Lecture Introglobalization Pn

International Business

Study Mission (IBSM)

to Vietnam

15 – 24 Sept 2009

International Business

Study Mission (IBSM)

to Vietnam

15 – 24 Sept 2009

Dictionary (Words you

need to know)

• Investment

= holding an asset that earns $$$ for

you.

• Trade

= „doing business‟; to buy and sell;

exchanging assets (including

money) with another.

Dictionary (Words you

need to know)

• International Business (p.35)

= any FIRM

(what is a firm? Remember Micro / Macro

Econs?)

… engaging in investment or trade across

national borders (“inter-national trade”)

Dictionary (Words you

need to know)

• International Business (p.35)

= includes a firm based only in 1

country eg. Singapore, with no

offices outside Singapore

… but selling (import) or buying

(export) from overseas.

Dictionary (Words you

need to know)

• International Business (p.35)

= includes a firm based only in 1

country eg. Singapore, with no

offices outside Singapore

… but selling (EXport) or buying

(IMport) from overseas.

Dictionary (Words you

need to know)

• International Business (p.35)

= includes selling or buying

services as well as goods.

Example of International

Business:

A.L. WANTS TO BE YOUR GIRLFRIEND

SHE WANTS TO BE YOUR

GIRLFRIEND… IN 8

LANGUAGES

Dictionary (Words you

need to know)

• MultiNational Enterprise (p.21)

= any firm producing goods,

services, in more than 1 country.

… All MNEs are Int‟l Businesses

… but not all Int‟l Biz = MNE

Dictionary (Words you

need to know)

•Globalization (pgs. 5, 7)

= shift towards a more

INTEGRATED (WORK TOGETHER)

INTER-DEPENDENT (DEPEND ON EACH OTHER)

World Economy

Dictionary (Words you

need to know)

• Foreign

• Direct

• Investment (pgs. 12, 20)

=Foreigners buy & directly own

assets in the country. (not merely

export to it or import from it)

Dictionary (Words you

need to know)

• Example of F. D. I.

What is

International Business?

International business involves transactions across borders, primarily through export-import trade and foreign direct investments.

Why is International

Business so Important ?

Globalization

What is Globalization?

Globalization refers to

the trend towards

a more integrated

global economic system.

Globalization

= shift towards a more

INTEGRATED (WORK TOGETHER)

INTER-DEPENDENT (DEPEND ON EACH OTHER)

World Economy

Avril Lavigne is GLOBALIZED

because…

• A. Avril Lavigne is pretty

• B. Avril Lavigne can sing in Chinese

• C. Avril Lavigne understands the

GLOBALIZATION OF MARKETS, and the

EVOLUTION OF A GLOBAL CULTURE due to

GLOBAL MEDIA.

• D. all of the above.ANSWER: see PAGE 17.

Main Drivers of

Globalization

Two Macro Factors (pgs 11-16):

1. Decline in Trade Barriers

a. General Agreement on Tariffs and Trade (GATT)

b. World Trade Organization

Led to an increase in foreign direct investments

2. Technological Change

Micro-processors and Telecommunications

Internet, Transportation

Made it possible for greater and faster interaction.

Main Drivers of

Globalization

Two Macro Factors (pgs 11-16):

1. Decline in Trade Barriers

Example of a TRADE BARRIER: tariffs (ie.

import taxes) on cigarettes imported into

Singapore.

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers

General Agreement on Tariffs and Trade (GATT)

- The Free Western world‟s response to Communist economics

after World War 2:

- FREE TRADE will make us RICHER than YOU. Haha.

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers

World Trade Organisation (WTO)- Established after negotiations in Uruguay 1993, after

Communism died.

- A NEW WORLD ORDER!! FREE TRADE ROCKS! See page

24. Haha.

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers

World Trade Organisation (WTO)- How to encourage free trade?

- Cut tariffs. (2 words, 3 syllables)

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers

How can? I cut tariffs, foreign

competitors come and take all my

jobs!

… cutting tariffs encourages

countries to specialise for export.

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers: comparative advantage

… when countries specialise in

what they do best, COSTS go

down. My own people have more

$$$ to spend on other things.

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers: comparative advantage

… the people in the other country

earn more $$$ from me, to spend

on other things (which I make

relatively better than them).

