International Business

Chapter One
Globalization and
International Business
Chapter Objectives

• To define globalization and international business and

explain how they affect each other
• To explain why companies engage in international
business and why the growth of international business
has accelerated
• To comprehend the criticisms of globalization
• To introduce the different modes a company can use to
accomplish its global objectives
• To illustrate the role the social science disciplines play in
understanding the environment of international business

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Globalization Defined

Globalization: the ongoing social, economic,

and political process that deepens and
broadens the relationships and inter-
dependencies amongst nations—their
people, their firms, their organizations,
and their governments
International business facilitates the
globalization process.

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Colgate Goes to China

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• The rate of growth of the Gross Domestic Product of India has been on the increase from 5.6
per cent during 1980-90 to seven per cent in the 1993-2001 period. In the last four years, the
annual growth rate of the GDP was impressive at 7.5% (2003-04), 8.5% (2004-05),
9% (2005-06) and 9.2%(2006-07). Prime Minister Manmohan Singh is confident of
having a 10% growth in the GDP in the Eleventh Five Year Plan period.

• The foreign exchange reserves (as at the end of the financial year) were $ 39 bn
(2000-01), $ 107 bn (2003-04), $ 145 bn (2005-06) and $ 180 bn (in February 2007).
It is expected that India will cross the $ 200 bn mark soon

• The cumulative FDI inflows from 1991 to September 2006 were Rs.1, 81,566 crores
(US $ 43.29 bn). The sectors attracting highest FDI inflows are electrical equipments including
computer software and electronics (18 per cent), service sector (13 per cent), telecommunications
(10 per cent), transportation industry (nine per cent), etc. In the inflow of FDI, India has
surpassed South Korea to become the fourth largest recipient .

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International Business Defined
International business: all commercial
transactions between parties in two or
more countries
– Private firms are profit-oriented.
– Government organizations may or may
not be profit-oriented.
The international business environment
is more complex and diverse than the
domestic business environment.
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Fig. 1.1: International Business:
Operations and Influences

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The Forces Behind Globalization
• Increased expansion and technological
improvements in transportation and
communications networks
• Liberalization of cross-border trade and resource
movements
• Development of services that support international
business activities
• Growing consumer demand for foreign products
• Increased global competition
• Changing political and economic situations
• Expanded cross-national treaties and agreements
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The Criticisms of Globalization

• Threats to national sovereignty

• Negative costs of economic growth
• Increasing income inequality
Antiglobalization forces may use both
peaceful and violent means to stop or slow the
globalization process. Offshoring (the
transferring of production to foreign sites) is
particularly controversial.
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Reasons That Firms Engage in
International Business

• To expand sales
• Volkswagen [Germany]
• Ericsson [Sweden]
• Nestlé [Switzerland]
• IBM [USA]
• Sony [Japan]
[continued]

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• To acquire resources
• Products, components, services
• Foreign capital
• Technologies
• Information

• To minimize risk
• Take advantage of business cycle
differences amongst countries
• Diversify suppliers across countries
• Counter competitors’ advantages

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Modes of Entry into International
Business
• Merchandise exports and imports
• Service exports and imports
• Use of assets [licensing agreements]
• [Foreign investment]
– Foreign direct investment
– [Portfolio investment]

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Fig. 1.3: Means for Conducting
International Operations

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International Business Terminology

• Strategic alliance: a collaborative

arrangement of critical importance to one
or more of the alliance partners
• Multinational enterprise [MNE]: a firm that
takes a global approach to its foreign
markets and production
Multinational corporation [MNC] and
transnational company [TNC]
may be used in this same context.

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International Business Managers

• Must understand the relevance of:

– Domestic and international law
– Political science
– Anthropology
– Sociology
– Psychology
– Economics
– Geography
• Must be knowledgeable about the competitive
dimensions of the international business
environment
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 Fig. 1.4: Physical and Societal
Influences on International Business

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 Fig. 1.5: Competitive Factors
Affecting International Business

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Implications/Conclusions

• Managing an international business differs

from managing a domestic business
because:
-countries and cultures are different
-international business operations
are more complex than domestic
operations
[continued]

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• A company’s own competitive strategy
influences how and where it can best
operate.
• From one country to another, a company’s
relative competitiveness will vary because
of the differences in the local and foreign
competitors that are present.
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