CHAPTER 1 THE INTERNATIONAL BUSINESS IMPERATIVE Visit http://wileymanagementupdates.com/ for the latest in business news stories. Copyright © 2011 John Wiley & Sons 1. Understand the history and impact of Chapter 1 Learning Objectives international business 2. Learn the definition of international business 3. Recognize the growth of global linkages today 4. Understand the U.S. position in world trade and the impact international business has on the United States 5. Appreciate the opportunities and challenges offered by international business 6. To identify the relationships between the text’s structure and the theoretical, political, and strategic aspects of international business. Chapter 1 2 Czinkota: International Business, 8e The Need for International Business Students are likely to be involved in international business in their careers International business offers companies more new markets International business causes the flow of ideas, services, and capital across the world International business offers consumers, workers, and investors more choices Chapter 1 3 Czinkota: International Business, 8e Top Ten Global Companies in 2009 Each year, Fortune publishes a ranking of the world’s largest corporations. The 2009 World’s biggest companies are: 1. Royal Dutch Shell 2. Exxon Mobil 3. Wal-Mart Stores 4. BP 5. Chevron 6. Total 7. ConocoPhillips 8. ING Group 9. Sinopec 10. Toyota Motor Source: Fortune.com: http://money.cnn.com/magazines/fortune/global500/2009/index.html Chapter 1 4 Czinkota: International Business, 8e Impact on Consumers More Choices As international business continues to grow, consumers benefit from greater choices, higher quality, and lower costs International Business Lower Costs Chapter 1 Higher Quality 5 Czinkota: International Business, 8e International Business Defined International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations Chapter 1 6 Czinkota: International Business, 8e Direct Foreign Investment ImportExport Trade Types of International Business Franchising Managing Contracts Licensing Chapter 1 7 Czinkota: International Business, 8e Success in the art of business International Business is an Art and a Science Chapter 1 depends on a firm grounding in its scientific aspects An understanding of both aspects is necessary to incorporate international business considerations into thinking and planning 8 Czinkota: International Business, 8e The Roman Empire International business played a vital role in the formation of the Roman Empire: Pax Romana – Roman peace guaranteed peaceful travel Common coinage simplified business transactions Systematic law and central market locations through the founding of cities Effective communication system Chapter 1 9 Czinkota: International Business, 8e The Roman Empire International business played a role in the decline of the Roman Empire as well: The empire was weakened at its foundations because of infighting and increasing decadence Pax Romana was no longer enforced Use and acceptance of the common coinage had declined Former Roman allies became willing to cooperate with invaders Chapter 1 10 Czinkota: International Business, 8e The Han Empire While Rome flourished, the Han empire in China provided a similar stability for nearly four centuries Trade expanded with the development of a system of trade routes to Central Asia that became known as the Silk Road Trade between the Roman and Chinese empires was not direct and occurred through many intermediaries in India, Arabia, and central Asia Chapter 1 11 Czinkota: International Business, 8e The British Empire The British Empire grew mainly through its effective international business policy: Efficient transportation Intensive trade An insistence on open markets Chapter 1 12 Czinkota: International Business, 8e The United States The United States became a world leader by championing market-based transactions, encouraging communication, and promoting the flow of ideas, goods, and services across national borders Pax Americana –American peace from 1945 - 1990 that led to increased international business transactions Smoot-Hawley Act of 1930 – Raised import duties to promote domestic production Resulted in a trade war Contributed to the ensuing worldwide depression and collapse of the world financial system Chapter 1 13 Czinkota: International Business, 8e Recent Growth in Trade and GDP Growth in World Merchandise Trade & GDP (1998 – 2008) Chapter 1 14 Czinkota: International Business, 8e Global Links Today International business creates a network of global links that binds all countries, institutions, and individuals together The following changes have affected the international financial position of countries and the ownership of economic activities: Enhanced communication on a global scale Global reorientation in production strategies Service firm participation in the international marketplace