International bussiness the challenge of global competition 11e chapter 01

chapter one The Rapid Change of International Business McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc All rights reserved Learning Objectives • Appreciate the dramatic internationalization of markets • Understand the various names given to firms that have operations in more than one country • Understand the five kinds of drivers, all based on change, that are leading international firms to globalize • Comprehend why international business differs from domestic business • Describe the three environments—domestic, foreign, and international in which an international firm operates 1-3 International Business Terminology • International business • Foreign business • Multidomestic company (MDC) • Global company (GC) • International company (IC) 1-4 International Business Terminology, cont’d • International Business – A business whose activities are carried out across national boarders • Foreign Business – The operations of a company outside its home or domestic market • Multidomestic Company – An organization with multicountry affiliates • Each formulates its own business strategy on perceived market differences 1-5 International Business Terminology, cont’d • Global Company – an organization that attempts to standardize and integrate operations worldwide in most of all functional areas • International Company – A global or multidomestic company 1-6 History of International Business • Early traders – Well before the time of Christ, Phoenician and Greek merchants – China stimulated the emergence of an internationally integrated trading system • “all roads lead to China” • 17th Century mercantilism/colonialism – British East India Company – Dutch East India Company – Portugal and France 1-7 Globalization • Globalization – Coined by Theodore Levitt • “as if the entire world (or major regions of it) were a single entity; [such an organization] sells the same things in the same way everywhere” • Economic Globalization – International integration of goods, technology, information, labor, and capital – Process of making this integration happen 1-8 Table 1.1 Globalization Rankings: The KOF Index of Globalization and the A.T Kearney/Foreign Policy Globalization Index 1-9 Globalization Forces • Political forces – Reduction of barriers to trade and foreign investment by governments – Privatization of former communist nations • Technological forces – Advances in computers and communications technology – Internet and network computing 1-10 Globalization Forces, cont’d • Market forces – Globalizing companies become global customers • Cost forces – Goal for economies of scale to reduce unit costs • Competitive forces – Increase in intensity due to explosive growth in international business 1-11 Explosive Growth • Foreign Direct Investment and Exporting – FDI - Direct investment in equipment, structures, and organizations in a foreign country • level sufficient to obtain significant management control (Table 1.2) – Exporting – transportation of any domestic good/service to a destination outside a country or region 1-12 Table 1.2 FDI Indicators and Multinational Company Statistics (billions of dollars and percentages) 1-13 Explosive Growth • Number of International Companies – UNCTAD - United Nations agency in charge of all matters relating to FDI and international corporations • 1995 – 45,000 parent companies with 280,000 foreign affiliates ($7 trillion in sales) • 2004 – 70,000 parent companies with 690,000 foreign affiliates ($19 trillion in sales) 1-14 Table 1.3 Ranking of International Companies and nations according to GNI (Atlas Method) or Total Sales Note: Belgium (B), China (PRC), France (F), Germany (G), Italy (It), Netherlands (N), Switzerland (S), United Kingdom (U.K.), and United States (U.S.) Source: World Development Indicators database, http://devdata.worldbank.org/data-query/ (July 4, 2006); and Fortune 2005 Global 500, http://money.cnn.com/magazines/fortune/global500/2005 (July 4, 2006) 1-15 Globalization Debate And You • World Trade Organization (1999, Seattle) – Extensive public protests about globalization and the liberalization of international trade • Debate – – Waged by diametrically opposed groups with extremely different views on consequences of globalization – Dramatic reductions in worldwide poverty are contrasted with anecdotal stories of people losing their livelihoods under the growing power of multinationals 1-16 Environments of International Business • Environment – All the forces influencing the life and development of the firm • Forces – External Forces (Uncontrollable) – Forces over which management has no direct control – Internal Forces (Controllable) – Forces that management can use to adapt to external forces 1-17 External Forces • Competitive – Kind, number, location • Distributive – For distributing goods and services • Economic – GNP, unit labor cost, personal consumption expenditure • Socioeconomic – Characteristics of human population • Financial – Interest rates, inflation rates, taxation 1-18 External Forces, cont’d • Legal – Laws governing how international firms must operate • Physical – Topography, climate, and natural resources • Political – Forms of government, and international organizations • Sociocultural – Attitudes, beliefs, and opinions • Labor – Skills, attitudes of labor • Technological – Equipment and skills that affect how resources are converted to products 1-19 Internal Environmental Forces • Factors of Production – Capital, raw materials, and people • Activities of the organization – Personnel, finance, production, and marketing 1-20 Why Is International Business Different? • Domestic Environment – All the uncontrollable forces in the home country that surround and influence the firm’s life and development • Foreign Environment – All the uncontrollable forces originating outside the home country that surround and influence the firm • different values • difficult to assess • interrelated 1-21 Why Is International Business Different? cont’d • International Environment – Interaction between domestic and foreign environmental forces or between sets of foreign environmental forces – Increased complexity for decision-making • Decision making more complex 1-22 International Business Model 1-23 ... stories of people losing their livelihoods under the growing power of multinationals 1-16 Environments of International Business • Environment – All the forces influencing the life and development of. .. global or multidomestic company 1-6 History of International Business • Early traders – Well before the time of Christ, Phoenician and Greek merchants – China stimulated the emergence of an internationally... Economic Globalization – International integration of goods, technology, information, labor, and capital – Process of making this integration happen 1-8 Table 1.1 Globalization Rankings: The KOF Index