To define globalization and international business and show how they affect each other To understand why companies engage in international business and why international business growth has accelerated To discuss globalization’s future and the major criticisms of globalization To become familiar with different ways in which a company can accomplish its global objectives To apply social science disciplines to understanding the differences between international and domestic business

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Chapter 1
Globalization and
International
Business

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International
Business
Environments & Operations
14e
Daniels ● Radebaugh ● Sullivan

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Learning Objectives
 To define globalization and international
business and show how they affect each other
 To understand why companies engage in
international business and why international
business growth has accelerated
 To discuss globalization’s future and the major
criticisms of globalization
 To become familiar with different ways in which
a company can accomplish its global objectives
 To apply social science disciplines to
understanding the differences between
international and domestic business

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Introduction
Learning Objective 1:
To define globalization and international
business and show how they affect each
other

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Introduction
 Globalization is the ongoing process that
deepens and broadens the relationships
and interdependence among countries
 International business is a mechanism to
bring about globalization

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Introduction
 International business consists of all
commercial transactions—including sales,
investments, and transportation—that
take place between two or more countries
 increasingly foreign countries are a source of
both production and sales for domestic
companies

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Introduction
 It is important to study international
business because
 Most companies are either international or
compete with international companies
 Modes of operations may differ from those
used domestically
 The best way of conducting business may
differ by country
 An understanding helps you make better
career decisions
 An understanding helps you decide what
government policies to support

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Introduction
Factors in International Business Operations

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Forces Driving Globalization
1. Increase in and application of technology
2. Liberalization of cross-border trade and
resource movements
3. Development of services that support
international business
4. Growing consumer pressures
5. Increased global competition
6. Changing political situations
7. Expanded cross-national cooperation

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Measuring Globalization
 Globalization can be difficult to measure
 The A.T. Kearney/Foreign Policy
Globalization Index ranks countries by
 Economic dimensions
 Technological dimensions
 Personal contact
 Political dimensions
 recently ranked Singapore and Hong Kong
as most globalized

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Costs of Globalization
Learning Objective 3:
To discuss globalization’s future and the
major criticisms of globalization

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Costs of Globalization
 Threats to national sovereignty
 lose freedom to “act locally”
 Economic growth and environmental
stress
 growth consumes nonrenewable natural
resources and increases environmental
damage
 Growing income inequality and personal
stress
 promotes global superstars at the expense of
others

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Costs of Globalization
 Offshoring involves the transferring of
production abroad
 it can be beneficial because it reduces costs
 but, it also means that jobs move abroad
 Yet, offshoring may also create new,
better jobs at home

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Why Companies Engage in IB
Learning Objective 2:
To understand why companies engage in
international business and why
international business growth has
accelerated

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Why Companies Engage in IB
 To expand sales
 pursuing international sales increases the
potential market and potential profits
 To acquire resources
 may give companies lower costs, new and
better products, and additional operating
knowledge
 To diversify or reduce risks
 international operations may reduce operating
risk by smoothing sales and profits, preventing
competitors from gaining advantage

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Why Companies Engage in IB
 These three reasons
 sales expansion
 resource acquisition
 risk minimization
guide all decisions about whether, where,
and how to engage in international
business

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Modes of Operations in IB
Learning Objective 4:
To become familiar with different ways in
which a company can accomplish its global
objectives

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Modes of Operations in IB
 Merchandise exports
 goods that are sent out of a country
 Merchandise imports
 goods that are brought into a country
 Sometimes referred to as visible exports
and imports

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Modes of Operations in IB
 Service exports
 provider and receiver of payment
 Service imports
 recipient and payer of payment
 Examples
 Tourism and transportation
 Service performance
 turnkey operations and management
contracts
 Asset use
 licensing and franchising

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Modes of Operations in IB
 Investments
 Foreign Direct Investment (FDI)
 investor takes a controlling interest in a
foreign company
 joint venture
 Portfolio Investment
 a non-controlling financial interest in
another entity

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Types of International
Organizations
 Collaborative arrangements
 Joint ventures
 Licensing arrangements
 Management contracts
 Minority ownership
 Long-term contractual arrangements
 Strategic alliance
 companies that work together, but the
agreement is critical to at least one partner
 an agreement that does not involve joint
ownership

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Types of International
Organizations
 Multinational enterprises (MNEs)
 take a global approach to markets and
production or have operations in more than
one country
 Sometimes they are referred to as
 multinational corporations (MNCs)
 multinational companies (MNCs)
 transnational companies (TNCs)

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Types of International
Organizations
 In foreign markets, companies may have
to adapt their typical methods of doing
business
 foreign conditions may dictate a particular
method
 operating modes may be different from those
used domestically

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Why IB is Different
Learning Objective 5:
To apply social science disciplines to
understanding the differences between
international and domestic business

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Why IB is Different
 The external environment affects a
company’s international operations
 Managers must understand social science
disciplines and how they affect functional
business fields
 Consider
 physical factors
 social factors
 competitive factors

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Physical and Social Factors
 Geographic influences
 natural conditions influence production locations
 Political policies
 determines where and how business occurs
 Legal policies
 influence how a company operates
 Behavioral factors
 may require changes in operations
 Economic forces
 explain differences in costs, currency values, market size

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The Competitive Environment
 Competitive strategy for products
 Cost strategy
 Differentiation strategy
 Focus strategy
 Company resources and experience
 market leaders have more resources for
international operations
 Competitors faced in each market
 local or international

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The Competitive Environment
 So, a company’s competitive strategy
influences how and where it can best
operate
 Its competitive situation may differ from
country to country in terms of its relative
strength and which competitors it faces

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Looking to the Future
Learning Objective 3:
To discuss globalization’s future and the
major criticisms of globalization

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Looking to the Future
 Three major perspectives on the future of
international business and globalization
 Further globalization is inevitable
 International business will grow primarily along
regional rather than global lines
 Forces working against further globalization
and international business will slow down both
trends

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