Recognizing the effects of globalization on the environment Chapter 1 15 Czinkota: International Business, 8e Global Links Today Shifts in financial flows have a major effect on foreign direct investment, which is the establishment or expansion of operations of a firm in a foreign country. Technology is increasing the rate of changes in international business. The composition of trade is changing: 1960s to the 1990s: primary commodities versus manufactured goods More recently, there has been a shift in manufacturing Increasingly, shifts are occurring in services trade Chapter 1 16 Czinkota: International Business, 8e India’s Economy Grows Despite Recession India’s economic growth accelerated as GDP rose 8.6 percent in the three months ended March 31, 2010 from a year earlier. Emerging nations such as India are weathering the global recession better than developed nations, and are a source of strength for the world economy. Growth in India’s $1.2 trillion economy, Asia’s largest after Japan and China, is accelerating as rising incomes boost demand for cars, mobile phones and air travel. Salaries in India may increase at the fastest pace in the Asia Pacific in 2010, according to Hewitt Associates Inc. Source: Bloomberg.com: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aw74LJGGrRGw Chapter 1 17 Czinkota: International Business, 8e Focus on Culture: Make that a Caffé Latte Please Over the last 30 years, one of the greatest transformations in daily life has been the global proliferation of chain restaurants and the food choices available to consumers w orldwide. International business has brought diversity of choice, quality food, clean environments, and fast, efficient service to locations around the w orld. H o w e ve r, s o m e c r i t i c i z e r e s t a u r a n t f r a n c h i s e s f o r spreading industrialized food processes and junk food to other parts of the world. Chapter 1 18 Czinkota: International Business, 8e Global Manufacturing Output Share of Global Manufacturing Output for the United States, Japan, China, and the rest of the World (1995 – 2007) Chapter 1 19 Czinkota: International Business, 8e Current U.S. International Trade Position The U.S. has gained in prominence as a market for the world, but has lost some of its importance as a supplier U.S. exports have grown rapidly and successfully However, there is a decline in global market share of U.S. products The growth in U.S. exports in recent years pales in comparison to the international trade performance of other nations Chapter 1 20 Czinkota: International Business, 8e Apple iPad Goes International Apple's iPad debuted in the U.S. on April 3, 2010. The result of the launch was a resounding success, as the company is handling iPad shortages by ramping production of the new device. Despite the shortages, the iPad was launched in nine more countries on May 28: Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the U.K. Before the first day of sales, thousands of customers in these countries lined up outside of Apple stores to be the first to pick up an iPad. Source: Fortune.com: http://tech.fortune.cnn.com/2010/05/28/ipad-madness-in-munich/ Chapter 1 21 Czinkota: International Business, 8e Table 1.3 Export and Import Comparison Exports and Imports of Goods and Services per Capita for Selected Countries Country Exports per Capita Australia Chapter 1 Imports per Capita $4,296 $4,525 Brazil 379 428 China 222 199 Japan 4,165 3,622 Kenya 91 125 United Kingdom 4,767 5,500 United States 3,472 4,962 22 Czinkota: International Business, 8e Impact on the United States U.S. international business outflows are important on the macroeconomic level to balance the trade account On the microeconomic level, participation in international business can help firms achieve economies of scale and hone their competitive skills Globalization is the increased mobility, services, labor, technology, and capital throughout the world Chapter 1 23 Czinkota: International Business, 8e Structure of this Book This book addresses the international concerns of beginning internationalists and multinational corporations Topics include: International trade and investment Culture and politics International business strategy Operational issues surrounding international business Chapter 1 24 Czinkota: International Business, 8e Focus on Ethics: Students Against Sweatshops In 1997, students at several universities learned that the oversees w orkers w ho made university logo merchandise endured long hours, deplorable working c o n d i t i o n s , a n d l o w a n d u n e q u a l p a y. The students at these institutions formed the Workers Rights Consortium (WRC) to ensure that factories where school apparel was made adopted basic labor s t a n d a r d s a n d f a i r p a y. As of 2009, 186 colleges and universities had joined the WRC. Chapter 1 25 Czinkota: International Business, 8e