Fourth Edition Copyright ©2003 Prentice Hall, Inc. PART Understanding the Contemporary Business Environment

Copyright ©2003 Prentice Hall, Inc Chapter 2 The Global Context of Business

Copyright ©2003 Prentice Hall, Inc Exercise Give me stories of different products and marketing approaches in other countries, and compare them in Palestine? What evidence have we seen in the last ten years of growing international business partnership? Trade agreements- global mergers- joint ventures- licensing

Copyright ©2003 Prentice Hall, Inc “ We are in the midst of a great transition from narrow nationalism to international partnership. ” ~ Lyndon Baines Johnson

Copyright ©2003 Prentice Hall, Inc Key Topics The rise of global business Major world marketplaces and Palestine trading partners Influences on international business International business management The impact of differences among nations

Copyright ©2003 Prentice Hall, Inc The key drivers to globalization Drivers: Global market Convergence Global Competition Government Influence Cost Advantages Global Strategies Similar customer needs, Global customers, Transferable marketing Trade policies, Technical Standards, host government, policies Scale economies, Sourcing efficiencies Countries costs, High product development costs Interdependence, Competitors global High exports/imports,

Copyright ©2003 Prentice Hall, Inc Globalization Is Gaining Speed The world economy is becoming a single, interdependent system Export: Domestic product sold abroad Import: Foreign product sold domestically

Copyright ©2003 Prentice Hall, Inc Globalization Is Gaining Speed Example: Asian financial markets in the late 90s directly affects stock markets worldwide. Discussion: what product from other countries do you use\consume? Why have you chosen it? Why not Palestinian product?

Copyright ©2003 Prentice Hall, Inc Categorizing Economies High Income Countries: Per capita income greater than $9,386 Middle Income Countries: Per capita income between $765 and $9,386 Low Income Countries: Per capita income of less than $765 Discussion: what countries fall into each category?

Copyright ©2003 Prentice Hall, Inc North America NAFTA Europe EU Pacific Asia Do we have any economic agreement with other countries. What are they? Major World Marketplaces

The North American Marketplace (NAFTA) Canada United States Mexico Copyright ©2003 Prentice Hall, Inc

Europe and the Nations of the European Union Copyright ©2003 Prentice Hall, Inc AustriaAustria BelgiumBelgium DenmarkDenmark FinlandFinland FranceFrance GermanyGermany GreeceGreece IrelandIreland ItalyItaly IrelandIreland ItalyItaly LuxembourgLuxembourg NetherlandsNetherlands PortugalPortugal SpainSpain SwedenSweden United KingdomUnited Kingdom

The Nations of ASEAN BruneiBrunei IndonesiaIndonesia MalaysiaMalaysia PhilippinesPhilippines SingaporeSingapore ThailandThailand VietnamVietnam Copyright ©2003 Prentice Hall, Inc

Pacific Asia Represents Enormous Business Potential In less than a decade, Asian language speakers on the web will far exceed English speakers Source: Time Global Business, Nov EnglishJapaneseChineseKorean Projections for 2010 (in millions)

Copyright ©2003 Prentice Hall, Inc Forms of Competitive Advantage Absolute Advantage: when one country can produce a product cheaper and\or higher quality than any other country. Ex. OPEC Comparative Advantage: when one country can produce certain goods or services more efficiently and effectively than others. Ex. US software

Copyright ©2003 Prentice Hall, Inc Competitive advantages When competitive advantage is materialized? When a firm earns persistently higher rate of profit over its rivals. Determinants of profit level 1- Value of company products in customers’ eyes. 2- Company production cost.

Copyright ©2003 Prentice Hall, Inc Competitive advantage It can be created in certain industrial field, through the adoption of low-cost- differentiation strategy.. M. Porter

Copyright ©2003 Prentice Hall, Inc National Competitive Advantage Factor conditions Demand conditions Related and supporting industries Strategies, structures, and rivalries Qui. Evaluate Palestine?

