Fundamentals of Business 国际商务导论

1. Fundamentals of Business 国际商务导论 Lecture 11: Global Business

2. What to cover today： • Motives to go global • Methods of international business • International trade • Multinationals • International economic organizations Exercises

3. What is globalization? -- Princess Diana’s death.

4. How come? An English princess with an Egyptian boyfriend crashes in a French tunnel, driving a German car with a Dutch engine, driven by a Belgian who was drunk on Scottish whisky, followed closely by Italian Paparazzi, on Japanese motorcycles; treated by an American doctor, using Brazilian medicines (This is provided by an American, using Bill Gates’ technology, and you’re probably reading this on your computer, that uses Taiwanese chips, and a Korean monitor, assembled by Bangladeshi workers in a Singapore plant, transported by Indian lorry-drivers, hijacked by Indonesians, unloaded by Sicilian longshoremen, and trucked to you by Mexican illegals…)

5. international business What is ? -- business activities across national boundaries, including movements of goods, services, capital, technology, information, data and/or personnel What is the difference between and ? -- international trade is merely one form or method of international business; IB covers a much wider range of business models and activities than IT international business international trade

6. 1. Motives to go global • Pursue more customers • Capitalize on technology: sell products to, or establish plants in developing areas • Use inexpensive resources: capital and enterprise in exchange of cheap land and labor • Diversify and less risky: to ease the risk of economic or other changes in the domestic market; the more global, the more diverse, and the less risky

7. 2. Methods of international business low • international trade 国际贸易 • agents 代理 • licensing arrangement 特许协议 • outsourcing 外包生产 • branch offices 分支机构 • foreign direct investment (FDI) 外商直接投资: JV & FOE • multinational corporations (MNCs)/transnational corporations (TNCs) 多国公司/跨国公司 degree of involvement high

8. 2.1 Agent 代理 • general agent 总代理 • sole/exclusive agent 独家代理 • non-exclusive agent 非独家代理 advantages & concerns Concern 2: intellectual property concern, i.e. the agent may decide to manufacture similar products

9. 2.2 Licensing arrangement/agreement 特许协议 licensor/license-granter 特许方 vs. licensee 购买特许方 advantages & concerns Concern: loss of control, i.e. most firms soon lose control over its technology once they license it

10. Licensing arrangement: Fuji Xerox In order to enter the Japanese market, Xerox, the inventor of the photocopier, licensed its Xerographic know-how to Fuji Photo, the industry leader in Japan. In return, Fuji paid Xerox a royalty fee equal to 5% of the net sales revenue that it earned from the sales of photocopiers based on Xerox’s patented know-how. The license was originally granted for 10 years, and it has been renegotiated and extended several times since.

11. Licensing arrangement:RCA color TV RCA Corporation once licensed its color TV technology to a number of Japanese manufacturers including Matsushita and Sony. The Japanese firms quickly assimilated the technology, improved it, and used it to enter the US market. Now the Japanese brands have a much bigger share of the US market than the RCA brand.

12. 2.3 Outsourcing 外包生产 OEM: Original Equipment Manufacture 贴牌生产 advantages & concerns 2.4 Branch offices 分支机构 advantages & concerns

13. 2.5 Foreign direct investment 外商直接投资 • Possible motives: • to reduce transportation costs • to reduce labor costs • to avoid trade barriers • to enjoy incentives offered by the local government • joint venture 合资企业: usu. 50/50 venture EJV: equity joint venture 中外合资经营企业 CJV: cooperative/contractual joint venture 中外合作经营企业 advantages & concerns A3: to fit into political considerations • (solely) foreign-owned enterprise 外商独资企业: by set up a new operation, or by acquire an existing firm advantages & concerns

14. Joint venture: • Coca-Cola and the Swiss company Nestle are joining forces to develop the international market for “ready to drink” tea and coffee, which currently sell in significant amounts only in Japan. • Procter & Gamble has formed a joint venture with its Italian arch-rival Fater to cover babies’ bottoms in the United Kingdom and Italy. Their diaper company will give the combined group almost 60% of the U.K. market and up to 90% of the Italian market. • Domestic appliance manufacturer Whirlpool has taken a 53% stake in the Dutch electronics group Philips’ white-goods business to leapfrog into the European market.

