International Business

1. INTERNATIONAL
BUSINESS
BY CHARLES W.L. HILL

2. CHAPTER 1
OVERVIEW OF
INTERNATIONAL BUSINESS
AND GLOBALIZATION

3. WHAT IS GLOBALIZATION?
 Globalization - refers to the widening set of
interdependent relationships among people from
different parts of a world that happens to be
divided into nations.
 The term sometimes refers to the elimination of
barriers to international movements of goods,
services, capital, technology, and people that
influence the integration of world economies.

4. WHAT IS THE GLOBALIZATION OF
MARKETS?
 Historically distinct and separate national markets are
merging and creating the “global market”
 falling trade barriers make it easier to sell globally
 consumers’ tastes and preferences are converging on some global
norm
 firms promote the trend by offering the same basic products
worldwide
 Firms can also produce different products based on consumer
preferences

5. DECLINING TRADE AND
INVESTMENT BARRIERS
Average Tariff Rates on Manufactured Products as Percent of Value

7. WHAT IS THE GLOBALIZATION OF
PRODUCTION?
 Firms source goods and services from locations
around the globe to capitalize on national
differences in the cost and quality of factors of
production like land, labor, energy, and capital
 Companies can
 lower their overall cost structure
 improve the quality or functionality of their product
offering

8. HOW DOES INTERNATIONAL BUSINESS FIT IN?
 Globalization enables us to get more variety, better quality, or
lower prices.
 All of these connections between supplies and markets result from
the activities of international business.
 International Business is defined as all commercial transactions,
including sales, investments, and transportation, that take place
between two or more countries.

9. WHY SHOULD YOU STUDY INTERNATIONAL
BUSINESS?
 Simply, it makes up a large and growing portion of the world’s
business.
 Most companies either are international or compete with
international companies.
 Modes of operations may differ from those used domestically.
 The best way of conducting business may differ by country.
 An understanding helps you make better career decisions.
 An understanding helps you decide what governmental policies to
support.

10. WHY DO WE NEED GLOBAL INSTITUTIONS?
 Global institutions manage, regulate, and police the global
marketplace and promote the establishment of multinational
treaties to govern the global business system
 General Agreement on Tariffs and Trade (GATT)
 World Trade Organization (WTO)
 International Monetary Fund (IMF)
 World Bank
 United Nations (UN)
 G20

11. WHY DO WE NEED GLOBAL INSTITUTIONS?
 ASEAN- Association of Southeast Asian Nations
 EU - European Union
 SAARC - South Asian Association for Regional Cooperation
 CAFTA - Central America Free Trade Agreement
 ADB - Asian Development Bank
 NAFTA- North American Free Trade Agreement
 SAFTA - South Asian Free Trade Area

12. THE FORCES DRIVING GLOBALIZATION
 DECLINING TRADE AND INVESTMENT BARRIERS
 International trade occurs when a firm exports goods or
services to consumers in another country.
 Foreign direct investment (FDI) occurs when a firm invests
resources in business activities outside its home country.
 ROLE OF TECHNOLOGICAL CHANGE
 Communications
 Internet of Things
 Transportation Technology: Containerization

13. HOW HAS WORLD OUTPUT AND
WORLD TRADE CHANGED?
 In 1960, the U.S. accounted for over 40% of world
economic activity, but by 2009, the U.S. accounted for
just 24%
 a similar trend occurred in other developed countries
 In contrast, the share of world output accounted for
by developing nations is rising
 expected to account for more than 60% of world economic
activity by 2020

14. HOW HAS WORLD OUTPUT AND
WORLD TRADE CHANGED?
The Changing Demographics of World GDP and Trade

15. HOW HAS FOREIGN DIRECT
INVESTMENT CHANGED?
 In the 1960s, U.S. firms accounted for about two-thirds
of worldwide FDI flows
 Today, the United States accounts for less than one-fifth of
worldwide FDI flows
 Other developed countries have followed a similar pattern
 In contrast, the share of FDI accounted for by
developing countries has risen
 Developing countries, especially China, have also become
popular destinations for FDI

16. HOW HAS FOREIGN DIRECT
INVESTMENT CHANGED?
Percentage Share of Total FDI Stock 1980-2007

17. HOW HAS FOREIGN DIRECT
INVESTMENT CHANGED?
FDI Inflows 1988-2008

18. WHAT IS A
MULTINATIONAL ENTERPRISE?
 Multinational enterprise (MNE) - any business that has
productive activities in two or more countries
 Since the 1960s
 the number of non-U.S. multinationals has risen
 the number of mini-multinationals has risen

19. IS AN INTERDEPENDENT GLOBAL ECONOMY A
GOOD THING?
 Supporters believe that increased trade and
cross-border investment mean
 lower prices for goods and services
 greater economic growth
 higher consumer income, and more jobs
 Anti-globalization protesters now regularly show
up at most major meetings of global institutions

20. THE GLOBALIZATION DEBATE (GLOBALIZATION IS
GOOD OR BAD FOR US?)
THE COSTS OF GLOBALIZATION: PROBLEMS
 Threats to National Sovereignty
 The Question of Local Objectives and Policies
 The Question of Small Economies’ Overdependence
 The Question of Cultural Homogeneity
 Environmental Stress
 The Argument for Global Growth and Global Cooperation
 Growing Income Inequality and Personal Stress
 Income Inequality
 Personal Stress

21. HOW DOES THE GLOBAL
MARKETPLACE AFFECT MANAGERS?
 Managing an international business differs from
managing a domestic business because
 countries are different
 the range of problems confronted in an international business is
wider and the problems more complex than those in a domestic
business
 firms have to find ways to work within the limits imposed by
government intervention in the international trade and
investment system
 international transactions involve converting money into different
currencies