Chapter 1 international business

Key questions:
What is globalization? What are the main drivers of globalization?
· Shift toward a more integrated and interdependent world economy.
· Globalization has several different aspects, including:
• Globalization of markets
• Globalization of production
· Drivers of Globalization
o Since the end of WWII, there have been 2 primary factors which have
increased globalization:
1. The decline in barriers to the free flow of goods, services, and
capital.
2. Significant technological innovations.
· Information processing
· Communication
· Transport technology
· Internet

What are the advantages of globalization for firms and managers? What are
some challenges associated with managing a firm internationally?
Why is eliminating such barriers advantageous?
→ It enables firms to view the world as their market rather than a single country.
→ It allows firms to base production at the optimal location for an activity.
A firm might...
● design a product in one country,
● produce parts in two other countries, assemble the product in yet another country, and
then export the finished product around the world.
Internet accessibility advantages:
→ Change in the way people communicate.
→ Easier connection between buyers and sellers
→ Easier & cheaper way to expand business presence globally.
Transportation advantages:
 → Economically, one of the most significant technological innovations was the
development of commercial jet aircraft and the introduction of containerization.
→ Innovations in the transportation sector have shrunk the time needed to move goods
and people.
Disadvantages:
→ check: How Does the Global Marketplace Affect Managers?

What is the purpose of global institutions such as the IMF, the United Nations,
the World Trade Organization, and the World Bank?
Check: Global Institutions
Globalization notes
The following process of events is identified as globalization:
→ Barriers to cross-border trade and investment are falling.
Ex. Trade barriers include tariffs, language, regulatory constraints, etc.
→ Perceived distance is shrinking due to advances in transportation and
telecommunications technology.
Ex. Online communication and containerization.
→ Material culture is starting to look similar internationally.
Ex. The widespread use of iPhone & Samsung phones.
→ National economies are merging into an interdependent global.
economic system
Ex. The emergence of the European Union.
· The globalization of markets, merging of separate national markets into one:
→Low-cost global communications networks such as the World Wide
Web are helping to create global electronic marketplaces.
→ Low-cost transportation has made it more economical to ship
products around the world, thereby helping to create global markets.
Globalization of production:
· Trend by firms to disperse parts of their production processes to different
locations around the world to take advantage of national differences in costs
and quality of factors of production (e.g., labour, capital, land, natural
resources, entrepreneurship...)
→ Decreasing transportation costs associated with the globalization of production.
 made dispersal to geographically widespread locations more economical.
The Case of Ecuador’s Flower Industry Given Ecuador’s favourable geographic
conditions for growing flowers & falling transportation costs, Ecuador has become a
global supplier of roses.

Indian outsourcing notes:

The Outsourcing of Health Services:

Hospitals now routinely send X-rays online to be read in different countries internationally,
such as India. Additionally, some insurance companies even recommend conducting specific
procedures in foreign countries. Thus, there are certainly benefits to the globalization of
production in this retrospect. Due to globalization, patients in different countries can now
attain more cost-efficient and/or higher-quality medical care.

A Decline in Barriers to Trade & Investment

After World War II, many nations committed to removing barriers which prevented the free
flow of goods, services and capital between countries. This was formalized through the General
Agreement on Tariffs and Trade, the predecessor to the World Trade Organization.

The reality is that while modern communication & transportation are ushering in the “global
village,” there remain significant differences in material and popular culture and business
systems. Doing business in foreign nations has unique challenges, ex, Japan uses cash to pay.
Due to different tastes and preferences, what sells in Canada may.
not sell in Thailand.
→ Due to different tastes and preferences, what sells in Canada may.
not sell in Thailand
→Business processes that give a retailer a competitive advantage in
Canada may be difficult to implement in India.
→A brand that means something in Canada may mean little in China.
Why Starbucks failed in Vietnam, Australia and South America:

Currently, most global markets are not consumer products oriented - where national
differences in tastes and preferences halt standardization efforts. Instead, markets that serve
universal needs, such as commodities, industrial products, commercial aircraft, computer
software and financial assets, have been significantly affected by globalization in recent decades.
Global Institutions
As markets globalize business activities and transcend national borders, institutions must help
manage and regulate the global marketplace.
The key global institutions which affect international business include:
● The International Monetary Fund (IMF)- 1944
Purpose: To maintain order in the international monetary system.
When the currency of a country is losing value against other currencies, it makes
it difficult for them to trade with other countries. Thus, it impacts international
trade for all countries. Seen as last resort because of policies and conditions
countries must implement when borrowing money.
Critics say conditions are inappropriate. Some believe the IMF seizes their
sovereignty by telling national governments what economic.
policies they must adopt.

