©2004 Prentice Hall1-1 Chapter 1: An Overview of International Business International Business, 4 th Edition Griffin & Pustay

©2004 Prentice Hall1-2 Salt Lake Athens Sydney Toronto China Why do cities compete so hard for the Olympic Games?

©2004 Prentice Hall1-3 The Business of the Olympics  Intense reflection of international business  Competition for hosting  Revenue sources for the Olympics –Broadcast rights –Corporate sponsorships –Licensing –Tourism

©2004 Prentice Hall1-4 The Business of the Olympics  How would the Olympics look if corporations were not allowed to participate?  Would the Olympics exist without the corporate sponsors?

©2004 Prentice Hall1-5 What is International Business?  Business transactions between parties from more than one country –Buying & selling raw materials, finished goods, or services across borders. –Operating factories or facilities overseas. –Borrowing money in one country to finance operations in another.

©2004 Prentice Hall1-6 How Does International Business Differ from Domestic?  Currency conversions are required  Differing legal systems  Cultural differences  Economic differences  Infrastructure differences

©2004 Prentice Hall1-7 Why Study International Business?  Most of us will work for companies that have international connections.  To develop cultural literacy.  To keep in step with management tools, production techniques, and technology that other countries are developing.

©2004 Prentice Hall1-8 Can you think of foreign-owned firms that have invested in the US?  Why do you think they have invested in the US?

©2004 Prentice Hall1-9 Why Companies Trade  To increase sales & broaden markets  To seek cheaper raw materials or to lower production costs  To find goods not available in domestic markets, or at a lower price than those available domestically  To seek better prices for their products

©2004 Prentice Hall1-10 International Business Activities  Exporting and Importing  International Investments  Licensing, Franchising, and Management Contracts

©2004 Prentice Hall1-11 Exporting and Importing  Exporting: selling of products made in one’s own country for use or resale in other countries  Importing: buying of products made in other countries for use or resale in one’s own country

©2004 Prentice Hall1-12  53% of Boeing’s aircraft sales are to foreign airlines

©2004 Prentice Hall1-13 Visible and Invisible Trade  Trade in Goods –Merchandise exports and imports –Visible trade  Trade in Services –Service exports and imports –Invisible trade

©2004 Prentice Hall1-14 International Investments  Capital supplied by residents of one country to residents of another  2 categories: –Foreign direct investments –Portfolio investments

©2004 Prentice Hall1-15 Other Forms of International Business Activity  Licensing: firm in one country licenses the use of its intellectual property to a firm in a second country in return for a royalty payment  Franchising: firm in one country authorizes a firm in another country to utilize its operating system and intellectual property

©2004 Prentice Hall1-16 Management Contracts  A firm in one country agrees to operate facilities or provide other management services to a firm in another country for an agreed-upon fee  Common in upper-end international hotel industry

©2004 Prentice Hall1-17 This Beijing restaurant is one of 430 that McDonald’s has built in China

©2004 Prentice Hall1-18 Variations of Organizations  Multinational Corporation (MNC)  Multinational Enterprise (MNE)  Multinational Organization (MNO)

©2004 Prentice Hall1-19 Multinational Corporations (MNCs)  Engage in foreign direct investment  Own and control foreign assets  Buy resources in multiple countries  Create goods and services in multiple countries  Sell goods and services in multiple countries

©2004 Prentice Hall1-20 Table 1.1 The World’s Largest Corporations – 2002 RankNameCountryRevenues $Mil 1Wal-Mart StoresU.S.246,525 2General MotorsU.S.186,763 3Exxon MobilU.S.182,466 4Royal Dutch/ShellNetherlands179,431 5BPBritain178,721 6Ford MotorU.S.163,871 7DaimlerChryslerGermany141,421 8Toyota MotorJapan131,754 9General ElectricU.S.131,698 10MitsubishiJapan109,386

©2004 Prentice Hall1-21 Motives for Globalization  To leverage core competencies  To acquire resources and supplies  To seek new markets  To better compete with rivals

©2004 Prentice Hall1-22 Environmental Change and Globalization  Changes in Political Environment  Technological Changes