PowerPoint Presentation by Charlie Cook The University of West Alabama Student Version © 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 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.5–5 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.5–6 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.5–7 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.5–8 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.5–9 Controls on International Management Tariffs Export restraint agreements Quotas Key Trade Control Concepts

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–10 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.5–11 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.5–12 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.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–13 Key Terms domestic businessdomestic business international businessinternational business multinational businessmultinational business global businessglobal business importingimporting exportingexporting licensinglicensing joint venturejoint venture direct investmentdirect investment maquiladorasmaquiladoras market economymarket economy market systemsmarket systems Pacific AsiaPacific Asia GATTGATT WTOWTO NAFTANAFTA infrastructureinfrastructure nationalizednationalized tarifftariff export restraint agreementsexport restraint agreements economic communityeconomic community social orientationsocial orientation

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.5–14 Key Terms (cont’d) power orientationpower orientation uncertainty orientationuncertainty orientation goal orientationgoal orientation time orientationtime orientation