International

Business
Environments & Operations
15e, Global Edition

Daniels ● Radebaugh ● Sullivan

Copyright © 2015 Pearson Eduation Ltd. 1-1

Chapter 1
OVERVIEW OF
INTERNATIONAL
BUSINESS AND
GLOBALIZATION
Copyright © 2015 Pearson Education Ltd. 1-2
 Learning Objectives
Define globalization and international business
and explain how they affect each other
Grasp why companies engage in international
business and why its growth has accelerated
Discuss globalization’s future and the major
criticisms of it
Illustrate the different ways a company can
accomplish its global objectives
Recognize the need to apply social science
disciplines to understand how international and
domestic business differ

Copyright © 2015 Pearson Education Ltd. 1-3

 Introduction
Learning Objective:
Define globalization and international
business and explain how they affect each
other

Copyright © 2015 Pearson Education Ltd. 1-4

 Introduction
Globalization is the widening set of
interdependent relationships among
people from different parts of a world
divided into nations
The term sometimes refers to the
elimination of barriers to international
movement of goods, services, capital,
technology, and people that influence the
integration of world economies

Copyright © 2015 Pearson Education Ltd. 1-5

 Introduction
International business consists of all
commercial transactions—including sales,
investments, and transportation—that
take place between two or more countries
increasingly foreign countries are a source of
both production and sales for domestic
companies

Copyright © 2015 Pearson Education Ltd. 1-6

 Introduction
It is important to study international
business because
Most companies are either international or
compete with international companies
Global events and competition affect almost all
companies, regardless of industry
International companies have more complex
environments than domestic firms.
An understanding of IB helps you make better
career decisions
An understanding helps you decide what
government policies to support
Copyright © 2015 Pearson Education Ltd. 1-7
 Introduction
Factors in International Business Operations

Copyright © 2015 Pearson Education, Inc. 1-8

 Forces Driving Globalization
1. Increase in and application of technology
2. Liberalization of cross-border trade and
resource movements
3. Development of services that support
international business
4. Growth of consumer pressures
5. Increased global competition
6. Changing political situations and
government policies
7. Expanded cross-national cooperation
Copyright © 2015 Pearson Education Ltd. 1-9
 Costs of Globalization
Threats to national sovereignty
lose freedom to “act locally”
Economic growth and environmental
stress
growth consumes nonrenewable natural
resources and increases environmental
damage
Growing income inequality and personal
stress
promotes global superstars at the expense of
others
Copyright © 2015 Pearson Education Ltd. 1-10
 Costs of Globalization
Offshoring, a type of outsourcing,
involves the transferring of production
abroad
it can be beneficial because it reduces costs
but, it also means that jobs move abroad
Yet, offshoring may also create new,
better jobs at home

Copyright © 2015 Pearson Education Ltd. 1-11

Why Companies Engage in IB
Learning Objective:
Grasp why companies engage in
international business and why its growth
has accelerated

Copyright © 2015 Pearson Education Ltd. 1-12

Why Companies Engage in IB
To expand sales
pursuing international sales increases the
potential market and potential profits
To acquire resources
may give companies lower costs, new and
better products, and additional operating
knowledge
To diversify or reduce risks
international operations may reduce operating
risk by smoothing sales and profits, preventing
competitors from gaining advantage

Copyright © 2015 Pearson Education Ltd. 1-13

Why Companies Engage in IB
These three reasons
sales expansion
resource acquisition
risk minimization
guide all decisions about whether, where,
and how to engage in international
business

Copyright © 2015 Pearson Education Ltd. 1-14

Modes of Operations in IB
Learning Objective:
Illustrate the different ways a company
can accomplish its global objectives

Copyright © 2015 Pearson Education Ltd. 1-15

Modes of Operations in IB
Merchandise exports
goods that are sent out of a country
Merchandise imports
goods that are brought into a country
Sometimes referred to as visible exports
and imports

