2. • International Business
• Globalization
• Emergence of Global Institutions
• Drivers or Factors of Globalization
• Costs of Globalization
• Why Companies Engage in International Business
• Modes of Operations in International Business
• External Environmental Factors Affecting IB
Lesson Outline
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3. • Any firm that engages in international trade or investment
• All commercial transactions, including sales, investments, and
transportation, that take place between two or more countries.
• Private companies undertake such transactions for profit;
• Governments may undertake them either for profit or for other reasons.
https://www.youtube.com/watch?v=wLNp3kgBuuQ
International Business
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4. • A process of interaction and integration among the people,
companies, and governments of different nations which is
driven by international trade and investment and aided by
information technology.
• The widening set of interdependent relationships among
people from different parts of a world that happens to be
divided into nations.
Globalization
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5. • The worldwide movement toward economic, financial, trade,
and communications integration.
• Globalization implies the opening of local and nationalistic
perspectives to a broader outlook of an interconnected and
interdependent world with free transfer of capital, goods,
and services across national frontiers.
Globalization
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6. • The shift toward a more integrated and interdependent world
economy
• The world is moving away from self-contained national
economies toward an interdependent, integrated global
economic system
Globalization
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8. • Historically distinct and separate national markets are merging
and creating the “global market”
o Falling trade barriers make it easier to sell globally
o Consumers’ tastes and preferences are converging on some
global norm
o Firms promote the trend by offering the same basic
products worldwide
Globalization of Markets
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9. o Significant differences in many relevant dimensions
o Greater Uniformity is Replacing Diversity
Globalization of Markets
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10. • Sourcing of 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
o Companies can lower their overall cost structure
o Improve the quality or functionality of their product
offering
Globalization of Production
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11. • Global institutions
o Manage and regulate the global marketplace
o Promote the establishment of multinational treaties to
govern the global business system
Emergence of Global Institutions
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12. • General Agreement on Tariffs and Trade (GATT)
o Signed on 30 October 1947 by 23 nations
o Eight rounds of negotiations among member states worked
to lower barriers to the free flow of goods and services
Emergence of Global Institutions
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13. • World Trade Organization (WTO)
o Founded in January 1, 1995
o 164 member countries
o Primarily responsible for policing the world trading system
and making sure nation-states adhere to the rules laid down
in trade treaties signed by WTO member states
o Responsible for facilitating the establishment of additional
multinational agreements between WTO member states
Emergence of Global Institutions
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14. • World Bank (WB)
o Promote economic development
o Focused on making low-interest loans to governments in poor
nations that wish to undertake significant infrastructure
investments
• International Monetary Fund (IMF)
o Maintain order in the international monetary system
o Lender of last resort to troubled nations
o Adopting specific economic policies
Emergence of Global Institutions
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15. • United Nations (UN)
o Established October 24, 1945
o Four purposes:
To maintain international peace and security,
To develop friendly relations among nations,
To cooperate in solving international problems and in
promoting respect for human rights, and
To be a center for harmonizing the actions of nations.
Emergence of Global Institutions
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16. 1. Increase in and application of technology
2. Liberalization of cross-border trade and resource movements
3. Development of services that support international business
4. Growth of consumer pressures
5. Increase in global competition
6. Changes in political situations and government policies
7. Expansion of cross-national cooperation
Factors in Increased Globalization
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Reajmin Sultana
17. • Increase in and application of technology (internet, transport):
Many new products, as well as new ways to produce old ones, cannot easily take
place in a single country. Much new technical innovation takes so many financial and
intellectual resources that companies must cooperate to take on portions of
development. These efforts may necessitate collaboration among and dependence on
firms in different countries that have financial resources and specialized capabilities.
• Liberalization of cross-border trade and resource movements:
1. Their citizens want a greater variety of goods and services at lower prices.
2. Competition spurs domestic producers to become more efficient.
3. They hope to induce other countries to lower their barriers in turn.
Drivers or Factors of Globalization (Daniels)
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18. • Services that support international business (bank credit arrangement, insurance):
Companies and governments have developed a variety of services that facilitate global
commerce. Take sales in a foreign country and currency. Today, because of bank credit
agreements—clearing arrangements that convert one currency into another and insurance that
covers such risks as nonpayment and damage en route—most producers can be paid relatively
easily for goods and services sold abroad.
