Geringer IB 3e PPT Module 1 - International Business PDF

Because learning changes everything.® Module 1 The Challenging Context of International Business © 2023 McGraw Hill, LLC. All righ...

Because learning changes everything.® Module 1 The Challenging Context of International Business © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.  Learning Objectives LO 1-1 Show how international business differs from domestic business. LO 1-2 Describe the history and future of international business. LO 1-3 Discuss the dramatic internationalization of business. LO 1-4 Identify the kinds of drivers that are leading firms to internationalize their operations. LO 1-5 Compare the key arguments for and against the globalization of business. © McGraw Hill, LLC 2  International Experience Can Help You Get a Job International experience is valuable: For new hires. For mid-career individuals who aspire to higher positions and greater responsibility. For developing international skills, CEOs believe that a number of courses in the international business curriculum are relevant to their companies. Foreign experience reflects independence, resourcefulness, and entrepreneurship. Throughout this book you will find examples of ways to develop, apply, and promote your international skills and experience. © McGraw Hill, LLC 3  What Is International Business and What Is Different about It? 1 International Business. Business that is carried out across national borders. Foreign Business. Denotes the operations of a company outside its home or domestic market. International Company. A company with operations in multiple nations. A Starbucks coffee store in Beijing, China. Company executives say China is the coffee chain’s No. 1 growth market. © McGraw Hill, LLC ©Frederic J. Brown/AFP/Getty Images 4  What Is International Business and What Is Different about It? 2 The Influence of External and Internal Environmental Forces Environment: all the forces influencing the life and development of the firm. External forces: Uncontrollable forces that management has no direct control over. © McGraw Hill, LLC 5  What Is International Business and What Is Different about It? 3 The Influence of External and Internal Environmental Forces. External forces consist of the following uncontrollable forces: 1. Competitive. 7. Physical. 2. Distributive. 8. Political. 3. Economic. 9. Sociocultural. 4. Socioeconomic. 10. Labor. 5. Financial. 11. Technological. 6. Legal. © McGraw Hill, LLC 6  What Is International Business and What Is Different about It? 4 The Influence of External and Internal Environmental Forces continued Internal forces: Management has come control over the internal forces. Human resources. Finance. Changes in an external force, such as the political force associated with the UK voting to leave the European Union (EU), can affect all controllable forces of firms that do business with or in the EU nations. © McGraw Hill, LLC 7  Critical Thinking Question Give examples to show how an international business manager might manipulate one of the controllable forces in answer to a change in the uncontrollable forces. © McGraw Hill, LLC 8  What Is International Business and What Is Different about It? 5 The Domestic Environment. All the forces that influence the life and development of the firm. The Foreign Environment. Uncontrollable forces originating outside the home country. Forces in the foreign environment operate differently than forces in the domestic environment for many reasons: Forces have different values. Forces can be difficult to access. Forces are interrelated. © McGraw Hill, LLC 9  What Is International Business and What Is Different about It? 6 The International Environment. Includes interactions between domestic and foreign environmental forces and between the foreign environmental forces of two countries. Decision making is more complex. Self-reference criterion - some managers will ascribe to others their own preferences and reactions. Three choices for techniques employed in domestic operations: transfer it intact, adapt it to local conditions, or not use it oversees. © McGraw Hill, LLC 10  Global Debate Professor C.K. Prahalad popularized the term “Bottom of the Pyramid” to refer to the approximately 3 billion people who survive on less than $2 per day, where basic survival needs are just barely met. Prahalad suggested that this large mass of humanity should be viewed as having tremendous market potential with untapped purchasing power. If customers at the base of the pyramid could be convinced to allocate some of their meager income to products such as cigarettes, alcoholic beverages, or cosmetics, would it be socially responsible for multinationals to pursue such opportunities? Why or why not? © McGraw Hill, LLC 11  Figure 1.1 International Business Environments International environment Domestic environment (includes socioeconomic, sociocultural, political, legal, distributive, competitive, physical, labor, financial, technological, and economic environments). Foreign environment (includes socioeconomic, sociocultural, political, legal, distributive, competitive, physical, labor, financial, technological, and economic environments). Access the text alternative for slide images. © McGraw Hill, LLC 12  Is Internationalization of Business a New Trend, and Will It Continue? 