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  • Theodore Levitt: Born near Frankfort BRD 1925 At 35 moved to USA to escape Hitler, went on to get a PH.D in economics, Harvard Professor, editor of “Harvard Review” Died in 2008 (81 years old)
  • European Union: 27 member countries (followed EEC-European Economies Comm.) Treaty of Maastricht in 1933 Euro zone now has 15 countries (latest was Cyprus and Malts) All others except Denmark and UK are legally bound to join the Euro when the necessary economic conditions are met


  • 1. The Rapid Change of International Business Chapter One McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
  • 2. Learning Objectives For Chapter 1
    • Understand the many different types of International Business & how I.B differs from Domestic business
    • Understand the Theory of Globalization and its major drivers
    • Be able to explain the forces impacting the rapid growth of International Business
    • Define the external and Internal forces affecting the environment of International business
  • 3. International Business Terminology
    • International business terms
      • Foreign business
      • Multidomestic company (MDC)
      • Global company (GC)
      • International company (IC)
      • Transnational company
  • 4. International Business Terminology
    • International Business
      • A business whose activities are carried out across national borders
    • Foreign Business
      • The operations of a company outside its home or domestic market
    • Multidomestic Company
      • An organization with affiliates in many countries
        • Each formulates its own business strategy
        • Strategy based on perceived differences in markets
  • 5. International Business Terminology
    • Global Company
      • Attempts to standardize and integrate operations worldwide in most or all functional areas
    • Transnational Company
    • A company trying to build Economies of Scale but also responds to local market needs
    • International Company
      • Denotes a global or multidomestic company
  • 6. History of International Business
    • Early traders
      • Early BC Mesopotamian, Phoenician and Greek merchants
      • China stimulated the emergence of an internationally integrated trading system
        • “ all roads lead to China”
    • Ottoman Empire(1299-13 th century to WWI)
    • 17th Century mercantilism/colonialism
      • British East India Company
      • Dutch East India Company
      • Portugal and France
  • 7. History of International Business
    • Mercantilism : A belief that a Country’s Wealth depends on accumulated treasure (ex. Gold)
    • Adam Smith argued against this theory with his
    • “ Absolute Advantage Theory”
  • 8. Globalization
    • The world economic globalization process
      • Theodore Levitt’s (1983) view--now seen as simplistic:
        • Tech advances altered communication, transportation, travel to create a global consumer who prefers standardized products
        • “ The entire world [or major regions of it] is now a single entity; an organization can sell the same things in the same way everywhere”
      • Economic Globalization (working on functions)
        • International integration of goods, technology, information, labor, and capital
        • The process of making this integration happen
  • 9. Globalization’s Outcome: Globality LO2
  • 10. Globalization Forces
    • Five Major Globalization Drivers
    • Political forces that
      • reduce barriers to trade and foreign investment by governments (NAFTA, E.U)
      • privatization of former communist nations
    • Technological forces that
      • lead to advances in computers and communications technology
      • Internet and Network computing
  • 11. Globalization Forces
    • Market forces
      • lead to globalizing companies’ need for their suppliers to globalize too
      • Globalizing companies become global customers
    • Cost forces
      • Goal for economies of scale -- product line and manufacturing -- to reduce unit costs
      • lower cost production factor seeking efforts in other countries
    • Competitive forces
      • more intense due to explosive growth internationally of small and new businesses
  • 12. Rapid Growth of International Business
    • The rapid growth of international business is a result of
      • dramatic increases of foreign direct investment ( FDI ) and exports
        • FDI : A firm invests in equipment, structures, and organizations in another country while retaining significant management control
        • level sufficient to obtain significant management control (Table 1.2)
        • Exports : Sale and transfer of any good or service from the firm’s home country to another country
  • 13. Explosive Growth
    • Number of International Companies
    • - UNCTAD: United Nations agency in charge of all matters relating to FDI and international corporations.
    • In 1995- 45,000 parent companies with 280,000 foreign affiliates ($7 trillion in sales)
    • In 2004- 70,000 parent companies with 690,000 foreign affiliates ($19 trillion in sales)
  • 14. Globalization Forces LO2
  • 15. Globalization Forces
  • 16. Environment of International Business
    • Two sets of forces in the IB environment influence the development and operations of a firm
      • External Forces ( Uncontrollable )
        • Those that management cannot control
      • Internal Forces ( Controllable )
        • Those that management can develop and use to formulate and execute the firm’s strategy given particular external forces
  • 17. External Forces
    • External Forces: Uncontrollable
    • Management has no “Direct” control, however they can influence them.
    • Competitive
      • Competitor kinds, number, locations, activities
    • Distributive
      • For distribute goods and services
    • Economic
      • GNP, unit labor cost, and personal consumption expenditures that matter to business and vary among countries
  • 18. External Forces
    • Socioeconomic
      • Characteristics and distribution of human population
    • Financial
      • Interest rates, inflation rates, and taxation
    • Legal
      • Foreign, domestic, and international laws governing a firm’s IB operations
    • Physical
      • Natural elements: natural resources (i.e., factors of production), topography, climate
  • 19. External Forces
    • Political
      • Government forms, international organizations
    • Sociocultural
      • National culture similarities or differences that affect international managers
    • Labor
      • Composition, skills, attitudes of labor
    • Technological
      • Technical skills and equipment that affect how resources are converted to products
  • 20. Internal Environmental Forces
    • Controllable Forces
    • Factors of production
      • Capital, raw materials, people
    • Activities of the organization
      • Personnel management, finance, production, marketing
  • 21. Why Is IB Different?
    • In international Business we must manage both the Domestic and Foreign environment , hence international business is much more complex.
      • Domestic environment - uncontrollable forces
        • Has forces that surround and influence the firm’s behavior in the home country
        • These remain mostly the same regardless of where in the country the firm operates
  • 22. Why Is IB Different?
    • Foreign environment country-by-country uncontrollable forces influence the firm’s behavior and are
        • different from those of the domestic environment
        • based on values that differ
        • difficult to assess for the firm’s home managers
        • Interrelated
        • “ Self –Reference ” Criterion: the unconscious reference to one’s own cultural values- when Judging other nations (or people in a different environment)
  • 23. Why Is IB Different?
    • The international environment is characterized by interaction
      • between domestic and foreign country environmental forces
      • among foreign country environmental forces
    • Hence, decision making is more complex due to
      • environment force differences and interactions
      • culture differences that are difficult to learn
      • the tendency of manager’s to rely on their own culture’s reference points
  • 24. Globalization Debate Supporting Free Trade
    • Free trade
      • enhances socioeconomic development
      • promotes more and better jobs
  • 25. Concerns With Globalization
    • Produces uneven results across nations and people
    • Has deleterious effects on labor and labor standards
    • Contributes to the decline of environmental and health conditions