International Business (1) ????

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International Business (1)????

• Huang,Huiping ???
• Economic School.Whut

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1 Globalization

• Learning Objectives
• Understand what is meant by the term
  globalization.
• Be familiar with the main causes of
  globalization.
• Understand why globalization is now proceeding
  at a rapid rate.
• Appreciate how changing international trade
  patterns, foreign direct investment
  flows,differences in economic growth rates among
  countries, and the rise of new multinational
  corporations are all changing the nature of the
  world economy.
• Have a good grasp of the main arguments in the
  debates over the impact of globalization on
  security, income levels, labor and environmental
  policies, and national sovereignty.
• Appreciate that the process of globalization is
  giving rise to numerous opportunities and
  challenges that business managers must confront.

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In this unit

• 1.1 WHAT IS GLOBALIZATION ?
• 1.2 The main drivers of globalization
• 1.3 The changes caused by globalization
• 1.4 Main issues in the course

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1.1 WHAT IS GLOBALIZATION ?
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A Global world In this interdependent global
economy, an American might drive to work in a car
designed in Germany that was assembled in Mexico
by Daimler Chrysler from components made in the
United States and Japan that were fabricated from
Korean steel and Malaysian rubber. She may have
filled the car with gasoline at a service station
owned by a British multinational company that
changed its name from British Petroleum to BP to
hide its national origins. The gasoline could
have been made from oil pumped out of a well off
the coast of Africa by a French oil company that
transported it to the United States in a ship
owned by a Greek shipping line. While
driving to work, the American might talk to her
stockbroker on a Nokia cell phone that was
designed in Finland and assembled in China using
chip sets produced in Taiwan that were designed
by Indian engineers working at a firm in San
Diego, California, called Qualcomm.
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She could tell the stockbroker to
purchase shares in Deutsche Telekom, a German
telecommunications firm transformed from a former
state-owned monopoly into a global company by an
Israeli CEO. She may turn on the car radio, which
was made in Malaysia by a Japanese firm, to hear
a popular hip-hop song composed by a Swede and
sung by a group of Danes in English who signed a
record contract with a French music company to
promote their record in America. The driver
might pull into a drive-through coffee stall run
by a Korean immigrant and order
"single-tall-nonfat latte" and chocolate-covered
biscotti. The coffee beans come from Brazil and
the chocolate from Peru, while the biscotti was
made locally using an old Italian recipe. After
the song ends, a news announcer might inform the
American listener that anti-globalization
protests at a meeting of heads of state in Genoa,
Italy, have turned violent. One protester has
been killed. The announcer then turns to the next
item, a story about how an economic slowdown in
America has sent Japan's Nikkei stock market
index to 16-year lows.
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1.1 WHAT IS GLOBALIZATION ?

• Globalization refers to the shift toward a more
  integrated and interdependent world economy.
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• Globalization in Two categories Globalization
  has several different facets, including the
  globalization of markets and the globalization of
  production.

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1.1.1 globalization of markets

• The globalization of markets
• Moving away from an economic system in which
  national markets are distinct entities, isolated
  by trade barriers and barriers of distance, time,
  and culture, and toward a system in which
  national markets are merging into one global
  market.

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The features of Globalization of markets?

• Why does every Mcdonalds share the same menu?
• Can a company who doesnt have the size of
  Mcdonalds benefits from the globalization of
  markets?
• Why do Big Macs taste a little bit differently in
  different countries?
• Why do KFC s always accompany with Mcdonalds?

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The features of Globalization of markets
(1) International Companies offer Standard
products to benefit, and promote the globalization

• (2) A company does not have to be the SIZE of
  multinational giants to benefit from, the
  globalization of markets.

