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INTERNATIONAL
  BUSINESS, 7e
    Czinkota
   Ronkainen
     Moffett



               1
Chapter 1
The International Business
        Imperative




                             2
Learning Objectives
To understand the history and impact of
international business.
To learn the definition of international
business.
To recognize the growth of global linkages
today.
To understand the U.S. position in world
trade and the impact international business
has on the United States.
To appreciate the opportunities and
challenges offered by international business.
                                  3
Need for International Business
 More and more firms around the
 world are going global, including:
   Manufacturing firms
   Service companies (i.e. banks, insurance,
   consulting firms)
   Art, film, and music companies




                                  4
Need for International Business
 International business:
   causes the flow of ideas, services, and
   capital across the world
   offers consumers new choices
   permits the acquisition of a wider variety
   of products
   facilitates the mobility of labor,
   capital, and technology
   provides challenging employment
   opportunities
   reallocates resources, makes preferential
   choices, and shifts activities to a global
   level                                   5
What is International Business?

International business consists of
transactions that are devised and
carried out across national borders
to satisfy the objectives of
individuals, companies, and
organizations.


                          6
Types of International Business
           Export-import trade
                                 Foreign direct
                                  investment



                                     Licensing




                                 Franchising

       Management contracts

                                 7
International Business Questions
 How will an idea, good, or service
 fit into the international market?
 Should trade or investment be used
 to enter a foreign market?
 Should supplies be obtained
 domestically or abroad?
 What product adjustments are
 necessary to be responsive to local
 conditions?
 What are the threats from global
 competitors, and how can these
 threats be counteracted?
                                8
International Business and the
       Roman Empire
Pax Romana, or Roman Peace ensured
that merchants were able to travel safely
and rapidly.
Common coinage simplified business
transactions.
Rome developed a systematic law, central
market locations, and an effective
communication system; all of which
enabled international business to flourish
in the Roman Empire.
The growth of the Roman Empire occurred
                                 9
mainly through the linkages of business
International Business and the
     Roman Empire (cont.)
The decline of the Roman Empire can
be attributed in part to:
  infighting and increasing decadence
  the Pax Romana being no longer enforced
  the decline of use and acceptance of the common
  coinage
  declining levels of communication
As a result, former Roman allies
cooperated with invaders.
                                     10
United States: A Global Leader
 The United States has developed a
 world leadership position due to:
   its use of market-based transactions in the
   Western world
   a broad flow of ideas, goods, and services
   across national borders
   an encouragement of international
   communication and transportation
   Pax Americana, an American sponsored
   and enforced peace
                                      11
The Smoot-Hawley Act
The the 1930’s, the U.S. passed the Smoot-
Hawley Act, which raised import duties to
reduce the volume of goods coming into the
U.S.

The act was passed in the hope that it would
restore domestic employment.

The result was a worldwide depression and
the collapse of the world financial system.

                                  12
Expansion of International Trade
In the past 30 years, the volume of
international trade has expanded from
$200 billion to over $7.5 trillion.

The sales of foreign affiliates of
multinational corporations are now
twice as high as global exports.




                             13
Global Links Today
International business has created a network
of global links that bind countries,
institutions, and individuals with trade,
financial markets, technology, and living
standards.
  For example, a reduction in coffee production in
  Brazil would affect individuals and economies
  worldwide.



                                        14
Recent Changes in
    International Business
Total world trade declined dramatically
after 2000, but is again on the rise.

The rate of globalization is
accelerating.

Regionalization is taking place,
resulting in trading blocs.

The participation of countries in world
trade is shifting.             15
The Composition of Trade
Between the 1960’s and the 1990’s the
importance of manufactured goods
increased while the role of primary
commodities (i.e. rubber or mining)
had decreased.
More recently, there has been a shift
of manufacturing to countries with
emerging economies.
There has been an increase in the
area of services trade in recent years.

                             16
The Current U.S. International
          Trade Position
Exports and Imports of Goods and Services per Capita
               for Selected Countries

    Country           Exports per Capita   Imports per Capita
    Australia            $4,296                   $4,525
    Brazil                  379                       428
    China                   222                       199
    Japan                 4,165                     3,622
    Kenya                    91                       125
    United Kingdom        4,767                     5,500
    United States         3,472                     4,962
                                            17
The Impact of International
Business on the United States
U.S. international business outflows are
important on the macroeconomic level in
terms of balancing the trade account.

On the microeconomic level, participation
in international business can help firms
achieve economies of scale that cannot be
achieved in domestic markets.

                                18
Average Plant Salary and Wages
                  (per worker, dollars per hour)
             30

             25

             20
$ per hour




             15

             10

             5

             0
                  All Plants        Small Plants           Large Plants

                               Non-Exporters   Exporters
                                                           19
Globalization
Because of globalization, for the first
time in history, the availability of
international products and services can
be accessed by individuals in many
countries, from diverse economic
backgrounds.



