Globalization and international business
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> To define globalization and international business and show how they affect each other > To understand why companies engage in international business and why international business growth has accelerated > To discuss globalization’s future and the major criticisms of globalization > To become familiar with different ways in which a company can accomplish its global objectives > To apply social science disciplines to understanding the differences between international and domestic business > To define globalization and international business and show how they affect each other
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Globalization and international business
- 2. Learning Objectives To define globalization and international business and show how they affect each other To understand why companies engage in international business and why international business growth has accelerated To discuss globalization’s future and the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives To apply social science disciplines to understanding the differences between international and domestic business To define globalization and international business and show how they affect each other 1-2
- 3. Introduction Globalization is the ongoing process that deepens and broadens the relationships and interdependence among countries International business is a mechanism to bring about globalization International business consists of all commercial transactions—including sales, investments, and transportation—that take place between two or more countries increasingly foreign countries are a source of both production and sales for domestic companies 1-3
- 4. Introduction It is important to study international business because Most companies are either international or compete with international companies Modes of operations may differ from those used domestically The best way of conducting business may differ by country An understanding helps you make better career decisions An understanding helps you decide what government policies to support 1-4
- 5. Introduction Factors in International Business Operations 1-5
- 6. Forces Driving Globalization 1. Increase in and application of technology 2. Liberalization of cross-border trade and resource movements 3. Development of services that support international business 4. Growing consumer pressures 5. Increased global competition 6. Changing political situations 7. Expanded cross-national cooperation 1-6
- 7. Measuring Globalization Globalization can be difficult to measure The A.T. Kearney/Foreign Policy Globalization Index ranks countries by Economic dimensions Technological dimensions Personal contact Political dimensions recently ranked Singapore and Hong Kong as most globalized 1-7
- 8. Costs of Globalization Learning Objective : To discuss globalization’s future and the major criticisms of globalization 1-8
- 9. Costs of Globalization Threats to national sovereignty lose freedom to “act locally” Economic growth and environmental stress growth consumes nonrenewable natural resources and increases environmental damage Growing income inequality and personal stress promotes global superstars at the expense of others Offshoring 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 1-9
- 10. Why Companies Engage in IB Learning Objective : To understand why companies engage in international business and why international business growth has accelerated 1-10
- 11. Why Companies Engage in IB To expand sales pursuing international sales increases the potential market and potential profits To acquire resources 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 1-11
- 12. 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 1-12
- 13. Modes of Operations in IB Learning Objective : To become familiar with different ways in which a company can accomplish its global objectives 1-13
- 14. Modes of Operations in IB Merchandise exports goods that are sent out of a country Merchandise imports goods that are brought into a country Sometimes referred to as visible exports and imports Service exports provider and receiver of payment Turnkey Operation and Management Contracts Asset Use Licensing and Frenchising Service imports recipient and payer of payment Examples Tourism and transportation Service performance 1-14
- 15. 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 1-15
- 16. Types of International Organizations 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 1-16
- 17. 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) In foreign markets, companies may 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 1-17
- 18. Why IB is Different Learning Objective : To apply social science disciplines to understanding the differences between international and domestic business 1-18
- 19. Why IB is Different The external environment affects a company’s international operations Managers must understand social science disciplines and how they affect functional business fields Consider physical factors social factors competitive factors 1-19
- 20. Physical and Social Factors Geographic influences natural conditions influence production locations Political policies determines where and how business occurs Legal policies influence how a company operates Behavioral factors may require changes in operations Economic forces explain differences in costs, currency values, market size 1-20
- 21. The Competitive Environment Competitive strategy for products Cost strategy Differentiation strategy Focus strategy Company resources and experience market leaders have more resources for international operations Competitors faced in each market local or international So, a company’s 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 1-21
- 22. Looking to the Future Learning Objective : To discuss globalization’s future and the major criticisms of globalization 1-22
- 23. 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 1-23
- 24. Thank You 1-24
Notes de l'éditeur
- The Learning Objectives for Chapter 1 are To define globalization and international business and show how they affect each other To understand why companies engage in international business and why international business growth has accelerated To discuss globalization’s future and the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives To apply social science disciplines to understanding the differences between international and domestic business
- What is globalization? Globalization refers to the widening set of interdependent relationships among people from different parts of a world that is divided into nations. The term also refers to the integration of world economies through the reduction of barriers to the movement of trade, capital, technology, and people. Throughout history, human contacts over ever-wider geographic areas have expanded the variety of available resources, products, services, and markets. Today, so many different components, ingredients, and specialized business activities go into products that we’re often challenged to say exactly where they were made. For example Apple’s iPhones are shipped from China and seem to be Chinese, yet less than four percent of their value is actually performed in China!