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers: comparative advantage

… the $$$ comes back to me! My

peeps pay you but your peeps

buy from my peeps, so my peeps

are not poorer!… and that‟s before we even start to consider the multiplier

effect …

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers: comparative advantage

… see page 29.

Example: Nokia phones in China.

Main Drivers of

GlobalizationTwo Macro Factors (pgs 11-16):

1. Decline in Trade Barriers: comparative advantage

… see page 29.

Example: Nokia phones in China.

Main Drivers of

Globalization

Two Macro Factors (pgs 11-16):

2. Technological Change

Micro-processors and Telecommunications

Internet, Transportation

Made it possible for greater and faster interaction.

Main Drivers of

Globalization

Two Macro Factors (pgs 11-16):

2. Technological Change

Micro-processors and Telecommunications

Internet, Transportation

Made it possible for greater and faster interaction.

Key Characteristics of a

Global Firm

1. Searches the world for sources

of products, raw materials, and

financing.

2. Seeks to maintain a presence

in key markets.

International

dimension

Sell or Source

Key Characteristics of a

Global Firm

Can include small companies

(“mini-multinationals”) as well as

very big ones. See pages 21-24.

Globalization of Markets

Globalization of Production

Globalization of Markets

Globalization of Production

Globalization

Globalization of MarketsRefers to the fact that in many

industries, historically distinct and

separate national markets are

merging into one huge global

marketplace

The tastes and preferences of

consumers in different nations

are beginning to converge

upon some global norm.

Examples: Coca-Cola, Levi’s, Apple, Nokia

Sony Walkman, McDonalds.

Globalization of Markets

Top Global Brands

1. Coca – Cola

2. Marlboro

3. IBM

4. McDonald’s

5. Disney

6. Sony

7. Kodak

8. Intel

9. Gillette

10.Nike

Source: Sunday Times 7/2/99

Globalization of Markets

Google

Microsoft

Coca Cola

IBM

Mcdonald‟s

Apple

China Mobile

General Electric

Vodafone

Marlboro

2009 BRANDZ™ TOP 100 RANKING; THE TOP 10 BRANDS

Millward Brown Optimor (UK)

Globalization of Markets

See pgs. 3 onwards – global markets lead

to global production? The best Global is

Local?

Globalization of Production

Refers to the tendency among many

firms to source goods and services

from different locations around the

globe.

This is an attempt to take advantage

of national differences in the cost and

quality of factors of production,

thereby allowing them to compete

more effectively against their rivals.

Examples: Boeing (pg.8)

Apple (“assembled in China; designed in California”)

Globalization of Production

Refers to the tendency among many

firms to source goods and services

from different locations around the

globe.

This is an attempt to take advantage

of national differences in the cost and

quality of factors of production,

thereby allowing them to compete

more effectively against their rivals.

35% made in Japan.

(Something down here may be

made in Singapore)

Italians make the wings

fly?

What are the factors of

production??

Land

Labor

Capital

Energy?? Pg.8

Entrepreneurship?

Includes

hiring

employees

globally, not

locally

Globalization of Production

Globalization

Production Markets

Managing an

International Business

Different from managing a domestic business

• Countries are different

• Range of problems more complex

• Limits imposed by government intervention

• Transactions involves international

currencies

Managing an

International Business

Different from managing a domestic business

• Different Work Culture, Language

• Corruption, Ethics (remember BLAW business

ethics?)

• Unclear laws, no laws, laws not enforced, laws

abused. Legal systems not well developed eg.

China‟s comprehensive property law – only

since 2007.

Managing an

International Business

Different from managing a domestic business

• Business Ownership Limits on Foreigners

• Poor infrastructure

• Poor security, politically risky eg. Temasek

in Thailand (Shin Corp 2006)

• Foreign Exchange Risk (MYR manipulated

downwards against SGD)

Managing an

International Business

Different from managing a domestic business

• Should you even go overseas in the first

place? Which foreign markets to enter?

• Which country to best source for factors of

production so that cost is minimal but value

added is at maximum level?

Managing an

International Business

Different from managing a domestic business

• How exactly to sell overseas? – Just export from home? Appoint a sales agent or

distributor?

– Grant a licence to a local partner to assemble & sell in the

foreign country?

– Set up your own subsidiary? (not always possible

depending on law)

– Joint venture with local partner (can you really work with

them?)

The story continues…

End of lecture on globalization