GlobalizationUnderstanding The Global Context of Business
GlobalizationProcess by which the world economy is becoming a single interdependent system Exports: Domestically produced products sold in foreign markets Imports: Foreign products sold in domestic markets
World Marketplaces Wealth – based on annual per-capita income High-income countries: greater than $11,115 US,Canada, EU, Israel, Australia, UAE, Kuwait, Singapore, Taiwan Upper middle-income countries: $3,595 - $11,115 Thailand, China, Maldives, Brazil, Jordan Lower-middle-income countries: $905- $3,595 Greece, Turkey, Malaysia, India, Pakistan, Philippines Low-income countries: less than $905 Kenya, Nepal, Afghanistan, Uganda
Geographic Trading Blocs European Union (EU) North American Free Trade Agreement (NAFTA) Association of South East Asian Nations (ASEAN) South Asia Free Trade Agreement (SAFTA) Mercosur
Import-Export Balances Balance of Trade: country’s total economic value or exports (-) the economic value of imports Trade surplus: a positive balance of trade- country exports more than it imports Trade deficit: a negative balance of trade- country imports more than it exports Exchange Rate: the rate at which the currency of one nation can be exchanged for that of another
Forms of CompetitiveAdvantage Absolute advantage: when a country can produce something that is cheaper, of higher quality, or is a scarce resource. (Ex. OIL) Highest Quality of Oil KSA Most reserves of Oil Russia Highest Quality of Timber Canada Highest Quality Coffee Beans Brazil Highest Quality Cotton Egypt, Sea Island Highest Quality Silk China
Forms of CompetitiveAdvantage Comparative advantage: when a country can produce goods more efficiently or better than other countries can produce the same goods Best Mobile Phone Company Nokia, Finland Best Rail Engines France, Japan Best in Garments Thailand, Bangladesh Best in Shipping lines USA Most Powerful Army USA Best Chocolates Switzerland
Forms of CompetitiveAdvantage National Competitive Advantage: international competitive advantage stemming from a combination of- Factor conditions: labor, capital, entrepreneurs, physical resources, and information resources Demand conditions: strong demand for innovative products Related/supporting industries: strong suppliers/industrial customers Strategies, structures, rivalries: domestic firms and industries that stress cost reduction, product quality, higher productivity, and innovative products
International BusinessManagement Going International – Considerations: Gauging International Demand: may be greater than, the same as, or weaker than domestic demand Adapting to Customer Needs: Adapt products to meet the special demands of foreign customers Outsourcing: paying suppliers and distributors to perform certain business processes or to provide needed materials or services Off shoring: outsourcing to foreign countries
Levels of Involvement Exporters and Importers International Firms Multinational Firms
International OrganizationalStructures Independent Agents Licensing Arrangements Branch Offices Strategic Alliances Foreign Direct Investment (FDI)
Independent Agents Free agents work independently for oneself rather for a single employer. Agrees to represent an exporter’s interest. Levi Strauss uses agents to market clothing products in Asian ,African and American countries.
Licensing Agreements:Franchise Firms choose Foreign organizations to manufacture or market their products in another country.
Branch Office Foreign office set up by an International firm. More direct control Visible public presence Potential customers feel more secure.
Strategic Alliance or JV Arrangements in which a company finds a foreign partner to contribute resources needed to establish a new business in a partner’s country. Ex. Disneys theme park near Hong Kong
Foreign Direct Investment (FDI) Arrangement in which a firm buys or establishes tangible assets in another country. Dell computers building an assembly plant in Europe.
Barriers to International Trade Social and cultural differences Economic differences Legal and political differences
Legal and Political Differences Quota: restricts the number of a certain type that can be imported, thereby raising the prices of those imports Embargo: Ban on import/export of a certain product from a particular country. Tariffs: taxes on imported products Revenue tariff: Strictly to raise money for government Protectionist tariff: Discourages the import of particular product Subsidy: government payment to help a domestic
Legal and Political Differences Protectionism: protecting domestic business at the expense of free market competition Local content laws: products partly made in country Business Practice Laws: control over in country business practices Cartels: associations of producers that control supply and prices Dumping: selling abroad for less than the cost of production at home