Lecture 1 Introduction <ul><li>This Course  </li></ul><ul><li>Background </li></ul><ul><li>Current Dominant Factors </li><...
Course Subject Strategy, Marketing Finance <ul><li>Operations </li></ul><ul><li>International  Transactions, For </li></ul...
International Transactions <ul><li>Trade </li></ul><ul><li>Foreign Direct Investment (and other investment) </li></ul><ul>...
Course   Objectives <ul><li>Gain a conceptual framework to:  </li></ul><ul><ul><li>integrate and adapt superior operating ...
Course   Structure <ul><li>General principles </li></ul><ul><li>Examples from specific countries </li></ul><ul><li>Example...
Course Plan Logistics Management, Transportation and Communication 3 Project Reports  14 “ Quest for Global Dominance,” Gl...
Cross Cutting Ideas <ul><li>Transplantation vs Transformation </li></ul><ul><li>National mindset vs Global Brains </li></u...
Course   Requirements <ul><li>Readings – Library On-Line Reserves and Case Packs </li></ul><ul><ul><li>Participate in disc...
Instructor Introductions <ul><li>Richard Alben </li></ul><ul><li>Susan Sanderson </li></ul>
Student Contributions <ul><li>Fill out a survey on your International Business experience </li></ul>
Course   Limitations <ul><li>US viewpoint </li></ul><ul><li>Leaves out important areas of the world </li></ul><ul><li>Only...
History of International Business <ul><li>Trade from ancient times until the late 1800’s </li></ul><ul><li>From the late 1...
History of International Business <ul><li>Trade from ancient times until the late 1800’s </li></ul><ul><li>From the late 1...
Growth of Trade WTO and IMF and World Bank data Intra-EU trade in 2000 was 1.4T in 2000 Services was 20%, Merchandise was ...
Growth of Foreign Direct Investment UNCTAD data
Globalization of Business Practices <ul><li>Linked to globalization of companies </li></ul><ul><li>National companies with...
Why Does Geography Matter? <ul><li>Resource availability varies with geographic location </li></ul><ul><ul><li>Mineral res...
Market Seeking vs Resource Seeking International Operations <ul><li>Examples </li></ul><ul><li>Implications </li></ul>
Dominate Factors Today <ul><li>World Class Operations </li></ul><ul><li>Reductions of Trade and Investment Barriers </li><...
Operations Foundations of  Globalization <ul><li>Changes at the level of operations drove much of globalization </li></ul>...
Trade and Investment Barriers <ul><li>Tariffs </li></ul><ul><ul><li>In past, were a major source of revenue to governments...
Tariffs <ul><li>Past </li></ul><ul><ul><li>Major source of revenue to governments </li></ul></ul><ul><ul><li>Raised prices...
Other Barriers <ul><li>Quotas (Tariff Rate Quota) </li></ul><ul><ul><li>Textile (Multi-fiber agreement) example </li></ul>...
World Trade Organization <ul><li>Established in 1995 after the Uruguay Round of trade negations </li></ul><ul><ul><li>Succ...
International Agreements on Bribery <ul><li>US Foreign Corrupt Practices Act (FPCA) </li></ul><ul><ul><li>No payments by U...
A Global Supply Chain  Fiber supplier in Australia Textile Maker in Italy Zipper Maker in China Apparel Maker in Mauritius...
Trade in Goods and Labor
Trade in Beavers and Knives Europe 1 beaver = 3 knives North American Wilderness 3 beavers = 1 knife  Start Finish
Knife-Beaver Trade issues <ul><li>Transaction costs </li></ul><ul><li>Distribution of Benefits </li></ul><ul><li>Dynamics ...
“ Trade” in Labor US 1 labor hour = $22 China 1 labor hour = $0.60 Start Finish $  $$$$$ $ Unemployed worker Unemployed ...
Labor Trade issues <ul><li>Restriction on movement of people </li></ul><ul><li>Differences in productivity declining </li>...
Median Salaries ($K/year) In IT – India vs. US* <ul><li>*India results from PayScale 2005 </li></ul><ul><li>India IT wages...
Professional Wages Business Week - Dec. 2005
Measure of Income Disparity % Households % GNI of lowest x% of households 0 100 100 0 Gini Coefficients:  a = 0, b~0.4, c~...
