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International Business Diverse, Competitive and Subject to Rapid Technological Changes. one. Concept Preview After reading this chapter, you should be able to:. 1. appreciate the dramatic internationalization of markets

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  1. International Business Diverse, Competitive and Subject to Rapid Technological Changes one Concept Preview After reading this chapter, you should be able to: 1. appreciate the dramatic internationalization of markets 2. understand the various names given to firms that have substantial operations in more than one country 3. appreciate the profound effect of the internet on many international business firms 4. understand the five kinds of drivers, all based on change, that are leading international firms to the globalization of their operations chapter

  2. International Business Diverse, Competitive and Subject to Rapid Technological Changes one Concept Preview continued After reading this chapter, you should be able to: 5. comprehend why international business differs from domestic business. 6. describe the three environments—domestic, foreign, international —in which an international company operates. chapter

  3. Introduction 1-3 • Why Study International Business? • International Business Terminology • History of International Business • Why is International Business Different? • Focus of This Course

  4. Import Penetration, 1970 versus 1996 ($ billions) Import Penetration (%) Goods and Services GDP* Exports Imports 1996 1970 1996 1970 1996 1970 1996 1970 United Kingdom 28.2% 23.4% $314 $25 $322 $25 $1,135 $107 Germany 23.5 19.3 570 39 550 35 2,361 185 France 21.4 15.5 361 23 324 22 1,548 143 United States 12.3 6.7 793 68 906 68 7,263 1,012 Japan 9.0 9.8 483 22 406 20 4,597 204 1-4 Table 1.1 *At 1996 prices and exchange rates. Sources: “Gross Domestic Product,” National Accounts of OECD Countries, 1997, vol.. 1, February 1997; http://www.oecdwash.org/PRESS/CONTENT/gdpfeb97.htm (April 22, 1997); World Development Report 1995; National Accounts OECD 1997, www.oecd.org/publications/observer/figures/TRADE_A.pdf

  5. 1-5 International Business Terminology • Multinational company is an organization with multi-country affiliates, each of which formulates its own business strategy based on perceived market differences • Global company is an organization that attempts to standardize operations worldwide in all functional areas • International company refers to both global and multinational companies International business is business whose activities involve the crossing of national borders • Foreign business denotes the domestic operations within a foreign country

  6. Global Management 1-6 • Searches the world for: • market opportunities • threats from competitors • sources of products, raw materials, and financing • personnel • Seeks to maintain a presence in key markets • Looks for similarities, not differences, among markets

  7. History of International Business 1-7 • International trade is not a new aspect of business • Globalization forces • computers and communications • reduction of barriers to trade • unification of the global community • International business as a business practice is not new • 1600 British East India Company • Shipping routes to the east opened by Dutch companies in 1590 • American colonial traders of the 1700’s • Singer Sewing Machine 1868 (Scotland)

  8. 1-8 Globalization Forces • Political • Unification and socialization of the global community • NAFTA • European Union • Progressive reduction of barriers to foreign trade and investment by most governments • Privatization of much of the industry in former communist nations • Technology • Advances in computers and technology • Internet and network computing • Ease of obtaining information and making transactions • Company web sites to furnish information • Market • As companies globalize, they become global customers • Finding the home market saturated is sending companies to foreign markets • Convergence of customer tastes and lifestyles

  9. 1-9 Globalization Forces • Cost • Economies of scale reduce unit costs • Globalize product lines to reduce • development • production • inventory costs • Locate production in countries where the costs of the factors of production are lower • Competitive • Competition continues to increase in intensity • New firms have entered world markets • Companies are defending their home markets form competitors by entering the competitors’ home markets • Larger trading groups (countries) offer attractive, large markets

  10. Foreign Direct Investment 1-10 Table 1.2 Increase of FDI in U.S. as a percentage of global FDI increase, 1980 versus 1996 ($ billion) Global FDI Increase FDI in U.S. Increase D FDI in U.S. 1980 1996 1996-1980 1980 1996 1996-1980 D Global FDI (1) (2) (3) (4) (4)/(2) Canada $23 $111 $88 $10 $54 $44 50.0% United Kingdom 81 356 275 12 143 131 47.6% Netherlands 42 185 143 17 74 57 40.0 Japan 19 330 311 4 118 114 36.7 France 24 206 182 3 49 46 25.3 Switzerland 21 153 132 4 35 31 23.5 Germany 43 288 245 5 62 57 23.3 Sweden 6 76 70 6 9 3 4.3 Italy 7 118 111 <1 3 3 2.7 Note: D = Increase Sources: UNCTAD, World Investment Report 1997 (New York: United Nations, 1997), p. 319; and Survey of Current Business, July 1997, p. 39, and August 1982, p. 36

