Session 1

The International Business Imperative

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 appreciate the opportunities and challenges offered by international business.

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

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

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.

Types of International Business

Export-import trade Foreign direct investment

Licensing

Franchising Management contracts

6

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?
7

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
8

The Smoot-Hawley Act

The the 1930 s, the U.S. passed the SmootHawley 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.
9

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.

10

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.

11

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.
12

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.
13

The Current U.S. International Trade Position

Exports and Imports of Goods and Services per Capita for Selected Countries
Country Australia Brazil China Japan Kenya United Kingdom United States Exports per Capita $4,296 379 222 4,165 91 4,767 3,472 Imports per Capita $4,525 428 199 3,622 125 5,500 4,962
14

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.
15

Average Plant Salary and Wages

(per worker, dollars per hour)
30 25 $ per hour 20 15 10 5 0 All Plants Small Plants Non-Exporters Exporters
16

Large Plants

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.

17