Increasing Income Disparity in the US From “Income Inequality in the United States” By Steven C. Deller* URL:   http://www...
Global R&D Resources I: Total Science and Engineering Doctorates  in Selected Asian Economies NSF Science Indicators – 200...
Global R&D Resources II: Total Science and Engineering Doctorates  including US and Germany NSF Science Indicators – 2004 ...
Next Class <ul><li>Global Supply Chains </li></ul><ul><ul><li>Readings:  “Modular production networks: a new American mode...
Guidance for Case Discussion <ul><li>Li and Fung </li></ul><ul><ul><li>Two major themes </li></ul></ul><ul><ul><ul><li>How...
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International Business

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  • International Business

    1. 1. Lecture 1 Introduction <ul><li>This Course </li></ul><ul><li>Background </li></ul><ul><li>Current Dominant Factors </li></ul><ul><li>Break </li></ul><ul><li>Globalization and Employment </li></ul>International Ops / International Business
    2. 2. Course Subject Strategy, Marketing Finance <ul><li>Operations </li></ul><ul><li>International Transactions, For </li></ul><ul><ul><li>customers </li></ul></ul><ul><ul><li>input resources </li></ul></ul><ul><ul><li>service and production locations </li></ul></ul><ul><ul><li>knowledge </li></ul></ul><ul><ul><li>funding </li></ul></ul>Business
    3. 3. International Transactions <ul><li>Trade </li></ul><ul><li>Foreign Direct Investment (and other investment) </li></ul><ul><li>Technology Transfer </li></ul><ul><li>Supply Chain Relationships </li></ul><ul><li>Facilitating Infrastructure </li></ul>
    4. 4. Course Objectives <ul><li>Gain a conceptual framework to: </li></ul><ul><ul><li>integrate and adapt superior operating practices and technologies from across the world for high performance operations. </li></ul></ul><ul><ul><li>design global supply chains and manage risks of cross border business relationships </li></ul></ul><ul><ul><li>establish world class manufacturing, service and R&D in developing countries </li></ul></ul><ul><ul><li>assess globalization political and societal issues </li></ul></ul><ul><ul><li>apply international business concepts to real business situations </li></ul></ul><ul><li>Critical skills for successful careers in </li></ul><ul><ul><li>Large global companies </li></ul></ul><ul><ul><ul><li>In the developed and developing world </li></ul></ul></ul><ul><ul><li>Small companies that buy, sell, and learn globally </li></ul></ul><ul><ul><li>New ventures </li></ul></ul><ul><ul><li>Government and Academia </li></ul></ul>
    5. 5. Course Structure <ul><li>General principles </li></ul><ul><li>Examples from specific countries </li></ul><ul><li>Examples from specific firms and industries </li></ul><ul><li>Strategic and Political Implications </li></ul>
    6. 6. Course Plan Logistics Management, Transportation and Communication 3 Project Reports 14 “ Quest for Global Dominance,” Globalization Backlash 13 Strategic and Political Implications Globalization of R&D 12 Semiconductors and Global Knowledge Networks 11 EU, Albany International 10 Industry Examples China, Color Kinetics 9 India 8 Mexico 7 US and Japan 6 Country Examples World Class Operations, Global vs National Mindsets 5 Productivity and Location Decisions 4 Global Supply Chains, Outsourcing and Offshoring 2 Introduction, History, Globalizaion and Jobs 1 General Principles Week
    7. 7. Cross Cutting Ideas <ul><li>Transplantation vs Transformation </li></ul><ul><li>National mindset vs Global Brains </li></ul><ul><li>Market vs Resource Drivers </li></ul><ul><li>Deals and Partnerships </li></ul><ul><li>Knowledge Diffusion </li></ul><ul><li>Diverse Supply Chain Structures </li></ul>Toyota in India Example
    8. 8. Course Requirements <ul><li>Readings – Library On-Line Reserves and Case Packs </li></ul><ul><ul><li>Participate in discussion boards in advance </li></ul></ul><ul><li>Essay </li></ul><ul><ul><li>Analyze an article or do more depth on one of the readings. 5-10 pages </li></ul></ul><ul><li>Project </li></ul><ul><ul><li>Strong preference: Work to solve a real problem with a company you or a team-mate have some access to </li></ul></ul><ul><li>Grading </li></ul><ul><ul><li>Participation = 30% (discussion board and in-class contributions ) </li></ul></ul><ul><ul><li>Essay = 30% </li></ul></ul><ul><ul><li>Project = 40% </li></ul></ul>
    9. 9. Instructor Introductions <ul><li>Richard Alben </li></ul><ul><li>Susan Sanderson </li></ul>
    10. 10. Student Contributions <ul><li>Fill out a survey on your International Business experience </li></ul>
    11. 11. Course Limitations <ul><li>US viewpoint </li></ul><ul><li>Leaves out important areas of the world </li></ul><ul><li>Only cover a few industries in any depth </li></ul>Your challenge: Use your experience and research to cover the gaps.
