INTERNATIONAL MANAGEMENT CHAPTER 1 INTRODUCTION TO INTERNATIONAL MANAGEMENT

Learning Objectives After studying this chapter, you should be able to explain: Status of internationalization of business today and how we got to this position Drivers of internationalization New technology Greater access to information Changes in how people save, spend, and invest

Learning Objectives After studying this chapter, you should be able to explain (cont.): Why we study international management What you believe you know about doing international business may not be as complete or thorough as you think Changes in major players in international business Rise of business ethics as a critical concern

Status of Internationalization Globalization describes the changes in societies and the world economy resulting from increased international trade, foreign direct investment, and cultural exchange. Foreign trade provides firms and consumers with the benefit of obtaining the best and least expensive products and services from anywhere in the world.

Status of Internationalization The flow of trade is two way—it flows both into and out of any given country. Increased in competition that comes from a vast number of countries around the world As a result, international management is increasingly gaining importance.

Status of Internationalization International management is the process of applying management concepts and techniques in a multinational environment. It focuses on how individuals manage a global business. International business focuses on the macro approach to operating internationally, and is less concerned with individual interactions.

Drivers of Internationalization The growing level of internationalism started after the end of World War II in 1945. The period immediately after World War II is referred to ‘‘Big Unit’’ capitalism. Big Unit Capitalism is characterized by stable economics with large domestic firms and a high degree of central planning.

Drivers of Internationalization The second period of globalization started in 1971 with the formation of the Bretton Woods financial system. Bretton Woods System is a negotiated monetary order to govern monetary relations and currency exchange rates among independent states.

Drivers of Internationalization The Bretton Woods System created mechanisms to support countries that ran into balance-of-payments difficulties. The agreement led to the creation of two international agencies - the World Bank and the International Monetary Fund (IMF).

Drivers of Internationalization Technology changes Innovations in computerization, compression technology, and digitization led to reduced cost of storing data, stronger computing power, and easy accessibility. Innovations in telecommunications decreased costs of phone calls and data transfers, while steadily increasing the speed, distance, variety, and quantities of information that can be transmitted.

Drivers of Internationalization Changes in access to information Information flows have become easier with the advent of Internet and satellite dishes. Access to information allows firms to assemble technologies, raw materials, and funding for products or services for customers around the world.

Drivers of Internationalization Changes in access to information (cont.) The need to be able to act on specific problems led to the invention of ‘‘fab lab’’ by the Massachusetts Institute of Technology (MIT). Fab lab provides the resources necessary for entrepreneurs in poor countries to implement their ideas to create usable products.

Drivers of Internationalization Changes in how people save, spend, and invest A disruptive innovation changes the economics or technological standard of an industry. A disruption in the world of finance came about with the creation of ‘‘commercial paper,” which are bonds that corporations issue directly to the public in order to raise capital.

Drivers of Internationalization Changes in how people save, spend, and invest (cont.): Michael Milken introduced high yield or ‘‘junk’’ bonds, as an alternative opportunity for financing, allowing the public to invest in growing firms or firms undergoing turnarounds while enjoying higher interest. The market for corporate control or the ability to take over a poorly performing firm and turn it around, is beginning to expand worldwide.

Drivers of Internationalization The effects of globalization Globalization has introduced new competitors into many industries. Some of the rules like government regulations, labor agreements, and corporate bureaucratic policies, which limit competition have been dissolved.

Drivers of Internationalization The effects of globalization (cont.) The instability of the industry, speed of change, problems and opportunities for producers, and availability of higher-quality or lower-priced goods and/or services to consumers have changed. Many countries have started transferring dangerous and environmentally damaging activities to offshore vendors.

Why Study International Management International management teaches that through education and study we will learn some of the things that differ from what is considered right in our society; differences that you may face when managing an international firm. Growth of bilateral and multinational agreements. The European Union (EU) The World Trade Organization (WTO) The North American Free Trade Agreement (NAFTA) Japan-Thailand Trade Agreement

Why Study International Management The European Union Has created a union of 27 countries. Tax laws are determined locally, but issues such as product standards and nature of expected competition are determined centrally by the EU governmental body. Sets standards in areas such as mergers and acquisitions and environmental domains.

Why Study International Management The World Trade Organization Established in 1995 and is composed of 148 countries from around the world. Creates a structure to solve problems that arise under the GATT agreement and encourages further promotion of trade. Has the ability to impose penalties on those nations that do not act in the manner in which the WTO determines they should.

Why Study International Management NAFTA was signed in 1994 between Canada, the U.S., and Mexico. This agreement has increased trade between the three nations. Japan-Thailand Trade Agreement - This bilateral agreement between the two nations provided opportunities for active trading.

Why Study International Management New economic players India and China have experienced rapid economic growth in the past few years. China has an economic growth averaging about 9 percent annually, and is seen as the greatest market opportunity in the world. India is the world’s largest democracy, has a GDP of $3.7 trillion in purchasing-power parity terms, and has many well-educated people.

Why Study International Management New economic players (cont.) International Monetary Fund (IMF): Basic function is to provide a means for exchange of currencies among nations. The World Bank: Provides loans, policy advice, technical assistance, and knowledge-sharing services to low- and middle-income countries in an effort to reduce poverty.

Why Study International Management Ethics concerns The absolute minimum level of ethics a business must observe are the legal standards of its nation. Foreign Corrupt Practices Act: Illegal to pay bribes to organizations and government officials in foreign countries. Sarbanes-Oxley Act: Passed in response to perceived business misconduct.

Why Study International Management Aspects to consider while developing ethical standards: Understand the firm’s stakeholders and their needs and desires. Use external reference points to judge whether behaviors are ethical.

Why Study International Management Aspects to consider while developing ethical standards (cont.): Explain stories and examples of individual judgments that demonstrate the kinds of ethical standards firms want to encourage. Dialogue is very important in developing ethical understanding within a firm.