1 The History of International Business. Phoenician and Greek merchants traded abroad well before the time of Christ. Expansion of agricultural and industrial production in China stimulated the emergence of an internationally integrated trading system. The trading system profoundly impacted politics, the arts, agriculture, industry, and public health. © McGraw Hill, LLC 13  Is Internationalization of Business a New Trend, and Will It Continue? 2 The History of International Business. The Ottoman Empire’s emergence before 1300, ultimately spanning Europe, North Africa, and the Middle East, profoundly influenced emerging trade routes for people, goods, money, animals, and microorganisms. The 17th and 18th centuries have frequently been termed the “age of mercantilism” because the power of nations depended directly on the sponsorship and control of merchant capital operating internationally. © McGraw Hill, LLC 14  Is Internationalization of Business a New Trend, and Will It Continue? 3 The History of International Business. A number of multinational corporations existed in the late 1800s, such as Singer Manufacturing Company. © McGraw Hill, LLC 15  Is Internationalization of Business a New Trend, and Will It Continue? 4 Recent Trends in International Business. While most multinationals are based in developed nations, there has been a recent surge in the number arising in emerging economies. The rapid urbanization of populations combined with industrialization in the emerging markets is quickly shifting the world’s economic center of gravity from Europe and the Americas and back to Asia. © McGraw Hill, LLC 16  Figure 1.2 Evolution of the World’s Economic Center of Gravity from AD 1 to 2025 Source: “Urban World: Cities and the Rise of the Consuming Class,” McKinsey Global Institute, June 2012. Access the text alternative for slide images. © McGraw Hill, LLC 17  The Growth of International Firms and International Business 1 Expanding Numbers of International Companies. Multinational Enterprise (MNE). A company made up of entities in more than one nation, operating under a decision-making system with a common strategy and coherent policies. It is estimated there are more than 103,000 MNEs with nearly 900,000 foreign affiliates, accounting for more than half of world trade. The affiliates of foreign companies have become increasingly important in the industrial and economic life of many nations. © McGraw Hill, LLC 18  The Growth of International Firms and International Business 2 Foreign Direct Investment and Exporting Are Growing Rapidly. Foreign direct investment (FDI). Direct investments in equipment, structures, and organizations in a foreign country at a level sufficient to obtain significant management control. Does not include mere foreign investment in stock markets. © McGraw Hill, LLC 19  The Growth of International Firms and International Business 3 Foreign Direct Investment and Exporting are Growing Rapidly Exporting. The transportation of any domestic good or service to a destination outside a company or region. Importing. The transportation of any good or service into a country or region, from a foreign origination point. © McGraw Hill, LLC 20  Figure 1.3 World Merchandise Exports, Commercial Services Exports, and Outward Foreign Direct Investment, 1990-2019 (US$ millions) Sources: “Annex Table 2: FDI Outflows, by Region and Economy, 1990–2017,” UNCTAD, Jun 6, 2018.; “Merchandise: Total Trade and Share, Annual, 1948–2017,” UNCTADSTAT, July 4, 2018; “Services (BPM5): Exports and Imports of Total Services, Value, Shares and Growth, Annual, 1980–2013,” UNCTADSTAT, July 4, 2018; “Services (BPM6): Exports and Imports of Total Services, Value, Shares, and Growth, Annual, 2005–2017,” UNCTADSTAT, July 4, 2018; UNCTADSTAT, “Total Trade in Services,” October 20, 2020; NCTADSTAT, “Total Trade in Goods,” October 13, 2020; and “Annex Table 2: FDI Stock, by Region and Economy, 2000, 2010, and 2019,” UNCTAD, October 20, 2020. Access the text alternative for slide images. © McGraw Hill, LLC 21  What Is Driving the Internationalization of Business? 1 Five major kinds of drivers, all based on change, are leading international firms to internationalize their operations: 1. Political. 2. Technological. 3. Market. 4. Cost. 5. Competitive. © McGraw Hill, LLC 22  What Is Driving the Internationalization of Business? 