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Chapter 2

  The Global Context of Business
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Sr. Chapter       Chapter Heading
No.No.
1.    3    Understanding the Global context of business (031012)
2.    4    Conducting Business Ethically and Responsibly
3.    6    Organizing the Business Enterprise
4.    7    Understanding Entrepreneurship and Small Business
5.    8    Managing Human Resources
6.    9    Understanding Employee Motivating, Satisfying and Leadership
7.    11   Understanding Marketing Processes and Consumer Behavior
8.    16   Managing Quality and Productivity
9.    17   Managing Information Systems and Communication Technology
10.   19   Understanding Money and Banking
11.   20   Intermediate Term and Lease Financing
Marks Distribution
50     Terminal Examination
20     Mid Term Examination
15     Quizzes
15     Final Assignment




                              3
“We are in the midst of a
great transition from narrow
nationalism to international
partnership.”
            ~ Lyndon Baines Johnson
Chapter Review
   Discuss the rise of international business,
    describe the major world marketplaces.

   Explain how competitive advantage, import-
    export balances, exchange rates, and foreign
    competition shape international business
    strategies.
Chapter Review
   Discuss what factors influence whether a
    company should engage in international business.

   Identify different levels of international
    involvement and international organizational
    structure.

   Describe key barriers to international trade.
Key Topics
   The rise of global business
   Major world marketplaces and trading
    partners
   Influences on international business
   International business management
   The impact of differences among
    nations
Definitions
   Quota: restriction on the number of certain type
    of product that can be imported into a country.
   Embargo: complete ban on imports and exports,
    imposed by a government for political reasons.
   Tariff: tax levied on imported products.
   Subsidy: government payments to help a
    domestic business compete with foreign firms.
   Protectionism: the practice of protecting
    domestic business against foreign competition.
Definitions
Gross domestic product (GDP) is one the primary indicators used to
   gauge the health of a country's economy. It represents the total dollar
   value of all goods and services produced over a specific time period
Or
The monetary value of all the finished goods and services produced within
   a country's borders in a specific time period, though GDP is usually
   calculated on an annual basis. It includes all of private and
   public consumption, government outlays, investments and exports less
   imports that occur within a defined territory.
Per capita income or income per person is a measure of mean income
   within an economic aggregate, such as a country or city. It is
   calculated by taking a measure of all sources of income in the
   aggregate (such as GDP or Gross National Income) and dividing it by
   the total population. It does not attempt to reflect the distribution of
   income or wealth
                                                                          9
1. The key drivers to globalization
                                     Global
                                      market
  Drivers:                         Convergence
                                     Similar customer needs,
                             Global customers, Transferable marketing


             Trade policies, Technical                        Scale economies,
 GovernmentStandards, host government, Global               Sourcing efficiencies      Cost
  Influence         policies           Strategies              Countries costs,
                                                                                    Advantages
                                                       High product development costs


                               Interdependence, Competitors global
                                       High exports/imports,

                                           Global
                                         Competition
a. Globalization Is Gaining Speed

The world economy is
becoming a single,
interdependent system


Export:
Domestic product sold
abroad

Import:
Foreign product sold
domestically
b. Globalization Is Gaining
Speed
   Example: Asian financial markets in the
    late 90s directly affects stock markets
    worldwide.

   Discussion: what product from other
    countries do you useconsume? Why
    have you chosen it?
c. Categorizing Economies

   High Income Countries:
    Per capita income greater than $9,386

   Middle Income Countries:
    Per capita income between $765 and $9,386

   Low Income Countries:
    Per capita income of less than $765

    Discussion: what countries fall into each category?
d. Major World Marketplaces



             North America NAFTA
             Europe EU
             Pacific Asia
             Do we have any economic
              agreement with other
              countries. What are they?
The North American Marketplace (NAFTA)



                                      Canada



                                      United States


                                      Mexico
Copyright ©2003 Prentice Hall, Inc.                   2 - 15
Europe and the Nations of the European Union
       • Austria                      • Luxembourg    • Portugal   • Sweden
       • Belgium                      • Netherlands   • Spain      • United Kingdom
       • Denmark
       • Finland
       • France
       • Germany
       • Greece
       • Ireland
       • Italy
       • Ireland
       • Italy

