Chapter 1
The Rapid change of
International Business
Definitions 8
§ International Business
u is a business whose activities are carried out across national borders.
u includes international trade and foreign manufacturing
u also includes a growing service industry in areas such as
u transportation,
tourism, advertising, construction, retailing, wholesaling, and
mass communication.
Definitions 8
§ Foreign Business
§ domestic operations within a foreign country
§ A Multidomestic Company
§ has multicountry affiliates, each of which formulates its own business strategy
based on perceived market differences.
§ A Global Company
§ attempts to standardize and integrate operations worldwide in all functional
areas.
§ International Company
§ describes both global and multidomestic companies
Global Company- By Whose
Definition?
u Have a worldwide presence in its market
u Allen-Edmonds produces all shoes in Port Washington, Wisconsin – ships to
over 33 nations
u Standardize operations worldwide in one or more functional areas
u P&G has operations in more than 70 countries and sells essentially the same
products in over 140 countries
u Integrate operations worldwide
u Multicultural multinationals respond to local markets, produce products
worldwide, exploit knowledge and technology on a global basis
History of International Business
u Phoenician and Greek merchants sent abroad before time of Christ
u 1600’s British East India Company established branches in Asia
u 1700’s American colonial traders begin operations
u FDI prior to Civil War by Colt Fire Arms and Ford
u 1800’s Singer Sewing Machine first foreign production
u 1914 at least 37 American companies producing overseas
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 firm’s international activities on a worldwide basis.
§ definition continues to broaden to include
§ political, social, environmental, historical, geographical, and cultural
implications
Globalization Forces
§ There are five major kinds of drivers that are leading
international firms to the globalization of their operations.
u Political
u Technological
u Market
u Cost
u Competitive
Globalization Forces 11
u Political
u There is a trend toward the unification and
socialization of the global community.
u Preferential trading agreements
u NAFTA
u European Union
Globalization Forces
u Technological
u Advancements in computers and communication technology are
permitting an increased flow of ideas and information across
borders.
u The Internet and network computing enables small companies to compete
globally.
u Business to business commerce is experiencing significant savings by using the
Internet for business exchanges.
u Web is used to find suppliers
u Web is used to process purchase orders
Globalization Forces
u Market
u As companies globalize, they also become global customers.
uCompanies follow customers abroad
uSaturation of the home market
uCustomer tastes and lifestyles are converging
Globalization Forces
u Cost
u Economies of scale to reduce unit cost are always a management
goal.
u Globalizing product lines can reduce development, production, and inventory costs
can help achieve economies of scale.
u Companies can also locate production in countries where production costs are lower.
Globalization Forces
u Competitive
u Competition continues to increase in intensity.
u Newly industrialized and developing countries
u Companies are defending their home markets from competitors by
entering the competitors’ home markets to distract them.
The Globalization Debate
u Supporting u Globalization Concerns
u produces uneven results across
u Free trade advances economic nations and people
development
u Increases gap between rich and
u Reduces poverty, improves poor
education, health and life u has negative effects on labor and
expectancy labor standards
u Expanded trade creates more u Jobs migrate to developing nations
and better jobs u contributes to decline in
environment and health conditions
u Must manage the costs and
transition of workers
Forces in the Environment
§ Environment
u The sum of all forces surrounding and influencing the life
and development of the firm.
u Forces can be classified as
u External forces
u Management can exert influence but cannot control
uInternal forces
u Management must administer and adapt
External Environmental Forces 18
u Competitive u Legal
u Kind, number, location u Laws governing business
u Distributive u Physical
u For goods and services u Topography, climate
u Economic u Political
u Form of government
u GNP, labor cost
u Sociocultural
u Socioeconomic
u Attitudes, beliefs
u Characteristics of population
u Labor
u Financial
u Skills, attitudes
u Interest rates, inflation, taxes
u Technological
u Equipment, skills
Internal Environmental Forces
§ Factors of production
§ Capital, raw material, and people
§ Activities of the organization
§ Personnel, finance, production, and marketing
Domestic Environment
u Composed of all the uncontrollable forces originating in
the home country that surrounds and influences the life
and development of the firm
u Managers most familiar
u May affect foreign operations
Foreign Environment
§ Operates differently than the domestic environment for the following
reasons
u Different force values
u Changes difficult to assess
u Particularly political and legal forces
u Forces interrelated
International Environment
§ The International Environment is
u the interaction between the domestic environmental
forces and the foreign environmental forces.
u the interaction between the foreign environmental
forces of two countries when an affiliate in one
country does business with customers in another.
u Decision making is more complex
International Business Model
§ International business transactions take
place across national borders and may
involve three environments.
u Domestic
u Foreign
u International