- Why should you study international business? There are many reasons. One of the most important is because global events affect companies of all sizes and in all industries. In fact, managers today need to consider where in the world to obtain the inputs they need of the required quality and at the best possible price and also where they can best sell the product or service that they’ve put together from those inputs. In many cases, managers may find that they can be more competitive by engaging in global business transactions. It’s also important to recognize that the best way of doing business abroad may not be the same as the best way at home. When a company operates internationally, it engage in modes of business such as exporting and importing that differ from those in which it engages domestically. In addition, physical, social, and competitive conditions differ among countries and affect the optimum ways to conduct business. So we often find that companies operating internationally have more diverse and complex operating environments than those that conduct business only at home. Even if you aren’t working at an international company it’s important to understand international business complexities because overall national conditions— things like profits, employment security and wages, consumer prices, and national security are all affected by the international operations of companies and by government regulations of those operations.
- This Figure shows the complex relationships among conditions and operations that a firm may face when its conducts some of its business internationally. We’ll be referring back to this Figure throughout the chapter.
- You may wonder what has been driving globalization. The answer is many different factors. One factor is technology. In recent years, we’ve seen tremendous advances in technology. The pace of new product development is faster than ever, and many companies are finding that in order to keep up, they need to team up with companies in other countries to gain financial resources or specialized capabilities. Firms are also finding that to justify their investments in new product development, they need to expand their sales to other markets. Another factor driving globalization is the liberalization of cross-border trade. Today, most governments have reduced restrictions on cross-border trade giving their citizens access to a greater variety of goods and services at lower prices. Increased competition from foreign companies also encourages domestic producers to become more efficient. Governments hope that by opening their countries to trade, other countries will also lower trade barriers. The development of new services that facilitate international business transactions have also increased further driving globalization. In addition, today’s consumers are more informed about foreign products and services and are better able to afford more luxury items. Moreover, more consumers are able to comparison shop to find better deals worldwide. Companies look for growing markets where consumer pressures are highest such as China. Intense global competition is also driving globalization. Today, companies continually look abroad to increase market share and reduce costs in order to better compete with other firms. Expansion abroad can take many forms: so-called born-global companies start out with a global focus because of their founders’ international experience and because advances in communications give them a good idea of where global markets and suppliers are. Related to this, many new companies locate in areas where there are many competitors and suppliers—a situation known as clustering—which helps them to become quickly aware of foreign opportunities. Finally, changing political situations and increased cross-national cooperation have allowed international business to flourish. Countries of different political systems are more open than before to conducting international trade with each other. Governments are spending more resources on the improvement of infrastructure facilitating the transport of goods and resources. Furthermore, governments have realized the benefits of international cooperation. In particular, governments engage in international cooperation in order to gain reciprocal advantages, to attack problems jointly that one country acting alone cannot solve, and to deal with areas of concern that lie outside the territory of any nation. Anda mungkin bertanya-tanya apa yang telah mengemudi globalisasi. Jawabannya adalah banyak faktor yang berbeda. Salah satu faktor adalah teknologi. Dalam beberapa tahun terakhir, kami telah melihat kemajuan luar biasa dalam teknologi. Laju pengembangan produk baru lebih cepat dari sebelumnya, dan banyak perusahaan yang menemukan bahwa dalam rangka menjaga, mereka harus bekerjasama dengan perusahaan di negara-negara lain untuk mendapatkan sumber daya keuangan atau kemampuan khusus. Perusahaan juga menemukan bahwa untuk membenarkan investasi mereka dalam pengembangan produk baru, mereka perlu untuk memperluas penjualan mereka ke pasar lain. Faktor lain yang mendorong globalisasi adalah liberalisasi perdagangan lintas batas. Hari ini, sebagian besar pemerintah telah mengurangi pembatasan perdagangan lintas batas yang