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Fourth Edition

International

Business

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CHAPTER 1

Globalization

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The Global Retail MarketWhat Drives Globalization

Decline in cross-border

investment barriers.

Top 25 Retailers

Market Share

%

2000 2009

16

40

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The Global Retail MarketWhat Drives Globalization

Decline in cross-border

investment barriers.Saturation and slow growth inlocal markets.

Top 25 Retailers

Market Share

%

2000 2009

16

40

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The Global Retail MarketWhat Drives Globalization

Decline in cross-border

investment barriers.Saturation and slow growth inlocal markets.

Retailers believed they wouldbenefit from economies of scalefrom global buying power.

Top 25 Retailers

Market Share

%

2000 2009

16

40

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The Global Retail MarketWhat characterizes these

retailers is that they all heldstrong domestic market positions.

Top 25 Retailers

Market Share

%

2000 2009

16

40

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The Global Retail MarketGlobalization Strategies

Carrefour, WalMart, Ahold, and

Tesco have led the Globalization ofretail stores with differentstrategies:

Top 25 Retailers

Market Share

%

2000 2009

16

40

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1-8

The Global Retail MarketGlobalization Strategies

Carrefour, WalMart, Ahold, and

Tesco have led the globalization ofretail stores with differentstrategies:

Ahold: “going global with a localface”

Top 25 Retailers

Market Share

%

2000 2009

16

40

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The Global Retail MarketGlobalization Strategies

Carrefour, WalMart, Ahold, and

Tesco have led the globalization ofretail stores with differentstrategies:

Ahold: “going global with a localface”

WalMart: “Global retail brand”

Top 25 Retailers

Market Share

%

2000 2009

16

40

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But, It Isn‟t Easy

National differences intastes and preferences

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But, It Isn‟t Easy

National differences intastes and preferencesDistribution channels

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But, It Isn‟t Easy

National differences intastes and preferencesDistribution channelsCulturally embedded value systems

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1-13

But, It Isn‟t Easy

National differences intastes and preferencesDistribution channelsCulturally embedded value systemsDifficulty in establishing common retail model suchas:

Ahold: “going global with a local face”

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1-14

But, It Isn‟t Easy

National differences intastes and preferencesDistribution channelsCulturally embedded value systemsDifficulty in establishing common retail model suchas:

Ahold: “going global with a local face” WalMart: “Global retail brand”

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But, It Isn‟t Easy

National differences intastes and preferencesDistribution channelsCulturally embedded value systemsDifficulty in establishing common retail model such as:

Ahold: “going global with a local face”

WalMart: “Global retail brand” As well as factors like Labor costs, Desirablelocations, Sophistication of local supply base.

Cause problems for globalization. Therefore, weshould not assume globalization is a done deal.

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GlobalizationTrade and investmentbarriers are disappearing .

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GlobalizationTrade and investment barriers aredisappearing .

Perceived distances areshrinking due to advances intransportation andtelecommunications.

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GlobalizationTrade and investment barriers aredisappearing .Perceived distances are shrinking due toadvances in transportation andtelecommunications.

Material culture is beginningto look similar .

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GlobalizationTrade and investment barriers aredisappearing .Perceived distances are shrinking due toadvances in transportation andtelecommunications.Material culture is beginning to looksimilar .

National economies merginginto an interdependent globaleconomic system .

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Globalization: Pros& ConsPros

Increased revenueopportunity through globalsales.

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Globalization: Pros& ConsPros

Increased revenue opportunitythrough global sales.

Reduced costs byproducing in „low cost‟countries.

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1-22

Globalization: Pros& ConsPros

Increased revenue opportunitythrough global sales.Reduced costs by producing in „lowcost‟ countries.

ConsDifferent nations =different problems.

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Globalization: Pros& ConsPros

Increased revenue opportunitythrough global sales.Reduced costs by producing in „lowcost‟ countries.

ConsDifferent nations = differentproblems.

Similarities betweennations may be superficial.

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Globalization: Pros& ConsPros

Increased revenue opportunitythrough global sales.Reduced costs by producing in „lowcost‟ countries.