    12. 12. History of International Business <ul><li>Trade from ancient times until the late 1800’s </li></ul><ul><li>From the late 1800’s to before WWII </li></ul><ul><li>Dominance of the US (to 1970) </li></ul><ul><li>Globalization: Japan, the Asian Tigers, the EU and China </li></ul>
    13. 13. History of International Business <ul><li>Trade from ancient times until the late 1800’s </li></ul><ul><li>From the late 1800’s to before WWII </li></ul><ul><li>Dominance of the US (to 1970) </li></ul><ul><li>Globalization: Japan, the Asian Tigers, the EU and China </li></ul>
    14. 14. Growth of Trade WTO and IMF and World Bank data Intra-EU trade in 2000 was 1.4T in 2000 Services was 20%, Merchandise was 80% in 2000 2004 data from a different series 27.0 10.06 37.3 2004 2000 1990 1980 1970 1960 1950 Year 21.7 7.88 36.3 15.1 4.30 28.5 12.2 2.54 20.8 2.7 0.39 14.3 2.0 0.17 8.6 1.6 0.09 5.4 Trade as a % of GDP World Trade (2000$ trillions) World GDP (2000$ trillions)
    15. 15. Growth of Foreign Direct Investment UNCTAD data
    16. 16. Globalization of Business Practices <ul><li>Linked to globalization of companies </li></ul><ul><li>National companies with overseas operations </li></ul><ul><li>Multinational companies </li></ul><ul><li>Global companies </li></ul><ul><ul><li>With “global brains” </li></ul></ul><ul><ul><li>But with national base </li></ul></ul><ul><li>World businesses(?) </li></ul>Diverse national cultures Global company culture Home country culture
    17. 17. Why Does Geography Matter? <ul><li>Resource availability varies with geographic location </li></ul><ul><ul><li>Mineral resources (oil, coal, gold, iron ore) </li></ul></ul><ul><ul><li>Growing conditions (weather, soil) </li></ul></ul><ul><ul><li>etc </li></ul></ul><ul><li>Ability to serve customers varies with distance </li></ul><ul><ul><li>Transportation/communication costs </li></ul></ul><ul><ul><li>Hair cuts </li></ul></ul><ul><ul><li>Government incentives/disincentives </li></ul></ul><ul><ul><li>etc </li></ul></ul>
    18. 18. Market Seeking vs Resource Seeking International Operations <ul><li>Examples </li></ul><ul><li>Implications </li></ul>
    19. 19. Dominate Factors Today <ul><li>World Class Operations </li></ul><ul><li>Reductions of Trade and Investment Barriers </li></ul><ul><li>Globally Connected Supply Chains </li></ul>
    20. 20. Operations Foundations of Globalization <ul><li>Changes at the level of operations drove much of globalization </li></ul><ul><ul><li>International transaction costs driven down </li></ul></ul><ul><ul><li>Production technology needs to compete with “best-in-world” </li></ul></ul><ul><li>Innovations in Information and Communication and Transportation drive down transaction costs </li></ul><ul><ul><li>Port Automation, Inter-modal shipping technology </li></ul></ul><ul><ul><li>Internet </li></ul></ul><ul><ul><li>Global Supply chains </li></ul></ul><ul><ul><li>Information enabled services </li></ul></ul><ul><li>Innovations in Production technology and Management </li></ul><ul><ul><li>Total quality management and its relatives </li></ul></ul><ul><ul><li>Adaptation for specific products and company cultures </li></ul></ul><ul><ul><li>High performance and technology emerge in the developing world </li></ul></ul>
    21. 21. Trade and Investment Barriers <ul><li>Tariffs </li></ul><ul><ul><li>In past, were a major source of revenue to governments </li></ul></ul><ul><ul><li>A major impediment to trade </li></ul></ul><ul><li>Non-tariff issues </li></ul><ul><li>Trade agreements - WTO </li></ul>
