2. Fourth Edition Copyright ©2003 Prentice Hall, Inc. PART 1........................ Understanding the Contemporary Business Environment

3. Copyright ©2003 Prentice Hall, Inc. 1 - 2 Chapter 2 The Global Context of Business

4. Copyright ©2003 Prentice Hall, Inc. 1 - 3 Exercise Give me stories of different products and marketing approaches in other countries, and compare them in Palestine? What evidence have we seen in the last ten years of growing international business partnership? Trade agreements- global mergers- joint ventures- licensing

5. Copyright ©2003 Prentice Hall, Inc. 1 - 4 “ We are in the midst of a great transition from narrow nationalism to international partnership. ” ~ Lyndon Baines Johnson

6. Copyright ©2003 Prentice Hall, Inc. 1 - 5 Key Topics The rise of global business Major world marketplaces and Palestine trading partners Influences on international business International business management The impact of differences among nations

7. Copyright ©2003 Prentice Hall, Inc. 1 - 6 The key drivers to globalization Drivers: Global market Convergence Global Competition Government Influence Cost Advantages Global Strategies Similar customer needs, Global customers, Transferable marketing Trade policies, Technical Standards, host government, policies Scale economies, Sourcing efficiencies Countries costs, High product development costs Interdependence, Competitors global High exports/imports,

8. Copyright ©2003 Prentice Hall, Inc. 1 - 7 Globalization Is Gaining Speed The world economy is becoming a single, interdependent system Export: Domestic product sold abroad Import: Foreign product sold domestically

9. Copyright ©2003 Prentice Hall, Inc. 1 - 8 Globalization Is Gaining Speed Example: Asian financial markets in the late 90s directly affects stock markets worldwide. Discussion: what product from other countries do you use\consume? Why have you chosen it? Why not Palestinian product?

10. Copyright ©2003 Prentice Hall, Inc. 1 - 9 Categorizing Economies High Income Countries: Per capita income greater than $9,386 Middle Income Countries: Per capita income between $765 and $9,386 Low Income Countries: Per capita income of less than $765 Discussion: what countries fall into each category?

11. Copyright ©2003 Prentice Hall, Inc. 1 - 10 North America NAFTA Europe EU Pacific Asia Do we have any economic agreement with other countries. What are they? Major World Marketplaces

12. The North American Marketplace (NAFTA) Canada United States Mexico Copyright ©2003 Prentice Hall, Inc. 2 - 11

13. Europe and the Nations of the European Union Copyright ©2003 Prentice Hall, Inc. 2 - 12 AustriaAustria BelgiumBelgium DenmarkDenmark FinlandFinland FranceFrance GermanyGermany GreeceGreece IrelandIreland ItalyItaly IrelandIreland ItalyItaly LuxembourgLuxembourg NetherlandsNetherlands PortugalPortugal SpainSpain SwedenSweden United KingdomUnited Kingdom

14. The Nations of ASEAN BruneiBrunei IndonesiaIndonesia MalaysiaMalaysia PhilippinesPhilippines SingaporeSingapore ThailandThailand VietnamVietnam Copyright ©2003 Prentice Hall, Inc. 2 - 13

15. Pacific Asia Represents Enormous Business Potential In less than a decade, Asian language speakers on the web will far exceed English speakers Source: Time Global Business, Nov. 2001 EnglishJapaneseChineseKorean 0 50 100 150 200 250 300 350 400 450 500 415 96 432 34 Projections for 2010 (in millions) 2 - 14

16. Copyright ©2003 Prentice Hall, Inc. 1 - 15 Competitive Advantage Absolute Advantage: when one country can produce a product cheaper and\or higher quality than any other country. Ex. OPEC Comparative Advantage: when one country can produce certain goods or services more efficiently and effectively than others. Ex. US software

17. Copyright ©2003 Prentice Hall, Inc. 1 - 16 Competitive advantages When competitive advantage is materialized? When a firm earns persistently higher rate of profit over its rivals. Determinants of profit level 1- Value of company products in customers’ eyes. 2- Company production cost.

