Chapter 1 IB and Global Market.pptx

Unit 1: Laying Foundation
MBA 7223 MANAGING GLOBAL BUSINESS STARTEGY
Content by: Haslina Abdullah
Instructor/Lecturer: Dr Siti Amaliya Mohd Radyi

Learning Outcomes
• Discuss the meaning and concepts of
international business
• Discuss four risks of international business
• Identify key players in international business.
• Discuss globalization and its effect on
international business
At the end of this chapter, students
will be able to:

Topic Outlines
• Definition
• Globalization of market
• Globalization of production
Globalization
• Definition of international business.
• The key concepts in International Trade
and Investment.
• Four risks in internalization.
• Key players in international business.
International business

Apple’s Global iMPACT
 “User-Centered Design”
 Globalization
 Produce and sell worldwide with
little or no modification
 Reduces Apple’s production and
marketing costs
 Supports Apple’s global brand
strategy
 Challenges
 Higher price

Formal Institutions :
Economic, political
And Legal System

International Business
Definition
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

Copyright © 2017 Pearson Education, Inc.
1-7
Key Concepts in International Trade and
Investment
• Exporting
• Importing or global sourcing
• International portfolio
investment
• Foreign direct investment
International Trade International Investment
International Business

• International trade: Exchange of products and services across national borders.
 Exporting: Sale of products or services to
customers located abroad, from a base in the
home country or a third country. Boeing and Airbus export billions in commercial
aircraft every year.
 Importing or global sourcing: Procurement of
products or services from suppliers located abroad for consumption in the
home country or a third country. Toyota imports many parts from China
when it manufactures cars in Japan.
1-7
Key Concepts in International Trade and
Investment

Key Concepts in International Trade and Investment
International investment refers to the transfer of assets to another country or the
acquisition of assets (factors of production) in that country.
 Foreign direct investment: an
internationalization strategy in which the firm
establishes a physical presence abroad through
acquisition of productive assets such as capital,
technology, labor, land, plant, and equipment
 International portfolio investment: Passive
owner- ship of foreign securities such as stocks
and bonds, in order to generate financial returns.
1-8

The Four Risks of International
Business
1-19
Risk in
International
Business
Cross-
cultural risk
Country risk
Currency
(financial)
risk
Commercial
risk

Business
1-19
Risk in
International
Business
Cross-
cultural risk
• Cultural differences
• Negotiation patters
• Decision making styles
• Ethical practices

Business
1-19
Risk in
International
Business
Country risk
• Harmful or unstable political system
• Laws and regulations unfavourable to foreign
firms
• Inadequate or underdeveloped legal system
• Corruption and other ethical blunders
• Government intervention, protectionism and
barriers to trade and investment
• Mismanagement or failure of the national
economy
• Bureaucracy and red tape.

Business
1-19
Risk in
International
Business
Currency
(financial)
risk
• Currency exposure
• Asset valuation
• Foreign taxation
• Inflationary and transfer
pricing

Business
1-19
Risk in
International
Business
Commercial
risk
• Weak partner
• Operational problems
• Timing of entry
• Competitive intensity
• Poor execution of strategy

Cross-Cultural Risk
• Cultural Differences. Risk arising from differences in
language, lifestyle, attitudes, customs, and religion, where a
cultural miscommunication jeopardizes a culturally-valued
mindset or behavior.
• 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.
• Watch YouTube; Cross cultural in business negotiation
between America and Japan.
1-20

Cross-Cultural Risk (cont’d)
• Decision-Making Styles. Managers make decisions
continually on the operations and future direction of the firm.
For example, Japanese take considerable time to make
important decisions. Canadians tend to be decisive, and
“shoot from the hip”.
• Watch youtube; Japanese style decision-making styles.
• Ethical Practices. Standards of right and wrong vary
considerably around the world. For example, bribery is
relatively accepted in some countries in Africa, but is
generally unacceptable in Sweden.
1-21

Ethical Connections
• In the fashion industry, hundreds of factory workers die annually from dangerous
working conditions.
• In the production of faded denim 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.
Source: G. Brown, “Fashion Kills: Industrial Manslaughter in the Global Supply Chain,” EHS Today, September 2010, p. 59.
1-22

Country Risk (Political Risk)
• Refers to potentially adverse effects on company
operations and profitability caused by developments in
the political, legal, and economic environment in a
foreign country.
1-23
Examples
- The U.S. imposes tariffs on imports of sugar and other
agricultural products.
- Doing business in Russia often requires paying bribes to
government officials.
- Venezuela’s government has interfered much with the
operations of foreign firms.
- Argentina has suffered high inflation and other economic
turmoil.