ConsDifferent nations = differentproblems.Similarities between nations may besuperficial .Global planning may beeasy, but global executionis not.

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What is “ Globalization ”?

“The shift toward amore integrated andinterdependent world

economy.”

Markets

Production

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Globalization of Markets

Globalization means“Merging of historically distinctand separate national markets into one huge globalmarketplace.”

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1 27

Globalization of MarketsGlobalization is

Facilitated by offering standardized products:Citicorp

Coca-ColaSony PlayStationMcDonalds

Does not have to be a big company to participate:Over 200,00 U.S. companies with less than 100employees had foreign sales in 2000.

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Globalization

Where willglobalization most likely prosper better?

In consumer goodsOr

In industrial goods and materials

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The Largest Global Markets

NotConsumer

Goods

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The Largest Global Markets

NotConsumer

Goods

Industrial Goods andMaterials

Commodities such asaluminum, oil and wheat.Industrial products such asmicroprocessors, aircraft.

Financial assets such asU.S. Treasury bills and

Eurobonds.

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Globalization of Production

Why doesglobalization of production take place?

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Why Globalization of Production?“The sourcing of goods andservices from locationsaround the globe to takeadvantage of national

differences in the cost andquality of factors ofproduction (labor,energy,land and capital).”

“Global Products”

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Why Globalization of Production?“The sourcing of goods and services fromlocations around the globe to takeadvantage of national differences in thecost and quality of factors ofproduction (labor,energy, land andcapital).” This also increasesthe company’s chance toobtain those countriesmarket for their productsas well.

“Global Products”

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Why Globalization of Production?“The sourcing of goods and services fromlocations around the globe to take advantageof national differences in the cost andquality of factors of production(labor,energy, land and capital).”

Companies hope to lower

their overall cost structureand/or improve the qualityor functionality of theirproduct offering -

increasing theircompetitiveness.

“Global Products”

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International Trade: When a firm exports goodsor services to consumers in another country.

Foreign Direct Investment: When a firm investsresources in business activities outside its home

country.

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General Agreement on Tariffs and Trade

Member states (140) in eight negotiating „rounds‟worked to lower barriers to the free flow ofgoods and services.

In the most recent round, the Uruguay Round,nations agreed to enhanced patent, copyright andtrademark protections and established theWorld Trade Organization .

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Average Tariff Rates on Manufactured

Products as Percent of Value1913 1950 1990 2000

France 21% 18% 5.9% 3.9% Germany 20 26 5.9 3.9

Italy 18 25 5.9 3.9 Japan 30 5.3 3.9 Holland 5 11 5.9 3.9 Sweden 20 9 4.4 3.9 Britain 23 5.9 3.9U.S.A. 44 14 4.8 3.9

Table 1.1

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Fewer FDI Restrictions Between 1991 and 2000

of the 1,121 changes worldwide in laws

governing FDI, 95% created a morefavorable investment environment.

During 2000, 69 countries made 150changes to FDI regulations, 147 or 98%

were more favorable to investment.

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The Growth of World Trade and

Output

0500

1000

1500

2000

2500

1950 1960 1970 1980 1990 2000

Trade

Output

GDP

Trade

Figure 1.1

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The Role of Technological ChangeEven though the lowering of

trade barriers made

globalization atheoretical possibility,the new technologiesmade it a reality.

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The Role of Technological ChangeInvention and innovations in

Microprocessors and

telecommunications

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The Shrinking Globe1500-1840

1850-1930

1950s

1960s

Best average speed ofhorse-drawn coaches and

sailing ships, 10mph.Steam locomotives average 65mph.

Steamships average 36mph.

Propeller aircraft300-400 mph.

Jet passenger aircraft500-700mph.

Figure 1.2

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The Role of Technological ChangeInvention and innovations in

Microprocessors and

telecommunicationsContainer transportationThe Internet and WorldWide Web

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Worldwide E-Commerce Growth

Forecast

0100020003000400050006000

70008000

2000 2001 2002 2003 2004

Rest of World

Latin America

W.Europe

Asia Pacific

North America

Figure 1.2

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Implications for Globalization of Production

Production dispersed toeconomical locations

due to transportation and communication advances.It has allowed firms to create and manage a globally

Dispersed production system, further facilitatingGlobalization of production

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Implications for Globalization of Markets

•New markets opened through WWW .•Jet aircrafts move people and goods.•Global media such as

(CNN, HBO, MTV) are creating a worldwide culture.

