International Business

Oded Shenkar and Yadong Luo Chapter 1

International Business in an Age of Globalization

Chapter 1: International Business in an Age of Globalization

Do You Know?
What is globalization, and why is it important, even to domestic firms? In what ways is globalization perceived as a benefit and as a threat? Can you differentiate between international business, international traction, international trade, and international investment? Can you distinguish between the multinational enterprise (MNE) and the international firm?
Chapter 1: International Business in an Age of Globalization

Do You Know?
What differences do you observe between international business and domestic business? Why do firms expand globally?
What gains can they achieve and what hazards will they confront? Does every firm seek identical goals or face the same threats in this process?

Chapter 1: International Business in an Age of Globalization

An Age of Globalization
Value of world exports in 2000 tripled between 1980 and 2000. Foreign investment grow more than twenty-fold. Firms without international goals may find their domestic markets under threat from foreign competition.

Chapter 1: International Business in an Age of Globalization

What does Globalization Mean for You?

More choices Lower prices Blurred national identity for products and services Career choices and progression

Chapter 1: International Business in an Age of Globalization

What does Globalization Mean for You?

Exhibit 1-1: The global top 20 countries

Chapter 1: International Business in an Age of Globalization

What does Globalization Mean for You?

Exhibit 1-2: Globalization index rankings

Chapter 1: International Business in an Age of Globalization

Who Benefits from Globalization?

Allegedly at the cost of poorer nations. Higher among the G-7, but some (e.g. Japan) are low on globalization Some emerging economies (Czech Republic) are quite high Developing countries exceeded the global average in trade growth

Chapter 1: International Business in an Age of Globalization

Who Benefits from Globalization?

Exhibit 1-3: Globalization and social expenditure

Chapter 1: International Business in an Age of Globalization

Globalization and the Environment

Common complaint that globalization hurts the environment Argued that firms relocate to escape tough pollution rules at home Many firms adhere to strict codes of environmental protection, and engage in cleanup of locations Environment is just one factor in location decision
Chapter 1: International Business in an Age of Globalization

Globalization: The Social Balance

Carries promises and threats at the national, regional, organizational, and individual level. Makes less regulated, emerging economies vulnerable to volatilities. Exposes national economies to the uncertainties of the global economy. Could offer advantages to participating economies.
Chapter 1: International Business in an Age of Globalization

Globalization: The Social Balance

Globalization infrastructure
Institutional frameworks and market efficiency that support fair and transparent transactions of products or services Streamlines flows of commodities, capital, labor, knowledge, and information.

Chapter 1: International Business in an Age of Globalization

Globalization: The Social Balance

Exhibit 1-4: Globalization and happiness

Chapter 1: International Business in an Age of Globalization

Globalization and International Business

Globalization does not mean the advance of a homogeneous civilization and uniform business system. Growing interaction makes people more aware of the differences among them.

Chapter 1: International Business in an Age of Globalization

What is International Business

The business activities that involve the transfer of resources, goods, services knowledge, skills or information across national boundaries. May involve
Individuals Companies Government bodies International institutions
Chapter 1: International Business in an Age of Globalization

What is International Business

International transactions
Economic transactions that cross borders

International trade
Occurs when companies import or export across borders

International investment
Occurs when a companies invests its resources across national boundaries

International firm
Those engaged in international business
Chapter 1: International Business in an Age of Globalization

What is International Business

Multinational Enterprise (MNE)
A firm that has directly invested abroad Has at least one working affiliate in a foreign country

Chapter 1: International Business in an Age of Globalization

International versus Domestic Business

International business is the outgrowth of domestic business. Most major corporations started their operations in the domestic market. International entrepreneurs
Individuals or companies that invest and operate in another country without a home base

Chapter 1: International Business in an Age of Globalization

International versus Domestic Business

Significantly different due to differences in:
Environmental Dynamics
Currency, inflation, interest rates, accounting practices, cultures, social customs, laws, political stability

Operational Nature
Communication, coordination, motivation, differences in organizational principles and management philosophies

Chapter 1: International Business in an Age of Globalization

Why Do Firms Expand Internationally?

Firms expand internationally for various motives:
Market motives Economic motives Strategic motives

Motives vary from one business activity to another.

Chapter 1: International Business in an Age of Globalization

Why Do Firms Expand Internationally?

Market Motives:
Offensive motive seize market opportunities in foreign countries through trade or investment. Defensive motive to protect and hold a firms market power or position in the face of threats from domestic rivalry or changes in government policy.

Chapter 1: International Business in an Age of Globalization

Why Do Firms Expand Internationally?

Strategic Motives
Capitalize on distinctive resources or capabilities already developed at home Be the first mover in a target foreign market Benefit from vertical integration involving different countries Follow the companys major customers abroad

Chapter 1: International Business in an Age of Globalization

Why Do Firms Expand Internationally?

Economic Motives
Increase return through higher revenues and/or lower costs. Enables the company to benefit from the differences in:
Costs of labors Natural resources Capital Differences in regulatory treatment

Chapter 1: International Business in an Age of Globalization