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CHAPTER 1: Overview of International business and globalization

INTRODUCTION
Globalization: it is the widening set of interdependent relationships among people from different
parts of a world that happens to be divided into nations
...
People access to more varied resources, products, services and markets
...

HOW DOES INTERNATIONAL BUSINESS FIT IN?
Globalization enables us to get more variety, better quality, or lower prices
...
g our daily meals
contain spices that aren’t grown domestically and fresh produce that’s out of season in one local
climate or in another
...
Private companies undertake
such transactions for profit
...
Global
events and competition affect almost all companies
...

Understanding the environment/operations relationship
The best way to do business abroad may not be the same as the best way at home
...

Companies’ international operations and their governmental regulations affect overall national
conditions, as well as the success of individual industries and firms
...
:

1 A country’s interdependence must be measured indirectly,
2 When national boundaries shift, domestic business transactions can become international
ones and vice versa
...
Currently about the 25% of world production is
sold outside its country of origin
...
In periods of rapid economic growth, world trade
grows more rapidly than world production
...
Globalization is less pervasive than you might suppose
...

Such isolation is changing quickly
...
Moreover, the principal source of capital in most countries is
domestic rather than international
...
The studies’ results have several commonalities:

1 Smaller countries tend to be more globalized than larger ones,
2 Countries with higher-income populations tend to be more globalized,
3 A country may rank as highly globalized on one dimension, it may be lower on
another
...


These factors are interrelated
...
These include new products, as well as new application of old products
...

Why have technical developments increased so much?

 Population growth,
 Rising productivity: on average people can buy more by working the same number of hours
...
g
...

Many new products cannot easily take place in a single country
...
(e
...
a
noteworthy example of interdependent technology was the 2010 rescue of Chilean miners)
...

Advances in communication and transportation
Strides in communication and transportation now allow us to discover and desire products and
services developed in fare parts of the world
...
g
...
Innovations in transportation mean that
more countries can compete for sales to a given market
...
Improved communications and transportation also enhance a manager’s ability to
oversee foreign operations
...

2 Liberalization of Cross-Border trade and resource movements
To protect its own industries, every country restricts the movement across its borders
...
Over time, however, most governments
have reduced such restrictions, primarily for three reasons:
1
...
Competition spurs domestic producers to become more efficient,
3
...

3 Services that support international business
Companies and governments have developed a variety of services that facilitate global commerce
...
As a result, more companies are now responding to those markets where incomes and
consumption are growing most rapidly, such as China
...
Consumers are more
proficient today at scouring the globe for better deals, such as searching the Internet for lowerpriced prescription drugs abroad
...
(e
...
a firm might introduce products into markets where competitors are already
gaining sales, or seek suppliers where competitors are getting cheaper or more attractive products or
the means to produce them)
...
Born-global companies: companies that adopt a global
orientation from inception
...
Clustering or agglomeration: many new companies locate in

areas with numerous competitors and suppliers
...

6 Changes in political situations and government policies
For nearly half a century after World War II, business between Communist countries and the rest of
world was minimal
...

Political changes sometimes open new frontiers for international business
...
Governments seem more
willing to support programs, such as improving airport and seaport facilities to foster speed and cost
efficiencies for delivering goods internationally
...

7 Expansion of cross-national cooperation
Governments have come to realize that their own interest can be addressed through international
cooperation
by
means
of
treaties,
agreements,
and
consultation
...
To gain reciprocal advantages,
2
...
To deal with areas of concern that lie outside the territory of any nation
...
Thus, governments join international organizations
an sign treaties and agreements for a variety of commercial activities
...

Some cover commercial-aircraft safety standards and flyover rights
...

Multinational problem solving
Governments often act to coordinate activities along their mutual borders by building highways,
railroads, and hydroelectric dams that serve the interests of all parties
...


-

1
...
g
...


The most notable coordination, known as the Group of Twenty or G20 countries, consists of 19
of the world’s most important countries plus representation from the European Union of its
members not included in the 19
...

Areas outside national territories
Three global areas belong to no single country:
1
...
Outer space,
3
...

They excited little interest for either exploitation or multinational cooperation
...
Commercial satellites, pass over countries that receive no direct benefit from them but argue
that they should
...

THE COSTS OF GLOBALIZATION
There are three main costs of globalization:
1
...
Environmental stress
3
...
Threats to national sovereignty
“Think globally, act locally”, it means that local interests should be accommodated before global
ones
...