Copyright © 2015 Pearson Education Ltd. 1-16

Modes of Operations in IB
Service exports
provider and receiver of payment
Service imports
recipient and payer of payment
Examples
Tourism and transportation
Service performance
turnkey operations and management
contracts
Asset use
licensing and franchising
Copyright © 2015 Pearson Education, Inc. 1-17
Modes of Operations in IB
Investments
Foreign Direct Investment (FDI)
investor takes a controlling interest in a
foreign company
joint venture
Portfolio Investment
a non-controlling financial interest in
another entity
Mutual funds often include international
companies

Copyright © 2015 Pearson Education, Inc. 1-18

 Modes of Operation in IB
Collaborative arrangements
Joint ventures
Licensing arrangements
Management contracts
Minority ownership
Long-term contractual arrangements
Strategic alliance
companies that work together, but the
agreement is critical to at least one partner
an agreement that does not involve joint
ownership
Copyright © 2015 Pearson Education Ltd. 1-19
 Types of International
Organizations
Multinational enterprises (MNEs)
take a global approach to markets and
production or have operations in more than
one country
Sometimes they are referred to as
multinational corporations (MNCs)
multinational companies (MNCs)
transnational companies (TNCs)

Copyright © 2015 Pearson Education Ltd. 1-20

 Types of International
Organizations
In foreign markets, companies often have
to adapt their typical methods of doing
business
foreign conditions may dictate a particular
method
operating modes may be different from those
used domestically

Copyright © 2015 Pearson Education Ltd. 1-21

 Why IB is Different
Learning Objective:
Recognize the need to apply social science
disciplines to understand how international
and domestic business differ

Copyright © 2015 Pearson Education Ltd. 1-22

 Why IB is Different
The external environment affects a
company’s international operations
Managers must understand social science
disciplines and how they affect functional
business fields
Consider
physical factors
social factors
competitive factors

Copyright © 2015 Pearson Education Ltd. 1-23

Physical and Social Factors
Geographic influences
natural conditions influence business locations
Political policies
countries determine where and how business occurs
within their borders
Legal policies
influence how a company operates
Behavioral factors
may require adaptation in to local conditions
Economic forces
explain differences in costs, currency values, market size

Copyright © 2015 Pearson Education Ltd. 1-24

The Competitive Environment
Competitive strategy for products
Cost strategy
Differentiation strategy
Focus strategy
Company resources and experience
market leaders have more resources for
international operations
Competitors faced in each market
local or international

Copyright © 2015 Pearson Education Ltd. 1-25

The Competitive Environment
So, a company’s competitive strategy
influences how and where it can best
operate
Its competitive situation may differ from
country to country in terms of its relative
strength and which competitors it faces

Copyright © 2015 Pearson Education Ltd. 1-26

 Looking to the Future
Learning Objective:
To discuss globalization’s future and the
major criticisms of it

Copyright © 2015 Pearson Education Ltd. 1-27

 Looking to the Future
Three major perspectives on the future of
international business and globalization
Further globalization is inevitable
International business will grow primarily along
regional rather than global lines
Forces working against further globalization
and international business will slow down both
trends

Copyright © 2015 Pearson Education Ltd. 1-28

 Summary
Globalization is the widening set of
interdependent relationships among
people from different parts of a world
divided into nations
International business consists of all
commercial transactions—including sales,
investments, and transportation—that
take place between two or more countries

Copyright © 2015 Pearson Education Ltd. 1-29

 Summary
It is important to study international
business because
Most companies are either international or
compete with international companies
Global events and competition affect almost all
companies, regardless of industry
International companies have more complex
environments than domestic firms.
An understanding helps you make better
career decisions
An understanding helps you decide what
government policies to support
Copyright © 2015 Pearson Education Ltd. 1-30
 Summary
The factors of International Business include:
Geographic influences
natural conditions influence business locations
Political policies
Countries determine where and how business occurs
within their borders
Legal policies
influence how a company operates
Behavioral factors
may require adaptation in to local conditions
Economic forces
explain differences in costs, currency values, market size
Copyright © 2015 Pearson Education Ltd. 1-31