EXPLORING MANAGEMENT
Chapter 17
Globalization and
International Business
Chapter 17
• How does globalization affect international
business?
• What are global corporations and how do
they work?
17.1
Globalization
• Globalization involves the growing
interdependence of the world’s economies
• Globalization creates a variety of international
business opportunities
• International business is done by global
sourcing, import/export, licensing and
franchising
• Internal business is done by joint ventures
and wholly owned subsidiaries
• International business is complicated by
different legal and political systems
GLOBALIZATION
World Economies
• Global economy
– Resources, markets and competition are
worldwide in scope
• Globalization
– Process of growing
interdependence of
global economies
GLOBALIZATION
World Economies
• Insourcing
– Domestic jobs are created by foreign
employers
• Outsourcing
– Jobs are shifted to foreign locations to take
advantage of lower wages, infrastructure,
educated workforce or government support
GLOBALIZATION
International Opportunities
• International Business
– Conducts transaction across international
boundaries
• Reasons to “go international”
Profits
Customers
Suppliers
Capital
Labor
Risk
GLOBALIZATION
International Opportunities
Market Entry Strategies
Global
Sourcing
materials,
components
or services
are purchased
worldwide
Exporting
selling locally
made
products in
foreign
markets
Franchising
foreign firm
buying
foreign firm
buys rights to
foreign-made pays for rights
another’s
products and to make or sell
name and
selling them in
another
operating
domestic
company’s
method in its
markets
products
home country
Importing
Licensing
GLOBALIZATION
International Opportunities
Direct Investment Strategies
Joint Venture
co-ownership
arrangement in
which the foreign
and local business
jointly operate the
new business
Global
Strategic
Alliance
Cooperative
partnership to
achieve task that
would be difficult
for partners alone
Foreign
Subsidiary
Greenfield
Venture
subsidiary
operation
established after
completely owned
firm has
and controlled by
experience in joint
a foreign firm
ventures
GLOBALIZATION
Legal and Political Issues
• International business is complicated by
different legal and political systems
– Health and safety
– Equal employment
– Sexual harassment
– Incorporation and ownership
– Foreign currency exchange
– Intellectual property
GLOBALIZATION
Legal and Political Issues
• Tariffs
– Taxes placed on imports
• Protectionism
– Tariffs, subsidies and other tactics that give
advantages to domestic producers
GLOBALIZATION
Legal and Political Issues
• World Trade Organization
– Global institution to promote free trade and
open markets around the world
– Membership of around 153 countries
– Most Favored Nation status
– www.wto.org
17.2
Global Corporations
• Global corporations or MNCs do
substantial business in many countries
• The actions of global corporations can be
controversial at home and abroad
• Managers of global corporations face a
variety of ethical challenges
17.2 CONTINUED
Global Corporations
• Planning and controlling are complicated
in global corporations
• Organizing can be difficult in global
corporations
• Leading is challenging in global
corporations
GLOBAL CORPORATIONS
Global Corporations
• Global corporations and also known as
Multinational corporations (MNC)
– Extensive foreign operations in more than one
country
• Transnational corporations
– Operate without one national home
GLOBAL CORPORATIONS
Issues
GLOBAL CORPORATIONS
Ethical Challenges
• Corruption
– Illegal practices
• Foreign Corrupt Practices Act
– U.S. legal standards apply to companies
when operating in foreign countries
– Prevents
• Bribes, gifts to foreign officials in return for
business favors
GLOBAL CORPORATIONS
Ethical Challenges
• Sweatshops
– Employees work long hours in poor or unsafe
conditions
• Child labor
– Full-time employment of children
GLOBAL CORPORATIONS
Planning and Controlling Challenges
• Currency Risk
Scenario 1:
Weak dollar
Scenario 2:
Strong dollar
• .75 Euros = 1 $US
• 1.25 Euros = 1 $US
• Take home revenue
= $133,00
• Take home revenue
= $80,000
GLOBAL CORPORATIONS
Planning and Controlling Challenges
• Political risk
– Risk of loss because of political instability in
foreign country
• Political risk analysis
– Forecasts how political events may impact
foreign investments
• Currency risk
– Possible loss because of
fluctuating exchange rates
GLOBAL CORPORATIONS
Organizing Challenges
GLOBAL CORPORATIONS
Leading Challenges
• Global managers
– Competent in working in different cultures