Globalization

1. Globalization • The world economic globalization process • Theodore Levitt’s (1983) view--now seen as simplistic: • Tech advances altered communication, transportation, travel to create a global consumer who prefers standardized products • The entire world [or major regions of it] is now a single entity; an organization can sell the same things in the same way everywhere • Today’s view • International integration of goods, technology, information, labor, and capital • The process of making this integration happen LO2

2. Globalization Forces Globalization is a result of • Political forces that • reduce barriers to trade and foreign investment by governments • induce privatization of industries of former communist nations • Technological forces that • lead to advances in computers and communications technology • allow low cost network computing and ubiquitous Internet collaboration across borders LO2

3. Globalization Forces Globalization is a result of • Market forces • lead to globalizing companies’ need for their suppliers to globalize too • allow easier revenue seeking activity abroad due to home market saturation • Cost forces • demand economies of scale -- product line and manufacturing -- to reduce unit costs • lower cost production factor seeking efforts in other countries • Competitive forces • more intense due to explosive growth internationally of small and new businesses LO2

4. Globalization Forces LO2

5. What is International Business? • International Business (IB): any business transaction across national borders • Trade in goods • Cross-border services • consulting, advertising, legal, financial, accounting • tourism, banking, communications/media, construction management, etc. • Company activity inputs may involve IB activity even if outputs do not • Firm’s revenues may come entirely from the home country • Key raw materials, knowledge, processes may come partially or entirely from other countries LO3

6. Ways A Company May Be Involved in International Business • A company is involved in international business by • working with others who are abroad • Managers of its own subsidiaries • Customers, suppliers, agents • Overseas service providers: bankers, advertising executives, lawyers, auditors, government officials, transportation managers • Service providers from home country who work with with the company’s overseas operations • traveling overseas for company business LO3

7. Rapid Growth of International Business • The rapid growth of international business is a result of • dramatic increases of foreign direct investment (FDI) and exports • FDI: A firm invests in equipment, structures, and organizations in another country while retaining significant management control • Exports: Sale and transfer of any good or service from the firm’s home country to another country LO3

8. Globalization Debate Supporting Free Trade • Free trade • enhances socioeconomic development • promotes more and better jobs LO3

9. Concerns With Globalization • Produces uneven results across nations and people • Has deleterious effects on labor and labor standards • Contributes to the decline of environmental and health conditions LO3

10. Environment of International Business • Two sets of forces in the IB environment influence the development and operations of a firm • External Forces (Uncontrollable) • Those that management cannot control • Internal Forces (Controllable) • Those that management can develop and use to formulate and execute the firm’s strategy given particular external forces LO4

11. External Forces That Affect IB Due To Cross-Border Differences • Competitive • Competitor kinds, number, locations, activities • Distributive • National and international agencies that distribute goods and services • Economic • Factors such as GNP, unit labor cost, and personal consumption expenditures that matter to business and vary among countries LO4

12. External Forces That Affect IB Due To Cross-Border Differences • Socioeconomic • Characteristics and distribution of human population • Financial • Interest rates, inflation rates, and taxation • Legal • Foreign, domestic, and international laws governing a firm’s IB operations • Physical • Natural elements: natural resources (i.e., factors of production), topography, climate LO4

13. External Forces That Affect IB Due To Cross-Border Differences • Political • Government forms, international organizations • Sociocultural • National culture similarities or differences that affect international managers • Labor • Composition, skills, attitudes of labor • Technological • Technical skills and equipment that affect how resources are converted to products LO5

14. Internal Forces That Managers Can Influence Across Borders • Factors of production • Capital, raw materials, people • Activities of the organization • Personnel management, finance, production, marketing LO5

15. Why Is IB Different? • In IB a firm operates in multiple environments • Domestic environment - uncontrollable forces • Has forces that surround and influence the firm’s behavior in the home country • These remain mostly the same regardless of where in the country the firm operates LO5

16. Why Is IB Different? • In IB a firm operates in multiple environments • Foreign environment country-by-country uncontrollable forces influence the firm’s behavior and are • different from those of the domestic environment • based on values that differ • difficult to assess for the firm’s home managers • interrelated LO5

17. Why Is IB Different? • The international environment is characterized by interaction • between domestic and foreign country environmental forces • among foreign country environmental forces • Hence, decision making is more complex due to • environment force differences and interactions • culture differences that are difficult to learn • the tendency of manager’s to rely on their own culture’s reference points LO5