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Definitions 1) IB field is concerned with the issues facing international companies and governments in dealing with all types of crossborder transactions. 2) IB involves all business transactions that involve two or more countries. 3) IB consists of transactions that are devised and carried out across borders to satisfy the objectives of individuals and organizations. 4) IB consists of those activities private and public enterprises that involve the movement across national boundaries of goods and services, resources, knowledge or skills.
A MNE has a worldwide approach to foreign markets and production and an integrated global philosophy encompassing both domestic and international markets.
defined as a process of accomplishing the global objectives of a firm by (1) effectively coordinating the procurement, allocation, and utilization of the human, financial, intellectual, and physical resources of the firm within and across national boundaries and (2) effectively charting the path toward the desired organizational goals by navigating the firm through a global environment that is not only dynamic but often very hostile to the firm’s very survival.
Foreign Direct Investment: When a firm invests resources in business activities outside its home country. Perceived distances are shrinking due to advances in transportation and telecommunications. Material culture is beginning to look similar. 2 . The Globalization of the World Economy u Globalization of markets u Globalization of production u Decline of barriers to trade (WTO) u Increased technological capabilities u 60.International Trade: When a firm exports goods or services to consumers in another country.000 international firms with 500.000 foreign affiliates that generate $11 trillion in sales in 1998 Globalization u u u u Trade and investment barriers are disappearing. National economies merging into an interdependent global economic system.
00 U. 3 .” Production Globalization of Markets u “Merging of historically distinct and separate national markets into one huge global marketplace. What is “Globalization”? Markets “The shift toward a more integrated and interdependent world economy. companies with less than 100 employees had foreign sales in 2000. – Reduced costs by producing in ‘low cost’ countries. – Similarities between nations may be superficial.Globalization: Pros& Cons u Pros u Cons – Different nations = different problems.S. – Increased revenue opportunity through global sales. – Global planning may be easy.” – Facilitated by offering standardized products: Citicorp Coca-Cola Sony PlayStation McDonalds – Does not have to be a big company to participate: Over 200. but global execution is not.
oil and wheat. 4Industrial products such as 4Industrial products such as microprocessors. land and capital).S. Treasury bills and Eurobonds. Not Not Consumer Consumer Goods Goods Globalization of production u Refers to sourcing of goods and services from locations around the world to take advantage of – Differences in cost or quality of the factors of production Labor Land Capital Globalization of Production u “The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor.S. microprocessors. Treasury bills and U. oil and wheat. 4Financial assets such as 4Financial assets such as U. aircraft. aluminum.energy.” u Companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering . “Global Products” 4 .The Largest Global Markets Industrial Goods and Industrial Goods and Materials Materials 4Commodities such as 4Commodities such as aluminum.increasing their competitiveness. aircraft. Eurobonds.
copyright and trademark protections and established the World Trade Organization.1 Macro Factors Decline in Trade Decline in Trade Barriers Barriers Technological Technological Change Change Globalization General Agreement on Tariffs and Trade Member states (140) in eight negotiating ‘rounds’ worked to lower barriers to the free flow of goods and services. 1950-2002 Fig: 1. the Uruguay Round.Volume of world trade and production. In the most recent round. 5 . nations agreed to enhanced patent.
9 5.9 Fewer FDI Restrictions Between 1991 and 2000 of the 1. 95% created a more favorable investment environment.Average Tariff Rates on Manufactured Products as Percent of Value 1913 1950 1990 2000 France Germany Italy Japan Holland Sweden Britain U.9 4.8 3.121 changes worldwide in laws governing FDI.9% 5.9 3.9 3.4 5. 147 or 98% were more favorable to investment. Table 1.1 21% 20 18 30 5 20 44 18% 26 25 11 9 23 14 5.3 5.9 3.9 3.9 5.A.9 3.9% 3. The Growth of World Trade and Output 2500 2000 1500 1000 500 0 1950 1960 1970 1980 1990 2000 Trade T rade O utput GDP Figure 1. 69 countries made 150 changes to FDI regulations.9 3. During 2000.S.1 6 .9 4.
2 7 .3 The Role of Technological Change u u Microprocessors and Telecommunications The Internet and World Wide Web Worldwide E-Commerce Growth Forecast 8000 7000 6000 5000 4000 3000 2000 1000 0 2000 2001 2002 2003 2004 R e s t o f W o r ld L a t in A m e r ic a W .E ur o p e A s ia P a c if ic N o r t h A m e r ic a Figure 1.Percentage share of total FDI stock Fig: 1.
Steamships average 36mph. 8 . 10mph.S. people and goods. Jet aircraft move Jet aircraft move people and goods. – ½ of the world economies (Communist dominated) were offlimits to western businesses. 1950s Propeller aircraft 300-400 mph.1500-1840 The Shrinking Globe 1850-1930 Best average speed of horse-drawn coaches and sailing ships. – U. Steam locomotives average 65mph. opened through WWW. 1960s Figure 1.S. a worldwide culture. – U. firms dominance of international business. Implications for Production and Market Globalization Production dispersed to economical locations due to transportation and communication advances. Global media creating Global media creating a worldwide culture. New markets New markets opened through WWW. dominance of the world economy and world trade. The Changing Paradigm of the Global Economy u Old: – U.S. dominance in world FDI.2 Jet passenger aircraft 500-700mph.
