The International

Business Imperative

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 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

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 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

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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

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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

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Types of International Business

Export-import trade
Foreign direct
investment

Licensing

Franchising

Management contracts

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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?

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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 mainly through the
linkages of business

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 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.

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 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

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 The Smoot-Hawley Act
The the 1930s, 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.
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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.

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 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.

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 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

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 The Composition of Trade
Between the 1960s and the 1990s 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.

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 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

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 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

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Globalization: Historic Background
Globalization: Definition and
Components
The Exploration Era to 1500
1500-1900:The Colonial Era
1900-today: The Era of the
Modern International Corporation

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 Globalization: Historic Background
Globalization: Definition
The globalization movement is the trend towards
increasing interdependencies among world markets,
and the diffusion of new ideas, technologies, products,
services and lifestyles through international markets

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Globalization: Historic Background
Globalization: Components
Modernization: the upgrading of technologies and
living standards that occur as ideas, products, and
services diffuse through world markets
Westernization: the emulation of lifestyles and
behaviors of Western societies, most notably those
of North America and Western Europe

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 Globalization: Historic Background

The Exploration Era to 1500

Civilization of Latin America (Incas, Mayans, Aztecs), Asia (India &
China), Western Europe (Romans) and Egypt (pharaohs and
pyramids)
Sixth century B.C.: Silk Road from Middle East to China
Roman Empire established trade routes and common currency
12th & 13th centuries: Major navigational advances for sail ships
15th century: Major period of exploration to Americas, Africa and
Asia

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 Globalization: Historic Background

1500-1900:The Colonial Era

The development of mega languages: early on Latin &
Chinese; later, English & European languages
Advances in arms and military capabilities
Writing and printing technologies
Transportation innovations: the steam engine
The industrial revolution: machines & electricity
Communications Advances: telephone/telegraph
Retail establishments: access to products/services

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World Business Analysis & Opinions: What do you think?
Did the countries colonized during the 16th-19th centuries gain
anything from the experience?

Exposure to different, often technologically superior cultures

Period of rapid economic and technological progress in the
colonizing European cultures; medicines, education
Preliminary build-up of infrastructures (roads, rails)
New products, lifestyles were introduced
Colonial languages for some countries were cornerstones of
development (English, French, Spanish)
Downsides were slavery, subjugation and others
Others?
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 Globalization: Historic Background

1900-today: Era of the Modern International Corporation

1900-1945: Company Internationalization
Companies began to replace countries as the major catalysts of
economic and cultural change Aided by air travel, automobiles, radio
and television
1945-1980: Era of Increasing International Competition
Corporations began to reassert themselves in international markets
European and Japanese companies challenge US corporations in
international markets

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The Globalization Era Since 1980

The Major Catalysts of Post 1980

Globalization
Globalization and the Developing
World
Reasons for Developmental
Differences: The Diffusion Process
in International Business
Diffusion Effects on Strategy
Formulation and Implementation

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 The Major Catalysts of Post 1980 Globalization

International Trade: GATT and WTO. Trade increases to about $8

trillion in 2002
Trade Blocs: Trade blocs to facilitate commercial interactions
among members: EU, NAFTA
Foreign Direct Investments (FDI): International companies make
investments in factories, plant and machinery in non-domestic
markets. 10 fold increase over 1980-2002 to over $7 trillion
Global Movements towards Capitalism: Demise of communism in
the 1980s and 1990s
Technology and Global Media: The advent of satellite, computer
and Internet technology

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 Globalization and the Developing World
Up to 1985, the Triad nations of North America, Western Europe,
and Japan were dominant in world commerce
As developing markets opened up to trade and investments, so
new ideas and technologies began to contribute to economic and
cultural change
The diffusion of technologies and consequent modernization
processes have barely impacted many emerging markets

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World Business Analysis & Opinions: What do you think?
How do international firms affect the developing countries they enter?

Through technology transfers; new products services,

lifestyles, technologies
International financial institutions transfer financial
infrastructure elements: savings, credit, investment
opportunities
International telecommunications firms
International building contractors: roads, buildings
International utility companieswater, electricity, energy
Others?
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Reasons for Developmental Differences:
The Diffusion Process in International Business

The Diffusion Process in National Markets: Determined by:

Country Openness to External Influences
Education and Literacy levels: low levels retard diffusion rates; high
levels facilitate diffusion
The Importance of National Infrastructures: poor roads, rails, energy
grids slow down diffusion rates
Effects of National Ethnic and Linguistic Compositions: multi-
ethnic/lingual societies slow down diffusion rates
How disruptive innovations are on national lifestyles

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 Diffusion Effects on Strategy Formulation and
Implementation

The Arguments for Standardized Strategies

While companies make some adaptations (voltage changes for electronic goods;
right/left hand drives and minor stylistic changes for autos; labeling changes for
consumer products), essentially products and services are similar from market to
market
Take advantage of customer demand homogenized through trade, commercial
contacts, international media
Often the industrialized nations and advanced sectors of LDCs
The Arguments for Localized Strategies
This involves taking full account of national cultures, values and behaviors
Necessary in countries with strong national cultures and nations relatively
untouched by the forces of globalization. Companies must adapt to be successful
Most companies need to adapt to greater or lesser degrees

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 Key Points
World business is the performing of commercial activities to promote the
sale of goods and services across national boundaries
The world business challenge is to use tools from political science,
anthropology, economic development, sociology, religious studies,
geography and history to understand the diversity and change inherent in
world markets
The globalization movement is the trend towards increasing
interdependencies among world markets and the diffusion of new ideas,
technologies, products, services, and lifestyles through international
markets

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 Key Points

Modern corporations date from the 19th century, but grew dramatically in
the post-1945 era, with US, European, and Japanese companies taking
the lead
The diffusion process of new technologies and products starts with
developed countries and moves over time into developing markets;
within national markets, diffusion starts with urban markets and moves
into semi-urban and then into rural areas
The diffusion process affects strategy formulation and implementation,
with standardized strategies more likely in developed markets; and
adaptation strategies more likely in rural and developing markets

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