Chapter 1.pdf

MGMT80 Globalization and Business Practices Introduction to International Business Professor: Ihsen Ketata, Ph.D.  Course Flow International Business (IB) Foundation Concepts The Environment of IB...

MGMT80 Globalization and Business Practices Introduction to International Business Professor: Ihsen Ketata, Ph.D.  Course Flow International Business (IB) Foundation Concepts The Environment of IB 3. Cultural 6. Political & 10. Financial 1. Intro to IB Environment Legal Systems Environment 2. Globalization & 7. Government 4. Ethics Internationalization Intervention 11. Strategy Regional & and Economic Organization Integration 5. Theories 8. Emerging Markets International Business: The New Realities 1-2  This Class International Business (IB) Foundation Concepts The Environment of IB 3. Cultural 6. Political & 10. Financial 1. Intro to IB Environment Legal Systems Environment 2. Globalization & 7. Government 4. Ethics Internationalization Intervention 11. Strategy Regional & and Economic Organization Integration 5. Theories 8. Emerging Markets International Business: The New Realities 1-3  Warm up Questions Q1. Name the top three most innovative companies in the world. Q2. What are the top three strongest brands?  Learning Objectives 1. What is international business? 2. What are the key concepts in international trade and investment? 3. How does international business differ from domestic business? 4. Who participates in international business? 5. Why do firms internationalize? 6. Why study international business? International Business: The New Realities 1-8  Learning Objectives 1. What is international business? 2. What are the key concepts in international trade and investment? 3. How does international business differ from domestic business? 4. Who participates in international business? 5. Why do firms internationalize? 6. Why study international business? International Business: The New Realities 1-9 Dimensions of International Business Copyright © 2025 Pearson Education, Inc. All Rights Reserved Instagram - Why They're Successful  Instagram: A Global Phenomenon Instagram exemplifies the globalization of business and converging lifestyles worldwide. How many active users monthly? In how many languages Instagram is available? What percentage of its users live outside the firm’s home country, the United States? What entry mode did Instagram choose to establish a presence around the world? What does this case illustrate about the emergence of global enterprises? 1-13  Key Concepts in International Business Exporting Trade Importing International Business Investment International Portfolio FDI investment Globalization of markets? Ongoing economic integration and growing interdependency of countries worldwide. International Business: The New Realities 1-14 The ‘Flows’ of International Business  Learning Objectives 1. What is international business? 2. What are the key concepts in international trade and investment? 3. How does international business differ from domestic business? 4. Who participates in international business? 5. Why do firms internationalize? 6. Why study international business? International Business: The New Realities 1-16  Key Concepts International trade? Exporting Boeing and Airbus export billions in commercial aircraft every year. Importing or Global Sourcing Toyota imports many parts from China when it manufactures cars in Japan. International Business: The New Realities 1-17  2. What are the key concepts in international trade and investment? International investment Transfer of assets to another country or the acquisition of assets in that country. Foreign Direct Investment (FDI) The firm establishes a physical presence abroad through acquisition of productive assets. International portfolio investment Passive ownership of foreign securities such as stocks and bonds, in order to generate financial returns. 1-18  Who are the Big Players? Which country exported the most goods in 2022? a. U.S.A b. China c. Germany d. Japan e. Saudi Arabia International Business: The New Realities 1-19  Who are the Big Players? Which country exported the most goods in 2022? a. U.S.A b. China c. Germany d. Japan e. Saudi Arabia International Business: The New Realities 1-20 21  Who are the Big Players? Which country imported the most goods in 2022? a. U.S.A b. China c. Germany d. Japan e. Russia International Business: The New Realities 1-22  Who are the Big Players? Which country imported the most goods in 2022? a. U.S.A b. China c. Germany d. Japan e. Russia International Business: The New Realities 1-23 Source: Statistica 24  Globalization of Markets