The Context of IB Week 2. Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? 2 Learning Objectives 1. Compare and contrast the different internationalization strategies of firms 2. Critically assess the role of globalization and technology on the internationalization of firms 3. Illustrate the stages of internet-enabled internationalization 4. Compare and contrast the different types of risk in IB 5. Master the tools for assessing risks encountered in cross-border business Chapter 1. What is International Business Key Concepts • International business: Performance of trade and investment activities by firms across national borders. • Globalization of markets: Ongoing economic integration and growing interdependency of countries worldwide. • International trade: Exchange of products and services across national borders; typically through exporting and importing. [Surplus & Deficit] • Exporting: Sale of products or services to customers located abroad, from a base in the home country or a third country. • Importing or global sourcing: Procurement of products or services from suppliers located abroad for consumption in the home country or a third country. • International investment: Transfer of assets to another country or the acquisition of assets in that country. Also known as ‘foreign direct investment’ (FDI), we will focus on this type of investment. • International portfolio investment: Passive owner-ship of foreign securities such as stocks and bonds, in order to generate returns. The Four Risks of International Business Who Participates in International Business? • Multinational enterprise (M N E): A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries. e.g., Caterpillar, Samsung, Unilever, Vodafone, Disney. • Small and medium-sized enterprise (S M E): Typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries. S M E s increasingly engage in international business. • Born global firm: A young, entrepreneurial S M E that undertakes substantial international business at or near its founding. • Non-governmental organizations: Many of these non-profit organizations conduct cross-border activities. They pursue special causes and serve as advocates for social issues, education, politics, and research. 6 Why do Firms Participate in IB? • Better serve key customers that have relocated abroad. E.g., when Toyota launched its operations in Britain, many of its suppliers followed suit. • Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products. E.g., Dell sources parts and components from the best suppliers worldwide. • Gain access to lower-cost or better-value factors of production. E.g., Sony does much manufacturing in China. Develop economies of scale in sourcing, production, marketing, and R&D. E.g., Boeing lowers its overall costs by sourcing, manufacturing, and selling aircraft worldwide. • Confront international competitors more effectively or thwart the growth of competition in the home market. Chinese appliance maker Haier established operations in the United States, partly to gain competitive knowledge about Whirlpool, its chief US rivals. Invest in a potentially rewarding relationship with a foreign partner. French computer firm Groupe Bull partnered with Toshiba in Japan to gain insights for developing information technology. 1-7 The Drivers, Dimensions, and Consequences of Market Globalization 1. Drivers of Market Globalization • Worldwide reduction of barriers to trade and investment • Transition to market-based economies and adoption of free trade in China, former Soviet Union countries, and elsewhere • Industrialization, economic development, and modernization • Integration of world financial markets • Advances in technology 2. Dimensions of Market Globalization • Integration and interdependence of national economies • Rise of regional economic integration blocs • Growth of global investment and financial flows • Convergence of buyer lifestyles and preferences • Globalization of production activities • Globalization of services 3a. Societal Consequences of Market Globalization • Contagion: Rapid spread of financial or monetary crises from one country to another • Loss of national sovereignty • Offshoring and the flight of jobs • Effect on the poor • Effect on the natural environment • Effect on national culture 3b. Firm-level Consequences of Market Globalization: Internationalization of the Firm’s Value Chain • Countless new business opportunities for internationalizing firms • New risks and intense rivalry from foreign competitors • More demanding buyers who source from suppliers worldwide • Greater emphasis on proactive internationalization • Internationalization of firm’s value chain Internationalization of the Firm’s Value Chain The Cultural Context of IB Key Concepts • Culture: The values, beliefs, customs, arts, and other products of human thought and work that characterize the people of a given society. • Cross-cultural risk: A situation or event where a cultural miscommunication puts some human value at stake. It arises in environments comprised of unfamiliar languages, and unique values, beliefs, and behaviors • Socialization: The process of learning the rules and behavioral patterns appropriate to one's society. • Acculturation: The process of adjusting and adapting to a culture other than one's own; commonly experienced by expatriate workers. Hall’s High- and Low-Context Typology of Culture Source: Based on Beyond Culture by Edward T. Hall, copyright © 1976, 1981 by Edward T. Hall. Used by permission of Doubleday, a division of Random House, Inc. For online information about other Random House, Inc. books and authors, seethe Internet Web Site at http://www.randomhouse.com Mark Cleveland, Michel Laroche, and Nicolas Papadopoulos, “You are what you speak? Globalization, multilingualism, consumer dispositions and consumption,” Journal of Business Research, 68No. 3 (2015), pp. 542–552. Donghoon Kim, Yigang Pan, and Heung Soo Park,“High- Versus Low-Context Culture: A Comparison of Chinese, Korean and American Cultures,” Psychology & Marketin, 15 No. 6 (1998), pp. 507–521. Nonverbal Communications Hofstede’s Typology of National Culture • Individualism versus collectivism refers to whether a person primarily functions as an individual or within a group. • Power distance describes how a society deals with inequalities in power that exist among people. • Uncertainty avoidance refers to the extent to which people can tolerate risk and uncertainty in their lives. • Masculinity versus femininity refers to a society’s orientation based on traditional male and female values. • Long-term vs. short-term orientation describes the degree to which people and organizations defer gratification to achieve longterm success. • Indulgence versus restraint describes the degree to which people in a society attempt to control their impulses and desires. National, Professional, and Corporate Culture Source: Based on V. Terpstra and K. David, Cultural Environment of International Business, 3rd ed. (Cincinnati, OH: South-Western,1991).