The question of local objectives and policies
Countries seek to fulfill their citizens’ economic, political and social objectives by setting rules
reflecting national priorities, such as governing worker protection and environmental practices
...

The question of small economies’ overdependence
Critics say that small economies depend so much on larger ones for supplies and sales that they are
vulnerable to foreign mandates
...
Large international corporations are
powerful enough to dictate their operating terms, exploit legal loopholes, and counter the small
economies’ best interests
...
Countries have difficulty to maintain the traditional ways of life that
unify and difference their cultures
2
...
In addition, globalization opponents contend that by buying from more
distant locations, the added transportation increases the carbon footprint, which refers to the total set
of greenhouse gases emitted
...
Global cooperation, fosters superior and uniform
standards for combating environmental problems, while global competition encourages companies
to seek resource-saving and eco-friendly technologies
...

3
...

Income inequality
Income inequality, with some exceptions, has been growing both among and within a number of
countries
...


The superstar system is especially apparent in sports, it also carries over to other professions, such
as business
...
The greater access to low-cost labor in poor countries has
reduced the real wage growth of labor in rich countries
...
The challenge, therefore, is to maximize the
gains from globalization while simultaneously minimizing the costs borne by the losers
...
Increased
insecurity about job and social status but also with costly social unrest
...


Off-shoring: shift the production outside the country
...

It increases the availability of high
value job at home  increase in
efficiency

-

NO
in the short run may be true,
it is mainly to exploit developing countries,
costs savings = increase in profit (but this
doesn’t necessarily mean lower prices),
lose of the quality (re-shoring sometimes is
due for this reason),
usually companies grow at the expenses of
their competitors (non real growth)
working conditions are barbaric and the pay
is barely enough to survive
...

Critics of off-shoring assert that the short-term cost savings derived from off-shoring hinder firms
from developing more efficient production methods
...

To sum up:
-

Off-shoring is a good strategy in short term,
The strategy works only if the cost savings are invested efficiently

WHY COMPANIES ENGAGE IN INTERNATIONAL BUSINESS
1
...
ACQUIRING RESOURCES
3
...
Expanding sales
A company’s sales depend on the desire and ability of consumers to buy its goods or services
...
Higher sales ordinarily
create value, but only if the costs of making the additional sales don’t increase disproportionately
...
-

2
...
They are also looking for anything
that will create a competitive advantage
...
(e
...
automobile manufacturers)
...
S
yogurt market
...
Reducing risk
Operating in countries with different business cycles can minimize swings in sales and profits
...
Moreover, by obtaining
supplies of products or components both domestically and internationally, companies may be able
to soften the impact of price swings or shortages in any one country
...
Perhaps they want to counter competitors’ advantages in foreign
markets that might hurt them elsewhere
...
g
...
)
E
...
Tesco
...
Merchandise exports and imports
Exporting and importing are the most important modes of international business
...
They are also called visible exports and imports
...
g
...
S
...

2
...
The provider and receiver of payment makes a service exports, the
recipient and payer makes a service import
...
g
...
S
...

-

Tourism and transportation,
Service performance,
Asset use
...
The economies of some countries depend heavily on revenue from these
sectors
...

-

Turnkey operations: construction projects performed under contract and transferred to
owner when they are operational
...


Asset use
When a company allows to use its assets under contracts:
-

Licensing agreements: a company allows to use its assets under contracts and receives
earnings called royalties
...


3
...
The investments themselves, however, are treated
in national statistics as separate forms of service exports and imports
...

-

Direct investment,
Portfolio investment

Direct investment
In a FDI the investors takes a controlling interest in a foreign company
...

When two or more companies share ownership of an FDI, the operation is a joint venture
...
It usually takes one of two forms: stock in
a company or loans to a company
...

Companies work together in collaborative arrangements:

-

Joint venture,
Licensing agreements,
Management contracts,
Minority ownership,
Long-term contractual arrangement
...
It is an agreement that does not
involve joint ownership
...
The term multinational
corporation or multinational company (MNC) is often used as synonym for MNE, while the
United Nations uses the term transnational company (TNC)
...
However, a small company, usually described
within the U
...
as having fewer than 500 employee, can have foreign investments and adopt any of
the operating mode we’ve discussed
...
The best way of doing business abroad may differ from that in a
company’s domestic environment
...


There are two different factors that influence international business:
1
...
Any of these factors may require a company to alter its
operation abroad
...


a
...

