1. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one

2. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one chapter one International Business Diverse, Competitive and Subject to Rapid Technological Changes International Business Diverse, Competitive and Subject to Rapid Technological Changes Concept Preview After reading this chapter, you should be able to: 1. appreciate the dramatic internationalization of markets 2. understand the various names given to firms that have substantial operations in more than one country 3. appreciate the profound effect of the internet on many international business firms 4. understand the five kinds of drivers, all based on change, that are leading international firms to the globalization of their operations

3. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one chapter one International Business Diverse, Competitive and Subject to Rapid Technological Changes International Business Diverse, Competitive and Subject to Rapid Technological Changes Concept Preview continued After reading this chapter, you should be able to: 5. comprehend why international business differs from domestic business. 6. describe the three environments—domestic, foreign, international —in which an international company operates.

4. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one 1-3 Introduction  Why Study International Business?  International Business Terminology  History of International Business  Why is International Business Different?  Focus of This Course

5. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Table 1.1 1-4 *At 1996 prices and exchange rates. Sources: “Gross Domestic Product,” National Accounts of OECD Countries, 1997, vol.. 1, February 1997; http://www.oecdwash.org/PRESS/CONTENT/gdpfeb97.htm (April 22, 1997); World Development Report 1995; National Accounts OECD 1997, www.oecd.org/publications/observer/figures/TRADE_A.pdf Import Penetration (%)Goods and ServicesGDP* ExportsImports 19961970199619701996197019961970 United Kingdom28.2%23.4%$314$25$322$25$1,135$107 Germany23.519.357039550352,361185 France21.415.536123324221,548143 United States12.36.779368906687,2631,012 Japan9.09.848322406204,597204 Import Penetration, 1970 versus 1996 ($ billions)

6. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one International Business Terminology 1-5  Multinational company is an organization with multi-country affiliates, each of which formulates its own business strategy based on perceived market differences  Global company is an organization that attempts to standardize operations worldwide in all functional areas  International company refers to both global and multinational companies International business is business whose activities involve the crossing of national borders  Foreign business denotes the domestic operations within a foreign country

7. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one 1-6 Global Management  Searches the world for:  market opportunities  threats from competitors  sources of products, raw materials, and financing  personnel  Seeks to maintain a presence in key markets  Looks for similarities, not differences, among markets

8. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one 1-7 History of International Business  International trade is not a new aspect of business  Globalization forces  computers and communications  reduction of barriers to trade  unification of the global community  International business as a business practice is not new  1600 British East India Company  Shipping routes to the east opened by Dutch companies in 1590  American colonial traders of the 1700’s  Singer Sewing Machine 1868 (Scotland)

9. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Globalization Forces 1-8  Political  Unification and socialization of the global community  NAFTA  European Union  Progressive reduction of barriers to foreign trade and investment by most governments  Privatization of much of the industry in former communist nations  Market  As companies globalize, they become global customers  Finding the home market saturated is sending companies to foreign markets  Convergence of customer tastes and lifestyles  Technology  Advances in computers and technology  Internet and network computing  Ease of obtaining information and making transactions  Company web sites to furnish information

10. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Globalization Forces  Cost  Economies of scale reduce unit costs  Globalize product lines to reduce  development  production  inventory costs  Locate production in countries where the costs of the factors of production are lower  Competitive  Competition continues to increase in intensity  New firms have entered world markets  Companies are defending their home markets form competitors by entering the competitors’ home markets  Larger trading groups (countries) offer attractive, large markets 1-9

11. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Foreign Direct Investment 1-10 Table 1.2 Increase of FDI in U.S. as a percentage of global FDI increase, 1980 versus 1996 ($ billion) Global FDIIncreaseFDI in U.S.Increase  FDI in U.S. 198019961996-1980198019961996-1980  Global FDI (1)(2)(3)(4)(4)/(2) Canada$23$111$88$10$54$4450.0% United Kingdom813562751214313147.6% Netherlands4218514317745740.0 Japan 19330311411811436.7 France 242061823494625.3 Switzerland211531324353123.5 Germany432882455625723.3 Sweden676706934.3 Italy7118111<1332.7 Note:  = Increase Sources: UNCTAD, World Investment Report 1997 (New York: United Nations, 1997), p. 319; and Survey of Current Business, July 1997, p. 39, and August 1982, p. 36

12. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Country FDI Stock as Percentage of Global FDI (1980 versus 1996) 1-11 Figure 1.2 198019961980199619801996

13. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Recent Developments Lessening of American dominance - The top 100 industrial firms ranked by sales 1-12 Table 1.3-I 19801996 45United States32United States 42Western Europe38Western Europe 8Japan23Japan 1South Korea4South Korea 1Brazil1Brazil 1Mexico1Mexico 1Venezuela1Venezuela 1Canada100 Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

14. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Recent Developments 1-13 Table 1.3 -II 195919811996 1.General Motors (U.S.)1.General Motors (U.S.) 1.General Motors (U.S.) 2.Ford (U.S.) 2.Ford (U.S.)2.Ford (U.S.) 3.Chrysler (U.S.)3.Fiat (Italy)3.Toyota (Japan) 4.American Motors (U.S.)4.Renault (France)4.Daimler-Benz (Germany) 5.Volkswagen (Germany)5.Volkswagen (Germany)5.Volkswagen (Germany) 6.British Motor (U.K.)6.Daimler-Benz (Germany) 6.Daewoo (Korea) 7.Fiat (Italy)7.Peugeot (France) 7.Chrysler (U.S.) 8.Daimler-Benz (Germany)8.Toyota (Japan) 8.Nissan (Japan) 9.Renault (France)9.Nissan (Japan)9.Fiat (Italy) 10.Simca (France)10.Mitsubishi (Japan)10.Honda (Japan) Change in leadership in sales volume - Automobile Industry Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

15. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Recent Developments 1-14 Table 1.3 -III Industry19591996 Aerospace8United States 6United States 2European2European* Chemicals7United States 7European 3European 2United States 1Japanese Metal Manufacturing9United States 3European 1 European 4Japanese 1Australian 1South Korean Electronics 7United States 1United States 3European 7Japanese 3European Pharmaceuticals 7United States 6United States 3European 4European Change in leadership in five other industries *Only eight firms in this industry are in the Fortune Global 500. Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

16. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Recent Developments 1-15 Table 1.3 -IV 199619951989 United States162153167 Japan126141111 France424229 Germany414032 United Kingdom343243 Countries with the most companies on Fortune Global 500 List Sources: “World’s Largest Corporations,” Fortune, August 4, 1997, p. F-1; and “Fortune’s New Global 500,” Fortune, July 30, 1989, p. 265.

17. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one 1-16 Why is International Business Different?  Environment  all the forces surrounding and influencing the life and development of the firm  Uncontrollable forces  external forces over which management has no direct control, although it can exert and influence  Controllable forces  internal forces that management administers to adapt to the changes in the uncontrollable forces

18. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one Uncontrollable Forces  Competitive  kinds and numbers of competitors, their locations, and their activities  Distributive  national and international agencies available for distributing goods and services  Economic  variables (such as GNP, unit labor cost, and personal consumption expenditure) that influence a firm’s ability to do business  Socioeconomic  characteristics and distribution of the human population  Financial  variables such as interest rates, inflation rates and taxation  Legal  the many kinds of foreign and domestic laws by which international firms must operate  Physical  elements of nature such as topography, climate, and natural resources  Political  elements of nations’ political climates such as nationalism, forms of government, and international organizations  Sociocultural  elements of culture (attitudes, beliefs, and opinions) important to international business people  Labor  composition, skills, and attitudes of labor  Technological  the technical skills and equipment that affect how resources are converted to products 1-17

19. Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 section one International Managers Must Deal With Three (3) Environments Instead of One  Domestic  composed of all the uncontrollable forces in the home country that influence the firm  managers are most familiar with these forces  domestic forces can influence foreign operations  Foreign  forces are same as domestic environment except they occur in foreign nation  different force values  changes difficult to access  forces are interrelated  International  interactions between the domestic environmental forces and the foreign environmental forces  interaction between the foreign environmental forces of two countries when an affiliate does business in one country does business with customers in another 1-18