International Business Trends Summary

IB Trends:

Week 1, Globalization

Globalization of Markets: formally separate markets merge into one huge global market place.

• Easier to sell good internationally because of falling barriers to cross border trade & investment
• Global taste
• Benefits for big & small companies
• Competitors may not change among nations
• Still difference between national markets

Globalization of Products: acquire goods internationally to benefit from different cost & quality factors of production in dif. countries.

• Not only matter of cost
• Impediments remain
• Reshoring can happen

Offshoring: relocation of a business process from one country to another

Outsourcing: hiring a party outside the company to perform services & create goods

FDI: firm invests resources in business activities outside it’s own country

Drivers of Globalization:

• Declining trade & investment barriers
• Tariff: Tax on import (high tariffs result in retaliatory trade policies)
• GATT: General Agreement on Tariffs & Trade

• Established WTO: World trade organization, responsible for policing the world trade system, 98% of the world are WTO members

• Knowledge society & trade agreements
• Role of technological change: communications, internet (equalizer)

Global Institutions: GATT, WTO, UN, International monetary fund, World Bank

Changing face of the global economy

• Changing world output & world trade picture

• West has experienced a relative decline
• China & other emerging countries are growing more rapidly
• By 2025 developing nations may account for more than 60% of world economic activities

• Changing FDI picture

• Non-western firms are increasingly investing across national border

• Disperse production activities to optimal locations

•  Increasing amount of FDI into developing countries

• Changing nature of the multinational enterprise

• Relative decline of US/Western Multinationals
• Rise of smaller MN (Internet)

• Changing world order

• Former communists’ country present export & investment opportunities
• China & India are becoming more powerful (ecumenically & politically)
• Latin America, Asia, Africa -> expanding economies

• Global economy of the 21st century

• Barriers going down
• Adoption of liberal economic policies

The Globalization Debate

• Globalization, Jobs & Income

• Critics:

• Destroy manufacturing-jobs in wealthy advanced countries
• Outsourcing of services is contributing to higher unemployment and lower living standards

• Supporters:

• Benefits outweigh costs
• Countries will produce only goods and services they can produce most efficiently and import the rest -> whole economy better off + companies reduce cost structure & consumers benefit  

• Globalization, Labor Policies & the Environment

• Critics

• Lack of regulations can result in abuse of low-cost countries
• Adhering to regulations increases costs

•  Supporters

• Economic policies need tougher regulations

• Globalization & National sovereignty

• Critics

• Shift from power from government to supranational organizations (WTO, EU, UN)

• Supporters

• Power of SN-organizations is limited to what states collectively agreed on
• SN-organizations exist to serve the collective interest of member states

• Globalization & the World’s poor

• Critics

• Gap between rich & poor nations has gotten wider

• Supporters

• Not related to free trade

Week 2: The Multinational Firm

Impact of Globalization on Business

• Expansion of international trade
• FDI plays increasing role in economy
• Exports/Imports are penetrating deeper into the world’s largest economies
• Companies home market under attack from foreign competitors
• Greater opportunities
• More complex & competitive environment

Environmental factors to consider

• Economic environment: foreign investment, growth of developing nations, rising wages in developing nations
• Technological environment: internet & wireless tech.
• Legal/Regulatory environment: free trade agreements, anti-corruption laws
• Demographics: Aging society in developed nations, growing population ww., especially in developing countries
• Social Issues: Cultural differences, bribery concerns
• Natural environment: Intensifying demand for resources (oil, water, food), growing desire for sustainable products & operations, increasingly endangered species, climate

change

Factors to consider when thinking about shifting production abroad

• Competitive Advantage (importance of price & quality)
• What stage is the business in?
• Can production savings be achieved locally?
• Can the whole supply chain be improved?

Global strategies

• International: overseas subsidiaries, greater control by parent company (luxury, high tech)[pic 1]
• Multinational: subsidiaries can respond locally (Heineken)
• Global: high control by parent company, standardized production
• Transnational: centralizing certain functions others in subsidiaries for responsiveness, communication among subsidiaries

Entry Modes

• Exporting:

• Advantages: economies of scale, pure global strategy
• Disadvantages: high transportations costs & tariff barriers

• Licensing:

• Advantages: lower development costs, lower political risks
• Disadvantages: loss of control over technology

•  Franchising:

• Advantages: lower development costs, lower political risks
• Disadvantages: loss of control over quality

• Joint-Venture:

• Advantages: local knowledge, shared cost & risk
• Disadvantages: loss of control over technology, conflict

• Wholly owned subsidiary:

• Advantages: control over technology & operations
• Disadvantages: high risk & costs

Managing across borders

• Expatriates: Parent company nationals who are sent to work in a foreign subsidiary
• Host-Country nationals: natives in the overseas subsidiary
• Third-Country nationals: from a third country not host/home
• Inpatriates: foreign nationals working at parent company

How to prevent failed global assignments

• Clear structure
• Clear job objective
• Performance measurements based on objectives
• Use effective, validated selection & screening criteria
• Prepare expatriates & family for assignment
• Ongoing communication
• Anticipate repatriation to facilitate reentry
• Developing mentor program

Week 3: Political & Economic Systems

Political Economy

• Political, economic and legal systems are independent
• Influence each other

Political Systems

• Collectivism: needs of society are more important than individual freedom
• Socialism: The few benefit on the expenses of the many in capitalism
• Individualism: 

• Individual has freedom in economic and political pursuit
• Interest of the individual paramount to interest of the state
• Two tenets:

• Guarantee of individual freedom and self-expression
• Welfare of society best served by letting people pursuit their own economic self-interest

Democracy & Totalitarianism