Copyright ©2003 Prentice Hall, Inc Import/Export Balances Balance of Trade Trade Deficits Trade Surpluses Balance of Payments The total flow of money into or out of an economy

Copyright ©2003 Prentice Hall, Inc Exchange Rates Heavily Impact Global Trade When an economy’s currency is strong: Domestic companies find it harder to export products Foreign companies find it easier to import products Domestic companies may move production to cheaper sites in foreign countries Implications for balance of trade?

Copyright ©2003 Prentice Hall, Inc Exchange Rates Heavily Impact Global Trade When an economy’s currency is weak: Domestic companies find it easier to export products Foreign companies find it harder to import products Foreign companies may invest in production facilities Implications for balance of trade?

The U.S. Economy Has a Growing Trade Deficit Copyright ©2003 Prentice Hall, Inc , , , , , , ,000 $400, U.S. Trade Deficit (in billions) 78,857 28,266 35,666 68,949 97,03995, , , , , , ImportsExports U.S. Imports & Exports (in billions)

Does It Make Sense to Go International? Copyright ©2003 Prentice Hall, Inc YES Is there international demand for the firm’s product? NO Stay Domestic Can the product be modified to fit a foreign market? NO YES Is the foreign business climate suited to imports? NO Does the firm have or can it get the necessary skills and knowledge to do business abroad? YES NO YES Go International

Copyright ©2003 Prentice Hall, Inc Levels of International Involvement Importer & Exporter International Firms: Their main concern domestic market but they have international operations. Multinational Firms: They do not have domestic markets but produce for many nations. They do not have headquarter.

Copyright ©2003 Prentice Hall, Inc International Organizational Structures Foreign Investment Strategic Alliances Branch Offices Licensing Arrangements Independent Agents INVOLVEMENT HIGH LOW

Copyright ©2003 Prentice Hall, Inc Discussion Select a product they would like to market to Golf and to choose whether to export, license, franchise, establish a joint venture, or build a production facility in Golf. Have each group write a list of questions they would want answered before beginning business, and compare the lists.

Copyright ©2003 Prentice Hall, Inc Barriers to International Trade Social & Cultural Differences Economic Differences Legal & Political Differences

Copyright ©2003 Prentice Hall, Inc Take Time to Learn the Culture Thoroughly! Este es nuestro nuevo auto: el NOVA! Ha, ha, ha, ha, ha, ha!!!

Copyright ©2003 Prentice Hall, Inc Cultural and social differences include language, social values, and traditional buying patterns. Whether differences are obvious or subtle, ignorance of them can be embarrassing and expensive. The classic example: General Motors introduced the Chevy Nova in Spanish speaking countries— where “no va” means “doesn’t go.” The original translation of the Intel Pentium IV computer chip in Korean was “chip of death.” (!!!) Discussion: identify other examples from your personal experience.

Copyright ©2003 Prentice Hall, Inc The Customer’s Language A Critical Business Success Factor In the U.S. alone, 18% of the population does not speak English at home. Only 48% of the world’s Web users are native English speakers. Consumers are four times more likely to buy a product on the Internet if the website is in their preferred language. Source: Time Global Business, Nov. 2001

Copyright ©2003 Prentice Hall, Inc Economic Differences To operate effectively in another country, businesses must know when, and to what extent, the government is involved in a given industry.

Copyright ©2003 Prentice Hall, Inc Legal & Political Differences Quotas, Tariffs, & Subsidies Protectionism Local Content Laws Business Practice Laws Day to day operations Cartels: association of producers whose purpose is to control supply and price. Dumping: selling the product abroad with less price than its production cost.

Copyright ©2003 Prentice Hall, Inc Definitions Quota: restriction on the number of certain type of product that can be imported into a country. Embargo: complete ban on imports and exports, imposed by a government for political reasons. Tariff: tax levied on imported products. Subsidy: government payments to help a domestic business compete with foreign firms. Protectionism: the practice of protecting domestic business against foreign competition.

Copyright ©2003 Prentice Hall, Inc Chapter Review Discuss the rise of international business, describe the major world marketplaces. Explain how competitive advantage, import- export balances, exchange rates, and foreign competition shape international business strategies.

Copyright ©2003 Prentice Hall, Inc Chapter Review Discuss what factors influence whether a company should engage in international business. Identify different levels of international involvement and international organizational structure. Describe key barriers to international trade.