• Growth of consumer pressures (aware, newer, differentiated)
More consumers know more today about products and services available in other countries, can
afford to buy them, and want the greater variety in quality, price, and characteristics that access
to them offers. As a result, more companies are now responding to those markets where
incomes and consumption are growing most rapidly
Drivers or Factors of Globalization (Daniels)
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19. • Increase in global competition (competitive world, copy successful attempts ):
The present and potential pressures of increased foreign competition can persuade companies
to buy or sell abroad. In recent years, many companies have merged or acquired operations to
gain the efficiencies to better compete
• Changes in political situations and government policies:
Governments still prefer international business with certain countries and even deny such
business with others for political reasons, such as many countries’ sanctions against doing
business with Iran because of its efforts to develop nuclear capabilities.
Drivers or Factors of Globalization (Daniels)
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20. • Expansion of Cross-National Cooperation:
1. To gain reciprocal advantages
2. To attack problems jointly that one country acting alone cannot solve
3. To deal with areas of concern that lie outside the territory of any nation
Drivers or Factors of Globalization
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21. • Critics worry that globalization will cause
o Threats to national sovereignty
The question of Small economies’ overdependence
The question of Cultural homogeneity
The question of Local objective & policies
o Environmental degradation
o Growing income inequality & personal stress
Costs of Globalization(daniels)
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22. • Expanding sales
o Increases the potential market and profits
• Acquiring resources
o Lower costs
o New or better products
o Additional operating knowledge
• Reducing risk
o Smoothing sales and profits
o Preventing competitors from gaining advantages
Why Companies Engage in International
Business (Daniels)
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23. • Merchandise exports and imports
• Service exports and imports
• Investments
Modes of Operations in International Business
(Daniels)
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24. • Merchandise exports
o Goods that are sent out of a country
• Merchandise imports
o Goods that are brought into a country
• Sometimes referred to as visible exports and imports
Modes of Operations in International Business
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25. • Service exports
o Provider and receiver of payment
• Service imports
o Recipient and payer of payment
• Examples
o Tourism and transportation
o Service performance
Turnkey operations and Management contracts
o Asset use
Licensing and Franchising
Modes of Operations in International Business
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26. • Investments
o Foreign Direct Investment (FDI)
Investor takes a controlling interest in a foreign
company
o Portfolio Investment
A non-controlling financial interest in another entity
Modes of Operations in International Business
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27. • Collaborative arrangements
o Joint ventures
o Licensing arrangements
o Management contracts
o Minority ownership
o Long-term contractual arrangements
Types of International Organizations
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28. • Multinational enterprises (MNEs)
o Take a global approach to markets and production or
have operations in more than one country
• Sometimes they are referred to as
o Multinational corporations (mncs)
o Multinational companies (mncs)
o Transnational companies (TNCs)
Types of International Organizations
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29. • The external environment affects a company’s international
operations
• Managers must understand social science disciplines and
how they affect functional business fields
• Consider
o Physical factors
o Social factors
o Competitive factors
External Environmental Factors Affecting IBz
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30. • Geographic influences
o Natural conditions influence production locations (calamity, mountains, jungle-
geographic barriers)
• Political
o Determines where and how business occurs
• Legal policies (domestic-taxation, employment; international dispute-int.law)
o Influence how a company operates
• Behavioral factors (value, belief, casino, bars)
o May require changes in operations
• Economic forces
o Explain differences in costs, currency values, market size
Physical and Social Factors
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31. • Competitive strategy for products
o Cost strategy
o Differentiation strategy
• Company resources and experience
o Market leaders have more resources for international
operations
• Competitors faced in each market
o Local or international
The Competitive Environment
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32. • So, a company’s competitive strategy influences how and
where it can best operate
• Its competitive situation may differ from country to country
in terms of its relative strength and which competitors it faces
The Competitive Environment
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34. • Managing an international business differs from managing a
domestic business because
o Countries are different
o Greater complexity of managing an international business
o Understanding the rules governing the international trading
and investment system
o Converting money into different currencies
How Does The Global Marketplace Affect
Managers?
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35. • Three major perspectives on the future of international
business and globalization
o Further globalization is inevitable
o International business will grow primarily along regional
rather than global lines
o Forces working against further globalization and
international business will slow down both trends
Looking to the Future
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