Copyright ©2003 Prentice Hall, Inc.                                               2 - 16
The Nations of ASEAN


       • Brunei
       • Indonesia
       • Malaysia
       • Philippines
       • Singapore
       • Thailand
       • Vietnam



Copyright ©2003 Prentice Hall, Inc.   2 - 17
Pacific Asia Represents
Enormous Business Potential
                           Projections for 2010 (in millions)

                                  500
  In less than a                  450
  decade, Asian                   400      415                  432
  language                        350
  speakers on                     300
  the web will                    250
  far exceed                      200
  English                         150
  speakers                        100
                                                      96
                                   50
                                                                          34
                                    0
                                          English   Japanese   Chinese   Korean

Source: Time Global Business, Nov. 2001
                                                                                  2 - 18
2. Competitive Advantage
   Absolute Advantage:
       when one country can produce a product cheaper andor higher
        quality than any other country. Ex. OPEC
   Comparative Advantage:
       when one country can produce certain goods or services more
        efficiently and effectively than others. Ex. US software
Competitive advantages
 When competitive advantage is materialized?
When a firm earns persistently higher rate of profit over
  its rivals.
 Determinants of profit level
    1- Value of company products in customers’ eyes.
    2- Company production cost.
Competitive advantage
   It can be created in certain industrial
    field, through the adoption of low-cost-
    differentiation strategy. M. Porter
National Competitive Advantage


                 Factor conditions
                 Demand conditions
                 Related and supporting
                  industries
                 Strategies, structures,
                  and rivalries
3. Import/Export Balances

   Balance of Trade
       Trade Deficits
       Trade Surpluses

   Balance of Payments

The total flow of money into or out of an
  economy
3a. Exchange Rates
Heavily Impact Global Trade


    When an economy’s currency is strong:
        Domestic companies find it harder to
         export products
        Foreign companies find it easier to import
         products
        Domestic companies may move production
         to cheaper sites in foreign countries
    Implications for balance of trade?
Exchange Rates
Heavily Impact Global Trade


    When an economy’s currency is weak:
        Domestic companies find it easier to export
         products
        Foreign companies find it harder to import
         products
        Foreign companies may invest in
         production facilities
    Implications for balance of trade?
The U.S. Economy Has a Growing Trade Deficit
                     U.S. Imports & Exports                                                                      U.S. Trade Deficit
                                      (in billions)                                                                           (in billions)
    1600                                                                            $400,000

    1400                                                                             350,000




                                                                                                                                                                                             344,716
    1200                                                                             300,000
    1000                                                                             250,000




                                                                                                                                                                                   255,971
      800
                                                                                     200,000
      600
                                                                                     150,000




                                                                                                                                                                         166,898
      400
                                                                                     100,000




                                                                                                                 35,666




                                                                                                                                                               105,932
                                                                                                                                                     102,113
      200



                                                                                                        28,266




                                                                                                                                            95,947
                                                                                                                                   97,039
                                                                                               78,857
                                                                                      50,000




                                                                                                                          68,949
         0
                                                                                          0
              1990
                     1991
                            1992
                                   1993
                                          1994
                                                 1995
                                                        1996
                                                               1997


                                                                             1999
                                                                             2000
                                                                      1998




                                                                                               1990
                                                                                                        1991
                                                                                                        1992
                                                                                                        1993
                                                                                                        1994
                                                                                                        1995
                                                                                                        1996
                                                                                                        1997
                                                                                                        1998
                                                                                                        1999
                                                                                                        2000
                             Imports                       Exports
Copyright ©2003 Prentice Hall, Inc.                                                                                                                                                                    2 - 26
Is there                        Can the
                                                               Is the foreign           Does the
      international                     product be
                                                                  business            firm have or
       demand for                YES   modified to fit   YES                    YES
                                                               climate suited         can it get the
        the firm’s                      a foreign
                                                                 to imports?           necessary
         product?                        market?
                                                                                        skills and
              NO                            NO                      NO                 knowledge
                                                                                           to do
                                                                                         business
                                                                                 NO      abroad?

