Ch. 1 The Context of IB (1) PDF

Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Key Concepts International business: Performance of trade and investment...

Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Key Concepts International business: Performance of trade and investment activities by firms across national borders - Because it emphasizes crossing national boundaries, we also refer to international business as cross-border business - Firms organize, source, manufacture, market, and conduct other value-adding activities on an international scale - They seek foreign customers and engage in collaborative relationships with foreign business partners. - While international business is performed mainly by individual firms, governments and international agencies also undertake international business activities - Firms and nations exchange many physical and intellectual assets, including products, services, capital, technology, know-how, and labor. Globalization of markets: Ongoing economic integration and growing interdependency of countries worldwide - Refers to the macro trend of intense interconnectedness between countries - Globalization is associated with internationalization of countless firearms and dramatic growth in the volume and variety of cross border transactions in goods, services, and capital flows - It has led to widespread diffusion of products, technology, and knowledge worldwide. ★ Globalization of markets means the increasing interconnectedness between firms or countries worldwide with International trade: Exchange of products and services across national borders; typically through exporting and importing. [Surplus & Deficit] - Trade involves both products (merchandise) and services (intangibles) - Exchange can be through exporting, an entry strategy involving the sale of products or services to customers located abroad, from a base in the home country or a third country Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? - Exchange can also take the form of importing or global sourcing—the procurement of products or services from suppliers located abroad for consumption in the home country or a third country - While exporting represents the outbound flow of products and services, importing is an inbound activity. Both finished products and intermediate goods, such as raw materials and components, are subject to importing and exporting. - - Exporting: Sale of products or services to customers located abroad, from a base in the home country or a third country. Importing or global sourcing: Procurement of products or services from suppliers located abroad for consumption in the home country or a third country. International investment: Transfer of assets to another country or the acquisition of assets in that country. Also known as ‘foreign direct investment’ (FDI), we will focus on this type of investment. International portfolio investment: Passive ownership of foreign securities such as stocks and bonds, in order to generate returns. Gross domestic product (GDP): is the total value of products and services produced in a country over the course of a year Globalization of Markets It is important to remember that international trade has existed in some form for centuries. Unprecedented growth of international trade. In 2021, global trade was $28.5 trillion per year. Today, world exports amount to some $27 trillion annually! In 1960, cross-border trade was modest. Today, it accounts for a substantial proportion of the world economy, with world exports amounting to some $16 trillion annually Trade between nations, accompanied by substantial flows of capital, technology, and knowledge Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Development of sophisticated global financial systems and mechanisms that facilitate the cross-border flow of products, money, technology, and knowledge Greater collaboration among nations through multilateral regulatory agencies such as the World Trade Organization (WTO) and the International Monetary Fund (IMF) International trade in services accounts for about one-quarter of all international trade and is growing rapidly - In recent years, services trade has been growing faster than products trade - As with products, larger advanced economies account for the greatest proportion of world services trade - This is expected, because services typically comprise more than two-thirds of the GDPs of these countries - Although services trade is growing rapidly, the value of merchandise trade is still much larger - One reason is that services face greater challenges and barriers in cross-border trade than merchandise goods The ‘Flows’ of International Business Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? World Trade is Growing Faster than GDP Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? GDP is the total value of products and services produced in a country over the course of a year Following a 27-year boom, world trade declined in 2009 due to the global recession The hardest hit imports were consumer goods, cars, and car parts However, trade revived sharply and returned to normal levels by 2012 - Trade was a key factor to reduce the impact of a global recession Overall, however, in the past few decades world exports have grown more than thirty-fold, while world GDP grew only tenfold To illustrate this point, consider the journey of a shirt sold in France. - Initially, the cotton to produce the shirt is exported from the United States to China. - After the shirt is manufactured in China, it is exported to France. - Eventually, after the French owner discards her used shirt, it is exported once again and sold on the used clothing market in Africa. Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? - In total, the value generated in exporting the shirt greatly exceeds the cost to produce it Much of the difference in the growth of exports versus GDP is due to advanced (or developed) economies such as Britain and the United States now sourcing many of the products they consume from low-cost manufacturing locations such as China and Mexico. - For example, although the United States once produced most of the products it consumed, today it depends much more on imports - Rapid integration of world economies is fueled by such factors as advances in information and transportation technologies, decline of trade barriers, liberalization of markets, and the remarkable growth of emerging market economies. ★ Growth of exports/world trade over GDP because countries now consume products that are manufactured abroad because it has a low cost such as China and Mexico World Trade Is Growing Faster than GDP GDP is the total value of products and services produced in a country over the course of a year. Much of the difference in the growth of exports versus GDP is due to advanced (or developed) economies such as Britain and the United States now sourcing many of the products they consume from low-cost manufacturing countries. Who Participates in International Business? Focal Firms: Businesses that directly initiate international business transactions - Company trying to move a domestic product into the international market - US markets trying to go into Mexican markets Multinational enterprise (MNE): A large company with substantial resources that performs various business activities through a network of subsidiaries and affiliates located in multiple countries. e.g., Caterpillar, Samsung, Unilever, Vodafone, Disney. - MNEs carry out research and development (R&D), procurement, manufacturing, and marketing activities wherever in the world the firm can reap the most advantages. Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? - For example, Alcon is a Swiss pharmaceutical firm that established major R&D facilities in the United States to take advantage of the country’s superior know-how in the chemicals sector - Verizon Wireless has located much of its technical support operations in India, to take advantage of high-quality, low-cost customer support personnel located there. Small and medium-sized enterprise (SME): Typically, companies with 500 or fewer employees, comprising over 90% of all firms in most countries. SMEs increasingly engage in international business - In addition to accounting for smaller market shares of their respective industries, SMEs tend to have limited managerial and other resources and primarily use exporting to expand internationally - However, in most nations, SMEs constitute the great majority of all firms. - With the globalization of markets, advances in various technologies, and other facilitating factors, many more SMEs are pursuing international opportunities. - SMEs account for about one-third of exports from Asia and about a quarter of exports from the affluent countries in Europe and North America. - In some countries—for example, Italy, South Korea, and China—SMEs contribute roughly 50 percent of total national exports. - How do SMEs succeed in international business despite resource limitations? First, compared to large MNEs, smaller firms are often more innovative and adaptable and have quicker response times when it comes to implementing new ideas and technologies and meeting customer needs. - Second, SMEs are better able to serve niche markets around the world that hold little interest for MNEs. - Third, smaller firms are usually avid users of information and communication technologies, including the Internet Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? - Fourth, as they usually lack substantial resources, smaller firms minimize overhead or fixed investments. They rely on external facilitators such as FedEx and DHL, as well as independent distributors in foreign markets - Fifth, smaller firms tend to thrive on private knowledge that they possess or produce. They access and mobilize resources through their cross-border knowledge networks or their international social capital. Born global firm: A young, entrepreneurial SME that undertakes substantial international business at or near its founding - Born globals are found in advanced economies, such as Australia and Japan, and in emerging markets, such as China and India Non-governmental organizations: Many of these non-profit organizations conduct cross-border activities. They pursue special causes and serve as advocates for social issues, education, politics, and research Why do Firms Participate in IB? Better serve key customers that have relocated abroad - Ex. when Toyota launched its operations in Britain, many of its suppliers followed suit Be closer to supply resources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products - Ex. Dell sources parts and components from the best suppliers worldwide. Gain access to lower-cost or better-value factors of production - E.g., Sony does much manufacturing in China. Develop economies of scale in sourcing, production, marketing, and R&D - Boeing 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 United States, partly to gain competitive knowledge about Whirlpool, its chief US rivals Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Invest in a potentially rewarding relationship with a foreign partner - Ex. French computer firm Groupe Bull partnered with Toshiba in Japan to gain insights for developing information technology. The Drivers, Dimensions, and Consequences of Market Globalization 1. Drivers of Market Globalization Worldwide reduction of barriers to trade and investment Transition to market-based economies and adoption of free trade in China, former Soviet Union countries, and elsewhere Industrialization, economic development, and modernization Integration of world financial markets Advances in technology 2. Dimensions of Market Globalization Integration and interdependence of national economies Rise of regional economic integration blocs Growth of global investment and financial flows Convergence of buyer lifestyles and preferences Globalization of production activities Globalization of services 3a. Societal Consequences of Market Globalization Contagion: Rapid spread of financial or monetary crises from one country to another Loss of national sovereignty Offshoring and the flight of jobs Effect on the poor Effect on the natural environment Effect on national culture 3b. Firm-level consequences of Market Globalization: Internationalization of the Firm’s Value Chain Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Countless new business opportunities for internationalizing firms New risks and intense rivalry from foreign competitors More demanding buyers who source from suppliers worldwide Greater emphasis on proactive internationalization Internationalization of firm’s value chain Internationalization of the Firm’s Value Chain Traditional and Online Internationalization Paths Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? The Four Risks of International Business Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? 