section one:

1
1
section one the nature of international business

• Chapter One
• The Rapid Change of International Business

2
Chapter Objectives

• Appreciate the dramatic internationalization of
  markets.
• Understand the various names given to firms that
  have substantial operations in more than one
  country.
• Appreciate the profound effect of the Internet on
  many international business firms.
• Understand the five kinds of drivers that are
  leading international firms to the globalization
  of their operations.
• Comprehend why international business differs
  from domestic business.
• Describe the three environments--domestic,
  foreign, and international--in which an
  international company operates

3
International Business Terminology

• The United Nations
• Uses transnational instead of multinational to
  describe a firm doing business in more than one
  country.
• Business people
• Transnational a company formed by a merger of
  two firms of approximately the same size that are
  from two different countries
• Unilever (Dutch-English)
• Dunlop-Pirelli (English-Italian)

4
Definitions

• International Business
• activities are carried out across national
  borders.
• includes international trade and foreign
  manufacturing
• also includes a growing service industry in areas
  such as
• transportation, tourism, advertising,
  construction, retailing, wholesaling, and mass
  communication

5
Definitions

• Foreign Business
• domestic operations within a foreign country
• Multidomestic Company
• has multicountry affiliates, each of which
  formulates its own business strategy based on
  perceived market differences.
• Global Company
• attempts to standardize and integrate operations
  worldwide in all functional areas.
• International Company
• describes both global and multidomestic companies

6
Global Company- By Whose Definition?

• Have a worldwide presence in its market
• Standardize operations worldwide in one or more
  functional areas
• Integrate operations worldwide

7
History of International Business

• Phoenician and Greek merchants sent abroad before
  time of Christ
• 1600s British East India Company established
  branches in Asia
• 1700s American colonial traders begin operations
• FDI prior to Civil War by Colt Fire Arms and Ford
• 1800s Singer Sewing Machine first foreign
  production
• 1914 at least 37 American companies producing
  overseas

8
Globalization

• Economic Globalization
• is the international integration of goods,
  technology, labor, and capital.
• refers to the implementation of global strategies
  which link and coordinate a firms international
  activities on a worldwide basis.
• definition continues to broaden to include
• political, social, environmental, historical,
  geographical, and cultural implications

9
Globalization Forces

• There are five major kinds of drivers that are
  leading international firms to the globalization
  of their operations.
• Political
• Technological
• Market
• Cost
• Competitive

10
Globalization Forces - 1

• Political
• There is a trend toward the unification and
  socialization of the global community.
• Preferential trading agreements
• NAFTA
• European Union

11
Globalization Forces - 2

• Technological
• Advancements in computers and communication
  technology are permitting an increased flow of
  ideas and information across borders.
• The Internet and network computing enables small
  companies to compete globally.
• Business to business commerce is experiencing
  significant savings by using the Internet for
  business exchanges.
• Web is used to find suppliers
• Web is used to process purchase orders

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Globalization Forces - 3

• Market
• As companies globalize, they also become global
  customers.
• Companies follow customers abroad
• Saturation of the home market
• Customer tastes and lifestyles are converging

13
Globalization Forces - 4

• Cost
• Economies of scale to reduce unit cost are always
  a management goal.
• Globalizing product lines can reduce development,
  production, and inventory costs can help achieve
  economies of scale.
• Companies can also locate production in countries
  where production costs are lower.

14
Globalization Forces - 5

• Competitive
• Competition continues to increase in intensity.
• Newly industrialized and developing countries
• Companies are defending their home markets from
  competitors by entering the competitors home
  markets to distract them.

15
Explosive Growth

• Foreign Direct Investment
• One commonly used measure of growth
• World stock of FDI rose from 519 billion in 1980
  to 6.6 trillion in 2001.

16
Explosive Growth

• Exporting
• Transportation of any domestic good or service to
  a destination outside the home country or region
• The level of world merchandise exports more than
  tripled from 1980 to 2002.
• The level of service exports worldwide more than
  quadrupled in the same period.

17
2002 Top International Firms

• Ranking Nation or Firm
• United States
• Japan
• Germany
• United Kingdom
• France
• China
• Italy
• Canada
• Mexico
• Spain
• 1-19

• Total Sales for 2002 (billion)
• 10,207.0
• 4,323.9
• 1,876.3
• 1,510.8
• 1,362.1
• 1,234.2
• 1,100.7
• 702.0
• 597.0
• 296.5

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The Globalization Debate

• Supporting
• Free trade advances economic development
• Expanded trade creates more and better jobs

• Globalization Concerns
• produces uneven results across nations and people
• has negative effects on labor and labor standards
• contributes to decline in environment and health
  conditions

19
Forces in the Environment

• Environment
• The sum of all forces surrounding and influencing
  the life and development of the firm.
• Forces can be classified as
• External forces
• Internal forces

20
External Forces

• Competitive
• Distributive
• Economic
• Socioeconomic
• Financial

• Legal
• Physical
• Political
• Sociocultural
• Labor
• Technological

21
Internal Forces

• Factors of production
• Capital, raw material, and people
• Activities of the organization
• Personnel, finance, production, and marketing

22
Domestic Environment

• Composed of all the uncontrollable forces
  originating in the home country that surrounds
  and influences the life and development of the
  firm
• Managers most familiar
• May affect foreign operations

23
Foreign Environment

• Operates differently than the domestic
  environment for the following reasons
• Different force values
• Changes difficult to assess
• Forces interrelated

24
International Environment

• The International Environment is
• the interaction between the domestic
  environmental forces and the foreign
  environmental forces.
• the interaction between the foreign environmental
  forces of two countries when an affiliate in one
  country does business with customers in another.
• Decision making is more complex

25
International Business Model

• International business transactions take place
  across national borders and may involve three
  environments.
• Domestic
• Foreign
• International