                                                                                          YES




                  Stay Domestic                      Go International

Copyright ©2003 Prentice Hall, Inc.                                                               2 - 27
4.   Levels of International Involvement



                       Importer & Exporter
                       International Firms
                       Multinational Firms
International Organizational
Structures
    HIGH
     INVOLVEMENT      Foreign Investment
                           Private capital investment by firms of one country
                            into those of another.
                      Strategic Alliances
                           a relationship between two or more parties to pursue
                            a set of agreed upon goals or to meet a critical
                            business need while remaining independent
                            organizations

                      Branch Offices
                      Licensing Arrangements
                      Independent Agents
    LOW
5.Barriers to International Trade




                                   Legal & Political
 Social & Cultural                   Differences
   Differences       Economic
                     Differences
Take Time to Learn the Culture Thoroughly!
   Este es nuestro
     nuevo auto:        Ha, ha, ha, ha,
      el NOVA!             ha, ha!!!
The Customer’s Language
A Critical Business Success Factor


   In the U.S. alone, 18% of the population
    does not speak English at home.
   Only 48% of the world’s Web users are
    native English speakers.
   Consumers are four times more likely to
    buy a product on the Internet if the
    website is in their preferred language.

Source: Time Global Business, Nov. 2001
Economic Differences

To operate effectively in another
country, businesses must know when,
and to what extent, the government is
involved in a given industry.
Legal & Political Differences
   Quotas, Tariffs, & Subsidies
   Protectionism
   Local Content Laws
   Business Practice Laws
       Day to day operations
       Cartels
       Dumping
Relate to Pakistan




                     35
36
37
38
39
Potentials
   Population – 170 million
       Growing consumption
   Cheap labor
       According to approximations, labor in Pakistan is $ 0.36 an
        hour; in India, it is $ 0.58 an hour and in China, it is $ 0.70
        an hour
   Feasible regulatory conditions
       As compared to india
   Minerals
       Coal, Copper, Gold, Silver, Dolomite, Gypsum, Lime
        stone, Natural Gas, Iron core, Rock
        salt, Bauxite, Marble, Gems, China Clay, Zinc, Lead and
        Chromite are some of Pakistan’s potential                         40
Macro


Potentials
                          economic
                          indicators

                                         Large
             More jobs                 scale job
                                       creation

   Coal reserves, iron and gems
   Agriculture
   Pakistan is the 4th largest producer of milk
       Increased
       manufactu
                                          Improving
                                          purchasin
          ring                             g power
   Fruit and agriculture processing


               Greater
             demand of                  Lower
              good and                 poverty
              services
                           Greater
                          consumpti
                             on




                                                      41
Snapshot of Sessional marks



                                 Introduction   CHAPTER NO 3
     NAME          COMPANY NO.      4-2-12         11-2-12
       Aruba            1             1
       Lunba            1             1
      Ayesha            1             1
        Faria           2             1
  Safia Tabassum        2             1
      Mashal            3             1
     Namreen            3             1
       Asma             3             1
    Umair Iqbal         4             1
  Shiraz Qureshi        4             1
       Ismail           4             1
        Anus            4             1
         Mir            5             1
        Saad            5             1
   Najeeb Aslam         5             1
      M. Ejaz           5             1




                                                               42

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Chap 3 global context of business new