(3) Very significant DIFFERENCES still exist
between national markets along many relevant
dimensions
(4) Markets for INDUSTRY GOODS and RAW MATERIAL
serve a universal need the world over.
(5) In many markets, the same firms frequently
confront each other as COMPETETORS in nation
after nation.
American Market? Japanese Market? German
Market? Korean Market? Chinese Market?
OR GLOBAL MARKET!
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The benefits from globalization of markets

• Reduces the marketing cost
• Creates new market opportunities
• Levels uneven income streams
• Fits the local needs

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1.1.2 globalization of production

• Globalization of production
• refers to the sourcing of goods and services
  from locations around the globe, to take
  advantages of national differences in the cost
  and quality of factors of production (such as
  labor, energy, land, and capital).

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• Example 1 Boeing
• The Boeing companys jet commercial jet airliner,
  the 777. Its 132,500 construction parts are
  offered by 545 suppliers all over the world
• 8 Japanese suppliers make parts for fuselage,
  doors, and wings
• 1 supplier in Singapore makes doors for nose
  landing gear
• 3 suppliers in Italy manufacture wing flaps
• 30 is built by foreign
  companies!

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• Example 2 ThinkPad (lenovo)
• Design the U.S.
• Case, keyboard, hard drive Thailand
• Display screen, memory South korea
• Built-in wireless card Malaysia
• Microprocessor the U.S.
• Assemble Mexico
• Marketing Strategy for North America the U.S.

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The features of Globalization of Production

• (1) Company SIZE and BENEFITS
• The global dispersal of productive activities is
  not limited to giants such as Boeing.
• Many much smaller firms are also getting into the
  act. (see the case of Swan Optical )

• (2) Outsourcing from manufacturing enterprises
  to service enterprises
• IT technologies and internet

American products? Japanese products? German
products? Korean products? Chinese products?
OR GLOBAL PRODUCTS!
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CASE STUDY Swan Optical,
an U.S.based manufacturer and distributor of
eyewear. With annual sales revenues of 20
million to 30 million, Swan is hardly a giant,
yet Swan manufactures its eyewear in low-cost
factories in Hong Kong and China that it jointly
owns with a Hong Kong based partner. Swan also
has a minority stake in eyewear design houses in
Japan, France, and Italy. The company has
dispersed its manufacturing and design processes
to different locations around the world to take
advantage of favorable skill bases and cost
structures.
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• Foreign investments in Hong Kong and then China
  have helped Swan lower its cost structure, while
  investments in Japan, France, and Italy have
  helped it produce designer eyewear for which it
  can charge a premium price.
• By dispersing its manufacturing and design
  activities, Swan established a competitive
  advantage for itself in the global marketplace
  for eyewear, just as Boeing has tried to do by
  dispersing some of its activities to other
  countries.

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The benefits from globalization of production

• Access production inputs
• Access lower-cost workers
• Access technical expertise

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1.2 The main drivers of globalization

• The emergence of global institutions
• Declining trade and investment barriers
• Technological change

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1.2.1 The emergence of global institutions

• The function of the global institutions
• to help manage, regulate, and police the global
  marketplace
• to promote the establishment of multinational
  treaties to govern the global business system.

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• GATT/WTO International treaty that
  committed signatories to lowering barriers to the
  free flow of goods across national borders and
  led to the WT0.
• IMF International institution set up to
  maintain order in the international monetary
  system .
• WORLD BANK International institution set up to
  promote general economic development in the
  world's poorer nations.
• UNIED NATION An international organization made
  up of 189 countries headquartered in New York
  City, formed in 1945 to promote peace, security,
  and cooperation.
• RIAs (Regional Integrated Agreement)
• EU,NAFTA,APEC,ASCEN,ECOWAS,SADC,

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1.2.2 Declining trade and investment barriers

• Facts after WW?
• A goal of eight rounds of negotiations among GATT
  member states is to removing barriers to the free
  flow of goods, services, and capital between
  nations.
• During Doha Round(from 2001),WTO launched a new
  round of talks between member states aimed at
  further liberalizing the global trade and
  investment framework.
• The lowering of trade barriers has facilitated
  the globalization of production From 1970 to
  2005, world trade expanded almost 27-fold, far
  outstripping world output(7.5-fold).

