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International

Business
Environments & Operations
15e
Daniels

Radebaugh

Copyright 2015 Pearson Education, Inc.

Sullivan

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Chapter 1
Globalization and
International
Business
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Learning Objectives

Define globalization and international business


and explain how they affect each other
Grasp why companies engage in international
business and why its growth has accelerated
Discuss globalizations future and the major
criticisms of it
Illustrate the different ways a company can
accomplish its global objectives
Recognize the need to apply social science
disciplines to understand how international and
domestic business differ
Copyright 2015 Pearson Education, Inc.

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Introduction
Learning Objective:
Define globalization and international
business and explain how they affect each
other

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Introduction
Globalization is the widening set of
interdependent relationships among
people from different parts of a world
divided into nations
The term sometimes refers to the
elimination of barriers to international
movement of goods, services, capital,
technology, and people that influence the
integration of world economies

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Introduction

International business consists of all


commercial transactionsincluding sales,
investments, and transportationthat take
place between two or more countries

increasingly foreign countries are a source of


both production and sales for domestic
companies

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Introduction

It is important to study international


business because

Most companies are either international or


compete with international companies
Global events and competition affect almost all
companies, regardless of industry
International companies have more complex
environments than domestic firms.
An understanding of IB helps you make better
career decisions
An understanding helps you decide what
government policies to support
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Introduction
Factors in International Business Operations

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Forces Driving Globalization


1.
2.
3.
4.
5.
6.
7.

Increase in and application of technology


Liberalization of cross-border trade and
resource movements
Development of services that support
international business
Growth of consumer pressures
Increased global competition
Changing political situations and
government policies
Expanded cross-national cooperation
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Costs of Globalization

Threats to national sovereignty

Economic growth and environmental


stress

lose freedom to act locally

growth consumes nonrenewable natural


resources and increases environmental
damage

Growing income inequality and personal


stress

promotes global superstars at the expense of


others
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Costs of Globalization

Offshoring, a type of outsourcing,


involves the transferring of production
abroad

it can be beneficial because it reduces costs


but, it also means that jobs move abroad

Yet, offshoring may also create new,


better jobs at home

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Why Companies Engage in IB


Learning Objective:
Grasp why companies engage in
international business and why its growth
has accelerated

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Why Companies Engage in IB

To expand sales

To acquire resources

pursuing international sales increases the


potential market and potential profits
may give companies lower costs, new and
better products, and additional operating
knowledge

To diversify or reduce risks

international operations may reduce operating


risk by smoothing sales and profits, preventing
competitors from gaining advantage
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Why Companies Engage in IB

These three reasons

sales expansion
resource acquisition
risk minimization

guide all decisions about whether, where,


and how to engage in international
business

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Modes of Operations in IB
Learning Objective:
Illustrate the different ways a company
can accomplish its global objectives

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Modes of Operations in IB

Merchandise exports

Merchandise imports

goods that are sent out of a country


goods that are brought into a country

Sometimes referred to as visible exports


and imports

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Modes of Operations in IB

Service exports
provider and receiver of payment
Service imports
recipient and payer of payment
Examples
Tourism and transportation
Service performance
turnkey operations and management
contracts
Asset use
licensing and franchising
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Modes of Operations in IB

Investments

Foreign Direct Investment (FDI)


investor takes a controlling interest in a
foreign company
joint venture
Portfolio Investment
a non-controlling financial interest in
another entity
Mutual funds often include international
companies
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Modes of Operation in IB

Collaborative arrangements

Joint ventures
Licensing arrangements
Management contracts
Minority ownership
Long-term contractual arrangements

Strategic alliance

companies that work together, but the


agreement is critical to at least one partner
an agreement that does not involve joint
ownership
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Types of International
Organizations

Multinational enterprises (MNEs)

take a global approach to markets and


production or have operations in more than
one country

Sometimes they are referred to as

multinational corporations (MNCs)


multinational companies (MNCs)
transnational companies (TNCs)

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Types of International
Organizations

In foreign markets, companies often have


to adapt their typical methods of doing
business

foreign conditions may dictate a particular


method
operating modes may be different from those
used domestically

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Why IB is Different
Learning Objective:
Recognize the need to apply social science
disciplines to understand how international
and domestic business differ

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Why IB is Different
The external environment affects a
companys international operations
Managers must understand social science
disciplines and how they affect functional
business fields
Consider

physical factors
social factors
competitive factors
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Physical and Social Factors

Geographic influences

Political policies

influence how a company operates

Behavioral factors

countries determine where and how business occurs


within their borders

Legal policies

natural conditions influence business locations

may require adaptation in to local conditions

Economic forces

explain differences in costs, currency values, market size


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The Competitive Environment

Competitive strategy for products

Company resources and experience

Cost strategy
Differentiation strategy
Focus strategy
market leaders have more resources for
international operations

Competitors faced in each market

local or international
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The Competitive Environment


So, a companys 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

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Looking to the Future


Learning Objective:
To discuss globalizations future and the
major criticisms of it

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Looking to the Future

Three major perspectives on the future of


international business and globalization

Further globalization is inevitable


International business will grow primarily along
regional rather than global lines
Forces working against further globalization
and international business will slow down both
trends

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Summary
Globalization is the widening set of
interdependent relationships among
people from different parts of a world
divided into nations
International business consists of all
commercial transactionsincluding sales,
investments, and transportationthat take
place between two or more countries

Copyright 2015 Pearson Education, Inc.

1-29

Summary

It is important to study international


business because

Most companies are either international or


compete with international companies
Global events and competition affect almost all
companies, regardless of industry
International companies have more complex
environments than domestic firms.
An understanding helps you make better career
decisions
An understanding helps you decide what
government policies to support
Copyright 2015 Pearson Education, Inc.

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Summary

The factors of International Business include:


Geographic influences

Political policies

influence how a company operates

Behavioral factors

Countries determine where and how business occurs


within their borders

Legal policies

natural conditions influence business locations

may require adaptation in to local conditions

Economic forces

explain differences in costs, currency values, market size


Copyright 2015 Pearson Education, Inc.

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All rights reserved. No part of this publication may be reproduced, stored in


a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United States of America.
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