International Business

1. International Business International Business: An Overview 1-1

2. Malaysia Annual Trade 1995-2006

4. What is International Business • All commercial transactions between two or more countries • Private • Public - Over USD16.2 Trillion worth of goods and services cross border each year • International business adds significant influences to typical domestic operations • Physical • Societal • Competitive 1-3

5. International Business

6. Why Engage in International Business • Expand sales (market motives) • Volkswagen (Germany) • Ericsson (Sweden) • IBM (United States) • Acquire resources (economic motives) • Better components, services, products • Foreign capital • Technologies • information • Minimize risk (strategic motives) • Take advantage of the business cycle for products/services • Diversify among international markets 1-5

7. Reasons for Growth in International Business • Rapid increase in and expansion of technology • Transportation is quicker while costs are lower • Communication enables control from afar • Liberal government policies on trade and resources/ liberalization of cross-border movement • Development of institutions that support international trade • Consumer pressures • Increased global competition 1-6

8. Examples of Reduction inTrade Barriers • General Agreement on Tariffs and Tradewww.gatt.org • World Trade Organization (WTO)www.wto.org • North America Free Trade Agreement www.nafta.org • European Union (EU)europa.eu.int • Asia Pacific Economic Cooperationwww.apec.org

9. Average Tariff Rates on Manufactured Products

10. Examples of Technological Innovation • Internet, Intranet, and Extranet • Use of World Wide Web, Private Networkson Internal company Web sites • Activities Occurring After The Production Process • To bypass intermediaries like wholesalers and retailers, companies can enter global markets, cut postproduction costs, and pass savings on to customers. • Advancement in Technology • Advances in transportation methods are helping to globalize both markets and production activities. • Advancements in the shipping industry are facilitating globalization by making shipping more efficient and dependable.

11. Internet Usage Growth

12. What is Globalization? • Trend toward greater economic, cultural, political and technological interdependence among national institutions and economies • Two components: • The globalization of markets • The globalization of production

13. Globalization of Markets • The merging of distinctly separate national markets into a global marketplace • Falling barriers to cross-border trade have made it easier to sell internationally • Tastes and preferences converge onto a global norm • Firms offer standardized products worldwide creating a world market

14. Globalization of Markets • Difficulties that arise from the globalization of markets • Significant differences still exist among national markets • Country-specific marketing strategies • Varied product mix

15. Globalization of Markets • The most global markets are not consumer markets • The most global markets are for industrial goods and materials that serve a universal need the world over

16. Globalization of Production • Refers to sourcing of goods and services from locations around the world to take advantage of • Differences in cost or quality of the factors of production • Labor • Land • Capital

17. Globalization of Production • Historically this has been primarily confined to manufacturing enterprises • Increasingly companies are taking advantage of modern communications technology, and particularly the Internet, to outsource service activities to low-cost producers in other nations

18. Globalization of Production • Outsourcing of productive activities to different suppliers results in the creation of products that are global in nature • Impediments to the globalization of production include • Formal and informal barriers to trade • Barriers to foreign direct investment • Transportation costs • Issues associated with economic risk • Issues associated with political risk

19. Benefits of Globalization Globalization of markets Globalization of production • Reduces marketing costs • New market opportunities • Levels income stream • Access low-cost labor • Acquire technical expertise • Obtain production inputs

20. Measuring Globalization • Political engagement - membership and involvement in international organizations • Technological connectivity – Internet users, hosts and secured servers • Personal contact – International connections • Economic integration– trade, FDI, portfolio capital flows, and investment income

21. Top 20 Global Nations Political Technological Personal Economic

22. Pro Factors Lower prices for goods and services Economic growth stimulation Increase in consumer income Creates jobs Countries specialize in production of goods and services that are produced most efficiently Con Factors Destroys manufacturing jobs in wealthy, advanced countries Wage rates of unskilled workers in advanced countries declines Companies move to countries with fewer labor and environment regulations Loss of sovereignty The Globalization Debate

23. Multinational Corporation Small Businesses and Entrepreneurs Born-Global Firm Takes a global perspective on its market and engages in international business from or near its inception Small companies and individuals becoming increasingly active in international trade and investment Business that has direct investments abroad in multiple countries International Business Players

24. Levels/Terms of International Companies • Multinational Enterprise (MNE): global approach to markets and production • Multinational Corporation (MNC) • Transnational Company (TNC) • Globally integrated company: integrated operations located in different countries • Multidomestic company: multinational companies that allow local responsiveness 1-8

25. National Operations for International Companies • Multidomestic strategy: countries operate autonomously • Global strategy: integrate various country operations into an international headquarters control 1-9

26. The National Composition of the Largest Multinationals

27. How They Stack Up Comparing revenue of the world's 10 most global firms to the gross domestic product of nations

28. Modes of International Business • Importing and exporting • Tourism and transportation • Licensing and franchising • Turnkey operations • Management contracts • Direct and portfolio investment 1-7

29. Patterns of Internationalization Figure 1.7 1-16

30. Management in International Business • In additional to domestic business management skills, international business management requires • Social science understanding • Political science appreciation • Legal awareness • And an innate ability in: • Anthropology – study of mankind (origins/belief/customs) • Sociology – development and behaviour of society • Psychology – study of mind • Economics • Geography 1-4

31. Managing in the Global Marketplace • Managing an international business is different from managing a purely domestic business in four areas: • Countries are different • Range of problems confronted by a manager in an international business is wider and the problems themselves are more complex than those confronted by a manager in a domestic business • An international business must 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

32. Know the Customer Know How to Analyze Problems Emphasize Global Awareness The Keys to Success Improve Logistics Develop World-ClassProducts Market Effectively Global Manager