    22. 22. Tariffs <ul><li>Past </li></ul><ul><ul><li>Major source of revenue to governments </li></ul></ul><ul><ul><li>Raised prices of imported good by 20% - 100%+ </li></ul></ul><ul><li>Present for US </li></ul><ul><ul><li>$20B/yr to US government on $1T in imports (2000) </li></ul></ul><ul><ul><ul><li>Average of 2% of import value (wholesale) </li></ul></ul></ul><ul><ul><li>“ Most Favored Nation,” “Normal Trade Relation” rates: </li></ul></ul><ul><ul><ul><li>Consumer electronics - 3.9%, Machine tools - 7% </li></ul></ul></ul><ul><ul><ul><li>Some agricultural goods and Clothing - ~25% </li></ul></ul></ul><ul><ul><li>Countries with Trade agreements </li></ul></ul><ul><ul><ul><li>Many rates are 0% </li></ul></ul></ul><ul><li>Less developed world </li></ul><ul><ul><li>High tariffs remain </li></ul></ul><ul><ul><ul><li>Protection </li></ul></ul></ul><ul><ul><ul><li>Revenue </li></ul></ul></ul>
    23. 23. Other Barriers <ul><li>Quotas (Tariff Rate Quota) </li></ul><ul><ul><li>Textile (Multi-fiber agreement) example </li></ul></ul><ul><li>Trigger Prices </li></ul><ul><li>Local Content Requirements </li></ul><ul><li>Off-sets </li></ul><ul><li>Technical standards, health and safety </li></ul><ul><ul><li>Can be used as screen for protectionism </li></ul></ul><ul><li>National security </li></ul><ul><ul><li>Weapons and Dual Use Technologies </li></ul></ul><ul><li>Local business ownership requirements </li></ul>
    24. 24. World Trade Organization <ul><li>Established in 1995 after the Uruguay Round of trade negations </li></ul><ul><ul><li>Successor to GATT </li></ul></ul><ul><ul><li>Administers WTO trade agreements, forum for trade negotiations and for resolving trade disputes </li></ul></ul><ul><li>Principles </li></ul><ul><ul><li>without discrimination — a country should not discriminate between its trading partners (giving them equally “most-favored-nation” or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them “national treatment”); </li></ul></ul><ul><ul><li>freer — barriers coming down through negotiation; </li></ul></ul><ul><ul><li>predictable — foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO; </li></ul></ul><ul><ul><li>more competitive — discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share; </li></ul></ul><ul><ul><li>more beneficial for less developed countries — giving them more time to adjust, greater flexibility, and special privileges. </li></ul></ul>
    25. 25. International Agreements on Bribery <ul><li>US Foreign Corrupt Practices Act (FPCA) </li></ul><ul><ul><li>No payments by US companies to foreign officials for the purpose of obtaining business (1977) </li></ul></ul><ul><ul><ul><li>Can’t avoid it by using subsidiaries or intermediaries </li></ul></ul></ul><ul><ul><ul><li>Can get hit with treble damages from companies that lose business because of our bribe </li></ul></ul></ul><ul><ul><li>Exceptions </li></ul></ul><ul><ul><ul><li>Facilitating payments </li></ul></ul></ul><ul><ul><ul><li>Where provably legal in the foreign country </li></ul></ul></ul><ul><li>Changed the game for US companies </li></ul><ul><li>Extended to most firms from other developed countries (1998) </li></ul><ul><ul><li>OECD Convention (ratified by 33 countries) </li></ul></ul><ul><ul><li>US FPCA extended to apply to almost any firm doing business in the US </li></ul></ul>
    26. 26. A Global Supply Chain Fiber supplier in Australia Textile Maker in Italy Zipper Maker in China Apparel Maker in Mauritius Apparel Designer and Marketer in US Carriers and Intermediaries Carriers and Intermediaries Retailer in US <ul><li>Question: How best to command a supply chain? </li></ul><ul><ul><li>Arms length transaction at every stage? </li></ul></ul><ul><ul><li>Global coordination – vertical integration? </li></ul></ul><ul><li>Use of Intermediaries </li></ul><ul><ul><li>Laura Ashley – Federal Express Case: Logistics Outsourcing </li></ul></ul><ul><ul><li>Next time - Li and Fung Case: Supply Chain Outsourcing </li></ul></ul>Material flow Information flow Implies transport system details omitted