1. Cross-Cultural Risk Cross cultural risk, occurs when cultural misunderstandings put some human value at stake - Cultural differences: aris from differences in language lifestyle, attitudes, customs, and religion, where a cultural miscommunication jeopardizes a culturally-valued mindset or behavior - Values unique to a culture tend to be long-lasting and transmitted from one generation to the next. These values influence the mind-set and work style of employees and the shopping patterns of buyers - Foreign customer characteristics differ significantly from those of buyers in the home market - Ex. starbucks video, had cultural differences - How to manage, have a translator, work with locals how have experience Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Language is a critical dimension of culture. In addition to facilitating communication, language is a window on people’s value systems and living conditions - For example, Inuit (Eskimo) languages have various words for snow, while the South American Aztecs used the same basic word stem for snow, ice, and cold. When translating from one language to another, it is often difficult to find words that convey the same meanings. - For example, a one-word equivalent to aftertaste does not exist in many languages. Such challenges impede effective communication and cause misunderstandings - Miscommunication due to cultural differences gives rise to inappropriate business strategies and ineffective relations with customers. - Cross-cultural risk most often occurs in encounters in foreign countries. However, the risk also can occur domestically, as when management meets with customers or business associates who visit company headquarters from abroad. Negotiation Patterns: Negotiations are required in many types of business transactions. e.g., Where Mexicans are friendly and emphasize social relations, Americans are assertive and get down to business quickly Decision Making Styles: managers make decisions continually on the operations and future direction of the firm - Ex. japanese take lots of time to make important decisions - Ex. canadians tend to be decisive, and “shoot from the hip” - Developing countries, business owners not looking to the long term. Just trying to make it next month Ethical practices: standards of right and wrong differ and vary a lot around the work - Ex. bribes are relatively accepted in some countries like in Africa, but for the most part not acceptable like in sweden - In China, counterfeiters frequently publish translated versions of imported books without compensating the original publisher or authors, an illegal practice in most of the world Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? - Ethical standards also change over time. Although slavery is no longer tolerated, some multinational firms today tolerate working conditions that are akin to it - Deals with corruption, in relation to political risk too Ethical Connections In the fashion industry, hundreds of factory workers die annually because of unsafe and dangerous working conditions In the production of faded 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. 2. Country Risk (Political Risk) Government intervention, protectionism, and barriers to trade and investment - Gov't intervention, banned twitter from the country - Bureaucracy, red tape, administrative delays, corruption Lack of legal safeguards for intellectual property rights - Business setting up. Then knowledge was stolen/exposed to another business use it as their own - Need to know local laws, and protections that you can have Legislation unfavorable to foreign firms Economic failures and mismanagement. Social and political unrest and instability - Firms get scared, and see dangerous things, and might decide to not invest and create relationship with the country, or they might but have to be very careful - Firms, want stability, and does not want gov to stop them Country Risk: the potentially adverse effects on company operations and profitability caused by developments in the political, legal, and economic environment in a foreign country Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Country risk includes the possibility of foreign government intervention in firms’ business activities - For example, governments may restrict access to markets, impose bureaucratic procedures on business transactions, and limit the amount of income that firms can bring home from foreign operations. The degree of government intervention in commercial activities varies from country to country - For example, Singapore and Ireland are characterized by substantial economic freedom—that is, a fairly liberal economic environment - By contrast, the Chinese and Russian governments regularly intervene in business affairs. Country risk also includes laws and regulations that potentially hinder company operations and performance - Critical legal dimensions include property rights, intellectual property protection, product liability, and taxation policies - Nations also experience potentially harmful economic conditions, often due to high inflation, national debt, and unbalanced international trade. Indeed, the global financial crisis plunged many nations into a deep recession in 2009. Examples - The U.S. imposes tariffs on imports of sugar and other agricultural products ➔ To help local businesses - Doing business in Russia often requires paying bribes to government officials - Venezuela’s government has interfered much with the operations of foreign firms ➔ Country nationalized firms, took over the company and make it theirs ➔ Can be on good terms with the local government but also not bribe them - Argentina has suffered high inflation and other economic turmoil Greece’s Financial Crisis Having issues, and people could not take their money bc 3. Currency Risk (Financial Risk) (1 of 2) Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Refers to the risk of