Globalization and International Linkages Chapter 1

Course Outline The Global Environment of Business Culture in Global Strategic Management Organizational Behavior and Global Human Resources Management

The Global Environment of Business Chapter 1: Globalization and international linkages Chapter 2: The political, legal, and technological environment of business Chapter 3: Ethics and social responsibility

Chapter 1 Outline International business and management Globalization Outsourcing and offshoring Advantages and disadvantages The World Trade Organization Regional trade blocs The shifting balance of economic power

Chapter 1 Outline (2) Regional economic issues Japan China Other economies in East Asia India Russia South America

International Management The process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

International Business Activity Exporting and Importing Exporting: selling products made in one’s own country for use or resale in other countries Importing: buying products made in other countries for use or resale in one’s own country 1-7

International Business Activity (2) International Investments Foreign direct investment: the investor has control, or shares control, in the management of the asset Home country: the country in which the parent company's headquarters is located Host country: any other country in which the company does business Portfolio investment: the purchase of financial assets, such as stocks and bonds, issued by companies outside your own country 1-8

Firms Involved in International Business Multinational corporations (MNC's) Operations in more than one country International sales Nationality mix of managers and owners Small and medium-sized enterprises (SME's) McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Globalization of Business Globalization of business functions Marketing Manufacturing and service operations Finance Purchasing and supplier networks Business process outsourcing: call centers, technical service, financial research Global business environment with global competition

Outsourcing and Offshoring Outsourcing is contracting to buy goods or services that your company produced in the past. When the work is done outside your own country, offshore outsourcing occurs. Offshoring means performing business activities outside the country where the resulting goods or services are sold.

Stages in Economic Development Advanced economies are post-industrial countries characterized by high per-capita income, highly competitive industries, well-developed commercial infrastructure, and a large service sector. Developing economies are low-income countries characterized by limited industrialization and stagnant economies, with little economic growth. Emerging markets are former developing economies that have achieved substantial industrialization, modernization, and rapid economic growth International Business: Strategy, Management, and the New Realities

Trade Definitions A tariff is a tax on an imported good. A subsidy is a government payment to producers of certain products. Farm products are often subsidized.

World Trade Organization (WTO) 153 member countries Russia is not a member. Oversees regulations for international trade in goods and services international investment protection of intellectual property settling trade and investment disputes between countries

World Trade Organization (2) Developing countries can charge higher tariffs and impose more restrictions on investment than developed countries Developing countries want the WTO to change its rules so that they will be more competitive in the global economy. The biggest issue is subsidies that developed countries pay to their own farmers to encourage crop production.

North American Free Trade Agreement (NAFTA) Free trade agreement among Canada, United States, and Mexico Free trade agreement means that there are no tariffs on goods traded among member countries This provision applies only to goods that were produced in one of the 3 countries Most restrictions on foreign investment among the 3 countries have been abolished. Firms in member countries can compete for government contracts.

NAFTA (2) Financial services firms can do business in all 3 countries. There is a dispute resolution procedure. Each country agreed to enforce its own laws related to Environmental protection Child labor Minimum wages Workplace safety

Free Trade Agreements in Central and South America and the Caribbean 10-18

Other Free Trade Areas in the Americas Mercosur – includes Brazil, the largest economy in South America The Andean Community The Caribbean Community (CARICOM) Central American Common Market Tariffs are imposed on U. S. goods exported to Mercosur, the Andean Community, and CARICOM 10-19

Other Free Trade Areas in the Americas (2) ALADI is a free trade area among Mercosur The Andean Community Mexico, Chile, and Cuba CAFTA-DR is a free trade agreement among the United States, the Central American Common Market, and the Dominican Republic A proposed Free Trade Area of the Americas has made little progress

European Union (EU) Before 2004 Enlargement

Candidate Countries Turkey Croatia Macedonia The European Union Today

The European Union (EU) Almost 500 million people 27 member countries 2006 Gross Domestic Product (GDP) was about 13.5 trillion dollars Slightly higher than U. S. GDP 16 EU members use the euro currency The European Central Bank manages the euro currency (similar to the Federal Reserve Bank in the United States)

The European Union A Single Market Free trade in goods and services among member countries Common tariffs on goods imported from outside the EU Common (minimum) product standards - CE mark is required to sell many goods Business is subject to many regulations The EU Commission settles trade disputes among EU members.

Rights of EU Citizens EU citizens have a right to live and work in any EU country These rights take effect 7 years after a country joins the EU 2011 for countries that joined in 2004 2014 for Bulgaria and Romania Individual countries can choose to grant residency and work rights sooner.

The Shifting Balance of World Economic Power For about 20 years, 55 – 60% of global imports and exports have come from four areas: the United States, the EU, Japan, and China The BRIC countries – Brazil, Russia, India, and China – are expected to be among the fastest growing economies for the next 20 – 40 years To continue rapid growth, Russia must make its economy less dependent on oil and gas. China, India, Brazil, and several Arab countries are increasing their foreign direct investment.