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The Changing Paradigm of the Global Economy

Old:U.S. dominance of the world economy and worldtrade.

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The Changing Paradigm of the Global Economy

Old:U.S. dominance of the world economy and world trade.

U.S. dominance in world FDI.

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The Changing Paradigm of the Global Economy

Old:U.S. dominance of the world economy and world trade.U.S. dominance in world FDI.

U.S. firms dominance of international business.

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The Changing Paradigm of the Global Economy

Old:U.S. dominance of the world economy and world trade.U.S. dominance in world FDI.U.S. firms dominance of international business.

½ of the world economies (Communist dominated)were off-limits to western businesses.

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COUNTRY SHARE OF

WORLD OUTPUT

1963

SHARE OF

WORLD OUTPUT

2000

SHARE OF

WORLD EXPORTS

2000

United States 40.3% 27% 12.3%

Japan 5.5 14.2 7.54

Germany 9.7 (W. Ger.) 7.3 8.7

France 6.3 5.2 4.7

UnitedKingdom

6.5 4.1 3.7

Italy 3.4 4.1 3.7

Canada 3.0 2.0 4.4

China NA 3.2 3.92

South Korea NA 1.4 2.7

The Changing Pattern of World Output andTrade

Table 1.2

Output measured by GNP.

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Percentage Share of Total FDI Stock, 1980-2000

05

1015202530354045

U.S.A. Japan France Dev.Countries

1980

1990

2000

U . K .

G e r m a n y

N e t h e r l a n d s

Figure 1.4

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FDI Inflows, 1988-2000($ Billions)

0

200

400

600

800

1000

Developed CountriesDeveloping CountriesUnited StatesChina

Figure 1.5

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The National Composition of the Largest Multinationals

1973 1990 1997 2000U.S.A. 48.5% 31.5% 32.4% 26%

Japan 3.5 12 15.7 17

U.K. 18.8 6.8 6.6 8

France 7.3 10.4 9.8 13Germany 8.1 .9 12.7 12

Table 1.3

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The Changing World OrderThe fall of Communism in Eastern Europe and theformer Soviet Union.Czechoslovakia has divided itself into two states.

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The Changing World OrderThe fall of Communism in Eastern Europe and theformer Soviet Union.Czechoslovakia has divided itself into two states.Yugoslavia has divided into 5 (often warring) successorstates.

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The Changing World OrderThe fall of Communism in Eastern Europe and theformer Soviet Union.Czechoslovakia has divided itself into two states.Yugoslavia has divided into 5 (often warring) successorstates.Pro-democracy movement (suppressed) in China.

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Hopes and Fears of the 21st Century

1. Will economic andpolitical reforms hold?

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Hopes and Fears of the 21st Century

1. Will economic andpolitical reforms hold?

2. Economic problems areno longer isolated andcan become global.

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Globalization

Twin engines of prosperityLower trade barrier

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GlobalizationTwin engines of prosperity

Lower trade barriers

FDI

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GlobalizationJobs and Income

Firms move jobs to low costcountries.

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GlobalizationJobs and Income

Firms move jobs to low costcountries.Countries specialize in

efficiently produced goodsand import those they cannot efficiently produce.

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GlobalizationJobs and Income

Firms move jobs to low costcountries.Countries specialize in

efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.

May lead to incomeinequality.

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GlobalizationJobs and Income

Firms move jobs to low costcountries.Countries specialize in

efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.

May lead to incomeinequality.

Labor Policies and theEnvironment

Firms move to countrieswith weak laws.

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GlobalizationJobs and Income

Firms move jobs to low costcountries.Countries specialize in

efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.

May lead to incomeinequality.

Labor Policies and theEnvironment

Firms move to countrieswith weak laws.

Economic progress leads tostronger laws.

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GlobalizationJobs and Income

Firms move jobs to low costcountries.Countries specialize in

efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.

