Chapter 1 An Overview of International Business PDF

CHAPTER 1 AN OVERVIEW OF INTERNATIONAL BUSINESS MGT 361: CHAPTER 1_FPP UITM LEARNING OBJECTIVES: 1. Discuss the meaning of international business. 2. Explain the importance of understanding international business. 3. Identify and describe the basic forms of...

CHAPTER 1 AN OVERVIEW OF INTERNATIONAL BUSINESS MGT 361: CHAPTER 1_FPP UITM LEARNING OBJECTIVES: 1. Discuss the meaning of international business. 2. Explain the importance of understanding international business. 3. Identify and describe the basic forms of international business activities. 4. Discuss the causes of globalization. MGT 361: CHAPTER 1_FPP UITM WHAT IS INTERNATIONAL BUSINESS? International business involves any business transaction between parties from more than one country. It includes such activities as buying and selling raw materials, inputs, or finished products across borders, operating plants in other countries to take advantage of local resources and borrowing money in one country to finance operations in a second country. Keywords: transactions across national borders DIFFERENCES IN DOMESTIC & INTERNATIONAL BUSINESS BOUNDARIES CURRENCIES LEGAL SYSTEMS CULTURES RESOURCES SKILLS & KNOWLEDGE WHY STUDY INTERNATIONAL BUSINESS? Business skills: work for a company that is either foreign-owned, domestically owned but has some foreign operations, or domestically owned but is affected by the global economy. Future competitors: small businesses are becoming more active in the international business environment through activities such as buying and supplying components. Business technique: need to be aware of developments taking place in other parts of the globe, such as the use of just-in-time (JIT) systems. Cultural literacy: enables them to be conversant with the global economy and international marketplaces. Others: job assignments, starting own business, career opportunities. INTERNATIONAL BUSINESS ACTIVITIES Exporting & Importing Internation al Investment s Other forms of IB activity International Business Activities: Exporting  and Importing (1 of 2) Exporting: selling of products made in one’s own country for use or resale in other countries.  Importing: buying products made in other countries for use or resale in one’s own country.  Exporting and importing activities often are divided into two groups: Trade in goods: tangible products Trade in services: intangible products International Business Activities: Exporting and Importing (2 of 2) Figure 1.1 Exports of Goods and Services as a Percentage of G D P for Some Key Countries (2017 data) Source: Based on World Trade Organization Trade Profi les 2018. International Business Activities: International Investments  International Investments: Refers to capital that is supplied by residents of one country to residents of another.  Foreign Direct Investments (FDI): Investment made for the purpose of actively controlling property assets or companies located in a foreign host country.  Foreign Portfolio Investments (F P I): Purchases made for purposes other than control. International Business Activities: Other Forms  International licensing: An agreement that allows a firm in one country to use all or some of the intellectual property of a firm in another country in exchange for a royalty payment.  Intellectual Property  International franchising: An agreement that allows a firm in one country (franchisee) to use the brand names, logos, and operating techniques of a firm in a 2 nd country (franchisees) in exchange for a royalty.  The Franchisor  The Franchisee  International management contract: Involves an agreement in which one country agrees to operate facilities or provide other management services for an agreed fee.  International Business Activities: An International Business  Multinational Corporation (M N C)  Multinational Enterprise (M N E)  Multinational Organization (M N O) The World’s Largest Corporations in 2017 (1 of 2) Table 1.1 The World’s Largest Corporations Blank Revenues (in billions of U.S. Revenues (in billions of U.S. dollars) dollars) 2017 2007 Walmart 500.3 379.0 State Grid 348.9 132.9 Sinopec Group 327.0 159.3 China National 326.0 129.8 Petroleum Royal Dutch Shell 311.9 355.8 Toyota Motor 265.2 230.2 Volkswagen 260.0 149.1 BP 244.6 291.4 Exxon Mobil 244.4 372.8 Berkshire Hathaway 242.1 118.2 Apple 229.2 24.0 Samsung Electronics 211.9 106.0 McKesson 208.4 101.7 The World’s Largest Corporations in 2017 (2 of 2) Table 1.1 [Continued] Blank Revenues (in billions of U.S. Revenues (in billions of U.S. dollars) dollars) 2017 2007 Glencore 205.5 142.0 UnitedHealth Group 201.2 75.4 Daimler 185.2 177.2 C VS Health 184.8 76.3 Amazon 177.9 14.8 E X O R Group 161.7 n.a. AT&T 160.6 118.9 Sources: Based on www.fortune.com, accessed July 30, 2018; Fortune, July 21, 2008, p p. 161-171; “Glencore’s turnover soars to $142 billion in 2007,” www.metalbulletin.com, March 11, 2008, various corporate websites. Contemporary Causes of Globalization (1 of 2)  What is Globalization?  Manifestation of globalization Intensification of the role of international trade in the economies of the world Growing importance of F D I Figure 1.2 World Exports as a Percentage of World G D P Source: Based on the World Bank statistical database (for G D P data) and the World Trade Organization database (for exports of goods and exports of services). Figure 1.3 Stock of Foreign Direct Investment (F D I) Relative to World G D P Source: Based on World Bank, World Development Indicators data bank, accessed August 1, 2018; United Nations Conference for Trade and Development, World Investment Report, various issues. Contemporary Causes of Globalization (2 of 2)  Causes of Globalization Strategic Imperatives: motivate Environmental Changes: facilitate THE CONTEMPORARY CAUSES OF GLOBALIZATION STRATEGIC IMPERATIVES: 1. To leverage core competencies 2. To acquire resources and supplies 3. To seek new markets 4. To better compete with rivals THE CONTEMPORARY CAUSES OF GLOBALIZATION THE ENVIRONMENTAL CAUSES OF GLOBALIZATION: 1. Changes in the political environment 2. Technological changes Contemporary Causes of Globalization: Environmental Causes  Changes in the Political Environment Reduction of trade and investment barriers General Agreement on Tariffs and Trade (G A T T) World Trade Organization (W T O) Regional accords  Changes in the Technological Environment Advances in Transportation Changes in Communications Technology Improvement in Information Processing Contemporary Causes of Globalization: Globalization and Emerging Markets (1 of 2)  Transformed the global marketplace The collapse of European Communism The ideological and policy changes undertaken by China and India The reduction of trade barriers Contemporary Causes of Globalization: Globalization and Emerging Markets (2 of 2)  Emerging Markets? B R I C Countries Big Ten Non-High-Income Countries Table 1.2 Characteristics of Selected Emerging Markets, 2017 BRIC Big Ten Source: Based on World Bank, World Development Indicators data bank. Map 1.1 China’s Regional Challenges Source: Based on “China Quietly Releases 2017 Provincial G D P Figures,” Forbes, February 12, 2018; “Rich province, poor province,” The Economist , October 1, 2016; “Truckloads of notebooks mark fi rst step of long march inland,” Financial Times, May 24, 2011, p. 17.; “Factory blast roils tech supply chain,” Wall Street Journal , May 24, 2011, p. B1; “China’s rising wage bill poses risk of relocation,” Financial Times , February 16, 2011, p. 3; Chinese National Statistics Bureau, 2010 Census. Review Questions  What is international business? How does international business differ from the domestic business?  What is the importance of a global economy in your life?  What are the differences between visible and invisible trade?  How do merchandise exports and imports differ from service exports and imports?  How does international licensing differ from franchising?  What are the basic reasons for the recent growth of international business activity? Copyright This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. END OF SLIDE THANK YOU MGT 361: CHAPTER 1_FPP UITM