1. The Global Environment

2. Learning Objectives
After studying this chapter, you should be able to:
Describe the nature of international business, including its meaning, recent trends, management of globalization, and competition in a global market.
Discuss the structure of the global economy and describe the GATT and the WTO.
Identify and discuss the environmental challenges inherent in international management.
Describe the basic issues involved in competing in a global economy, including organization size and the management challenges in a global economy.

3. Figure 5.1: Levels of International Business Activity

4. The Meaning of International Business
Domestic Business
acquires all of its resources and sells all of its products or services within a single country.
International Business
is primarily based in a single country yet acquires a meaningful share of its resources and/or revenues from other countries.
Multinational Business
transcends national boundaries and buys raw materials, borrows money, and manufactures and sells its products in a world-wide marketplace.
Global Business
transcends national boundaries and is not committed to a single home country.

5. Trends in International Business
Economic Recovery
Industrialized nations in Europe and Asia have rebuilt their economic systems that were devastated in WWII.
Decreasing Isolation from Foreign Competition
U.S. consumer goods markets are open to overseas competitors.
Increasing Globalization of World Markets
Volume of international trade has increased more than 3,000% from 1960 to 2000.

6. Table 5.1: Advantages and Disadvantages of Different Approaches to Internationalization

7. The Structure of the Global Economy
Mature Market Economies and Systems
Based on the private ownership of business and allows market factors to determine business strategy.
A mature economy, well-developed infrastructures, and individual wealth.
Trade 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.

8. Figure 5.2: The Global Economy

9. Market Economies and Systems
High Potential/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:
The need for large investments in distribution systems
The need to educate/train consumers in product usage
A lack of infrastructure for support operations
Unfavorable policy changes affecting investments

10. Market Economies and Systems (cont’d)
Other Economies
Economies that 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

11. The Role of the GATT and the WTO
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)
Organization (replacing GATT) with the goals of:
Promoting trade flows by encouraging nations to adopt nondiscriminatory and predictable trade policies
Reducing remaining trade barriers through multilateral negotiations
Establishing impartial procedures for resolving trade disputes among its members

12. Figure 5.3: Environmental Challenges of International Management

13. Controls on International Management
Key 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.

14. Figure 5.4: Individual Differences Across Cultures
Source: R. W. Griffin/M. Pustay, International Business 4th Ed. © Reprinted by permission of Pearson Education, Inc. Upper Saddle River, NJ

15. Competing in a Global Economy
Globalization 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.

16. Table 5.2: The World’s Largest MNCs: Industrial Corporations

17. Management Challenges in a Global Economy
Planning in a Global Economy
Understanding of both environmental issues and competitive issues.
Organizing in a Global Economy
Addressing issues of creating and managing operations on a world-wide scale.
Leading in a Global Economy
Learning how to interact with and motivate persons of different cultural, social, and economics backgrounds.
Controlling in a Global Economy
Integrating global operations that encompass time-zone differences, cultural factors, and varying communication methods.

18. Key Terms domestic business international business
multinational business
global business
importing
exporting
licensing
joint venture
direct investment
maquiladoras
market economy
market systems
Pacific Asia
GATT
WTO
NAFTA
infrastructure
nationalized
tariff
export restraint agreements
economic community
social orientation

19. Key Terms (cont’d) power orientation uncertainty orientation
goal orientation
time orientation