1. International Business in an Age of Globalization
Oded Shenkar and Yadong Luo
Chapter 1
International Business in an Age of Globalization
Chapter 1: International Business in an Age of Globalization

2. Do You Know?
What is globalization, and why is it important, even to domestic firms?
In what ways is globalization perceived as a benefit and as a threat?
Can you differentiate between international business, international traction, international trade, and international investment?
Can you distinguish between the multinational enterprise (MNE) and the international firm?
Chapter 1: International Business in an Age of Globalization

3. Do You Know?
What differences do you observe between international business and domestic business?
Why do firms expand globally?
What gains can they achieve and what hazards will they confront?
Does every firm seek identical goals or face the same threats in this process?
Chapter 1: International Business in an Age of Globalization

4. An Age of Globalization
Value of world exports in 2000 tripled between 1980 and 2000.
Foreign investment grow more than twenty-fold.
Firms without international goals may find their domestic markets under threat from foreign competition.
Chapter 1: International Business in an Age of Globalization

5. What does Globalization Mean for You?
More choices
Lower prices
Blurred national identity for products and services
Career choices and progression
Chapter 1: International Business in an Age of Globalization

6. What does Globalization Mean for You?
Exhibit 1-1: The global top 20 countries
Chapter 1: International Business in an Age of Globalization

7. What does Globalization Mean for You?
Exhibit 1-2: Globalization index rankings
Chapter 1: International Business in an Age of Globalization

8. Who Benefits from Globalization?
Allegedly at the cost of poorer nations.
Higher among the G-7, but some (e.g. Japan) are low on globalization
Some emerging economies (Czech Republic) are quite high
Developing countries exceeded the global average in trade growth
Chapter 1: International Business in an Age of Globalization

9. Who Benefits from Globalization?
Exhibit 1-3: Globalization and social expenditure
Chapter 1: International Business in an Age of Globalization

10. Globalization and the Environment
Common complaint that globalization hurts the environment
Argued that firms relocate to escape tough pollution rules at home
Many firms adhere to strict codes of environmental protection, and engage in cleanup of locations
Environment is just one factor in location decision
Chapter 1: International Business in an Age of Globalization

11. Globalization: The Social Balance
Carries promises and threats at the national, regional, organizational, and individual level.
Makes less regulated, emerging economies vulnerable to volatilities.
Exposes national economies to the uncertainties of the global economy.
Could offer advantages to participating economies.
Chapter 1: International Business in an Age of Globalization

12. Globalization: The Social Balance
Globalization infrastructure –
Institutional frameworks and market efficiency that support fair and transparent transactions of products or services
Streamlines flows of commodities, capital, labor, knowledge, and information.
Chapter 1: International Business in an Age of Globalization

13. Globalization: The Social Balance
Exhibit 1-4: Globalization and happiness
Chapter 1: International Business in an Age of Globalization

14. Globalization and International Business
Globalization does not mean the advance of a homogeneous civilization and uniform business system.
Growing interaction makes people more aware of the differences among them.
Chapter 1: International Business in an Age of Globalization

15. What is International Business
The business activities that involve the transfer of resources, goods, services knowledge, skills or information across national boundaries.
May involve
Individuals
Companies
Government bodies
International institutions
Chapter 1: International Business in an Age of Globalization

16. What is International Business
International transactions
Economic transactions that cross borders
International trade
Occurs when companies import or export across borders
International investment
Occurs when a companies invests its resources across national boundaries
International firm
Those engaged in international business
Chapter 1: International Business in an Age of Globalization

17. What is International Business
Multinational Enterprise (MNE)
A firm that has directly invested abroad
Has at least one working affiliate in a foreign country
Chapter 1: International Business in an Age of Globalization

18. International versus Domestic Business
International business is the outgrowth of domestic business.
Most major corporations started their operations in the domestic market.
International entrepreneurs
Individuals or companies that invest and operate in another country without a home base
Chapter 1: International Business in an Age of Globalization

19. International versus Domestic Business
Significantly different due to differences in:
Environmental Dynamics
Currency, inflation, interest rates, accounting practices, cultures, social customs, laws, political stability
Operational Nature
Communication, coordination, motivation, differences in organizational principles and management philosophies
Chapter 1: International Business in an Age of Globalization

20. Why Do Firms Expand Internationally?
Firms expand internationally for various motives:
Market motives
Economic motives
Strategic motives
Motives vary from one business activity to another.
Chapter 1: International Business in an Age of Globalization

21. Why Do Firms Expand Internationally?
Market Motives:
Offensive motive – seize market opportunities in foreign countries through trade or investment.
Defensive motive – to protect and hold a firm’s market power or position in the face of threats from domestic rivalry or changes in government policy.
Chapter 1: International Business in an Age of Globalization

22. Why Do Firms Expand Internationally?
Strategic Motives
Capitalize on distinctive resources or capabilities already developed at home
Be the first mover in a target foreign market
Benefit from vertical integration involving different countries
Follow the company’s major customers abroad
Chapter 1: International Business in an Age of Globalization

23. Why Do Firms Expand Internationally?
Economic Motives
Increase return through higher revenues and/or lower costs.
Enables the company to benefit from the differences in:
Costs of labors
Natural resources
Capital
Differences in regulatory treatment
Chapter 1: International Business in an Age of Globalization