15. Case study: Can Teahouse Go Global?

16. 3. International trade • Why do countries trade with each other? -- There is difference in the practicality or efficiency of producing something between countries. • What is the difference between absolute advantage and comparative advantage? • absolute advantage 绝对优势: comparison between two or more countries concerning a single product • comparative advantage 相对优势: comparison between two or more products of the same country

17. 3.1 Procedures of international trade • Trade shows /factory tours/sales promotion 初步接触 • Making inquiries 询价 • Negotiating prices 议价: offer 发盘 – counter-offer 还盘 – acceptance 接受 • Confirming terms of payment, shipping, packing, insurance, etc. 确认付款、装运、包装、保险等条款 • Placing orders 下单 • Executing contract: preparing commodities, book shipping space 订舱, making out documents 制单, commodity inspection 商检, customs declaration 报关, effecting shipment 装船 • Complaints and claims 投诉与索赔 • Settlement 争议解决

18. 3.2 Foreign exchange 外汇 • foreign currency/exchange vs. home currency • exchange rate • direct quotation 直接牌价 vs. indirect quotation 间接牌价 • appreciate 升值, depreciate 贬值, fluctuate 波动 • strong currency 硬币 (favorable for importers) vs. weak currency 软币 (favorable for exporters) • hedging 套期保值: forward exchange rate 远期汇率 vs. spot exchange rate 即期汇率

19. 3.3 Trade barriers 贸易壁垒 • Tariff barriers 关税壁垒: paid by the importer but passed on to consumers, increase end prices directly • revenue tariffs 财政性关税 • protective tariffs 保护性关税 Do you think it advisable to impose protective tariffs so as to protect some “infant industries” in China, e.g. insurance, domestic express service, automobile? • surtaxes 附加税 • Non-tariff barriers 非关税壁垒: increase end prices indirectly • Quotas • Import license • Foreign exchange control • State monopoly • Minimum price • Technical standards • Health and sanitary regulations • Import embargo

20. 4. Multinationals

21. The power of MNCs • The highest form of international business • Major players or actors of the global business game • Some MNCs’ total annual sales are comparable or even greater than the GDP of most countries • The 300 largest MNCs own or control at least ¼ of the entire world’s productive assets

22. 5. International economic organizations • WTO 世界贸易组织: the only global international organization dealing with the rules of trade between nations, established in 1995 as the successor of the General Agreement on Tariffs and Trade (GATT, 关贸总协定) • APEC 亚太经济合作组织: the premier inter-governmental forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region, established in 1989, 21 “Member Economies”, approximately accounting for 56% of world GDP and 48% of world trade, no treaty or legally binding obligations, by consensus and commitments undertaken on a voluntary basis • North American Free Trade Agreement (NAFTA) 北美自由贸易协定 • European Union (EU) 欧盟 • Association of Southeast Asian Nations (ASEAN) 东盟

23. Exercises 1. Translation （1）独家代理 （2）外包生产 （3）外商直接投资（4）专有技术 （5）合资企业 （6）外商独资企业 （7）直接牌价 （8）远期汇率 （9）关税壁垒 （10）贸易禁运

24. 2. Group project: Use the Victory Company case (Madura, p105) as background information. Suppose you were the Production Manager, present your proposal on the company’s expansion strategy (export or JV) to the CEO.

25. 3. Supplementary reading: • Nestle’s Global Food Empire • Cooperative Joint Ventures in China • World Trade Organization • Asia-Pacific Economic Cooperation • Jones: Chapter 4 • Madura: Chapter 4