1. Chapter One Copyright, John Wiley and Sons, Inc. Part One: Concepts and Theories in IB. three Learning Themes for This Section reading this chapter, you should be able to: 1. Understand the major theories of why trade occurs. 2. Comprehend the differences between traditional and contemporary trade theory. 3. Explain why FOREIGN DIRECT INVESTMENT is important to International Business. Part One: Concepts and Theories in IB. Part One: Concepts and Theories in IB.

2. Chapter One Copyright, John Wiley and Sons, Inc. Part One: Concepts and Theories in IB. three Learning Themes for This Section (cont) reading this chapter, you should be able to: 4. Know the general trends in FOREIGN DIRECT INVESTMENT stock and flow worldwide. 5. Identify the major organizational forms in international business. Part One: Concepts and Theories in IB. Part One: Concepts and Theories in IB.

3. Chapter One Copyright, John Wiley and Sons, Inc. Chapter One three Learning Concepts – Chapter 1 : 1. Understand globalization and why it is important. 2. Comprehend why and how globalization can be perceived as a benefit and as a threat. 3. Explain the differences between important international business terms. International Business in an Age of Globalization International Business in an Age of Globalization

4. Chapter One Copyright, John Wiley and Sons, Inc. Chapter One three Learning Concepts – Chapter 1 (cont) : 4. State the differences between international business and domestic business practices. 5. Appreciate why firms expand internationally. International Business in an Age of Globalization International Business in an Age of Globalization

5. Chapter One Copyright, John Wiley and Sons, Inc. An Age of Globalization Globalization is everywhere. For consumers, it means more choice, lower prices, and blurred national identities. For business, it means lower costs, better supply, and more markets.

6. Chapter One Copyright, John Wiley and Sons, Inc. Globalization – Who benefits?  Developing countries benefit from globalization with increased employment, tax revenues, and international relations.  Developed countries benefit from globalization with increased production, imports, exports, and corporate growth.

7. Chapter One Copyright, John Wiley and Sons, Inc. Globalization and Corporate Monopoly There is an argument that governments will surrender their sovereignty to global corporations. This is not true – globalization does, however, open governments to the reality of trade and pluralistic influence.

8. Chapter One Copyright, John Wiley and Sons, Inc. Globalization and the Environment Does globalization hurt the natural environment? Probably not. Resources show that globalization actually helps the natural environment through the national development it fosters.

9. Chapter One Copyright, John Wiley and Sons, Inc.  Globalization can cause job transitions in home and host countries.  Globalization causes wages to go up in developing countries and can put downward wage pressure among unskilled workers at home.  Globalization also causes capital to enter and exit economies easier and more frequently, which causes economic uncertainty. Globalization – The Social Impact

10. Chapter One Copyright, John Wiley and Sons, Inc. Globalization and International Business Some suggest that globalization causes cultural homogenization. This isn’t true. Globalization causes people to be more aware of their national culture and background, not less. The challenge, is to lever resources to maintain productivity in light of increasing nationalism and cultural awareness.

11. Chapter One Copyright, John Wiley and Sons, Inc. What is International Business? International business (IB) refers to business activities that involve the transfer of resources, goods, services, knowledge, skills, or information across national boundaries. IB uses raw materials, capital and people to accomplish these goals.

12. Chapter One Copyright, John Wiley and Sons, Inc. IB – Some Key Terms  International Transactions are economic transactions that cross borders.  International Trade occurs when companies imports or export across borders.  International Investment occurs when a company invests its resources across national boundaries.  International Firms are those engaged in international business.  A Multinational Enterprise (MNE) invests globally and actively controls those investments.

13. Chapter One Copyright, John Wiley and Sons, Inc. International U.S. Domestic Business IB is an outgrowth of domestic practice. Most international firms started as domestic ones. Toyota, Honda, Mitsubishi, Renault, Jaguar; all started as domestic business. As these firms grew, they became MNEs.

14. Chapter One Copyright, John Wiley and Sons, Inc. Why Do Firms Go Global?  Market Motives can gain, protect, or hold a market position.  Economic Motives occur when firms seek higher returns on investments or lower costs.  Strategic Motives help a firm capitalize on distinctive resources or develop capabilities that are rare, imitable, valuable, and not substitutable.

15. Chapter One Copyright, John Wiley and Sons, Inc. Examples of Global Motives  Market Motives - where a firm seeks to gain, protect, or hold market position.  Amway gains market position in China.  Honda protects market share by building cars in the USA.

16. Chapter One Copyright, John Wiley and Sons, Inc. Examples of Global Motives  Economic Motives - where a firm seeks to increase ROI or decrease costs.  Scania moves production to Mexico to lower costs.  Michelin improves by building tires in Canada.

17. Chapter One Copyright, John Wiley and Sons, Inc. Examples of Global Motives  Strategic Motives - where firms seek to leverage distinctive competencies.  Exxon drills for oil in Asia and the Middle East.  Procter and Gamble sell food in China.

18. Chapter One Copyright, John Wiley and Sons, Inc. Globalization – In summary  Globalization is complex and expensive. It forces business firms to adopt strategies and operations to different cultures and climates. When business can do this, and this is what this class is all about, it can achieve a very good return on investment and useful global operations.