Chapter 1 IBM

International Business
Sixteenth Edition, Global Edition
Chapter 1
International Business
and Globalization
Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Learning Objectives (1 of 2)
1-1 Relate globalization and international business (IB) to each other and
explain why their study is important.
1-2 Grasp the forces driving globalization and IB
1-3 Discuss the major criticisms of globalization

1-4 Assess the major reasons companies seek to create value by
engaging in IB
1-5 Define and illustrate the different operating modes for companies to
accomplish their international objectives.
1-6 Recognize why national differences in companies’ external

environments affect how they may best improve their IB performance.

Factors in IB Operations
Objective 1-1
Figure 1.1 Factors in IB Operations

Globalization and IB
Objective 1-1
• What is Globalization?
Globalization is the widening and deepening of interdependent relationships

among people from different nations. The term sometimes refers to the
elimination of barriers to international movements of goods, services, capital,
technology, and people that influence the integration of world economies.
• The Importance of Globalization
• Examples of Globalization

A.T Kearney Globalization Index
In recent years the index

Economic showed that Singapore and
Hong Kong are the most
globalized countries.
Technological
Personal
Political

Why Globalization?
Globalization enables us to get more variety,

better quality, or lower prices.
Example:
Our meals contain spices that aren’t grown domestically and fresh
produce that may be out of season in the local climate. Our cars cost
less than they would if all the parts were made and the labor
performed in one place
Why study IB?
• Understanding the environment/operations relationship
• Most companies are either international or compete with
international companies,
• Modes of operations may differ from those used domestically,
• It helps managers to decide where to find resources and to sell,
• The best way of conducting business may differ by country,
• Making Nonbusiness Decisions
• An understanding helps you make better career decisions,
• An understanding helps you decide what governmental policies to
support
The connection between Globalization and
IB.
• The global connections between supplies and markets
result from the activities of IB, which are all commercial
transactions (including sales, investments, and
transportation) that take place among countries.
• Private companies undertake such transactions for profit;

governments may undertake them either for profit or for
other reasons
The Forces Driving Globalization and IB
Objective 1-2
• Globalization
− Has been growing.
− Is less pervasive than generally thought.
− Has economic and noneconomic dimensions.
− Is stimulated by several factors.

Factors in increased Globalization
1. Rise in and application of technology
2. Liberalization of cross-border trade and resource
movements
3. Increase in global competition
4. Change in political situations
5. Growth of consumer pressures
6. Development of services that support IB
7. Expansion of cross-national cooperations

Factors in increased Globalization
Objective 1-2
• Factors in increased Globalization
 Rise in and application of technology
Advances in Communications and Transportation
 Liberalization of cross-border trade and resource
movements:
-Their citizens want a greater variety of goods and
services at lower prices.
-Competition spurs domestic producers to become
more efficient.
-They hope to induce other countries to lower their
barriers in turn
Increase in global competition
As the opening case suggests, the early success of
foreign-born baseball players in U.S. leagues undoubtedly
spurred U.S. basketball and football organizations to look
for and develop talent abroad
Changes in political situations and government

policies
Governments support programs, such as improving airport
and seaport facilities, to foster efficiencies for delivering
goods internationally.
Growth of consumer pressures
Consumer pressure has also spurred companies to spend more
on research and development (R&D) and to search worldwide
for innovations and products they can sell to ever-more-
demanding consumers
Development of services that support IB
When Nike sells sportswear to a French soccer team, a bank in
France collects payment in euros from the soccer team when
the shipment arrives at French customs and pays Nike in U.S.
dollars through a U.S. bank.
Expansion of cross-national cooperation
To gain reciprocal advantages

To attack problems jointly that one country acting alone
cannot solve
To deal with areas of concern that lie outside the territory
of any nation
Criticisms of Globalization and IB
Objective 1-3
 1.Sovereignty Think globally, act locally,”

-Local objectives and Policies
• Countries seek to fulfill their citizens’ objectives by setting
policies reflecting national priorities, such as those governing
worker protection and environmental practices. However,
critics argue that these priorities are undermined by opening
borders to trade