  11. 1-11 Figure 1.2 Country FDI Stock as Percentage of Global FDI (1980 versus 1996) 1980 1996 1980 1996 1980 1996

  12. Recent Developments 1-12 Table 1.3-I Lessening of American dominance - The top 100 industrial firms ranked by sales 1980 1996 45 United States 32 United States 42 Western Europe 38 Western Europe 8 Japan 23 Japan 1 South Korea 4 South Korea 1 Brazil 1 Brazil 1 Mexico 1 Mexico 1 Venezuela 1 Venezuela 1 Canada 100 100 Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

  13. 1-13 Recent Developments Table 1.3 -II Change in leadership in sales volume - Automobile Industry 1959 1981 1996 1. General Motors (U.S.) 1. General Motors (U.S.) 1. General Motors (U.S.) 2. Ford (U.S.) 2. Ford (U.S.) 2. Ford (U.S.) 3. Chrysler (U.S.) 3. Fiat (Italy) 3. Toyota (Japan) 4. American Motors (U.S.) 4. Renault (France) 4. Daimler-Benz (Germany) 5. Volkswagen (Germany) 5. Volkswagen (Germany) 5. Volkswagen (Germany) 6. British Motor (U.K.) 6. Daimler-Benz (Germany) 6. Daewoo (Korea) 7. Fiat (Italy) 7. Peugeot (France) 7. Chrysler (U.S.) 8. Daimler-Benz (Germany) 8. Toyota (Japan) 8. Nissan (Japan) 9. Renault (France) 9. Nissan (Japan) 9. Fiat (Italy) 10. Simca (France) 10. Mitsubishi (Japan) 10. Honda (Japan) Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

  14. 1-14 Recent Developments Table 1.3 -III Industry 1959 1996 Aerospace 8 United States 6 United States 2 European 2 European* Chemicals 7 United States 7 European 3 European 2 United States 1 Japanese Metal Manufacturing 9 United States 3 European 1 European 4 Japanese 1 Australian 1 South Korean Electronics 7 United States 1 United States 3 European 7 Japanese 3 European Pharmaceuticals 7 United States 6 United States 3 European 4 European Change in leadership in five other industries *Only eight firms in this industry are in the Fortune Global 500. Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

  15. 1-15 Recent Developments Table 1.3 -IV Countries with the most companies on Fortune Global 500 List 1996 1995 1989 United States 162 153 167 Japan 126 141 111 France 42 42 29 Germany 41 40 32 United Kingdom 34 32 43 Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

  16. Why is International Business Different? 1-16 • Environment • all the forces surrounding and influencing the life and development of the firm • Uncontrollable forces • external forces over which management has no direct control, although it can exert and influence • Controllable forces • internal forces that management administers to adaptto the changes in the uncontrollable forces

  17. Competitive kinds and numbers of competitors, their locations, and their activities Distributive national and international agencies available for distributing goods and services Economic variables (such as GNP, unit labor cost, and personal consumption expenditure) that influence a firm’s ability to do business Socioeconomic characteristics and distribution of the human population Financial variables such as interest rates, inflation rates and taxation Legal the many kinds of foreign and domestic laws by which international firms must operate Physical elements of nature such as topography, climate, and natural resources Political elements of nations’ political climates such as nationalism, forms of government, and international organizations Sociocultural elements of culture (attitudes, beliefs, and opinions) important to international business people Labor composition, skills, and attitudes of labor Technological the technical skills and equipment that affect how resources are converted to products Uncontrollable Forces 1-17

  18. Domestic composed of all the uncontrollable forces in the home country that influence the firm managers are most familiar with these forces domestic forces can influence foreign operations Foreign forces are same as domestic environment except they occur in foreign nation different force values changes difficult to access forces are interrelated International Managers Must Deal With Three (3) Environments Instead of One 1-18 • International • interactions between the domestic environmental forces and the foreign environmental forces • interaction between the foreign environmental forces of two countries when an affiliate does business in one country does business with customers in another

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