May lead to incomeinequality.

Labor Policies and theEnvironment

Firms move to countrieswith weak laws.

Economic progress leads tostronger laws.By creating wealth andincentives for technologyimprovements, world will be

better.

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GlobalizationJobs and Income

Firms move jobs to low costcountries.Countries specialize in

efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.

May lead to incomeinequality.

Labor Policies and theEnvironment

Firms move to countrieswith weak laws.

Economic progress leads tostronger laws.By creating wealth andincentives for technologyimprovements, world will be

better.Tie strong laws tointernational agreements.

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GlobalizationJobs and Income

Firms move jobs to low costcountries.Countries specialize in

efficiently produced goodsand import those they cannot efficiently produce.Increases income in lessdeveloped countries.

May lead to incomeinequality.

Labor Policies and theEnvironment

Firms move to countrieswith weak laws.Economic progress leads tostronger laws.By creating wealth andincentives for technologyimprovements, world will bebetter.

Tie strong laws tointernational agreements.Firms are not amoral.

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Environmental Performance and Income

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Environmental Performance and Income

Figure 1.6

5.0

5.5

6.0

6.5

7.0

6 7 8 9 10 11

Ethiopia

BhutanTanzania Bangladesh

MalawiNigeriaKenya Egypt

IndiaChina

Thailand

Tunisia

Korea

S.AfricaTrinidad

BulgariaIreland

Finland

Jamaica

Germany

Netherlands

Income Index E n v

i r o n m e n

t a

l P e r f o r m a n c e

I n

d e x

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Globalization and National Sovereignty

Under the new system, many decisions that affect billions ofpeople are no longer made by local and national governmentsbut instead, if challenged by any WTO member nation, would

be deferred to a group of unelected bureaucrats sittingbehind closed doors in Geneva. The bureaucrats can decidewhether or not people in California can prevent the destructionof the last virgin forests or determine if carcinogenic pesticidescan be banned from their foods; or whether European countrieshave the right to ban dangerous biotech hormones in meat… At risk is the very basis of democracy and accountable decisionmaking. Ralph Nader.

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Globalization and National Sovereignty

WTOEU

UN

WTO Founded 1994 140 members Police GATT trading system

Supranational organizationsare limited to powers grantedby member countries and servethe collective interests of its

members.Power is derived fromthe organization‟s ability to sway members to action.

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Globalization and the World‟s Poor Critics argue that globalization has not helped poor.

1870: per capita income of 17 richest nations was2.4x that of all other countries.

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Globalization and the World‟s Poor Critics argue that globalization has not helped poor.

1870: per capita income of 17 richest nations was2.4x that of all other countries.

1990: it was 4.5x larger.

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Globalization and the World‟s Poor Other factors may have influenced the gap.

Totalitarian governments.

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Globalization and the World‟s Poor Other factors may have influenced the gap.

Totalitarian governments.Economic policies that destroyed wealth creation.

Little protection of property rights.

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Globalization and the World‟s Poor Other factors may have influenced the gap.

Totalitarian governments.Economic policies that destroyed wealth creation.

Little protection of property rights.Expanding populations.

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Globalization and the World‟s Poor Other factors may have influenced the gap.

Totalitarian governments.Economic policies that destroyed wealth creation.

Little protection of property rights.Expanding populations.War.

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Managing in the Global Marketplace

An International Business is any firm that engages ininternational trade or investment.

Managing an international business is differentthan managing a domestic business:1. Countries are different.

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Managing in the Global Marketplace

An International Business is any firm that engages ininternational trade or investment.

Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.

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Managing in the Global Marketplace

An International Business is any firm that engages ininternational trade or investment.

Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.3. Must work within government regulations.

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Managing in the Global Marketplace

An International Business is any firm that engages ininternational trade or investment.

Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.3. Must work within government regulations.

4. Currency conversion presents unique problems.

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Managing in the Global Marketplace

An International Business is any firm that engages ininternational trade or investment.

Managing an international business is differentthan managing a domestic business:1. Countries are different.2. Problems are more complex.3. Must work within government

regulations.4. Currency conversion presentsunique problems.