-Small economies’ overdependence
Critics complain that economically small countries depend
too much on larger ones for supplies and sales
-Cultural homogeneity
Critics charge that globalization homogenizes merchandise,

production methods, social structures, and even language,
thus undermining the cultural foundation of sovereignty
 2.Environmental Stress
- Both production and international travel consumes more
nonrenewable natural resources.( air pollution,
deforestation….)
- The positive effects of pursuing global interests may,
nevertheless, conflict with national interests. Consider the
effect of global pressure on Brazil to help protect the world’s
climate by curtailing logging activity in the Amazon region.
Unemployed Brazilian workers have felt that job creation in
the logging industry is more important than climate
protection outside Brazil.
 Growing income inequality and personal
stress
• Income inequality :Although globalization has brought

unprecedented opportunities for firms to profit by gaining
more sales and cheaper or better supplies, critics argue that
profits have gone disproportionately to the top executives
rather than to the rank and file.
• Personnel Stress: Some repercussions of globalization can’t

be measured in strictly eco-nomic terms, such as people’s
stress from real and potential loss of relative economic and
social positions.
Why engage in IB?
Objective 1-4
• Sales expansion
• Resource acquisition
• Risk reduction

Why engage in IB?
• Sales expansion
• - there are more potential consumers in the
world than in any single country.
• - Pursuing international sales usually increases
the potential sales and potential profits

Resource acquisition
• Foreign locations may give companies
• lower costs
• new or better products
• additional operating knowledge
Risk reduction
• International operations may reduce operating risk by
smoothing sales and profits,
• preventing competitors from gaining advantages
IB Operating Modes
Objective 1-5
1. Merchandise Exports and Imports
Merchandise exports and imports are tangible
products—goods—that are respectively sent out of
and brought into a country.
Merchandise exports and imports are the most

popular IB modes

2. Service Exports and Imports
The terms export and import often apply only to

merchandise. For non-merchandise international earnings,
the terms are service exports and imports and are referred to
as invisibles.
• Tourism and transportation

• Service performance (banking, insurance,
rental, engineering and management services)
• Asset use (such as trademarks, patents,
copyrights, or expertise)
3. Investments
 Direct Investment: the investor takes a controlling

interest in a foreign company
When two or more companies share ownership of

an FDI, the operation is a joint venture.
Portfolio Investment: is a noncontrolling financial

interest in an-other entity. It consists of shares in or
loans to a company (or country) in the form of bonds,
bills, or notes purchased by the investor.
Types of International Organizations
Objective 1-5
• International company: is any company operating
in more than one country,
• Collaborative arrangements :companies’ working

together—in joint ventures, licensing agreements,
management contracts, minority ownership, and
long-term contractual arrangements.

• A Multinational Enterprise (MNE)
usually signifies any company with foreign direct
investments. A small company can take a worldwide view
while remaining within its resource capabilities. This is often
referred to as born global companies.
• Multinational Corporation or Multinational Company (MNC)

is often used as a synonym for MNE, while the United
Nations uses the term transnational company (TNC).
Factors Affecting Ability to Operate Abroad
Objective 1-6
Physical factors:
• Geographic influences
• Demographic influences
Institutional factors
• Political Policies
• Behavioral factors
• Economic forces
The competitive environment
1. Competitive factors
Competitive Product Strategy: Products compete by means
of cost or differentiation strategies, the latter usually by
• developing a favorable brand image, usually through
advertising or from long-term consumer experience with the
brand; or
• developing unique characteristics, such as through
R&D efforts or different means of distribution.
2. Company Resources and Experience
The companies size and resources compared to those of
its competitors.
Example: Coca-Cola vs. Royal Crown
3. Competitors Faced in Each Market

Market success international or local depends of the
strength of the competition.
Example: Boeing vs. Airbus

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International Business

Sixteenth Edition, Global Edition

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

1-2 Grasp the forces driving globalization and IB

1-3 Discuss the major criticisms of globalization

1-6 Recognize why national differences in companies’ external

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Globalization is the widening and deepening of interdependent relationships

• The Importance of Globalization

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

In recent years the index

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Globalization enables us to get more variety,

• Private companies undertake such transactions for profit;

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Changes in political situations and government

To gain reciprocal advantages

 1.Sovereignty Think globally, act locally,”

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Critics charge that globalization homogenizes merchandise,

• Income inequality :Although globalization has brought

• Personnel Stress: Some repercussions of globalization can’t

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

Merchandise exports and imports are the most

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

The terms export and import often apply only to

• Tourism and transportation

 Direct Investment: the investor takes a controlling

When two or more companies share ownership of

Portfolio Investment: is a noncontrolling financial

• Collaborative arrangements :companies’ working

Copyright © 2018 Pearson Education Limited. All Rights Reserved.

• Multinational Corporation or Multinational Company (MNC)

Example: Coca-Cola vs. Royal Crown

3. Competitors Faced in Each Market

Example: Boeing vs. Airbus

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