  • 1. Chapter 2 The Global Context of Business http://www.slideshare.net/Subjectmaterial
  • 2. Sr. Chapter Chapter Heading No.No. 1. 3 Understanding the Global context of business (031012) 2. 4 Conducting Business Ethically and Responsibly 3. 6 Organizing the Business Enterprise 4. 7 Understanding Entrepreneurship and Small Business 5. 8 Managing Human Resources 6. 9 Understanding Employee Motivating, Satisfying and Leadership 7. 11 Understanding Marketing Processes and Consumer Behavior 8. 16 Managing Quality and Productivity 9. 17 Managing Information Systems and Communication Technology 10. 19 Understanding Money and Banking 11. 20 Intermediate Term and Lease Financing
  • 3. Marks Distribution 50 Terminal Examination 20 Mid Term Examination 15 Quizzes 15 Final Assignment 3
  • 4. “We are in the midst of a great transition from narrow nationalism to international partnership.” ~ Lyndon Baines Johnson
  • 5. Chapter Review  Discuss the rise of international business, describe the major world marketplaces.  Explain how competitive advantage, import- export balances, exchange rates, and foreign competition shape international business strategies.
  • 6. Chapter Review  Discuss what factors influence whether a company should engage in international business.  Identify different levels of international involvement and international organizational structure.  Describe key barriers to international trade.
  • 7. Key Topics  The rise of global business  Major world marketplaces and trading partners  Influences on international business  International business management  The impact of differences among nations
  • 8. Definitions  Quota: restriction on the number of certain type of product that can be imported into a country.  Embargo: complete ban on imports and exports, imposed by a government for political reasons.  Tariff: tax levied on imported products.  Subsidy: government payments to help a domestic business compete with foreign firms.  Protectionism: the practice of protecting domestic business against foreign competition.
  • 9. Definitions Gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period Or The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. Per capita income or income per person is a measure of mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross National Income) and dividing it by the total population. It does not attempt to reflect the distribution of income or wealth 9
  • 10. 1. The key drivers to globalization Global market Drivers: Convergence Similar customer needs, Global customers, Transferable marketing Trade policies, Technical Scale economies, GovernmentStandards, host government, Global Sourcing efficiencies Cost Influence policies Strategies Countries costs, Advantages High product development costs Interdependence, Competitors global High exports/imports, Global Competition
  • 11. a. Globalization Is Gaining Speed The world economy is becoming a single, interdependent system Export: Domestic product sold abroad Import: Foreign product sold domestically
  • 12. b. Globalization Is Gaining Speed  Example: Asian financial markets in the late 90s directly affects stock markets worldwide.  Discussion: what product from other countries do you useconsume? Why have you chosen it?
  • 13. c. Categorizing Economies High Income Countries: Per capita income greater than $9,386 Middle Income Countries: Per capita income between $765 and $9,386 Low Income Countries: Per capita income of less than $765 Discussion: what countries fall into each category?
  • 14. d. Major World Marketplaces  North America NAFTA  Europe EU  Pacific Asia  Do we have any economic agreement with other countries. What are they?
  • 15. The North American Marketplace (NAFTA) Canada United States Mexico Copyright ©2003 Prentice Hall, Inc. 2 - 15
  • 16. Europe and the Nations of the European Union • Austria • Luxembourg • Portugal • Sweden • Belgium • Netherlands • Spain • United Kingdom • Denmark • Finland • France • Germany • Greece • Ireland • Italy • Ireland • Italy Copyright ©2003 Prentice Hall, Inc. 2 - 16
  • 17. The Nations of ASEAN • Brunei • Indonesia • Malaysia • Philippines • Singapore • Thailand • Vietnam Copyright ©2003 Prentice Hall, Inc. 2 - 17
  • 18. Pacific Asia Represents Enormous Business Potential Projections for 2010 (in millions) 500 In less than a 450 decade, Asian 400 415 432 language 350 speakers on 300 the web will 250 far exceed 200 English 150 speakers 100 96 50 34 0 English Japanese Chinese Korean Source: Time Global Business, Nov. 2001 2 - 18
  • 19. 2. Competitive Advantage  Absolute Advantage:  when one country can produce a product cheaper andor higher quality than any other country. Ex. OPEC  Comparative Advantage:  when one country can produce certain goods or services more efficiently and effectively than others. Ex. US software