adverse fluctuations in exchange rates Fluctuation is common for exchange rates—the value of one currency in terms of another. Currency risk arises because international transactions are often conducted in more than one national currency Ex. When U.S. fruit processor Graceland Fruit Inc. exports dried cherries to Japan, it is normally paid in Japanese yen - When currencies fluctuate significantly, the value of the firm’s earnings can be reduced The cost of importing parts or components used in manufacturing finished products can increase dramatically if the value of the currency in which the imports are denominated rises sharply. - Inflation and other harmful economic conditions experienced in one country may have immediate consequences for exchange rates due to the interconnectedness of national economies Currency exposure. General risk of unfavorable exchange rate fluctuations - Might have insurance to mitigate the risk - Might not use local currency and use the U.S. dollar, but bad for locals bc might no have access to dollars Asset valuation. Risk that exchange rate fluctuations will adversely affect the value of the firm’s assets and liabilities - Car, difference assets, subject to exchange rate fluctuations 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 Examples - The Japanese yen has fluctuated a lot since 2000. - The U.S. has relatively high corporate income taxes. - Brazil and Turkey have experienced very high inflation 4. Commercial Risk( having partners abroad) Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Commercial risk: refers to the firm's potential loss or failure from poorly developed or executed business strategies, tactics, and procedures - Finding new partners internationally, can be good but also you do not know them that well to represent them - Many managers may make poor decision choices in areas such as the selection of business partners, timing of market entry, pricing, creation of product features, and promotional themes - These failures exist/happen in domestic business, but it is most costly when done/committed abroad - Ex. in a domestic business company, they may terminate a poorly performing distributor just because. ➔ But in foreign markets, terminating business partners can be costly due regulations that protect local firms - Marketing inferior or harmful products, falling short of customer expectations, or failing to provide adequate customer service may damage a firm’s reputation and profitability Commercial risk is also often affected by currency risk, because fluctuating exchange rates can affect various types of business deals ★ General commercial risks such as these lead to sub-optimal formulation and implementation of the firm’s international value-chain activities. The Four Risks of IB: Conclusion Always be present but manageable Managers needs to understand, anticipate, and take proactive action to reduce their effects Some risks are extremely challenging - Although risk cannot be avoided, it can be anticipated and managed - Experienced international firms constantly assess their environments and conduct research to anticipate potential risks, understand their implications, and take proactive action to reduce their effects Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Ex. The global financial crisis generated many commercial, currency, and country risks, affecting banks and other firms worldwide. This led to steep declines in national stock markets and normal business activity. The Cultural Context of IB Culture: The values, beliefs, customs, arts, and other products of human thought and work that characterize the people of a given society - The values (what is right/wrong)… - beliefs (what is understood)… - customs (what is carried on)… - arts (dance, music, poetry, historical pieces/artifacts)… - and other products of human thought (icons, symbols, etc.) and works that characterize the people of a given society. Cross-cultural risk: A situation or event where a cultural miscommunication puts some human value at stake. It arises in environments comprised of unfamiliar languages, and unique values, beliefs, and behaviors Socialization: The process of learning the rules and behavioral patterns appropriate to one's society. Acculturation: The process of adjusting and adapting to a culture other than one's own; commonly experienced by expatriate workers. What’s Missing? The Cultural Iceberg Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Hall’s High- and Low-Context Typology of Culture Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Nonverbal Communications Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Hofstede’s Typology of National Culture Individualism versus collectivism refers to whether a person primarily functions as an individual or within a group. Power distance describes how a society deals with inequalities in power that exist among people. Uncertainty avoidance refers to the extent to which people can tolerate risk and uncertainty in their lives. Masculinity versus femininity refers to a society’s orientation based on traditional male and female values Long-term vs. short-term orientation describes the degree to which people and organizations defer gratification to achieve long-term success Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Indulgence versus restraint describes the degree to which people in a society attempt to control their impulses and desires. National, Professional, and Corporate Culture ’ International business refers to the trade and investment activities by companies across national borders. Globalization of markets refers to ongoing economic integration and growing interdependency of countries worldwide. Stress the dramatic growth in world trade, which now exceeds some $18 trillion annually. There are two ways to invest internationally- passively (portfolio investment -financial assets) or actively (foreign direct investment- capital, technology, labor, land, plant and equipment). Globalization of markets (or the globalization of economies) refers to ongoing economic integration and growing interdependency of countries worldwide. Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Internationalization refers to the tendency of firms to systematically increase the international dimension of their business activities. This has resulted in the widespread diffusion of products, technology, and knowledge worldwide. Macro perspective (trend) - globalization of markets means intense economic interconnectedness between/among countries. Micro perspective (focus) - firm level, activity- Value-Chain Perspective -Firms conduct value-adding activities on a global scale, i.e. organize, source, manufacture, market, sell, and employ market entry strategies such as exporting, strategic alliances, and direct investment. International Trade Cross-border exchange of products (merchandise) and services (intangibles) typically through exporting and importing. Exporting (outbound activity) - entry strategy involving the sale of products/ services to customers located abroad. Importing (global sourcing; inbound activity) - the procurement of products/services from foreign suppliers for consumption in the home country or a third country Exporting and importing may include both intermediate (raw materials and components) and finished products. International Investment Cross-border investment is the transfer of assets to another country or the acquisition of assets in that country. The factors of production (assets) include capital, technology, managerial talent, and manufacturing infrastructure. Trade = products and services cross national borders. Cross-border investment= the firm itself crosses national borders. Two Types of International Investment: International portfolio investment (typically short-term) is the passive ownership of foreign securities such as stocks and bonds for the purpose of generating financial returns. Foreign direct investment (FDI) (typically long-term) is a foreign-market entry strategy that gives investors partial or full ownership of a productive enterprise. The firm establishes a physical presence abroad through acquisition of productive assets such as capital, technology, labor, land, plant, and equipment. The Nature of International Trade Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Macro-International Trade: Aggregate export and import flows of products and services between nations. Micro-International Business: Cross-border transactions of an individual business enterprise. The Nature of International Investment Foreign Direct Investment (FDI) - (asset ownership and long time frame) is the ultimate commitment-level of internationalization, and thus this text focuses primarily on FDI (most common mode of entry strategy) as opposed to International Portfolio investment. New legal business entity, recognized by the host country and subject to its regulations. Motivations for firm FDI: (Note how these fit into the value chain) (1) Primary Activity: Set up manufacturing/assembly facilities to produce products/services; (2) Primary Activity: Open a sales/representative office to conduct marketing or distribution activities; or (3) Support Activity: Establish a regional headquarters HOW DOES INTERNATIONAL BUSINESS DIFFER FROM DOMESTIC BUSINESS? Complexity- Macro forces differ from country to country- economic conditions, national culture, legal and political systems- vary by country. Risk- Uncontrollable variables- the firm has little or no control over these. Foreign environments involve new risks that firms must manage. Instagram (opening case)- exemplifies how distinctive conditions in each country lead businesses and consumers to utilize services differently, from country to country. Cross-Cultural Risk Situation where a cultural misunderstanding places some human value at risk. Differences in language, lifestyles, mind-sets, customs, and religion. Cross-cultural literacy - critical to embrace culturally-valued mind-set and/or work style. Cultural blunders- hinder the effectiveness of foreign managers. Language- critical dimension of culture- a window to value systems. Language challenges impede effective communication. Cultural differences may lead to inappropriate business strategies and ineffective customer relations. Country Risk or Political Risk Differences in host country political, legal and economic environments may adversely impact firm profitability. Government intervention: restricts market access; imposes bureaucratic procedures hindering business transactions; and limits the amount of income that firms may repatriate from foreign operations- varies by country. Challenge 1 How various globalization drivers compel firms to master internationalization and its implications for firm strategy? How to manage differences between domestic and international business ? Economic freedom differs among nations- The Index of Economic Freedom from the Heritage Foundation ranks countries according to a myriad of economic freedom variables.Currency or Financial Risk Risk of adverse fluctuations in exchange rates. (Exchange rates- the value of one currency in terms of another). Inflation and other harmful economic conditions create uncertainty of returns due to the growing interconnectedness of national economies. When international transactions are conducted in more than one national currency → currency risk. The value of a firm’s earnings may be substantially reduced when currencies fluctuate significantly. Commercial Risk Poor development/execution of business strategies, tactics or procedures, resulting on firm loss, e.g. partnering selections, market entry timing, pricing, product features, and promotional themes Failures in international markets are far more costly than domestic business blunders. Firm reputation and profitability may also be at risk from marketing harmful products, failing customer expectations, or providing inadequate customer service. Commercial risk is often affected by currency risk, because fluctuating exchange rates can affect various types of business deals. Firms internationalize seeking growth and profit opportunities, enhancing their competitive advantage. Strategic (Proactive) motive - tap foreign market opportunities and/or acquire new knowledge. Reactive motive- serve a key customer that has expanded abroad. Two MEGATRENDS underlying the changing business landscape- globalization and technology ◘ Globalization- accelerates the development of the latest technologies. ◘ Technology- facilitates globalization to progress more rapidly.