Globalization

Chapter Preview Describe globalization Explain how globalization affects markets and production Identify the drivers of globalization Discuss the globalization debate List types of firms in international business Define the global business environment

eBay expanded all types Eli Lilly hired a virtual E-Biz Surprise eBay expanded all types of product markets Eli Lilly hired a virtual R&D “workforce” Expedia moved travel booking online Dell pioneered online buying of custom PCs

International Business

The nature of IB? Foreign Business denote the domestic operation within a foreign company. Multi Domestic Company is an organization with multi country affiliate, each of which formulate its own business strategy based on perceived market differences. Global Company is an organization that attempts to standardize and integrated operations worldwide in all functional area. International Company refers to both global and Multi Domestic Company.

Advice of Global Managers Know the customer Emphasize global awareness Develop world-class products Market effectively Improve logistics Analyze problems correctly

Globalization of production Trend toward greater economic, cultural, political and technological interdependence among national institutions and economies Globalization of markets Convergence in buyer preferences in markets around the world Globalization of production Dispersal of production activities worldwide to minimize costs or maximize quality

Benefits of Globalization of markets Globalization of production Reduces marketing costs New market opportunities Levels income stream Access low-cost labor Acquire technical expertise Obtain production inputs

Globalization Drivers I Regional trade agreements GATT WTO Remove barriers to trade and investment

Trade Exceeds Output

Globalization Drivers II Technological Innovation Email and videoconferencing Internet, intranets and extranets Transportation advancements Better coordination and control Improved communications and management More efficient, dependable shipping

Top 20 Global Nations Political Technological Personal Economic

Globalization Drivers III Market - As companies globalize, they also become global customer. -Avoid the competitor stealing their customers -Market Saturate

Globalization Drivers IV Cost -Economic scale to reduce unit cost -Reduce development, production, inventory cost.

Globalization Then and Now Highly mobile labor market Fear of jobs moving abroad Free-flowing capital and trade Backlash among the disaffected

Challenges to Business Physical security Digital Reputational risk Assess company vulnerability and create a disaster recovery plan Guard proprietary information and confidential communications Require ethical and lawful behavior from all employees and business partners

From Carnage to Civility Rage Reason Violence Legitimacy Carnage Civility Exclusion Debate

Jobs and Wages Opponents Supporters Increases wealth and efficiency Generates labor market flexibility Creates jobs in developed countries Advances economies of developing nations Eliminates jobs in developed nations Forces wages lower in developed nations Exploits workers in developing nations

Labor and Environment Opponents Supporters Investment raises Globalization lowers labor standards Weakens protection of the environment Exploits workers in poor nations Investment raises labor standards Open economies most environment friendly Companies concerned for future markets

Income Inequality debate 1 Inequality within nations Poor people in developing nations benefit most from open economy 2 3 Inequality between nations Nations open to world trade and investment grow faster than rich nations Global inequality Inequality has fallen, but experts disagree on the extent of the decline

National Sovereignty Opponents Supporters Supranational institutions reduce autonomy of national, regional and local governments Supporters Globalization has benefited societies by helping to spread democracy worldwide

Impact on Culture Opponents Supporters Destroys cultural diversity Homogenizes our world Bankrupts local small businesses Supporters Specialize and trade to obtain other goods Import cultural goods from other nations Protects deeper moral and cultural norms

International Business Players Business that has direct investments abroad in multiple countries Small companies and individuals becoming increasingly active in international trade and investment Takes a global perspective on its market and engages in international business from or near its inception Multinational Corporation Small Businesses and Entrepreneurs Born-Global Firm

How They Stack Up Comparing revenue of the world's 10 most global firms to the gross domestic product of nations

Global Business Environment

Teaming up Imagine that you and a group of your fellow classmates own a company that manufactures cheap sunglasses. To lower production costs, you want to move your factory from your developed country to a low-wage country. Choose a prospective country to which you will move. What elements of the national business environment will affect your move? Are there any obstacles to overcome in the international business environment? How will managing your company be different when you undertake international activities? What challenges will you face in managing your new employees?

Teaming up This may be a good time to get students working on their Market Entry Strategy Simulation project, if this has been assigned. This project gets students to begin pondering the types of elements that must be considered when selecting a country for investment. At a minimum, students’ responses should consider: (1) The presence of investment barriers in the country; (2) Resources needed to carry out production, as well as their availability and cost’ (3) Availability of modern telecommunications to facilitate communication with the home office; and (4) How the expansion might be financed.

Chapter Summary This chapter defines the scope of international business within the context of globalization. Globalization lets firms standardize marketing practices, enter new markets, access resources worldwide, and increase production efficiency. Fueling globalization are falling barriers to trade and investment, and rapid innovation in communication and transportation technologies. Globalization also affects a nation, whose level of globalization depends on political engagement, technological connectivity, personal contact, and economic integration. Yet because globalization’s impact is not always uniform, nor always positive, it has sparked debate. Disputes include globalization’s affect on jobs and wages; labor and environmental protection laws; income inequality; national sovereignty; and cultural diversity. Large multinationals, small firms, and entrepreneurs engage in international business. Each of these must navigate the global business environment—the dynamic, integrated global system that weaves together four distinct elements: (1) the forces of globalization, (2) national business environments, (3) the international business environment, and (4) international firm management.