memberikan warga mereka akses ke berbagai besar barang dan jasa dengan harga yang lebih rendah. Meningkatnya persaingan dari perusahaan asing juga mendorong produsen dalam negeri untuk menjadi lebih efisien. Pemerintah berharap dengan membuka negara mereka untuk berdagang, negara-negara lain akan hambatan perdagangan juga lebih rendah. Pengembangan layanan baru yang memfasilitasi transaksi bisnis internasional juga telah meningkat lebih lanjut mengemudi globalisasi. Selain itu, konsumen saat ini lebih informasi tentang produk dan layanan asing dan lebih mampu membeli barang-barang mewah lagi. Selain itu, lebih banyak konsumen dapat perbandingan toko untuk menemukan penawaran yang lebih baik di seluruh dunia. Perusahaan mencari pasar berkembang di mana tekanan konsumen tertinggi seperti China. Persaingan global yang ketat juga mendorong globalisasi. Hari ini, perusahaan terus mencari di luar negeri untuk meningkatkan pangsa pasar dan mengurangi biaya dalam rangka untuk lebih bersaing dengan perusahaan lain. Ekspansi di luar negeri dapat mengambil banyak bentuk: disebut perusahaan lahir-global yang mulai keluar dengan fokus global karena pengalaman internasional pendiri mereka dan karena kemajuan dalam komunikasi memberi mereka ide yang baik dari mana pasar global dan pemasok. Terkait dengan ini, banyak perusahaan baru menemukan di daerah di mana ada banyak pesaing dan pemasok-situasi yang dikenal sebagai pengelompokan-yang membantu mereka untuk menjadi cepat menyadari peluang asing. Akhirnya, mengubah situasi politik dan meningkatkan kerjasama lintas-nasional telah memungkinkan bisnis internasional untuk berkembang. Negara dari sistem politik yang berbeda lebih terbuka dari sebelumnya untuk melakukan perdagangan internasional dengan satu sama lain. Pemerintah menghabiskan lebih banyak sumber daya pada peningkatan infrastruktur memfasilitasi transportasi barang dan sumber daya. Selain itu, pemerintah telah menyadari manfaat dari kerjasama internasional. Secara khusus, pemerintah terlibat dalam kerjasama internasional untuk mendapatkan keuntungan timbal balik, untuk menyerang masalah bersama-sama yang satu negara bertindak sendiri tidak bisa memecahkan, dan untuk menangani bidang keprihatinan yang berada di luar wilayah negara mana pun.
- How can we measure globalization? Well, it’s not easy. In general, we know that globalization has been increasing at least since the mid-1900s. Indeed, at the moment, more than 20 percent of world production is sold outside of its country of origin as compared to just seven percent in 1950. However, much of the world is still relatively isolated. One of the most comprehensive efforts to explore levels of globalization is the A.T. Kearney/Foreign Policy Index which ranks countries across four dimensions: economic, technological, personal contact, and political dimensions. Interestingly, the Index shows that a country can rank quite high on one dimension, but much lower on another. For example, the United States ranks high on the technological dimension, but much lower on the economic dimension. In contrast, Singapore and Hong Kong have ranked as the most globalized across all dimensions, while India and Iran are at the bottom of the list.
- Learning Objective 3: To discuss globalization’s future and the major criticisms of globalization.
- While there are many benefits to globalization, it remains controversial. Antiglobalization protests have become common at international conferences, and the reaction to government policies is sometimes violent. Three issues are of particular concern. First, the threat the globalization poses to national sovereignty. According to critics, globalization undermines the ability of a country to act in its own best interests and can make smaller economies overly dependent on larger ones. Moreover, critics contend that even a country’s cultural sovereignty is threatened as products, companies, work methods, social structures and language are homogenized as a result of globalization. A second concern is the effect of globalization on economic growth and the environment. Because globalization brings growth, more nonrenewable natural resources are consumed and damage to the environment increases. You might think of despoliation through toxic and pesticide runoffs into rivers and oceans, air pollution from factory and vehicle emissions, and deforestation that can affect weather and climate for example. However, others argue that global cooperation actually fosters superior and uniform standards for combating environmental problems, and that companies are encouraged to seek resource-saving and environmentally friendly technologies. Finally, critics are concerned about the effect of globalization on income equality and personal stress. According to critics the income inequality that is present in many countries today is a result of the global superstar system that has emerged as a consequence of globalization. Critics contend that globalization has facilitated access to a greater supply of low-skilled and low-cost labor and encouraged competition that leads to winners and losers. There is also some evidence that the growth in globalization goes hand in hand not only with increased insecurity about job and social status, but also with costly social unrest.