Unprecedented growth of international trade. In 1960, global trade was $300 billion per year. Today, world exports amount to some $22 trillion annually! Development of sophisticated global financial systems and mechanisms. Greater collaboration among nations through multilateral regulatory agencies such as the WTO and the IMF. Leading Countries in International Merchandise Trade, by Total Annual Value, U S$ Billions Sources: Based on data from the World Bank, World Development Indicators, World Bank, Washington, World Trade Based on data from the World Trade Organization, Statistics Database, Geneva: World Trade Organization (2023), Copyright © 2025 Pearson Education, Inc. All Rights Reserved Leading Countries in International Merchandise Trade, Total Value as a % of GDP Sources: Based on data from the World Bank, World Development Indicators, World Bank, Washington, World Trade Based on data from the World Trade Organization, Statistics Database, Geneva: World Trade Organization (2023), Copyright © 2025 Pearson Education, Inc. All Rights Reserved World Trade Is Growing Faster than GDP Source: Based on data from the International Monetary Fund, World Economic Outlook Database October, 2017, www.imf.org Copyright © 2020 Pearson Education, Inc. All Rights Reserved  Top 25 Countries in International Merchandise Trade Sources: Based on data from the World Bank, World Development Indicators, Washington, D C: World Bank (2023), www.worldbank.org ; World Trade Organization, Statistics Database, Geneva: World Trade Organization (2023), www.wto.org ; U N C T A D, World Investment Report, New York: United Nation (2023), www.unctad.org. Note: The exhibit reflects the value of each country’s combined exports and imports as a percentage of total world trade Copyright © 2025 Pearson Education, Inc. All Rights Reserved  FDI Inflows into World Regions (in Billions of U.S. Dollars per Year) Sources: U N C T A D, U N C T A D S T A T Database, Inward F D I Flows, Annual (2023); O E C D, F D I Flows (2023), https://data.oecd.org/fdi/fdi-flows.htm ; World Bank, Foreign Direct Investment, Net Inflows (BoP, Current U S$) (2023), http://data.worldbank.org. Copyright © 2025 Pearson Education, Inc. All Rights Reserved  Service Industries That Are Rapidly Internationalizing Industry Representative Activities Representative Companies Architectural, construction, Construction, power utilities, design, A B , Bechtel Group, Halliburton, Kajima, Philip Holzman, Skanska and engineering engineering services, AB for airports, hospitals, dams Banking, finance, and insurance Banks, insurance, risk evaluation, Bank of America, C I G N A, Barclays, H S B C, Ernst & young management Education, training, and Management training, technical training, Berlitz, Kumon Math & Reading Centers, N O V A, Pearson, publishing language training Elsevier Entertainment Movies, recorded music, Internet- based Time Warner, Sony, Virgin, M G M entertainment Information services E-commerce, e-mail, funds transfer, data Infosys, E D I, Hitachi, Qualcomm, Cisco interchange, data processing, computer services Professional business Accounting, advertising, legal, management Leo Burnett, EYLaw, McKinsey, A.T. Kearney, Booz Allen Hamilton services consulting Transportation Aviation, ocean shipping, railroads, trucking, Maersk, Santa Fe, Port Authority of New Jersey, S N C F (French airports railroads) Travel and tourism Transportation, lodging, food and beverage, Carlson Wagonlit, Marriott, British Airways aircraft travel, ocean carriers, railways Copyright © 2025 Pearson Education, Inc. All Rights Reserved  Leading Countries in International Services Trade, by Total Annual Value, $Billions Based on data from the World Bank, World Development Indicators, Washington, D C: World Bank (2023), www.worldbank.org ; World Trade Organization, Statistics Database, Geneva: World Trade Organization (2023), www.wto.org ; U N C T A D, “International Trade in Goods and Services,” U N C T A D S T A T (2023), www.unctad.org. Copyright © 2025 Pearson Education, Inc. All Rights Reserved  Leading Countries in International Services Trade, Total Value as a % of GDP Based on data from the World Bank, World Development Indicators, Washington, D C: World Bank (2023), www.worldbank.org ; World Trade Organization, Statistics Database, Geneva: World Trade Organization (2023), www.wto.org ;U N C T A D, “International Trade in Goods and Services,” U N C T A D S T A T (2023), www.unctad.org. Copyright © 2025 Pearson Education, Inc. All Rights Reserved  What percentage of all international trade is international trade in services? Which service used to represent (before the pandemic) in your opinion the number-one source of revenue from foreigners in the US and most European countries? Which trade is growing faster? Trade of merchandise goods or trade of services? Can all services be exported? International Business: The New Realities 34  Advanced economies: Typically the richest countries. Emerging market economies: Former developing economies that achieved substantial industrialization, modernization, and remarkable economic growth. Developing economies: Low-income countries characterized by limited industrialization and stagnant economies. International Business: The New Realities 35  Learning Objectives 1. What is international business? 