-

Further, countries differ in size of landmass and population
...
g
...

Geographic barriers often affect communications and distribution channels
...

Climatic conditions may have short-or long-term cycles
...


Managers who are knowledgeable about geographic factors are better able to identify the location,
quantity, quality and availability of world’s resources
...
Political policies
Political policies influence how international business take place within its borders (indeed, whether
it will take place)
...

c
...

-

Domestic law includes both home-and host-country regulations on such matters and
taxation, employment and foreign-exchange transactions
...
International law mat also determine how companies
can operate in certain place
...

Finally the ways in which laws are enforced also affect a firm’s foreign operations
...

d
...
In turn, such understanding can help managers
make operational decisions abroad
...
g
...

e
...
Economics also helps explain why some countries can produce goods or
services for less
...


2
...
Competitive strategy for products
Products compete by means of cost or differentiation strategies, the latter usually by:
-

Developing a favorable brand image, usually through advertising or from long-term
consumer experience with the brand,
Developing unique characteristics, such as through R&D or different means of distribution
...
Different strategies can be used for different products or for different
countries, but a firm’s choice of strategy plays a big part in determining how and where it will
operate
...
g
...

b
...
In
large markets, companies have to invest much more to secure national distribution than in small
markets
...
Such a company, for example, has
much more clout with suppliers and distributors
...
Face the same competitors in different countries: what they learn
about each other in one country is useful in predicting the other’s strategies and actions elsewhere
...
Competitors faced in each market
Success in a market often depend on whether the competition is also national or local
...
Further globalization is inevitable,
2
...
Forces working against further globalization and international business will slow down the
growth of both
1
...
MNEs pressure their governments to place fewer restrictions
on international movements of goods and means to produce them
...
Someone said “the reduction of poverty and
disease in a peaceful political environment”
...
More regional than global growth
The second view is based on studies showing that almost all of the companies we think of as
“global” conduct most of their business in home and neighboring countries
...
Transport costs favor regional over global business
...
Critics: regionalism is a
transition stage toward globalization
...
Globalization and international business will slow
The pace of globalization will slow, or may already have begun collapsing
...
Anti-globalist pressure governments
to promote nationalism by raising trade barriers and rejecting international organizations and
treaties
...
The economic
recession and lingering unemployment since 2008 have led countries to enact measures to protect
their work forces
...
Finally,
one view holds that for globalization to succeed, efficient institutions with clear-cut mandates are
necessary
...

Going forward
Only time will tell, but one thing seems certain: if a company wants to capitalize on international
opportunities, it can’t wait too long to see what happens on political and economic fronts
...

Forecasting foreign opportunities and risks is always challenging
...


CASE: THE GLOBALIZED BUSINESS OF SPORTS
Sports is the most globalized legitimate business in the world
...
– broadened audience exposure, expanded fan bases and augmented revenues
...
More national organizations participate in these events than there are countries in
the United Nations
...
Individual athletes compete not only for medal, but also for lucrative contracts to
endorse product
...
This is now changing
...
Keep in mind, that assembling talent is necessary but
insufficient for making a sport business successful
...

How the ATP Courts Worldwide Support
...

ATP (association of tennis professionals) for 2013 sanctioned 64 tournaments in 31 countries
...
International broadcast attract sponsorship from
international companies
...

From international to international sports pastimes
Some countries have legally designated a national sport as a means of preserving traditions, others
effectively have one
...


THE WIDE WORLD OF TELEVISED SPORTS
Other professional sports groups have expanded their global TV coverage
...
Fans watch NASCAR races in more than 120
countries and NBA in about 200
...
S
...

The top-notch pro as upscale brand
...

Promotion as teamwork
A few teams have enough brand-name cachet to be global brands for selling clothing and other
items to fans around the world
...
Similarly, companies
both sponsor and seek endorsement from well-known teams
...
Still
others pay for the naming rights to arenas and other venues
...

Sports and you
What does all this mean to you as sports fan? Now that pro sport has become a global phenomenon
you can enjoy a greater variety- and a higher level of competition – that any generation before you
...
Despite many
efforts, cricket, has never become popular elsewhere
...
A former NFL lineman expressed a reason: that rules for

cricket and American football are so complicated that one must learn them as children
...

There is disagreement about economic effect of successfully winning a bid to host big international
competitions
...
On the other hand the cost of security has
skyrocketed
...

Nor is everyone happy with the unbridled globalization of sports

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