International

Business
Environments & Operations
14e

Daniels Radebaugh Sullivan

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Chapter 1
Globalization and
International
Business

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 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 globalizations 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
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 Introduction
Learning Objective 1:
To define globalization and international
business and show how they affect each
other

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 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

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 Introduction
International business consists of all
commercial transactionsincluding sales,
investments, and transportationthat take
place between two or more countries
increasingly foreign countries are a source of
both production and sales for domestic
companies

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 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
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 Introduction
Factors in International Business Operations

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 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
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 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

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 Costs of Globalization
Learning Objective 3:
To discuss globalizations future and the
major criticisms of globalization

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 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
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 Costs of Globalization
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

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Why Companies Engage in IB
Learning Objective 2:
To understand why companies engage in
international business and why
international business growth has
accelerated

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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
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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

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Modes of Operations in IB
Learning Objective 4:
To become familiar with different ways in
which a company can accomplish its global
objectives

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 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

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 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

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 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

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 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
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 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)

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 Types of International
Organizations
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

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 Why IB is Different
Learning Objective 5:
To apply social science disciplines to
understanding the differences between
international and domestic business

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 Why IB is Different
The external environment affects a
companys international operations
Managers must understand social science
disciplines and how they affect functional
business fields
Consider
physical factors
social factors
competitive factors

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 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

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 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

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 The Competitive Environment
So, a companys 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

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 Looking to the Future
Learning Objective 3:
To discuss globalizations future and the
major criticisms of globalization

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 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

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mechanical, photocopying, recording, or otherwise, without the prior
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