2. What are the key concepts in international trade and investment? 3. How does international business differ from domestic business? 4. Who participates in international business? 5. Why do firms internationalize? 6. Why study international business? International Business: The New Realities 1-36  3. How does international business differ from domestic business? 1. International business…. is conducted across national borders, uses distinctive business methods, is in contact with countries that differ in terms of culture, language, political system, legal system, economic situation, infrastructure, and other factors. 2. Stated differently, when they venture abroad, firms encounter four major types of risk. 1-37 The Four Risks of International Business The Four Risks of International Business The Four Risks of International Business The Four Risks of International Business  1. Cross-Cultural Risk Have you ever faced cultural risk? Could you give me an example of a cultural risk? How would such a risk affect business activities? 1-42 American/Indian Culture  1. Cross-Cultural Risk Cultural Differences Differences in language, lifestyle, attitudes, customs, and religion, where a cultural miscommunication jeopardizes a culturally-valued mindset or behavior. Negotiation Patterns E.g., where Mexicans are friendly and emphasize social relations, Americans are assertive and get down to business quickly. Decision-Making Styles E.g., Japanese take considerable time to make important decisions. Canadians tend to be decisive, and ‘shoot from the hip’. Ethical Practices E.g., bribery is relatively accepted in some countries in Africa, but is generally unacceptable in Sweden. 1-44 CASE- PRODUCTION OF FADED DENIM JEANS In the fashion industry, hundreds of factory workers die annually from dangerous working conditions. ▪ In the production of faded denim jeans, thousands of garment workers develop deadly lung diseases from constant exposure to crystalline silica used to sandblast jeans to give them the worn, vintage look. ▪ Illegal in Europe and the United States, such production methods are still widely used in low-income countries, from where the jeans are then distributed to affluent consumers worldwide Source: G. Brown, “Fashion Kills: Industrial Manslaughter in the Global Supply Chain,” EHS Today, September 2010, p. 59.  2. Country Risk (Political Risk) What should be the role of the government in the country? Competition Stability Rule of law Transparency Intellectual property rights 46  2. Country Risk (Political Risk) Government intervention, protectionism, and barriers to trade and investment. Bureaucracy, red tape, administrative delays, corruption Lack of legal safeguards for IPRs Legislation unfavorable to foreign firms Economic failures and mismanagement Social and political unrest and instability 1-47  Examples of Country Risk (Political Risk) The U.S. imposes high tariffs on imports of sugar and other agricultural products. Doing business in Russia often requires paying bribes to government officials. Restrictions to Google, Youtube etc. See the article : Google’s Censorship Juggle,” WSJ, June 18, 2012.  Country Risk (Political Risk) Ex: Google in China Hacking of Google’s servers in U.S. resulted in theft of intellectual property Chinese government requires filtering of search engine results “Google Warns of China Exit Over Hacking”, WSJ, Jan. 13, 2010  Country Risk (Political Risk) Ex: Google in China Impact of Google exit from China on Microsoft: - Currently, cn.Bing.com has less than 1% of market in China Microsoft’s language challenges in China: - “bing” means sick, cold or pancake in Chinese (depending on tone of voice) - Microsoft changes name to “bi ying,” which means must respond “Google Exit Would Open a Door For Microsoft,” WSJ, March 16, 2010  Country Risk (Political Risk) China is building a vast civilian surveillance network that tracks every single one of its 1.4 billion citizens  Country Risk (Political Risk) Ex: Skype blocked in the UAE (January 2018) https://www.khaleejtimes.com/technology/skype-blocked-in-uae-but-here-are-some-other-alternatives-  3. Currency Risk (Financial Risk) Currency exposure General risk of unfavorable exchange rate fluctuations. Asset valuation Risk that exchange rate fluctuations will adversely affect the value of the firm’s assets and liabilities. Foreign taxation Income, sales, and other taxes vary widely worldwide, with implications for company performance and profitability. Inflation High inflation, common to many countries, complicates business planning, and the pricing of inputs and finished goods. 