by Ball, McCulloch, Frantz,
Geringer, and Minor

1
This chapter covers:
•Internationalization of markets
•Various names given to firms in multiple countries
•Effect of the internet on international business
•Drivers leading firms to globalization of product
•Differences between domestic and international businesses
•Three environments of international business
International Business by Ball, McCulloch, Frantz,
Geringer, and Minor
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

 Appreciate the dramatic internationalization of markets.
 Understand the various names given to firms that have substantial operations in more than one country.
 Appreciate the profound effect of the Internet on many international business firms.
 Understand the five kinds of drivers that are leading international firms to the globalization of their operations.
 Comprehend why international business differs from domestic business.
 Describe the three environments--domestic, foreign, and international--in which an international company operates
1-2


Seventy-nine percent of CEOs believe all business majors should have an introductory international business course

Seventy percent will consider expertise in foreign language and international exposure in hiring decisions

The majority of CEOs consider courses related to international business relevant to their company

1-3
Managers wanting to advance will need to have foreign experience

 The United Nations
 uses transnational instead of multinational to describe a firm doing business in more than one country.
 Business people
 define a transnational as a company formed by a merger of two firms of approximately the same size that are from two different countries
 Unilever (Dutch-English)
 Dunlop-Pirelli (English-Italian)
1-4


 is a business whose activities are carried out across national borders.
 includes international trade and foreign manufacturing
 also includes a growing service industry in areas such as
 transportation, tourism, advertising, construction, retailing, wholesaling, and mass communication.
1-5

 Foreign Business
 domestic operations within a foreign country
 A Multidomestic Company
 has multicountry affiliates, each of which formulates its own business strategy based on perceived market differences.
 A Global Company
 attempts to standardize and integrate operations worldwide in all functional areas.
 International Company
 describes both global and multidomestic companies
1-6



Have a worldwide presence in its market

Allen-Edmonds produces all shoes in Port Washington,
Wisconsin – ships to over 33 nations
Standardize operations worldwide in one or more functional areas

1-7

P&G has operations in more than 70 countries and sells essentially the same products in over 140 countries
Integrate operations worldwide

Multicultural multinationals respond to local markets, produce products worldwide, exploit knowledge and technology on a global basis






Phoenician and Greek merchants sent abroad before time of Christ
1600’s British East India Company established branches in Asia
1700’s American colonial traders begin operations
FDI prior to Civil War by Colt Fire Arms and Ford
1800’s Singer Sewing Machine first foreign production

1-8
1914 at least 37 American companies producing overseas


 is the international integration of goods, technology, labor, and capital.
 refers to the implementation of global strategies which link and coordinate a firm’s international activities on a worldwide basis.
 definition continues to broaden to include
 political, social, environmental, historical, geographical, and cultural implications
1-9

 There are five major kinds of drivers that are leading international firms to the globalization of their operations.


Political
Technological



Market
Cost
Competitive
1-10



There is a trend toward the unification and socialization of the global community.

Preferential trading agreements


NAFTA
European Union
1-11



Advancements in computers and communication technology are permitting an increased flow of ideas and information across borders.


The Internet and network computing enables small companies to compete globally.
Business to business commerce is experiencing significant savings by using the Internet for business exchanges.

Web is used to find suppliers

Web is used to process purchase orders
1-12

1-13

Market

As companies globalize, they also become global customers.



Companies follow customers abroad
Saturation of the home market
Customer tastes and lifestyles are converging


Cost

Economies of scale to reduce unit cost are always a management goal.

Globalizing product lines can reduce development, production, and inventory costs can help achieve economies of scale.

Companies can also locate production in countries where production costs are lower.
1-14



Competition continues to increase in intensity.

Newly industrialized and developing countries

Companies are defending their home markets from competitors by entering the competitors’ home markets to distract them.
1-15


 One commonly used measure of growth
 Refers to direct investment into equipment, structures, and organizations in a foreign country sufficient to obtain management control
 World stock of FDI rose from $519 billion in 1980 to
$6.6 trillion in 2001.
1-16



Refers to the transportation of any domestic good or service to a destination outside the home country or region


The level of world merchandise exports more than tripled from 1980 to 2002.
The level of service exports worldwide more than quadrupled in the same period.
1-17


In 2002, the United Nations estimated there were over 63,800 companies with a total of over 866,000 foreign affiliates accounting for two-thirds of world trade.

Foreign affiliates’ sales were $17.7 trillion in 2002.

Growth due in part to liberalization of government policies toward foreign investment
1-18


1-19
Ranking Nation or Firm
1.
United States
2.
3.
4.
Japan
Germany
United Kingdom
5.
6.
7.
8.
9.
10.
France
China
Italy
Canada
Mexico
Spain

Total Sales for 2002 ($billion)
$10,207.0
4,323.9
1,876.3
1,510.8
1,362.1
1,234.2
1,100.7
702.0
597.0
296.5


Supporting

Free trade advances economic development

Reduces poverty, improves education, health and life expectancy
1-20

Expanded trade creates more and better jobs

Must manage the costs and transition of workers

Globalization Concerns
 produces uneven results across nations and people

Increases gap between rich and poor

 has negative effects on labor and labor standards

Jobs migrate to developing nations contributes to decline in environment and health conditions

 Environment


The sum of all forces surrounding and influencing the life and development of the firm.
Forces can be classified as

External forces

Management can exert influence but cannot control

Internal forces

Management must administer and adapt
1-21





Competitive

Kind, number, location
Distributive

For goods and services
Economic

GNP, labor cost
Socioeconomic

Characteristics of population

Financial

Interest rates, inflation, taxes
1-22






Legal

Laws governing business
Physical

Topography, climate
Political

Form of government
Sociocultural

Attitudes, beliefs
Labor

Skills, attitudes
Technological

Equipment, skills

 Factors of production
 Capital, raw material, and people
 Activities of the organization
 Personnel, finance, production, and marketing
1-23


Composed of all the uncontrollable forces originating in the home country that surrounds and influences the life and development of the firm

Managers most familiar

May affect foreign operations
1-24

 Operates differently than the domestic environment for the following reasons

Different force values

Changes difficult to assess

Particularly political and legal forces

Forces interrelated
1-25

 The International Environment is
 the interaction between the domestic environmental forces and the foreign environmental forces.
 the interaction between the foreign environmental forces of two countries when an affiliate in one
country does business with customers in another.

Decision making is more complex
1-26

Figure 1.2 here
 International business transactions take place across national borders and may involve three environments.

Domestic

Foreign

International
1-27


The U.S. Commercial Service offers four ways to grow your international sales:
 world-class market research
 trade events that promote your product or service to qualified buyers
 introductions to qualified buyers and distributors
 counseling through every step of the export process www.export.gov/comm_svc/


AD VALOREM EQUIVALENT
— The duty collected under a specific tariff or a compound tariff expressed as a percentage of the value of the imported item. Since a specific tariff is calculated on the basis of units
(of volume or weight), rather than value, and since prices can change over time, the ad valorem equivalent could differ when calculated for different time periods. www.usinfo.state.gov/products/p ubs

AGREEMENT ON RULES OF
ORIGIN — A WTO agreement addressing the rules that determine the country of origin of an imported product. Rules of origin play an important role in international trade due to the fact that the application of duties and other restrictions on entry often depends on the deemed source of the imports.
The agreement provides for harmonization in the practices of WTO members in determining the country of
origin of products.







BP
Royal Dutch/Shell
Group
Daimler Chrysler
Total
Allianz






Toyota Motor
Nippon Telegraph and Telephone
Hitachi
Honda Motor
Sony
*According to Fortune 500

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