International Business

Environments & Operations

15e, Global Edition

Daniels ● Radebaugh ● Sullivan

CHAPTER 1
OVERVIEW OF
INTERNATIONAL BUSINESS
AND GLOBALIZATION
Learning Objectives
• Understanding about globalization and international
business and relationship on how they affecting each
other
• The reason why companies engage in international
business and why its growth has accelerated
• Discuss globalization’s future and the major criticisms
of it (from both side of pros and cons)
• 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
Introduction
Learning Objective:
• Understanding about globalization and international
business and relationship on how they affecting each
other
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
Introduction
• International business consists of all commercial transactions—
including sales, investments, and transportation—that take place
between two or more countries
• The increase in relationship from foreign countries as the sources for
both production and sales for domestic companies
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
Introduction
Factors in International Business Operations
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
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
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
Why Companies Engage in IB
Learning Objective:
• The reason why companies engage in international
business and why its growth has accelerated
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
Why Companies Engage in IB
• These three reasons
• sales expansion
• resource acquisition
• risk minimization
Will be the direction and path on where, how and what to
engage in international business for companies
Modes of Operations in IB
Learning Objective:
• Discuss globalization’s future and the major criticisms of
it (from both side of pros and cons)
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
• Which are the basic and easiest way of engaging in
International Business
• Involves low cost and low risks especially for early stage
companies which are expanding the scope of the
business abroad
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
Modes of Operations in IB
• Investments
• Foreign Direct Investment (FDI)
• investor takes a controlling interest in a foreign
company
• Own subsidiary
• Partly own subsidiary

• Portfolio Investment
• a non-controlling financial interest in another entity
• Mutual funds often include international companies
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
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)
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,
due to many factors: resources, management commitment,
financial capability, production capacity and government
regulations and policies
Why IB is Different
Learning Objective:
Recognize the need to apply social science disciplines to
understand how international and domestic business differ
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
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
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
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
Looking to the Future
Learning Objective:
To discuss globalization’s future and the major criticisms of it
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
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
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
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