Trade

Types of International Business

Franchising

Managing Contracts

Licensing

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 Success in the art of business

International Business is an Art and a Science

depends on a firm grounding in its scientific aspects

An understanding of both aspects

is necessary to incorporate international business considerations into thinking and planning

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The Roman Empire

International business played a vital role in the

formation of the Roman Empire:

Pax Romana Roman peace guaranteed peaceful travel Common coinage simplified business transactions Systematic law and central market locations through the founding of cities Effective communication system

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The Roman Empire

International business played a role in the

decline of the Roman Empire as well:

The empire was weakened at its foundations because of infighting and increasing decadence Pax Romana was no longer enforced Use and acceptance of the common coinage had declined Former Roman allies became willing to cooperate with invaders

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The Han Empire

While Rome flourished, the Han empire in

China provided a similar stability for nearly four centuries

Trade expanded with the development of a system of trade routes to Central Asia that became known as the Silk Road

Trade between the Roman and Chinese empires was not direct and occurred through many intermediaries in India, Arabia, and central Asia

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The British Empire

The British Empire grew mainly through its

effective international business policy:

Efficient transportation Intensive trade An insistence on open markets

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The United States

The United States became a world leader by championing market-based transactions, encouraging communication, and promoting the flow of ideas, goods, and services across national borders Pax Americana American peace from 1945 - 1990 that led to increased international business transactions Smoot-Hawley Act of 1930 Raised import duties to promote domestic production
Resulted in a trade war Contributed to the ensuing worldwide depression and collapse of the world financial system

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Recent Growth in Trade and GDP

Growth in World Merchandise Trade & GDP (1998 2008)

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Global Links Today

International business creates a network of global links that

binds all countries, institutions, and individuals together

The following changes have affected the international

financial position of countries and the ownership of economic activities:

Enhanced communication on a global scale Global reorientation in production strategies Service firm participation in the international marketplace Recognizing the effects of globalization on the environment

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Global Links Today

Shifts in financial flows have a major effect on foreign

direct investment, which is the establishment or expansion of operations of a firm in a foreign country.
Technology is increasing the rate of changes in

international business.
The composition of trade is changing:

1960s to the 1990s: primary commodities versus manufactured goods More recently, there has been a shift in manufacturing Increasingly, shifts are occurring in services trade

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Indias Economy Grows Despite Recession

Indias economic growth accelerated as GDP rose 8.6 percent in the three months ended March 31, 2010 from a year earlier. Emerging nations such as India are weathering the global recession better than developed nations, and are a source of strength for the world economy. Growth in Indias $1.2 trillion economy, Asias largest after Japan and China, is accelerating as rising incomes boost demand for cars, mobile phones and air travel. Salaries in India may increase at the fastest pace in the Asia Pacific in 2010, according to Hewitt Associates Inc.

Source: Bloomberg.com: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aw74LJGGrRGw Chapter 1

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Focus on Culture: Make that a Caff Latte Please

Over the last 30 years, one of the greatest transformations in daily life has been the global proliferation of chain restaurants and the food choices available to consumers w orldwide. International business has brought diversity of choice, quality food, clean environments, and fast, efficient service to locations around the w orld. H o w e ve r, s o m e c r i t i c i z e r e s t a u r a n t f r a n c h i s e s f o r spreading industrialized food processes and junk food to other parts of the world.

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Global Manufacturing Output

Share of Global Manufacturing Output for the United States, Japan, China, and the rest of the World (1995 2007)

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Current U.S. International Trade Position

The U.S. has gained in prominence as a market for

the world, but has lost some of its importance as a supplier

U.S. exports have grown rapidly and successfully

However, there is a decline in global market share of U.S. products

The growth in U.S. exports in recent years pales in comparison to the international trade performance of other nations

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Apple iPad Goes International

Apple's iPad debuted in the U.S. on April 3, 2010. The result of the launch was a resounding success, as the company is handling iPad shortages by ramping production of the new device. Despite the shortages, the iPad was launched in nine more countries on May 28: Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the U.K. Before the first day of sales, thousands of customers in these countries lined up outside of Apple stores to be the first to pick up an iPad.

Source: Fortune.com: http://tech.fortune.cnn.com/2010/05/28/ipad-madness-in-munich/ Chapter 1

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Table 1.3 Export and Import Comparison

Exports and Imports of Goods and Services per Capita for Selected Countries Country Australia Brazil Exports per Capita $4,296 379 Imports per Capita $4,525 428

China
Japan Kenya

222
4,165 91

199
3,622 125

United Kingdom
United States

4,767
3,472

5,500
4,962

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Impact on the United States

U.S. international business outflows are important

on the macroeconomic level to balance the trade account

On the microeconomic level, participation in

international business can help firms achieve economies of scale and hone their competitive skills
Globalization is the increased mobility, services,

labor, technology, and capital throughout the world

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Structure of this Book

This book addresses the

international concerns of beginning internationalists and multinational corporations

Topics include: International trade and investment Culture and politics International business strategy Operational issues surrounding international business

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Focus on Ethics: Students Against Sweatshops

In 1997, students at several universities learned that the oversees w orkers w ho made university logo merchandise endured long hours, deplorable working c o n d i t i o n s , a n d l o w a n d u n e q u a l p a y. The students at these institutions formed the Workers Rights Consortium (WRC) to ensure that factories where school apparel was made adopted basic labor s t a n d a r d s a n d f a i r p a y. As of 2009, 186 colleges and universities had joined the WRC.

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