    27. 27. Trade in Goods and Labor
    28. 28. Trade in Beavers and Knives Europe 1 beaver = 3 knives North American Wilderness 3 beavers = 1 knife Start Finish
    29. 29. Knife-Beaver Trade issues <ul><li>Transaction costs </li></ul><ul><li>Distribution of Benefits </li></ul><ul><li>Dynamics </li></ul><ul><ul><li>exchange ratio equilibration </li></ul></ul><ul><ul><li>cost pressures on facilitating factors </li></ul></ul><ul><ul><li>technology and market changes </li></ul></ul>
    30. 30. “ Trade” in Labor US 1 labor hour = $22 China 1 labor hour = $0.60 Start Finish $  $$$$$ $ Unemployed worker Unemployed worker $$$$
    31. 31. Labor Trade issues <ul><li>Restriction on movement of people </li></ul><ul><li>Differences in productivity declining </li></ul><ul><ul><li>Requires Knowledge transfer </li></ul></ul><ul><li>Increasing disparity between “footloose” and “rooted” jobs </li></ul><ul><ul><li>Equilibration of wages between countries </li></ul></ul><ul><ul><li>Increasing income disparity within countries </li></ul></ul><ul><li>Pain, but economic benefit to developed country GDP </li></ul><ul><ul><li>“ Creative Destruction,” Like Productivity </li></ul></ul><ul><li>Mainline opinion: major net positive effect for developing country </li></ul>
    32. 32. Median Salaries ($K/year) In IT – India vs. US* <ul><li>*India results from PayScale 2005 </li></ul><ul><li>India IT wages up 14.5% vs 3% in US 2004 </li></ul>
    33. 33. Professional Wages Business Week - Dec. 2005
    34. 34. Measure of Income Disparity % Households % GNI of lowest x% of households 0 100 100 0 Gini Coefficients: a = 0, b~0.4, c~0.6 a b c
    35. 35. Increasing Income Disparity in the US From “Income Inequality in the United States” By Steven C. Deller* URL: http://www.aae.wisc.edu/www/pub/cenews/ce308figures.pdf
    36. 36. Global R&D Resources I: Total Science and Engineering Doctorates in Selected Asian Economies NSF Science Indicators – 2004 appendix table 2-39
    37. 37. Global R&D Resources II: Total Science and Engineering Doctorates including US and Germany NSF Science Indicators – 2004 appendix table 2-39 and 2-37
    38. 38. Next Class <ul><li>Global Supply Chains </li></ul><ul><ul><li>Readings: “Modular production networks: a new American model of industrial organization,” by Timothy Sturgeon </li></ul></ul><ul><ul><li>Guest speaker: Tim Sturgeon </li></ul></ul><ul><ul><li>Case: Li and Fung </li></ul></ul>
    39. 39. Guidance for Case Discussion <ul><li>Li and Fung </li></ul><ul><ul><li>Two major themes </li></ul></ul><ul><ul><ul><li>How Li and Fung developed into a world class player in providing supply chain services </li></ul></ul></ul><ul><ul><ul><li>Technology advance requires that the company adapt. But how to adapt new information technologies in a way that provides value in both cost and enhanced service is an issue </li></ul></ul></ul><ul><ul><li>Some discussion points </li></ul></ul><ul><ul><ul><li>What were the historic strengths that enabled Li and Fung’s business to grow? What was the value they delivered? </li></ul></ul></ul><ul><ul><ul><li>What keeps an intermediary like Li and Fung from being squeezed between suppliers and retailers? </li></ul></ul></ul><ul><ul><ul><li>How is Li and Fung trying to adapt to advancing information technology? What advice would you give William Fung? </li></ul></ul></ul><ul><ul><li>Assignment </li></ul></ul><ul><ul><ul><li>Prepare notes to hand in </li></ul></ul></ul>

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