International

Business
Environments & Operations
15e, Global Edition

Daniels ● Radebaugh ● Sullivan

Copyright © 2015 Pearson Eduation Ltd. 1-1

 Chapter 1
OVERVIEW OF
INTERNATIONAL
BUSINESS AND
GLOBALIZATION
Copyright © 2015 Pearson Education Ltd. 1-2
 Learning Objectives
• Define globalization and international business
and explain how they affect each other
• Grasp why companies engage in international
business and why its growth has accelerated
• Discuss globalization’s future and the major
criticisms of it
• Illustrate the different ways a company can
accomplish its global objectives
• Recognize the need to apply social science
disciplines to understand how international and
domestic business differ

Copyright © 2015 Pearson Education Ltd. 1-3

 Introduction
Learning Objective:
Define globalization and international
business and explain how they affect
each other

Copyright © 2015 Pearson Education Ltd. 1-4

 Introduction
• Globalization is the widening set of
interdependent relationships among
people from different parts of a world
divided into nations
• The term sometimes refers to the
elimination of barriers to international
movement of goods, services, capital,
technology, and people that influence the
integration of world economies

Copyright © 2015 Pearson Education Ltd. 1-5

 Introduction
• 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

Copyright © 2015 Pearson Education Ltd. 1-6

 Introduction
• It is important to study international
business because
■ Most companies are either international or
compete with international companies
■ Global events and competition affect almost
all companies, regardless of industry
■ International companies have more complex
environments than domestic firms.
■ An understanding of IB helps you make better
career decisions
■ An understanding helps you decide what
government policies to support
Copyright © 2015 Pearson Education Ltd. 1-7
 Introduction
Factors in International Business Operations

Copyright © 2015 Pearson Education, Inc. 1-8

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. Growth of consumer pressures
5. Increased global competition
6. Changing political situations and
government policies
7. Expanded cross-national cooperation
Copyright © 2015 Pearson Education Ltd. 1-9
 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
Copyright © 2015 Pearson Education Ltd. 1-10
 Costs of Globalization
• Offshoring, a type of outsourcing,
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

Copyright © 2015 Pearson Education Ltd. 1-11

Why Companies Engage in IB
Learning Objective:
• Grasp why companies engage in
international business and why its growth
has accelerated

Copyright © 2015 Pearson Education Ltd. 1-12

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
Copyright © 2015 Pearson Education Ltd. 1-13
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

Copyright © 2015 Pearson Education Ltd. 1-14

 Modes of Operations in IB
Learning Objective:
• Illustrate the different ways a company
can accomplish its global objectives

Copyright © 2015 Pearson Education Ltd. 1-15

 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

Copyright © 2015 Pearson Education Ltd. 1-16

 Modes of Operations in IB
• Service exports
■ provider and receiver of payment
• Service imports
■ recipient and payer of payment
• Examples
■ Tourism and transportation
■ Service performance
• turnkey operations and management
contracts
■ Asset use
• licensing and franchising

Copyright © 2015 Pearson Education, Inc. 1-17

 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
▪ Mutual funds often include international
companies

Copyright © 2015 Pearson Education, Inc. 1-18

 Modes of Operation in IB
• 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
Copyright © 2015 Pearson Education Ltd. 1-19
 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)

Copyright © 2015 Pearson Education Ltd. 1-20

 Types of International
Organizations
• In foreign markets, companies often 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

Copyright © 2015 Pearson Education Ltd. 1-21

 Why IB is Different
Learning Objective:
Recognize the need to apply social
science disciplines to understand how
international and domestic business differ

Copyright © 2015 Pearson Education Ltd. 1-22

 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

Copyright © 2015 Pearson Education Ltd. 1-23

 Physical and Social Factors
• Geographic influences
■ natural conditions influence business locations
• Political policies
■ countries determine where and how business occurs
within their borders
• Legal policies
■ influence how a company operates
• Behavioral factors
■ may require adaptation in to local conditions
• Economic forces
■ explain differences in costs, currency values, market
size
Copyright © 2015 Pearson Education Ltd. 1-24
 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

Copyright © 2015 Pearson Education Ltd. 1-25

 The Competitive Environment
• 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

Copyright © 2015 Pearson Education Ltd. 1-26

 Looking to the Future
Learning Objective:
To discuss globalization’s future and the
major criticisms of it

Copyright © 2015 Pearson Education Ltd. 1-27

 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

Copyright © 2015 Pearson Education Ltd. 1-28

 Summary
• Globalization is the widening set of
interdependent relationships among
people from different parts of a world
divided into nations
• International business consists of all
commercial transactions—including sales,
investments, and transportation—that
take place between two or more countries

Copyright © 2015 Pearson Education Ltd. 1-29

 Summary
• It is important to study international
business because
■ Most companies are either international or
compete with international companies
■ Global events and competition affect almost
all companies, regardless of industry
■ International companies have more complex
environments than domestic firms.
■ An understanding helps you make better
career decisions
■ An understanding helps you decide what
government policies to support
Copyright © 2015 Pearson Education Ltd. 1-30
 Summary
• The factors of International Business include:
• Geographic influences
■ natural conditions influence business locations
• Political policies
■ Countries determine where and how business occurs
within their borders
• Legal policies
■ influence how a company operates
• Behavioral factors
■ may require adaptation in to local conditions
• Economic forces
■ explain differences in costs, currency values, market
size Copyright © 2015 Pearson Education Ltd. 1-31
 All rights reserved. No part of this publication may be reproduced, stored
in a retrieval system, or transmitted, in any form or by any means,
electronic, mechanical, photocopying, recording, or otherwise, without the
prior written permission of the publisher. Printed in the United States of
America.

Copyright © 2015 Pearson Education Ltd. 1-32