4 3 .9 2 2 .2 Percentage Share of Total FDI Stock.A . 1980 1990 2000 U .0 NA NA 27% 1 4 .5 9 .3 % 7 .2 7 .1 4 .4 1 2 .7 Table 1.3 6 .) 6 .S .1 2 .7 4 . C o u n t r ie s Figure 1.2 4 . COUNTRY SH ARE OF W O R L D O U T PU T 1963 SH ARE OF W O R L D O U T PU T 200 0 SH ARE OF W O R L D E X PO R T S 200 0 U nite d S ta te s Japan G e r m a ny F ra nce U nite d K in g d om I ta ly Canada C h ina S o uth K or e a 4 0 .The Changing Pattern of World Output Output and Trade measured by GNP.7 3 .K.4 3 .7 3 .4 FDI Inflows.7 (W .5 3 . 1988-2000 ($ Billions) 10 0 0 800 600 400 200 0 Figure 1. J apan F ra nce Netherlands 0 D e v.5 4 8 . G e r.2 1 .5 D e v e lo p e d C o u n tr ie s D e v e lo p in g C o u n tr ie s U n ite d S ta te s C h in a 9 .0 3 . 1980-2000 45 40 35 30 25 20 15 10 5 Germany U.3 5 .7 4 .3 % 5 .
world will be better. – Economic progress leads to stronger laws.4 . – By creating wealth and incentives for technology improvements.8 7.The National Composition of the Largest Multinationals 1973 U. 10 . Globalization u Jobs and Income u – Firms move jobs to low cost countries. u Czechoslovakia has divided itself into two states.3 8. u Pro-democracy movement (suppressed) in China.5% 3.8 10. – Firms are not amoral. France Germany 48. – May lead to income inequality.3 The Changing World Order u The fall of Communism in Eastern Europe and the former Soviet Union.5% 12 6.7 2000 26% 17 8 13 12 Table 1.1 1990 31. – Countries specialize in efficiently produced goods and import those they can not efficiently produce. u Yugoslavia has divided into 5 (often warring) successor states. Labor Policies and the Environment – Firms move to countries with weak laws.5 18.6 9.9 1997 32.K.8 12.7 6.4% 15. – Increases income in less developed countries. Japan U.A. u Latin America has seen both democracy and free market reforms.S. – Tie strong laws to international agreements.
if challenged by any WTO member nation.5 6.Environmental Performance Index Environmental Performance and Income Germany 7.Africa India Tunisia Trinidad Kenya Nigeria Egypt Malawi Thailand Tanzania Bangladesh Bhutan Ethiopia 6 7 8 9 10 11 Income Index Figure 1. The bureaucrats can decide whether or not people in California can prevent the destruction of the last virgin forests or determine if carcinogenic pesticides can be banned from their foods. advanced countries u Wage rates of unskilled workers in advanced countries declines u Companies move to countries with fewer labor and environment regulations u Loss of sovereignty Globalization and National Sovereignty Under the new system.0 Finland Netherlands Ireland Bulgaria Jamaica Korea China S. 11 . would be deferred to a group of unelected bureaucrats sitting behind closed doors in Geneva. Ralph Nader. many decisions that affect billions of people are no longer made by local and national governments but instead.0 6.5 5. or whether European countries have the right to ban dangerous biotech hormones in meat… At risk is the very basis of democracy and accountable decision making.6 Globalization debate-Con u Destroys manufacturing jobs in wealthy.0 5.
5x larger. Currency conversion presents unique problems. Managing in the Global Marketplace u An International Business is any firm that engages in international trade or investment.4x that of all other countries. 3. – 1870: per capita income of 17 richest nations was 2. Managing an international business is different than managing a domestic business: 1. Other factors may have influenced the gap. – 1990: it was 4. Power is derived from the organization’s ability to sway members to action. Countries are different. – Totalitarian governments. Globalization and the World’s Poor u u Critics argue that globalization has not helped poor. 2. – Little protection of property rights.Globalization and National Sovereignty WTO EU WTO UN Founded 1994 140 members Police GATT trading system Supranational organizations are limited to powers granted by member countries and serve the collective interests of its members. – War. – Economic policies that destroyed wealth creation. – Expanding populations. 4. 12 . Must work within government regulations. Problems are more complex.
Business is different? u Operate in different countries with different cultures.Changing Nature of International Business u US share of world output has dramatically declined u Sources and destinations of FDI has also changed dramatically in the past 30 years and the developing countries becoming more important u New MNCs from developing countries u Fall of communism and rise of free enterprise system Why Intl. political systems. businesses u Deal with foreign exchange changes 13 . economic systems. and are at different levels of economic development u Interact with different governments – conflict between nation-state and MNC u Work within the limits of international trade and investment systems u Complexity of managing intl.
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