18. Copyright ©2003 Prentice Hall, Inc. 1 - 17 Competitive advantage It can be created in certain industrial field, through the adoption of low-cost- differentiation strategy.. M. Porter

19. Copyright ©2003 Prentice Hall, Inc. 1 - 18 National Competitive Advantage Factor conditions Demand conditions Related and supporting industries Strategies, structures, and rivalries Qui. Evaluate Palestine?

20. Copyright ©2003 Prentice Hall, Inc. 1 - 19 Import/Export Balances Balance of Trade Trade Deficits Trade Surpluses Balance of Payments The total flow of money into or out of an economy

21. Copyright ©2003 Prentice Hall, Inc. 1 - 20 Exchange Rates Heavily Impact Global Trade When an economy’s currency is strong: Domestic companies find it harder to export products Foreign companies find it easier to import products Domestic companies may move production to cheaper sites in foreign countries Implications for balance of trade?

22. Copyright ©2003 Prentice Hall, Inc. 1 - 21 Exchange Rates Heavily Impact Global Trade When an economy’s currency is weak: Domestic companies find it easier to export products Foreign companies find it harder to import products Foreign companies may invest in production facilities Implications for balance of trade?

23. The U.S. Economy Has a Growing Trade Deficit Copyright ©2003 Prentice Hall, Inc. 2 - 22 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 $400,000 19901991199219931994199519961997199819992000 U.S. Trade Deficit (in billions) 78,857 28,266 35,666 68,949 97,03995,947 102,113 105,932 166,898 255,971 344,716 0 200 400 600 800 1000 1200 1400 1600 19901991199219931994199519961997 1998 19992000 ImportsExports U.S. Imports & Exports (in billions)

24. Does It Make Sense to Go International? Copyright ©2003 Prentice Hall, Inc. 2 - 23 YES Is there international demand for the firm’s product? NO Stay Domestic Can the product be modified to fit a foreign market? NO YES Is the foreign business climate suited to imports? NO Does the firm have or can it get the necessary skills and knowledge to do business abroad? YES NO YES Go International

25. Copyright ©2003 Prentice Hall, Inc. 1 - 24 Levels of International Involvement Importer & Exporter International Firms Multinational Firms

26. Copyright ©2003 Prentice Hall, Inc. 1 - 25 International Organizational Structures Foreign Investment Strategic Alliances Branch Offices Licensing Arrangements Independent Agents INVOLVEMENT HIGH LOW

27. Copyright ©2003 Prentice Hall, Inc. 1 - 26 Barriers to International Trade Social & Cultural Differences Economic Differences Legal & Political Differences

28. Copyright ©2003 Prentice Hall, Inc. 1 - 27 Take Time to Learn the Culture Thoroughly! Este es nuestro nuevo auto: el NOVA! Ha, ha, ha, ha, ha, ha!!!

29. Copyright ©2003 Prentice Hall, Inc. 1 - 28 The Customer’s Language A Critical Business Success Factor In the U.S. alone, 18% of the population does not speak English at home. Only 48% of the world’s Web users are native English speakers. Consumers are four times more likely to buy a product on the Internet if the website is in their preferred language. Source: Time Global Business, Nov. 2001

30. Copyright ©2003 Prentice Hall, Inc. 1 - 29 Economic Differences To operate effectively in another country, businesses must know when, and to what extent, the government is involved in a given industry.

31. Copyright ©2003 Prentice Hall, Inc. 1 - 30 Legal & Political Differences Quotas, Tariffs, & Subsidies Protectionism Local Content Laws Business Practice Laws Day to day operations Cartels Dumping

32. Copyright ©2003 Prentice Hall, Inc. 1 - 31 Definitions Quota: restriction on the number of certain type of product that can be imported into a country. Embargo: complete ban on imports and exports, imposed by a government for political reasons. Tariff: tax levied on imported products. Subsidy: government payments to help a domestic business compete with foreign firms. Protectionism: the practice of protecting domestic business against foreign competition.

33. Copyright ©2003 Prentice Hall, Inc. 1 - 32 Chapter Review Discuss the rise of international business, describe the major world marketplaces. Explain how competitive advantage, import- export balances, exchange rates, and foreign competition shape international business strategies.

34. Copyright ©2003 Prentice Hall, Inc. 1 - 33 Chapter Review Discuss what factors influence whether a company should engage in international business. Identify different levels of international involvement and international organizational structure. Describe key barriers to international trade.