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Table Average tariff rate on manufactured
products as percent of value
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• The trends lead to
• (1) facilitating both the globalization of
  markets and the globalization of production.
• (2) increasing the amount of the world trade and
  FDI
• (3) firms are finding their home markets under
  the attacks from foreign competitors.
• in Japan Kodak, Procter Gamble, and
  Merrill Lynch vs. Fuji, S-bon
• in the U.S. Toyota, Honda, Nokia, Ericsson
  vs. General Motors, Ford, Motorola
• in Europe jvc , Matsushita, and Sony vs.
  Dutch Philips

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1.2.3 Technological Change

• The lowering of trade barriers made globalization
  of markets and production a theoretical
  possibility. Technological change has made it a
  tangible reality.
• Telecommunications is creating a global
  audience. Transport is creating a global village.
  

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(1) Microprocessors and Telecommunications

• satellite, optical fiber, and wireless
  technologies, Internet , the World Wide Web.
• Moores Law (????)
• The power of microprocessor technology
  doubles and its costs of production fall in half
  every 18 months.
• Between 1930 - 1998, the cost of a three-minute
  phone call between York and London fell from
  244.65 to 0,36 in inflation adjusted dollars.

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(2) The Internet and World Wide Web

• The Internet and World Wide Web (WWW) promise to
  develop into the information backbone of
  tomorrow's global economy .
• From 1990-2007, the Internet users growing
  from1 million to1.47 billion.
• E-commerce is becoming a new way of cross-border
  trade .
• The value of Web based transactions hit 657
  billion in 2000, from virtually nothing in 1994,
  and could grow to 6.8 trillion by 2004.

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(3) Transportation Technology

• - commercial jet aircraft
• super freighters
• containerization
• The results
• Cost of freight1920-1990, the average ocean
  freight and port charges fell from 95 to 29.
• The shrink global

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The shrink global
More faster,more convenient,and more cheaper!
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• Technological Changes implications for the
  Globalization
• 1. For the Globalization of production
• - enable firms to disperse production to
  economical, geographically separate locations
• - enable firms to create and manage globally
  dispersed production systems
• 2. For the Globalization of Markets
• - result in a worldwide culture, and a global
  market for consumer products
• - create global markets, create electronic
  global marketplace

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summary

• The emergence of global institutions
  international business be well managed,regulated,a
  nd promoted.
• Declining trade and investment barriers
• made international business a theoretical
  possibility.
• Technological changes
• made international business a tangible
  reality.

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1.3 The changes caused by globalization

• The changing pattern of world output and trade
• The changing pattern of FDI
• The changing nature of the multinational
  enterprises

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1.3.1 The changing pattern of world output and
trade
TableThe changing pattern of world output and
trade
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• The decline in U.S. position
• The declines in Germany, France, and U.K. (first
  industrialized countries)
• Fast economic growth in several economies,
  especially Asian economies.
• Forecasts rapid rise in the share of world
  output accounted for by developed counties in the
  future.(60?) -----
• Opportunities!

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1.3.2 The changing pattern of FDI
Figurepercentage share of Total FDI
stock,1980-2005
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FigureFDI inflows,1988-2006, in billions
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• The share of total stock account for by the U.S.
  firms declined.(42-21)
• The share of total stock account for by
  Japan,France,other developed countries increased.
• Developing countries share increased.(3.1-11.9)
  
• Increasing internationalization of business
  corporations
• - Rapid growth in cross-border flows of FDI
• - Developing countries are becoming
  important destinations of FDI.