                              20
The Structure of this Book
Part One introduces the importance of international
business and its global linkages.
Part Two presents the environment of international
business, addressing culture, policies, politics, and
law.
Part Three provides coverage of the theory of
international trade and investment and presents
balance of payments issues.
Part Four discusses markets, financial systems,
economic integration, and emerging market
concerns.
                                         21
The Structure of this Book
                    (cont.)
Part Five presents the strategy considerations
surrounding international business.
Part Six targets the operational issues surrounding
international business, using an implementation-
oriented perspective.
Part Seven concludes the book with a focus on the
future of the field and the reader’s career.




                                       22

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Ch01

  • 1. INTERNATIONAL BUSINESS, 7e Czinkota Ronkainen Moffett 1
  • 2. Chapter 1 The International Business Imperative 2
  • 3. Learning Objectives To understand the history and impact of international business. To learn the definition of international business. To recognize the growth of global linkages today. To understand the U.S. position in world trade and the impact international business has on the United States. To appreciate the opportunities and challenges offered by international business. 3
  • 4. Need for International Business More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance, consulting firms) Art, film, and music companies 4
  • 5. Need for International Business International business: causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level 5
  • 6. What is International Business? International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations. 6
  • 7. Types of International Business Export-import trade Foreign direct investment Licensing Franchising Management contracts 7
  • 8. International Business Questions How will an idea, good, or service fit into the international market? Should trade or investment be used to enter a foreign market? Should supplies be obtained domestically or abroad? What product adjustments are necessary to be responsive to local conditions? What are the threats from global competitors, and how can these threats be counteracted? 8
  • 9. International Business and the Roman Empire Pax Romana, or Roman Peace ensured that merchants were able to travel safely and rapidly. Common coinage simplified business transactions. Rome developed a systematic law, central market locations, and an effective communication system; all of which enabled international business to flourish in the Roman Empire. The growth of the Roman Empire occurred 9 mainly through the linkages of business
  • 10. International Business and the Roman Empire (cont.) The decline of the Roman Empire can be attributed in part to: infighting and increasing decadence the Pax Romana being no longer enforced the decline of use and acceptance of the common coinage declining levels of communication As a result, former Roman allies cooperated with invaders. 10
  • 11. United States: A Global Leader The United States has developed a world leadership position due to: its use of market-based transactions in the Western world a broad flow of ideas, goods, and services across national borders an encouragement of international communication and transportation Pax Americana, an American sponsored and enforced peace 11
  • 12. The Smoot-Hawley Act The the 1930’s, the U.S. passed the Smoot- Hawley Act, which raised import duties to reduce the volume of goods coming into the U.S. The act was passed in the hope that it would restore domestic employment. The result was a worldwide depression and the collapse of the world financial system. 12
  • 13. Expansion of International Trade In the past 30 years, the volume of international trade has expanded from $200 billion to over $7.5 trillion. The sales of foreign affiliates of multinational corporations are now twice as high as global exports. 13
  • 14. Global Links Today International business has created a network of global links that bind countries, institutions, and individuals with trade, financial markets, technology, and living standards. For example, a reduction in coffee production in Brazil would affect individuals and economies worldwide. 14
  • 15. Recent Changes in International Business Total world trade declined dramatically after 2000, but is again on the rise. The rate of globalization is accelerating. Regionalization is taking place, resulting in trading blocs. The participation of countries in world trade is shifting. 15
  • 16. The Composition of Trade Between the 1960’s and the 1990’s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased. More recently, there has been a shift of manufacturing to countries with emerging economies. There has been an increase in the area of services trade in recent years. 16
  • 17. The Current U.S. International Trade Position Exports and Imports of Goods and Services per Capita for Selected Countries Country Exports per Capita Imports per Capita Australia $4,296 $4,525 Brazil 379 428 China 222 199 Japan 4,165 3,622 Kenya 91 125 United Kingdom 4,767 5,500 United States 3,472 4,962 17
  • 18. The Impact of International Business on the United States U.S. international business outflows are important on the macroeconomic level in terms of balancing the trade account. On the microeconomic level, participation in international business can help firms achieve economies of scale that cannot be achieved in domestic markets. 18
  • 19. Average Plant Salary and Wages (per worker, dollars per hour) 30 25 20 $ per hour 15 10 5 0 All Plants Small Plants Large Plants Non-Exporters Exporters 19
  • 20. Globalization Because of globalization, for the first time in history, the availability of international products and services can be accessed by individuals in many countries, from diverse economic backgrounds. 20
  • 21. The Structure of this Book Part One introduces the importance of international business and its global linkages. Part Two presents the environment of international business, addressing culture, policies, politics, and law. Part Three provides coverage of the theory of international trade and investment and presents balance of payments issues. Part Four discusses markets, financial systems, economic integration, and emerging market concerns. 21
  • 22. The Structure of this Book (cont.) Part Five presents the strategy considerations surrounding international business. Part Six targets the operational issues surrounding international business, using an implementation- oriented perspective. Part Seven concludes the book with a focus on the future of the field and the reader’s career. 22