MODULE 7 GLOBALIZATION AND INTERNATIONAL BUSINESS “The world isn’t just for travelers” What is the nature of international business? What are multinational corporations and how do they work?

GLOBALIZATION AND INTERNATIONAL BUSINESS The Nature of International Business MODULE GUIDE 7.1 Globalization creates international business opportunities. International business is done by global sourcing, import/export, licensing, and franchising. International business is done by joint ventures and wholly owned subsidiaries. International business is complicated by different legal and political systems.

THE NATURE OF INTERNATIONAL BUSINESS Globalization Global Economy Resources, markets and competition are worldwide in scope. Globalization The process of growing interdependence among elements of the global economy. Global Sourcing Firms purchase products and services from around the world for local use.

THE NATURE OF INTERNATIONAL BUSINESS Globalization International Business Conducting commercial transactions across national boundaries Five Reasons to Pursue International Business 1. Expanded profit potential 2. More customers 3. More capital 4. Lower cost suppliers 5. Lower costs of labor

GLOBALIZATION International Business Exporting Local products are sold abroad Importing The process of acquiring products abroad and selling them in domestic markets. Licensing one firm pays a fee for rights to make or sell another company’s products. Franchising a firm pays a fee for rights to use another company’s name and operating methods.

GLOBALIZATION International Business Joint Venture A firm operates in a foreign country through co-ownership with local parties. Strategic Alliance each partner hopes to achieve through cooperation things they couldn’t do alone. Foreign Subsidiary a local operation completely owned by a foreign firm.

GLOBALIZATION International Business World Trade Organization a global institution to promote free trade and open markets around the world. Location: Geneva, Switzerland Established: 1 January 1995 Created by: Uruguay Round negotiations ( ) Membership: 149 countries (on 11 December 2005) Budget: 175 million Swiss francs for 2006 Secretariat staff: 635 Head: Pascal Lamy (Director-General)

GLOBALIZATION AND INTERNATIONAL BUSINESS Multinational Corporations MODULE GUIDE 7.2 Multinational corporations do substantial business in several countries. Multinational corporations can be controversial at home and abroad. Multinational corporations face a variety of ethical challenges. Planning and Controlling are complicated in multinational corporations. Organizing is complicated in multinational corporations. Leading is complicated in multinational corporations.

GLOBALIZATION AND INTERNATIONAL BUSINESS Multinational Corporations Multinational Corporation (MNC) A business with extensive foreign operations in more than one county. Transnational Corporation A MNC that operates worldwide on a borderless basis. “Fortune’s” Top 10 Multinational Corporations 1. Wal-Mart Stores 6. DaimlerChrysler 2. BP 7. Toyota Motor 3. Exxon Mobil 8. General Electric 4. Royal Dutch Shell Group 9. Total 5. General Motors 10. Chevron

MULTINATIONAL ORGANIZATIONS MNC Issues

Protectionism A call for tariffs and special treatment to protect domestic firms from foreign competition. Corruption Illegal practices to further one’s business interests. Transparency International gives these countries its poorest corruption scores: Indonesia Nigeria Tajikistan Bangladesh Haiti Paraguay Myanmar

MULTINATIONAL ORGANIZATIONS MNC Issues Sweatshops Employ workers at very low wages, for long hours, and in poor working conditions. Child labor The full-time employment of children for work otherwise done by adults. Sustainable Development Development that meets the needs of the present without hurting future generations.

MULTINATIONAL ORGANIZATIONS MNC Issues Currency Risk The possible loss of profits because of fluctuating exchange rates. Understanding Currency Risk in International Business U.S. exporter makes a sale in France for Euro 100,000. Scenario 1: Weak dollar.95 Euros = 1 $US Take home revenue = $105,263 Scenario 2: Strong dollar 1.25 Euros = 1 $US Take home revenue = $80,000

MULTINATIONAL ORGANIZATIONS MNC Organizations

Expatriate An employee who lives and works in a foreign country. Global Manager A person who is culturally aware and informed on international affairs. Personal Attributes for Expatriate Success High degree of self-awareness Cultural sensitivity Desire to live and work abroad Family flexibility and support Technical job competence Are you willing to admit that the world isn’t just for traveling anymore, and to embrace it as a career opportunity? Is it possible that you might stand out to a potential employer as someone with the skills to excel as a global manager?

Management Tips Criteria for choosing a partner for successful joint ventures Familiar with your firm’s major business Employs a strong local workforce Values its customers Has potential for future expansion Has strong local market for its own products Has good profit potential Has sound financial standing