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1.3.3 The changing nature of the multinational
enterprises
Table The national composition of the largest
multinationals
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• multinational enterprises A firm that owns
  business operations in more than one country.
• Decline in the dominance of U.S. firms in the
  global marketplace.
• Firms from developing countries entered the
  U.N.s list of 100 largest multinationals.
• The rise of Mini-multinationals

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1.4 Anti-globalization

• Anti-globalization Protests
• Job and Income
• Labor Policies and Environment
• Globalization and National Sovereignty
• Globalization and the world Poor
• Globalization and the cultural diversity

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1.5 Managing in the global marketplace

• 1.5.1 International enterprises( ????)
• International enterprise Any firm that engages
  in international business.
• Multinational company A firm that invests in
  one or more country.(????)

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1.5.2 The differences between international
business and purely domestic business?

• The country differences in politics, economics,
  culture make the way differ.
• The intl biz is more complex.
• Understand the rules, regulations in different
  countries.
• Convert money into different currencies.

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Assignments

• Problem sets
• Page 36 Q1
• Internet exercise 1-2
• For next class
• Read Chapter 1,2 (p1-69)
• Prepare for discussion about the opening case in
  chap.2

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• 2. The study of international business is fine if
  you are going to work in a large multinational
  enterprise, but it has no relevance for
  individuals who are going to work in small firms.
  Evaluate this statement.
• 6. If current trends continue, China may be the
  world's largest economy by 2050. Discuss the
  possible implications for such a development for
• a. The world trading system.
• b. The world monetary system.
• c. The business strategy of today's European and
  U.S based global corporations.

