PowerPoint Presentation by Charlie Cook The University of West Alabama © 2010 South-Western, Cengage Learning, Inc. All rights reserved.

5–2 The Nature of International Business Globalization means:Globalization means:  Everyone is part of the global village.  All organizations are affected by competition in the global economy.  Firms are reshaping themselves for international competition and discovering new ways to exploit markets.  Failure to take a global perspective is one of the biggest mistakes managers can make.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–3 5.1 Levels of International Business Activity Global Business Multinational Business International Business Domestic Business Level of International Activity LowestHighest

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–4 The Meaning of International Business Domestic BusinessDomestic Business  acquires all of its resources and sells all of its products or services within a single country. International BusinessInternational Business  is based in a single country yet acquires a meaningful share of its resources and/or revenues from other countries. Multinational BusinessMultinational Business  transcends national boundaries and buys raw materials, borrows money, and manufactures and sells its products in a world-wide marketplace. Global BusinessGlobal Business  transcends national boundaries and is not committed to a single home country.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–5 Trends in International Business Decreasing Isolation from Competition Increasing Globalization of Markets Economic Recovery and Development Trends in International Business

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–6 Managing the Process of Globalization Exporting and Importing Licensing Strategic Alliance and Joint Venture Direct Investment

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–7 5.1 Advantages and Disadvantages of Different Approaches to Internationalization Approach to InternationalizationAdvantagesDisadvantages Importing or Exporting   Small cash outlay   Little risk   No adaptation necessary   Tariffs and taxes   High transportation costs   Government restrictions Licensing   Increased profitability   Extended profitability   Inflexibility   Competition Strategic Alliances and Joint Ventures   Quick market entry   Access to materials and technology   Shared ownership (limits control and profits) Direct Investment   Enhanced control   Existing infrastructure   Complexity   Greater economic and political risk   Greater uncertainty

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–8 The Structure of the Global Economy Mature Market Economies and SystemsMature Market Economies and Systems  Employ market factors in allocating resources.  Are based on the private ownership of business  Well-developed infrastructures and individual wealth. Trade AgreementsTrade Agreements  North American Free Trade Agreement (NAFTA) covering the United States, Mexico, and Canada.  European Union (EU) of western European countries.  Pacific Asia countries in Southeast Asia.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–9 5.2 The Global Economy The global economy is dominated by three relatively mature market systems

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–10 Market Economies and Systems High Potential or High Growth EconomiesHigh Potential or High Growth Economies  Underdeveloped and immature markets with a weak industrial base, weak currency, and poor consumers  People’s Republic of China, India, Vietnam, Brazil, Russia  Challenges to market development:  Lack of consumers with personal wealth  Underdeveloped infrastructure for support operations  Unfamiliarity with market economy mechanisms  The need for large investments in distribution systems  Unfavorable policy changes distorting value of investments

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–11 Market Economies and Systems (cont’d) Other EconomiesOther Economies  Defy classification due to their possession of critical and valuable resources or other social or political factors which distort their internal economies and markets.  Challenges of other economies  Political instability  Cultural differences  Ethnic violence

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–12 The Role of the GATT and the WTO General Agreement on Tariffs and Trade (GATT)General Agreement on Tariffs and Trade (GATT)  Promoted international trade by reducing trade barriers and making it easier for all nations to compete.  Most Favored Nation (MFN) principle The World Trade Organization (WTO)The World Trade Organization (WTO)  Organization (replaced GATT) with the goals of:  Promoting trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies  Reducing trade barriers through multilateral negotiations  Establishing impartial procedures for resolving trade disputes among its members

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5– Environmental Challenges of International Management Political and Legal Environment Government stability Property rights Trade incentives, relations, and controls Cultural Environment Values, symbols, beliefs, language, individual behaviors Economic Environment Economic system Natural resources Infrastructure International Management Functions

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–14 Controls on International Management Tariffs Export restraint agreements Quotas Key Trade Control Concepts

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–15 Controls on International Management Key ConceptsKey Concepts  Tariffs  Taxes collected on goods shipped across national boundaries.  Quotas  Limits placed on the number or value of goods that can be traded as exports or imports.  Export restraint agreements  Voluntary limits on the volume or value of goods exported to or imported from another country.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–16 The Cultural Environment Individual differences across cultures:Individual differences across cultures:  Social orientation  A person’s beliefs about the relative importance of the individual versus groups to which that person belongs.  Power orientation  The beliefs that people in a culture hold about the appropriateness of power and authority differences in hierarchies such as business organizations.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–17 5.4a Individual Differences Across Cultures

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–18 5.4b Individual Differences Across Cultures

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–19 5.4c Individual Differences Across Cultures

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–20 Competing in a Global Economy Globalization and Organization SizeGlobalization and Organization Size  Multinational Corporations (MNCs)  Adopt a global perspective and compete in the global marketplace.  Medium-Size Businesses  Remain primarily domestic organizations that may buy and sell abroad through trade specialists and compete with foreign companies in local markets.  Small Businesses  Participate in global markets when they serve as local suppliers for MNCs.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–21 Management Challenges in a Global Economy Planning Leading Organizing Understanding of both environmental issues and competitive issues. Addressing issues of creating and managing operations on a world-wide scale. Learning to interact with and motivate persons of different cultural, social, and economics backgrounds. Controlling Integrating operations across time-zones, cultural factors, and varying communication methods.