1-53  Examples of Currency Risk The Japanese yen has fluctuated a lot in recent years The U.S. has relatively high corporate income taxes. Argentina and Turkey have experienced very high inflation. Strong Dollar decreases the exporting capability of American firms.  4. Commercial Risk When do we face commercial risk? Weak partner Operational problems Timing of entry Competitive intensity Poor execution of strategy International Business: The New Realities 1-55 The Four Risks of International Business  Mattel, The First Barbie Flagship Store in China https://www.youtube.com/watch?v=Ys3xDCEfTkc Mattel Closed the store after only two years. Mattel remained committed to developing the Barbie brand in China http://www.forbes.com/sites/helenwang/2013/11/17/can-mattel-make-a-comeback-in-china/ The Four Risks of IB ▪ Always present but manageable. ▪ Managers need to understand, anticipate, and take proactive action to reduce their effects. ▪ Some risks are extremely challenging. Example The Covid-19 pandemic generated many commercial, currency, and country risks, affecting companies worldwide. This led to large declines in national stock markets and normal business activity.  Learning Objectives 1. What is international business? 2. What are the key concepts in international trade and investment? 3. How does international business differ from domestic business? 4. Who participates in international business? 5. Why do firms internationalize? 6. Why study international business? International Business: The New Realities 1-64  4. Who participates in IB? Multinational enterprises (MNE) Small and Medium-Sized Enterprises (SME) Born global firms Non-governmental organizations Also: State agencies & state-owned companies Logistics & shipping firms Service providers (banks, ad agencies, research firms, law firms, payment facilitators) Investment firms; sovereign wealth funds International Business: The New Realities 1-65  Geographic Locations of the 500 Largest Multinational Enterprises Source: Fortune, “Global 500,” 2022, http://fortune.com ; Fortune, “Visualize the Global 500,” 2023, http://fortune.com The exhibit shows country name, total revenues of Global 500 firms in U.S. dollars, and total number of Global 500 firms. Copyright © 2025 Pearson Education, Inc. All Rights Reserved Who Participates in International Business? (2 of 2) Governments: Associated with government intervention and specific political systems Non-governmental organizations (NGO s): Many such non-profit organizations conduct cross-border activities. They pursue special causes and serve as advocates for social issues, education, politics, and research. Examples The Bill and Melinda Gates Foundation and the British Welcome Trust both support health and educational initiatives. CARE is an international non-profit organization dedicated to reducing poverty. Copyright © 2025 Pearson Education, Inc. All Rights Reserved  Nongovernmental Organizations The British Welcome Trust funds non-governmental organizations (NGOs)and research initiatives to work in collaboration with private businesses to develop remedies for diseases in Africa and other less-developed areas. Copyright © 2025 Pearson Education, Inc. All Rights Reserved Non-governmental organizations  Learning Objectives 1. What is international business? 2. What are the key concepts in international trade and investment? 3. How does international business differ from domestic business? 4. Who participates in international business? 5. Why do firms internationalize? 6. Why study international business? International Business: The New Realities 1-70  5. Why do Firms Participate in IB? Seek opportunities for growth through market diversification. E.g., Harley-Davidson, Dell, IKEA. Earn higher margins and profits. Often, foreign markets are more profitable. Gain new ideas about products, services, and business methods. E.g., GM refined its knowledge for making small, fuel-efficient cars in Europe. International Business: The New Realities 1-71  5. Why do Firms Participate in IB? Better serve key customers that have relocated abroad. E.g., when Toyota launched its operations in Britain, many of its suppliers followed suit. Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products. E.g., Apple sources parts and components from the best suppliers worldwide. 1-72  5. Why do Firms Participate in IB? Develop economies of scale in sourcing, production, marketing, and R&D. E.g., Airbus lowers its overall costs by sourcing, manufacturing, and selling aircraft worldwide. Confront international competitors more effectively or thwart the growth of competition in the home market. Chinese appliance maker Haier established operations in the US partly to gain competitive knowledge about Whirlpool, its chief US rival. 1-73  5. Why do Firms Participate in IB? Gain access to lower-cost or better-value factors of production. E.g., Sony does much manufacturing in China. Invest in a potentially rewarding relationship with a foreign partner. French computer firm Groupe Bull partnered with Toshiba in Japan to gain insights for developing information technology. 1-74  Learning Objectives 1. What is international business? 2. What are the key concepts in international trade and investment? 3. How does international business differ from domestic business? 4. Who participates in international business? 5. Why do firms internationalize? 6. Why study international business? 1-75  6. Why Should You Study IB? ✔ Facilitator of the global economy and interconnectedness. IB brings nations closer together. ✔ Contributor to national economic well-being. IB fuels economic growth and rising living standards. ✔ A competitive advantage for the firm. IB provides companies with many benefits, leading to profitability and competitive advantages. International Business: The New Realities 1-76  6. Why Should You Study IB? ✔ A competitive advantage for you. Working internationally offers a range of enlightening experiences, new knowledge, and other benefits that enhance careers! ✔ An opportunity for global corporate citizenship. Firms must be ethical and socially responsible in their dealings because IB affects numerous constituents, often in unintended ways. International Business: The New Realities 1-77  IB Contributes to National Economic Well-being A popular shopping street in Beijing, China Copyright © 2020 Pearson Education, Inc. All Rights Reserved  You Can Do It: Mary Lyles (1 of 2) Mary is a real person, who got her undergraduate degree from a state university a few years ago. Read her profile in Chapter 1. Mary’s majors: International business and Spanish. Success factors: Networking, setting goals, developing a global mindset.  You Can Do It: Mary Lyles (2 of 2) Mary’s jobs since college: – Buyer and private label project manager – Sourcing analyst for Starbucks – Senior sourcing analyst for Starbucks Dealing with cultural differences is challenging. Mary’s passion for international business is paying off. Career Preparation: Travel Abroad Traveling internationally requires thorough preparation. Documents required for international travel include a passport and a visa. It is best to comply with security, safety, and health care requirements of countries that you visit. Adapt to differences in currency and electricity standards in the countries you visit. Understand local laws and obtain an international driving permit if you intend to drive a car abroad. Copyright © 2025 Pearson Education, Inc. All Rights Reserved  Key Takeaways 1. What is international business? Performance of trade and investment activities by firms across national borders. 2. What are the key concepts in international trade and investment? International trade, exporting, importing/global sourcing, international investment, FDI, international portfolio investment. 3. How does international business differ from domestic business? Four risks: Cross-Cultural, Country (Political), Currency (Financial), Commercial 4. Who participates in international business? MNE, SME, Born-Global, Non-Governmental organizations 5. Why do firms internationalize? To be competitive 6. Why study international business? Competitive advantage for you and your firm International Business: The New Realities 1-82  Next Class International Business (IB) Foundation Concepts The Environment of IB 3. Cultural 6. Political & 10. Financial 1. Intro to IB Environment Legal Systems Environment 2. Globalization & 7. Government 4. Ethics Internationalization Intervention 11. Strategy Regional & and Economic Organization Integration 5. Theories 8. Emerging Markets International Business: The New Realities 1-83