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Opening case The global grocer
Food retailers are going global. The leaders in
this trend include Wal-Mart of the United States,
Carrefour of France, Ahold of Holland, and Tesco
from the United Kingdom. Carrefour, the world's
second largest retailer, is perhaps the most
global of the lot. The pioneer of the hypermarket
concept now operates in 26 countries and
generates more than 50 percent of its sales
outside France. In comparison, Wal-Mart, the
world's biggest retailer, still depends on the
United States for 85 percent of its sales, but
this is down from 100 percent in 1990. (Wal-Mart
sells general merchandise in addition to food,
but food retailing is an increasingly important
part of its business, particularly
internationally.) By 2001, Wal-Mart had 1,045
stores outside the United States and was opening
foreign locations at a rapid clip. Acquisitions
are driving much of this expansion.
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After starting its foreign expansion in Mexico by
building new stores, Wal-Mart entered Germany
through acquisitions and then Britain by
acquiring Asda, a nationwide discount food
retailer. Holland's Ahold has also made multiple
acquisitions, including many in the United States
such as the 1998 acquisition of Giant Food, Inc.,
which helped build Ahold's network of 1,063
supermarkets in the United States and boosted its
sales outside Holland to more than 70 percent of
total sales. Carrefour does not yet have a U.S.
presence, but is said to be looking at potential
acquisitions in the United States, including
Kmart and Target. Britain's Tesco, a latecomer to
the global game, is now expanding rapidly,
particularly in Southeast Asia and Eastern
Europe, where a combination of acquisitions and
expansions have helped Tesco pass Carrefour and
become the largest foreign retailer in Thailand
and Poland.
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Despite this frenetic activity, the global
retailing market is still very fragmented. The
top 25 retailers controlled just 16 percent of
worldwide retail sales in 2000. However,
forecasts suggest the figure could reach 40
percent by 2009, with Latin America, Southeast
Asia, and Eastern Europe being the main
battlegrounds. A number of factors are driving
this development. First, as barriers to
cross-border investment fell during the 1990s, it
became possible for retailers to enter foreign
nations on a significant scale. Second, many of
this retailers faced market saturation and slow
growth in their domestic markets. Expanding
internationally seemed an obvious way to boost
sales growth, particularly by entering developing
nations in Southeast Asia and Latin America where
rapid economic growth was raising living
standards and making these markets more
attractive to retailers.
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Third, once Carrefour started to blaze the trail,
other large retailers such as Tesco and Wal-Mart
began to follow suit lest they arrive too late
and find a country already dominated by other
foreign retailers. Forth, these retailers
believed that by expanding internationally, they
could reap significant economies of scale from
their global buying power. many of their key
suppliers had long been international companies
for example, Unilever, Procter Gamble, and
Kellogg all sell products globally. If the
retailers also built global reach, they could use
their size to demand deeper discounts from their
suppliers, which would increase the retailers'
profit margins
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Fifth, all these retailers held a strong position
in their domestic markets, primarily because they
were very efficient operations. Carrefour's chief
executive officer, for example, believes his
company's greatest advantage is its sophisticated
understanding of supply chains, beginning with
electronic links that tie sales rung up at a
checkout register to inventory in the store to
production schedules at suppliers. By keeping
inventory to a minimum, Carrefour can devote more
of a store's floor space to selling products,
increasing sales per square foot. Retailers such
as Carrefour believe they can gain market share
and create significant value by transferring the
operating skills they developed in their home
markets to nations where indigenous retailers
lack the same level of sophistication. Wal-Mart
believes it can gain share in markets ranging
from Mexico and Brazil to Britain and Germany by
applying its skills in supply chain management,
information systems, and employee
management--skills that propelled Wal-Mart to
U.S. dominance. If Wal-Mart, Carrefour, and
others execute their plans successfully, they may
come to dominate global retailing.
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However, these grand strategic designs have run
headlong into difficult realities. National
differences in tastes and preferences may mean
that what sells in Britain may not sell in
Brazil. This reduces retailers' ability to
centralize their purchasing, buying the same
product from the same global suppliers and
selling that product worldwide. In a concession
to local tastes, the aisles in Tesco's Thai
stores carry many food products not found in the
aisles in British stores. Wal-Mart tried to sell
cheap Colombian coffee in Brazil, only to find
that Brazilians insisted on drinking their own,
more expensive brands. If retailers cannot sell
the same products worldwide, they cannot realize
the economies of scale that they sought. Local
tastes crucially affect the way retailers sell
their goods too. In 1996 WalMart set up
efficient, clean superstores in Indonesia, onlyto
find that Indonesians preferred Matahari, a chain
of shabbier local stores that reminded shoppers
of traditional street markets where they can
haggle and buy the freshest fruit and vegetables.
Two years later, Wal-Mart pulled out of Indonesia.
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Retailing models aren't always easy to transfer
from one location to another. Differences in
labor costs, the supply of desirable locations,
and the sophistication of the local supply base
may make it difficult to transfer a retailing
model across borders. In developing nations,
Carrefour has found it difficult to implement the
sophisticated supply chain management system it
uses in France. Suppliers in developing nations
lack the required computer-based infrastructure
and are hesitant to invest in it. It took
Wal-Mart a decade to introduce its electronic
supply chain management system into Mexico,
primarily because of resistance from local
suppliers and confusion on the part of local
employees.
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Despite these difficulties, most retailers are
pushing ahead in their attempts to build a global
brand. In this vision of the future, Wal-Mart,
Carrefour, and Tesco stores one day will blanket
the world. Incontrast, Holland's Ahold has
adopted a different strategy for going global.
Believing that brand loyalty is local and
consumer tastes, preferences, and shopping habits
all vary from nation to nation, Ahold varies its
retailing formula and brand name from nation to
nation. In the United States, it still operates
under the names of acquired companies, such as
Giant and Stop Shop, because these names and
their associated retailing models resonate with
locals. Ahold adds value by improving the
operating efficiency of the retailers it acquires
and transferring valuable skills and practices
between countries. In the long run, there may be
room for both Ahold's "going global with a local
face" strategy and Wal-Mart's "global retail
brand" strategy. Despite the impediments, the
globalization of retailing likely will
continue--the potential payoffs are too great for
this not to occur.
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Opening case The global grocer

• Do you have any idea of going global?
• Can you give examples of companies going aboard?
• Please list the ways that a company goes global.
• What are the opportunities driving the retailers
  to go global?
• What are the challenges when doing international
  business in the case ?