  • 20. Competitive advantages  When competitive advantage is materialized? When a firm earns persistently higher rate of profit over its rivals.  Determinants of profit level 1- Value of company products in customers’ eyes. 2- Company production cost.
  • 21. Competitive advantage  It can be created in certain industrial field, through the adoption of low-cost- differentiation strategy. M. Porter
  • 22. National Competitive Advantage  Factor conditions  Demand conditions  Related and supporting industries  Strategies, structures, and rivalries
  • 23. 3. Import/Export Balances  Balance of Trade  Trade Deficits  Trade Surpluses  Balance of Payments The total flow of money into or out of an economy
  • 24. 3a. Exchange Rates Heavily Impact Global Trade  When an economy’s currency is strong:  Domestic companies find it harder to export products  Foreign companies find it easier to import products  Domestic companies may move production to cheaper sites in foreign countries  Implications for balance of trade?
  • 25. Exchange Rates Heavily Impact Global Trade  When an economy’s currency is weak:  Domestic companies find it easier to export products  Foreign companies find it harder to import products  Foreign companies may invest in production facilities  Implications for balance of trade?
  • 26. The U.S. Economy Has a Growing Trade Deficit U.S. Imports & Exports U.S. Trade Deficit (in billions) (in billions) 1600 $400,000 1400 350,000 344,716 1200 300,000 1000 250,000 255,971 800 200,000 600 150,000 166,898 400 100,000 35,666 105,932 102,113 200 28,266 95,947 97,039 78,857 50,000 68,949 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 1998 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Imports Exports Copyright ©2003 Prentice Hall, Inc. 2 - 26
  • 27. Is there Can the Is the foreign Does the international product be business firm have or demand for YES modified to fit YES YES climate suited can it get the the firm’s a foreign to imports? necessary product? market? skills and NO NO NO knowledge to do business NO abroad? YES Stay Domestic Go International Copyright ©2003 Prentice Hall, Inc. 2 - 27
  • 28. 4. Levels of International Involvement  Importer & Exporter  International Firms  Multinational Firms
  • 29. International Organizational Structures HIGH INVOLVEMENT  Foreign Investment  Private capital investment by firms of one country into those of another.  Strategic Alliances  a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations  Branch Offices  Licensing Arrangements  Independent Agents LOW
  • 30. 5.Barriers to International Trade Legal & Political Social & Cultural Differences Differences Economic Differences
  • 31. Take Time to Learn the Culture Thoroughly! Este es nuestro nuevo auto: Ha, ha, ha, ha, el NOVA! ha, ha!!!
  • 32. The Customer’s Language A Critical Business Success Factor  In the U.S. alone, 18% of the population does not speak English at home.  Only 48% of the world’s Web users are native English speakers.  Consumers are four times more likely to buy a product on the Internet if the website is in their preferred language. Source: Time Global Business, Nov. 2001
  • 33. Economic Differences To operate effectively in another country, businesses must know when, and to what extent, the government is involved in a given industry.
  • 34. Legal & Political Differences  Quotas, Tariffs, & Subsidies  Protectionism  Local Content Laws  Business Practice Laws  Day to day operations  Cartels  Dumping
  • 36. 36
  • 37. 37
  • 38. 38
  • 39. 39
  • 40. Potentials  Population – 170 million  Growing consumption  Cheap labor  According to approximations, labor in Pakistan is $ 0.36 an hour; in India, it is $ 0.58 an hour and in China, it is $ 0.70 an hour  Feasible regulatory conditions  As compared to india  Minerals  Coal, Copper, Gold, Silver, Dolomite, Gypsum, Lime stone, Natural Gas, Iron core, Rock salt, Bauxite, Marble, Gems, China Clay, Zinc, Lead and Chromite are some of Pakistan’s potential 40
  • 41. Macro Potentials economic indicators Large More jobs scale job creation  Coal reserves, iron and gems  Agriculture  Pakistan is the 4th largest producer of milk Increased manufactu Improving purchasin ring g power  Fruit and agriculture processing Greater demand of Lower good and poverty services Greater consumpti on 41
  • 42. Snapshot of Sessional marks Introduction CHAPTER NO 3 NAME COMPANY NO. 4-2-12 11-2-12 Aruba 1 1 Lunba 1 1 Ayesha 1 1 Faria 2 1 Safia Tabassum 2 1 Mashal 3 1 Namreen 3 1 Asma 3 1 Umair Iqbal 4 1 Shiraz Qureshi 4 1 Ismail 4 1 Anus 4 1 Mir 5 1 Saad 5 1 Najeeb Aslam 5 1 M. Ejaz 5 1 42

Editor's Notes

  1. http://economicpakistan.wordpress.com/2008/02/23/the-realistic-prospects-for-investment-in-pakistan/#more-803
  2. http://economicpakistan.wordpress.com/2008/02/23/the-realistic-prospects-for-investment-in-pakistan/#more-803