- Learning Objective 2: To understand why companies engage in international business and why international business growth has accelerated.
- Why should companies engage in international business? A general answer is that going in international can help firms create value. More specifically, going global can help firms expand sales, acquire resources, and diversify or even reduce risks.
- All three of these can influence decisions about whether, where, and how to go global.
- Learning Objective 4: To become familiar with different ways in which a company can accomplish its global objectives.
- The most popular modes of international business are merchandise exports and merchandise imports. They represent major sources of international revenues and expenditures for countries.
- Companies can also engage in international business by taking either a controlling or a non-controlling interest in a foreign company. When a firm takes a controlling interest the investment is known as foreign direct investment. If two or more companies share ownership of the investment it’s referred to as a joint venture. A non-controlling interest is called portfolio investment.
- We use different terms to refer to the various collaborative arrangements between companies including joint ventures, licensing arrangements, management contracts, and long-term contractual arrangements. Those relationships in which the agreement is of critical importance to one or more partners or to an agreement that doesn’t involve joint ownership are called strategic alliances.
- Any company with foreign direct investments is known as a multinational enterprise. Other terms used for these types of companies include multinational company, multinational corporation, or transnational corporation.
- Learning Objective 5: To apply social science disciplines to understanding the differences between international and domestic business.
- Companies involved in international business need to explore how the external environment will affect their operations. In particular, it’s important for managers to understand the social science disciplines and how they affect all functional business fields.
- We can organize physical and social factors into four groups. The first is geographic influences or how natural conditions influence the choice of production locations. The second group is political policies which impacts how, and even if, business takes place within a country. Related to this are legal policies. Firms must follow the laws in each country. The fourth group, behavioral factors, may also force a company to alter its operations to better fit with local cultural norms and values. Finally, economic forces affect costs, currency values, market size, and so on. Together, these factors influence how companies produce and market their products, how they staff their operations, and so on. Keep in mind that the factors may require a company to use a different method of operation internationally than is used domestically.
- Managers also need to understand how the competitive environment will affect their operations. A company’s competitive strategy - low cost, differentiation, or focus - will influence its international strategy, as will its resources and experience. Companies with greater resources and experience will have more opportunities open to them than companies with more limited resources or experience. Finally, the competitors a firm faces in each market will dictate to some degree a company’s international strategy.
- Learning Objective 3: To discuss globalization’s future and the major criticisms of globalization.
- What is the future of international business and globalization? Well, there are three different perspectives on what the future might hold. Some believe that future globalization is inevitable. Those taking this perspective note that advances in transportation and communications are so pervasive that consumers everywhere will demand the best products for the best prices regardless of their origins. Moreover because MNEs have so many international production and distribution networks in place, they’ll pressure their governments to place fewer rather than more restrictions on the international movement of goods and the means of producing them. The largest challenge to overcome in this scenario will be figuring out how to spread the benefits of globalization equitably while minimizing the hardships placed on individuals and companies affected by increased international competition. Others however, think that in the future international business will grow more along regional rather than along global lines. This argument is based on studies that indicate that companies tend to conduct international business in neighboring countries. It’s logical that when companies first engage in international business, they expand into neighboring countries first and continue outwardly from there. This helps reduce transportation costs and companies can benefit from regional trade agreements that reduce barriers. Still others feel that the pace of both globalization and international business will slow down. Recall that antiglobalization sentiments have surfaced over the years, protesting against some of the negative effects of international business activity. This sentiment together with economic recession, growing political instability, and rising fuel costs among other things, threatens to slow international business growth.