When you have nowhere to turn to

● The World Bank- 1944
Purpose: To promote economic development.
Friendlier to deal with
First to deal with
Ex. Financing infrastructure after a war or natural disaster.
The World Bank is comprised of:
The International Bank for Reconstruction and Development (IBRD)
The International Development Association (IDA)
The International Finance Association (IFC)
The Multilateral Investment Guarantee Agency (MIGA)
The International Center for Settlement of Investment Dispute (ICSID)
Difference: the IMF oversees the stability of the world's monetary system, while the World
Bank's goal is to reduce poverty by aiding middle-income and low-income countries.
● The United Nations (UN)- 1945
Purpose:
→ To maintain international peace and security.
 →To uphold international law.
→ To develop friendly relations among nations.
→To help nations work together to promote sustainable development,
deliver humanitarian aid, and protect human rights.
→To be the center for harmonizing the action of nations to achieve these
goals.
● The General Agreement on Tariffs & Trade (GATT)- 1947 to 1994
Purpose: GATT aimed at the smooth settlement of disputes among the
contracting parties. GATT allows the member countries to settle problems
among them by consulting one another on matters of trade. Became WTO after
1994.
● The World Trade Organization (WTO)- 1995
Purpose: To ensure that trade flows smoothly, predictably, and freely.
Responsibilities:
→To police the world trading system.
→To make sure nation-states adhere to the rules in trade treaties.
→To promote lower barriers to trade and investment.

How Does the Global Marketplace Affect Managers?

Managing an international business differs from managing a domestic business because ...
1. Countries are different. They differ in the following:
1. Cultures
2. Political systems
3. Legal systems
4. Economic systems
5. Geography
6. Level of economic development
7. Population demographics
2. A larger range of problems of higher complexity is confronted in international than
domestic business.
1. Where should production activities be based to minimize cost and maximize
value added?
 2. What are the ethical standards for labour and the environment in less
developed nations?
3. How should global production activities be controlled and coordinated
globally?
4. What is the appropriate entry mode for a certain foreign country?
3. Firms must work within limits imposed by government intervention in
international trade and investment systems.
1. Ex. Common forms of government intervention include:
1. Regulations
2. Tariffs
4. International transactions involve converting money into different currencies.
1. When conducting international transactions, firms must deal with exchange
rates. Thus, firms must adopt the right policy to increase the profitability of
their international transactions.
Key Vocabulary:
● Globalization: The shift towards a more integrated and interdependent world economy.
● Globalization of Markets: The merging of separate national markets into one huge
global marketplace.
● Globalization of Production: The sourcing of goods and services from locations
worldwide to take advantage of national differences, cost and quality factors of
production.
● International trade: When a firm exports goods or services to consumers in another
country.
● Foreign Direct Investment (FDI): Direct investment of resources and business activities
outside a firm’s home country.
● Outsourcing: is obtaining a good or service from a foreign supplier.

Review:
➢The shift toward a more integrated and interdependent world economy is
referred to as globalization.
➢The merging of historically distinct and separate national markets into one
huge global marketplace is known as globalization of markets.
➢The sourcing of goods and services internationally to take advantage of
national differences in the cost and quality factors of production are known.
As globalization of products.
➢The WTO is responsible for policing the world trading system.
➢International trade is when firms export their goods and services to foreign countries.
➢The IMF maintains order in the international monetary system.
➢The two main drivers for globalization are the decline in barriers for trade and capital and
technological innovation.
➢The World Bank is responsible for promoting economic development.