Currency Risk (Financial Risk)
• refers to the risk of adverse fluctuations in exchange rates.
• Currency exposure. General risk of unfavorable
exchange rate fluctuations.
• Asset valuation. Risk that exchange rate fluctuations will
adversely affect the value of the firm’s assets and liabilities.
• 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.
1-24

Currency Risk (Financial Risk)
1-24
Examples
- The Malaysian ringgit (RM) has fluctuated a lot
since 2017- BNM said the factors contribute are
the rate of inflation, monetary policies, political
and economic condition,
- The U.S. has relatively high corporate income
taxes.
- Brazil and Turkey have experienced very high
inflation.

Commercial Risk
• refers to the firm’s potential loss or failure from poorly developed or executed
business strategies, tactics, or procedures.
• Managers may make bad choices in such areas as
• Weak partner
• pricing
• Timing of entry
• Competitive intensity
• Promotional themes.
1-25

The Four Risks of IB: Conclusion
• Always present but manageable.
• Managers need to understand, anticipate, and
take proactive action to reduce their effects.
• Some risks are extremely challenging.
1-26
Example
The recent global financial crisis generated many
commercial, currency, and country risks, affecting
banks and other firms worldwide. This leads to
steep declines in national stock markets and normal
business activity.

Key players in International Business
1-27
Large companies from the
wealthiest nations
Firms from emerging markets
Small and medium-sized
companies
Multinational corporation
(MNC)
Born global firm

Key players in International Business
• Multinational Corporation (MNC): 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.
• 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.
• Born global firm: A young, entrepreneurial SME that
undertakes substantial international business at or near
its founding.
1-27

What Is Globalization?
Globalization: Trend toward greater
economic, cultural, political, and
technological interdependence among
national institutions and economies
Globalization is characterized by
denationalization (national boundaries
becoming less relevant)
Eg: The transatlantic cable (completed
in 1866) allowed news between Europe
and US to travel faster than ever
before.
Globalization is different from
internationalization (entities
cooperating across national
boundaries).

 First age of globalization
 Mid-1800’s to the 1920’s.
 labor highly mobile
 did not require passports for international
travel
 trade and capital flowed freely
 huge companies from wealth nations built
facilities in distant lands to extract raw
materials and to produce all sorts of goods.
 The first age of globalization halted by the arrival
of the First World War.
 Year 1990, the global economy finally reborn.
What is
Globalization?

What is Globalization?
The American Defense Institute defines globalization as “fast and
continuous inter-border flow of goods, services, capital (or money),
technology, ideas, information, cultures and nations”.
According to the Institute, through globalization an unprecedented
integration among economies is occurring, an information reform is
being experienced, and markets, corporations, organizations and
governance are becoming more international.

r
s
o
n
E
d
u
c
a
t
i
o
n
,
I
n
c
.
1. Globalization of Markets
2. Globalization of Production
The effects of globalization:

Chapter
1-35
Globalization of markets refers to the
integration of markets from various regions
into a single global market.
trade barrier removed, easy for a company
regardless small or big to participate and reap
the benefits from the globalization of markets.
Vital for company to offer standard product
worldwide while maintaining significant
differences between national markets such as
tastes, cultural, preferences or legal system.

Globalization of Markets
• Reduces marketing costs
• Creates new market
opportunities
• Levels uneven income streams
• Local buyers’ needs
• Global sustainability
Benefits of Globalization
of Markets
Chapter
1-36

Globalization
of Markets
1. Reduces marketing costs:
 Companies that sell global products can reduce
costs by standardizing certain marketing
activities.
 Companies can achieve further cost savings by
keeping an ad’s visual component the same for
all markets but dubbing TV ads and translating
print ads into local languages
Chapter
1-37

Globalization
of Markets 2. Creates new market opportunities:
A company that sells a global product can
explore opportunities abroad if its home
market is small or becomes saturated.
• Eg: China holds enormous potential for online
business with more than 500 million Internet users,
which is greater than the population of the entire
US. But while more than 70% of people in the US
actively surf the web, only around 38% of people in
China do. More and more Chinese citizens will go
online to research and purchase products.
, Inc. C

3. Levels uneven income streams :
 A company that sells a product with universal, but seasonal,
appeal can use international sales to level its income
stream.
 Eg: a firm that produces suntan and sunblock lotions can
match product distribution with the summer seasons in the
northern and southern hemisperes in alternating fashions –
thereby steadying its income from these global, yet highly
seasonal, products.
, Inc.