2 Technological Drivers. Advances in computers and communications technology permit an increased flow of ideas and information across borders. Allows smaller companies to communicate with customers abroad and compete globally. Computer-based communication may enhance virtual integration. © McGraw Hill, LLC 23  What Is Driving the Internationalization of Business? 3 Market Drivers. As companies internationalize, they also become global customers. Firms go abroad to prevent foreign suppliers from gaining access to their customers. Mature home country markets may encourage companies to consider nations with rising GDP/capita, population growth, and higher rates of GDP growth. © McGraw Hill, LLC 24  Globalization of Business Citgo Petroleum Corporation, although based in the United States, is majority owned by Venezuela’s state-owned PDVSA. © McGraw Hill, LLC Library of Congress [LC-DIG-mrg-05333] 25  What Is Driving the Internationalization of Business? 4 Cost Drivers. Going abroad can frequently lower the cost of goods sold. Globalization of product lines result in economies of scale. Some governments offer investment incentives to foreign business. © McGraw Hill, LLC 26  What Is Driving the Internationalization of Business? 5 Political Drivers. Trend toward increased unification and socialization of the global economy. Progressive reduction of barriers to trade and foreign investment by most governments. Privatization of much of the industry in formerly communist nations and the opening of their economies globally. Concerns about protectionism by host country markets still exist. © McGraw Hill, LLC 27  What Is Driving the Internationalization of Business? 6 Competitive Drivers. Businesses may choose to go national for many reasons: Defend home markets by distracting competitors. Large trading groups, like the EU, are attractive markets for investment. Guarantee the supply of key raw materials. Entry into downstream markets to protect existing international business. © McGraw Hill, LLC 28  IB in Practice: Are You Really Buying American? Debate continues on the pros and cons of the “buy American” approach. This feature highlights how almost every product that a family uses is produced by foreign-owned firms. 1. Should it matter to consumers whether the companies that make their products are based in the consumers’ home country or not? Explain your rationale. 2. Why has there been almost no negative backlash among Americans to the flood of foreign investment into their country? © McGraw Hill, LLC 29  What Are the Arguments for and against the Globalization of Business? 1 Economic Globalization. The tendency toward an international integration and interdependency of goods, technology, information, labor and capital, or the process of making this integration happen. The merits of globalization are hotly debated. © McGraw Hill, LLC 30  What Are the Arguments for and against the Globalization of Business? 2 Concerns with Globalization Has produced uneven results across nations and people. Has had deleterious effects on labor and labor standards. Has contributed to decline in environmental and health conditions. Threatens to reduce national sovereignty. Demonstrators at a World Trade Organization meeting. © McGraw Hill, LLC ©Agung Kuncahya B./Xinhua News Agency/Newscom 31  Figure 1.4 Number of People Living in Extreme Poverty Source: Divyanshi Wadhwa, “The Number of Extremely Poor People Continues to Rise in Sub-Saharan Africa,” https://blogs.worldbank.org/opendata/number-extremely-poor-people-continues-rise-sub-saharan-africa, October 15, 2020. Access the text alternative for slide images. © McGraw Hill, LLC 32  What Are the Arguments for and against the Globalization of Business? 3 Arguments Supporting Globalization. Free trade enhances socioeconomic development. Free trade promotes more and better jobs. © McGraw Hill, LLC 33  Get That Job! From Backpack to Briefcase Lily DeNoma in Arequipa, Peru: Go Abroad to Gain New Perspectives. Spent 7 weeks in Peru working for a nonprofit. Grew her teamwork skills, communication skills, and overall confidence. © McGraw Hill, LLC Courtesy of Ryan Hultzman 34  MiniCase The minicase “The COVID-19 Pandemic: Temporary Hiccup or Permanent Change for International Business?” explores the interconnectedness of relationships across entities. 1. In your opinion, could COVID-19 lead to a reversal of globalization? If so, what might the implications of this reversal be for international businesses? 2. In what ways might international business companies make use of technology and digitalization to adapt to the new work environment impacted by COVID-19 and created new business opportunities? 3. Which sectors of business activity are likely to be the slowest to rebound from effects of COVID-19, and why? © McGraw Hill, LLC 35  Because learning changes everything. ® www.mheducation.com © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.  