STRATEGIZING AROUND THE GLOBE The International Business Environment

Dr. Ellen A. Drost

Internationalization of Internationalization of businessbusiness

• Why companies engage in Why companies engage in international business?international business?– expand salesexpand sales– acquire resourcesacquire resources– diversify sources of sales and suppliesdiversify sources of sales and supplies– minimize competitive riskminimize competitive risk

1-2

What Drives International What Drives International Business?Business?

Positive

Liberalization markets

Declining Barriers

Technology

Economic Integration

Peace

Global competition

Negative

Closed markets

Trade Barriers

Poor Infrastructure

Culture

War

Local Focus

1-3

Impact of GATT Tariff Impact of GATT Tariff RatesRates

05

101520253035404550

1913 1950 1990 2000

FranceGermanyItalyJapanHollandSwedenBritainUnited States

Average Tariff Rates on Manufactured Products % of Value

Table 1.1

1-5

Growth of World Trade and Growth of World Trade and World OutputWorld Output

0200400600800

1000

12001400160018002000

1950 1960 1970 1980 1990 1997

TradeGDP Volume

1950=100

1-6

The Shrinking Globe

1500 -1840 1850 - 1930 1950s 1960s

Best average speed ofhorse-drawn coachesand sailing ships, 10mph.

Steam locomotivesaverage 65 mph.Steamships average36 mph.

Propelleraircraft300 - 400mph.

Jetpassengeraircraft,500 - 700mph.

©The McGraw-Hill Companies, Inc., 2000 1-6

Figure 1.2

The Shrinking GlobeThe Shrinking Globe

CountryShare of World

Output 1963

Share of World

Output2001-2002

Share of World

Exports 2002United States 40.3% 21.5% 11.9%Japan 5.5% 7.6% 6.60%Germany 9.7% 4.6% 9.3%France 6.3% 3.3% 5.20%United Kingdom 6.5% 3.2% 4.40%Italy 3.4% 3.0% 3.90%Canada 3% 2.0% 4.20%China NA 12.8% 4.60%S. Korea NA 2.0% 1.50%

The Changing Pattern of World Output and Trade

1-7

Of the Top 260 in 1973 Of the Top 100 in 2000United States 126 (48.4%) 24 (24%)Japan 9 (3.5%) 16 (16%)Britain 49 (18.8%) 14 (14%)France 19 (7.3%) 13 (13%)Germany 21 (8.1%) 10 (10%)

The National Composition of the Largest Multinationals

1-10

Internationalization of Internationalization of BusinessBusiness

•How do companies How do companies internationalize?internationalize?– exports and importsexports and imports– service exports and importsservice exports and imports

•tourism, transportation, consulting, tourism, transportation, consulting, engineering/design, licensingengineering/design, licensing

– InvestmentsInvestments•foreign direct investment (FDI) foreign direct investment (FDI)

– Strategic alliancesStrategic alliances•collaborative arrangementscollaborative arrangements

What is Globalization?What is Globalization?

•The shift towards a more The shift towards a more integrated and interdependent integrated and interdependent world economyworld economy

•Two components: Two components:

•Globalization of marketsGlobalization of markets

•Globalization of productionGlobalization of production

Globalization of MarketsGlobalization of Markets

• One huge global market placeOne huge global market place– convergence of tastes and preferencesconvergence of tastes and preferences– corporate strategy creates global marketscorporate strategy creates global markets

•standardized products and servicesstandardized products and services

• Adaptation to local market Adaptation to local market – adaptation to tastes and preferencesadaptation to tastes and preferences– think local, act globalthink local, act global– corporate strategy adapts to local corporate strategy adapts to local

marketsmarkets

Globalization of MarketsGlobalization of Markets

Globalization of ProductionGlobalization of Production

•Sourcing and manufacturing Sourcing and manufacturing strategiesstrategies– advantages of national differencesadvantages of national differences

•costs and quality of resourcescosts and quality of resources

•government/business relationsgovernment/business relations

1414

Parts

PartsParts

Assembly

Advertising Design

Sales

Location Economies

Pontiac LeMans

Creating a Global Web

Ellen A. Drost, Summer Ellen A. Drost, Summer 20072007

The Automobile Goes Global: The Automobile Goes Global: The GM Pontiac Le MansThe GM Pontiac Le MansThe Automobile Goes Global: The Automobile Goes Global: The GM Pontiac Le MansThe GM Pontiac Le Mans

Design: Germany (by Opel) Brakes: France, U.S.

Sheetsteel: Japan S. Korea

Stamping of body parts: S. Korea Tires: S. Korea

Engines: 1.6 liter S. Korea Windshield: S. Korea

2.0 liter Australia Battery: S. Korea

Fuel injection: U.S. Wiring harness: S. Korea

Fuel pump: U.S. Radio: Singapore

Transmission: Canada & U.S. Assembly: S. Korea

Rear axle: U.S. Marketing &

Steering: U.S. distribution: N. America

Globalization - ProsGlobalization - Pros

• Lower prices for goods and services.Lower prices for goods and services.

• Economic growth stimulation.Economic growth stimulation.

• Increase in consumer income.Increase in consumer income.

• Creates jobs.Creates jobs.– Countries specialize in production of Countries specialize in production of

goods and services that are produced goods and services that are produced most efficiently.most efficiently.

Globalization - ConsGlobalization - Cons• Destroys manufacturing jobs in wealthy, Destroys manufacturing jobs in wealthy,

advanced countries.advanced countries.• Wage rates of unskilled workers in Wage rates of unskilled workers in

advanced countries declines.advanced countries declines.• Companies move to countries with fewer Companies move to countries with fewer

labor and environment regulations.labor and environment regulations.– e.g. opposition to NAFTAe.g. opposition to NAFTA

• Nations’ Loss of sovereignty.Nations’ Loss of sovereignty.– Economic power given to supranational Economic power given to supranational

organizations organizations • WTO, EU, UN, World Bank, IMFWTO, EU, UN, World Bank, IMF

• Widens the gap between the rich and poor Widens the gap between the rich and poor nationsnations

International vs Domestic International vs Domestic BusinessBusiness

• Countries are different.Countries are different.

• Range of problems are wider and Range of problems are wider and more complex.more complex.

• Government intervention in trade Government intervention in trade and investment creates problems.and investment creates problems.

• International investment is International investment is impacted by political and economic impacted by political and economic riskrisk