GLOBALIZATION

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NejKHKSbl0

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COST OF GLOBALIZATION
■ Learning Objectives
■ To discuss globalization’s future and the
major criticisms of globalization
Cost 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
 Cost of Globalization
■ Growing income inequality and personal
stress
■ Promotes global superstars at the expense of
others
■ Offshoring – 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 a new
better jobs at home
Why Companies Engage in IB
■ Learning Objectives
■ To understand why companies engage in
international business and why international
business growth has accelerated
Why Companies Engage in IB
■ To expand sales
■ Pursuing international sales increases the
potential market and potential profits
■ To acquired resources
■ May give companies lower costs, new and
better products, and additional operating
knowledge (Capital, Technology,
Information)
 Why Companies Engage in IB
■ To diversify or reduced risks
■ International operations may reduces operating risk

by smoothing sales and profits, preventing

competitors from gaining advantage
■ These three reasons
■ Sales expansion

■ Resource acquisition

■ Risk minimization

Guide all decisions about whether, where and

how to engage in international business
Modes of Operations in IB
■ Learning Objective
■ To become familiar with different ways in
which company can accomplish its global
objectives
Modes of Operations in IB
■ Merchandise exports
■ Good that are send out of a country
■ Merchandise imports
■ Goods that are brought into a country
■ Some goods referred to as visible
exports and imports
 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
Modes of Operations in IB
■ Investment
■ Foreign Direct Investment (FDI)
■ Investor takes a controlling interest in foreign
company
■ Joint venture
■ Portfolio Investment
■ A non controlling financial interest in another
entity
 Types of International
Organizations
■ Collaborative arrangement
■ Joint ventures
■ Licensing arrangements
■ Management contracts
■ Minority ownership
■ Long-term contractual arrangements
■ Strategic alliance
■ Multinational enterprises (MNEs)
 Types of International
Organizations
■ Strategic alliance
■ Companies that work together, but the
agreement is critical to at least one partner
■ An agreement that does not involve joint
ownership
 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)
■ Global
 Types of International
Organization
■ Multinational/Multidomestic
■ An organization with multi-country affiliates
each of which formulates its own business
strategy base on perceived market
differences.
■ Examples. Coca Cola
■ Global
■ An organization attempts to standardized
and integrate operations worldwide in all
functional areas.
■ Examples. Nestle
 Types of International
Organization
■ International Company
■ Either a global or multidomestic company
■ Transnational
■ It comprises parent enterprises and their
foreign affiliates; a parent enterprise is
defined as one that controls assets of
another entity or entities in a country or
countries other than its home country,
usually by owning a capital stake.
 Example of Transnational
Companies
■ A company formed by a merger of two
firms of approximately the same size
that are from two different countries.
■ Uniliver (dutch & English – food)
■ Shell (dutch & English – oil)
■ Pharmacia & Upjohn (Swedish & American
– Pharmaceuticals)
■ Dunlop-Pirelli (English & Itallian – Tires
■ VFW-Fokker (Germany & Netherlands-
Aircraft)
 Types of International
Organizations
■ In foreign markets, companies may
have to adopt their physical methods of
doing business
■ Foreign conditions may dictate a particular
method
■ Operating modes may be different from
those used domestically
 Characteristics of Global &
Multinationals
■ Trying to achieve economies of scale
through global integration of its
functional areas while at the same time
■ Being highly responsive to different
local environments (Multicultural
Multinational)
■ OR combination of both 1 & 2
 Why International Business is
Different
■ Learning Objectives
■ Understand the differences between
international and domestic business
Why IBT is different?
■ The external environment affects a
company’s international operations
■ Managers must understand social
disciplines and how they affect
functional business fields
■ Consider
■ Physical factors
■ Social factors
■ Competitive factors
Physical and Social Factors
■ Geographic influences
■ Natural conditions influence production
locations
■ Political policies
■ Determines where and how business
occurs
■ Legal policies
■ Influence how a company operates
Physical and Social Factors
■ Behavioral factors
■ May require changes in operations
■ Economic forces
■ Explain differences in costs, currency
values, market size
The Competitive Environment
■ Competitive strategy for products
■ Cost strategy
■ Differentiation strategy
■ Focus strategy
■ Company resources and experience
■ Market leaders have more resources for
international operation
The Competitive Environment
■ Competitors faced in each market
■ Local or international
■ So, as a company’ 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
■ Learning Objectives
■ Discuss globalization’s future and the major
criticisms of globalization
Looking to the Future
■ Three major perspective 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.