Accessibility Content: Text Alternatives for Images © McGraw Hill, LLC 37  Figure 1.1 International Business Environments – Text Alternative Return to parent-slide containing images. The domestic environment is at the center of the environments and is surrounded by five foreign environments. The international environment is represented as a connection between the domestic and foreign environments. Two of the foreign environments are labelled as affiliates and are connected by the international environment. The domestic and foreign environments are each labelled with production, marketing, personnel, and finance. Within each of the environments are other environments: socioeconomic, sociocultural, political, legal, distributive, competitive physical, labor, financial technological, and economic. The aspects of the domestic environment are represented as going to each of the foreign environments. Return to parent-slide containing images. © McGraw Hill, LLC 38  Figure 1.2 Evolution of the World’s Economic Center of Gravity from AD 1 to 2025 – Text Alternative Return to parent-slide containing images. A map of Eurasia shows a dotted line traveling across its face, originating in the Middle East and spreading northwest to Greenland before turning east and moving into Russia. Markers indicating years are in the following locations: A D 1 border of what is now Afghanistan and Pakistan, 1000 Afghanistan, 1500 border of what is now Tajikistan and Uzbekistan, 1820 Kazakhstan, 1913 border of what Is now Finland and Sweden, 1940 Norway, 1950 through 1980 the strait of water between Greenland and Iceland, 1990 off the coast of Svalbard, 2000 the Barents Sea above Russia, 2010 Russia, 2025 central Russia moving towards the border of Kazakhstan. Return to parent-slide containing images. © McGraw Hill, LLC 39  Figure 1.3 World Merchandise Exports, Commercial Services Exports, and Outward Foreign Direct Investment, 19 90-2019 (US$ millions) – Text Alternative Return to parent-slide containing images. A line graph charts the progress of merchandise exports, commercial services exports, and outward foreign direct investment between 1990 and 2019. Merchandise exports had a steady upward curve until 2008 when it dropped from 16,000,000 dollars to 13,000,000 dollars in 2009. It rose sharply from there, reaching 18,000,000 dollars in 2011 and since then has fallen up and down, ending at under 18,000,000 in 2019. The commercial services exports line has seen a relatively steady increase from 1,000,000 dollars to nearly 6,000,000 dollars. The outward foreign direct investment has stayed low and flat, peaking once in 2001 at 1,000,000 dollars and again in 2007 at 2,000,000 dollars. Return to parent-slide containing images. © McGraw Hill, LLC 40  Figure 1.4 Number of People Living in Extreme Poverty – Text Alternative Return to parent-slide containing images. The graph titled number of people living in extreme poverty plots years versus count. The x axis ranges from 1990 to 2030 in increments of 2 units and the y axis ranges from 0 to 1,800 in increments of 200 units. The East Asia and Pacific curve starts from the left of the first quadrant at (1990, 1,000) and comes gradually down and to the right at (2013, 100) and then goes to the right and comes down gradually and ends at (2022, 0) at the bottom of the first quadrant on the positive x axis. The curve marked Europe and Central Asia starts from the left of the first quadrant and follows the curve marked East Asia and Pacific and ends at the bottom of the first quadrant at (2014, 100). The curve marked Latin America and Caribbean starts from the left of the first quadrant at (1990, 1,300) and follows the curve marked East Asia and Pacific and goes to the right and ends at the bottom right of the first quadrant at (2030, 30). The curve marked Middle East and North Africa starts from the left of the first quadrant at (1990, 1,350) and follows the curve marked Latin America and Caribbean and ends at the bottom right of the first quadrant at (2030, 80). The curve marked rest of the World starts from the left of the first quadrant at (1990, 1,360) and follows the curve marked Middle East and North Africa and ends at the bottom right of the first quadrant at (2030, 90). The curve marked South Asia starts from the left of the first quadrant between (1990, 1,080) and (1990, 1,600) and comes down and to the right and ends at the bottom right of the first quadrant at (2030, 100). The curve marked Sub-Saharan Africa starts from the left of the first quadrant between (1990, 1,600) and (1990, 1,900) and comes down and to the right and ends at the bottom right of the first quadrant between (2030, 100) and (2030, 600). All values are estimated. Return to parent-slide containing images. © McGraw Hill, LLC 41