4. Local buyers’ needs :
 Managers must constantly monitor the match between the
firm’s products and markets in order to not overlook the needs
of buyers.
 Eg: In southern Japan, Coca-Cola sweetens its traditional
formula to compete with the sweeter-tasting Pepsi.
 in India, where cows are sacred and the consumption of beef is
taboo, McDonald’s markets the “Maharaja Mac”-two all-mutton
patties on a sesame-seed bun with all the usual toppings.
Chapter
1-40

Globalization
of Markets
5. Global sustainability :
 MNC must consider the need among all the
world’s citizen for sustainability.
 Sustainability—development that meets
the needs of the present without
compromising the ability of future
generations to meet their own needs.
 Eg: reduce, reuse, and recycle.
 Most companies operate in transparency
environment – the rise of social media
responsible for this trend.
Chapter
1-41

Globalization of
Markets
Chapter
1-42
• Global
Sustainability: Three
Markets, Three
Strategies
Developed
Markets
1 billion people
- Middle class and people
can consume almost any
product desired.
Toyota
- Launched
Prius- gas-
electric hybrid
car
- -green image
Emerging
markets
2 billion people
- People is migrating to cities
for better pay
-rising incomes will increase
global demand for resource
and basic products
Shree cement
- World leading
cement
companies visit
Shree to learn
from its
innovation in
energy usage
- India - limited
access to low-
cost energy
- Developed
energy-efficient
process to make
its product.
• Global Sustainability:
Three Markets, Three
Strategies

Chapter
1-43
Traditional
markets
4 billion people
- Mostly rural
- Infrastructure very poor
- People have no legal
protection and many
corruptions
Bloomer chocolate
-US works closely
with cocoa farmers.
- Received rewards
for training farmers
in safe farming
practices and HIV
awareness.

Globalization
of Production
Chapter
1-44
Globalization of production refers
to the dispersal of production
activities to locations that help a
company achieve its cost-
minimization or quality-maximization
objectives for a good or service.
This includes the sourcing of key
production inputs (such as raw
materials or products for assembly)
as well as the international
outsourcing of services.

Globalization of Production
•Access lower-cost workers
•Access technical expertise
•Access production inputs
Benefits of Globalization of
Production
Chapter
1-45

Globalization
of Production 1. Access lower-cost workers:
Global production activities allow companies
to reduce overall production costs through
access to low-cost labor.
Eg: Many European and US businesses have
moved their customer service and other
nonessential operations to places as far away
as India to slash costs by as much as 60%.
Chapter
1-46

Globalization
of Production
2. Access technical expertise:
 Companies also produce goods and services
abroad to benefit from technical know-how.
 Eg: Film Roman produces the TV series The
Simpsons, but it provides key poses and step-
by-step frame directions to AKOM production
Company in Seoul, South Korea. AKOM then fills
in the remaining poses and links them into an
animated whole. But there are bumps along
the way. The Korean never use guns in the
Korea because its against the law to have guns.
, Inc.
Chapter
1-47

Globalization of Production
3. Access production inputs:
 Globalization of production allows companies to access resources
that are unavailable or more costly at home. The quest for natural
resources draws many companies into international markets.
 Eg: Japan is a small, densely populated island nation with very
few natural resources of its own-especially forest. But Japan’s
largest paper company, Nippon Seishi, does more than simply
import wood pulp. The company owns huge forests and
corresponding processing facilities in Australia, Canada, and US.
Chapter
1-48

Chapter 1 IB and Global Market.pptx

Recomendados

Recomendados

Mais conteúdo relacionado

Semelhante a Chapter 1 IB and Global Market.pptx

Semelhante a Chapter 1 IB and Global Market.pptx (20)

Mais de sitiamaliya2

Mais de sitiamaliya2 (10)

Último

Último (20)

Chapter 1 IB and Global Market.pptx