International

Business
Environments & Operations
15e

Daniels Radebaugh Sullivan

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 Chapter 1
Globalization and
International Business

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 Learning Objectives
Define globalization and international business and
explain how they affect each other
Grasp why companies engage in international business
and why its growth has accelerated
Discuss globalizations future and the major criticisms
of it
Illustrate the different ways a company can accomplish
its global objectives
Recognize the need to apply social science disciplines
to understand how international and domestic business
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differ
 Introduction
Globalization

The worldwide movement toward economic,

financial, trade, and communications integration.

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 Introduction
International business consists of all
commercial transactionsincluding sales,
investments, and transportationthat take
place between two or more countries

International business activities allow us to get more variety, better

quality, and/or lower prices.

Could be a company or a government to make profit or for political

reasons.
Importance of Studying IB
Most companies are either international or compete
with international companies
Global events and competition affect almost all
companies, regardless of industry
International companies have more complex
environments than domestic firms.
An understanding of IB helps you make better career
decisions

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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 ( banks + visa cards)
4. Growth of consumer pressures
5. Increased global competition.

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Why Companies Engage in IB
To expand sales ( Nestle + SONY ) 50%
OUTSALES
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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 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 ( Hotels and airlines )
Service performance
management contracts
Asset use ( Adidas + Macdonald )
licensing and franchising
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 Modes of Operations in IB
Investments
Foreign Direct Investment (FDI)
A: Foreign direct investment (FDI) involves
establishing a direct business interest in a
foreign country, such as buying or
establishing a manufacturing business.
Portfolio Investment
, while foreign portfolio investment (FPI) is
investing in financial assets, such as stocks
or bonds, in a foreign country.
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 Types of International
Organizations
Collaborative arrangements
Joint ventures
Licensing arrangements
Management contracts
Minority ownership

Strategic alliance
companies that work together, but the agreement is
critical to at least one partner

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 Types of International
Organizations
Multinational enterprises (MNEs)
A corporation that has its facilities and other assets in
at least one country other than its home country.

Sometimes they are referred to as

multinational corporations (MNCs)
multinational companies (MNCs)
transnational companies (TNCs)

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 Why IB is Different than Domestic
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 business locations
Political policies
countries determine where and how business occurs
within their borders
Legal policies
influence how a company operates
Behavioral factors
may require adaptation in to local conditions
Economic forces
explain differences in costs, currency values, market
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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 companys 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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