MNG00723InternationalBusinessWelcometoInternationalBusinessMNG00723

WhystudyMNG00723?Askyourselfjusthowdoesinternationalbusinessdifferfromdomestic?Thesimpleansweris:RiskComplexity/watch?v=INOL2zVv7mwMNG00723InternationalBusinessIntroductionsAlittlebitaboutmeAlittlebitaboutyouMNG00723InternationalBusinessWhystudyInternationalBusinessTurntopp.2-3ofyourtextandreadthevignette–Julie’sDay.Nowthinkaboutyourowndayandconsidertheproductsorservicesyouuse,theclothesyouwearandthefoodyouconsume.Whatistheoriginofthese?Howdoesinternationalbusinessaffectyourlife?Writedownyouranswerstodiscusswiththeclass.MNG00723InternationalBusinessAboutthisUnit-MNG00723ClassesAssessmentBlackboardResourceMaterialsMNG00723InternationalBusinessMNG00723InternationalBusinessTopic1LearningObjectives

Oncompletionofthistopic,youshouldbeableto:discussthedifferencesbetweeninternationalbusinessanddomesticbusinessidentifyskillsrequiredtobeasuccessfulinternationalbusinessmanageroutlinedifferenttypesofinternationalbusinessactivityquestiontheconceptofa‘bornglobal’companyexplainthegrowthininternationalbusinessdiscusstheargumentsforandagainstglobalisationappreciatesomeoftheopportunitiesandchallengesposedbythedifferentmarketplacesoftheworld.WhatisInternationalBusiness?TurntoyourneighboranddevelopadefinitionofIBMNG00723InternationalBusinessDefinitionofIBIthasbeendescribedas:Tradethatisacrossborders.Canyouaddtothisdescription?

Exchangeofproductsandservicesacrossnationalborders;typicallythroughexportingandimporting.MNG00723InternationalBusinessWorldTradeIsGrowingFasterthanGDPTheexponentialgrowthofcross-bordertraderelativetoworldGDPisdueinparttoadvancedeconomiessuchasCanadaandJapansourcingtolow-costlocations,e.g.ChinaandMexico.Therapidintegrationofworldeconomiesisfueledbyfactorssuchasthedeclineoftradebarriers,e.g.tariffs,liberalizationofmarkets,privatizationandtheeconomicvitalityofemergingmarkets.MNG00723InternationalBusinessLeadingCountriesinInternationalMerchandiseTradeTheU.S.istheleadingcountryintermsoftheabsolutevalueoftotalmerchandisetrade,yet,itonlyaccountsfor19percentoftheU.S.GDP.Forothereconomies,merchandisetradeisamuchlargercomponentofeconomicactivity:e.g.Belgium(167percent),Netherlands(117percent),andGermany(59percent).MNG00723InternationalBusinessServiceIndustrySectorsThatAreRapidlyInternationalizingMNG00723InternationalBusinessTheFourRisksofInternationalBusinessMNG00723InternationalBusinessTheFourTypesofRisksinIBCross-culturalrisk:asituationoreventwhereaculturalmiscommunicationputssomehumanvalueatstakeCountryrisk:potentiallyadverseeffectsoncompanyoperationsandprofitabilityholesbydevelopmentsinthepolitical,legal,andeconomicenvironmentinaforeigncountryCurrencyrisk:riskofadverseunexpectedfluctuationsinexchangeratesCommercialrisk:firmspotentiallossorfailurefrompoorlydevelopedorexecutedbusinessstrategies,tactics,orproceduresMNG00723InternationalBusinessCross-CulturalRiskDifferencesinlanguage,lifestyles,attitudes,customs,andreligion,whereaculturalmiscommunicationjeopardizesaculturally-valuedmindsetorbehavior.Culturalblunders-hindertheeffectivenessofforeignmanagers.Language-criticaldimensionofculture-awindowtopeople’svaluesLanguagedifferencesimpedeeffectivecommunication.Culturaldifferencesmayleadtosuboptimalbusinessstrategies.

MNG00723InternationalBusinessCountryRisk(PoliticalRisk)Differencesinhostcountrypolitical,legalandeconomicregimesmayadverselyimpactfirmprofitability.Laws,regulationsandindigenousfactorse.g.,propertyrights,intellectual-propertyprotection,productliability,taxationpolicies,inflation,nationaldebt,andunbalancedinternationaltrade,mayencumberfirmoperationsandperformance.Governmentintervention:restrictsmarketaccess;imposesbureaucraticprocedureshinderingbusinesstransactions;andlimitstheamountofearnedincomethatfirmsmayrepatriatefromforeignoperations.MNG00723InternationalBusinessCurrencyRisk(FinancialRisk)Riskofadverseexchangeratefluctuations,inflationandotherharmfuleconomicconditionscreateuncertaintyofreturns.Whencurrenciesfluctuatesignificantly,thevalueofthefirm’sassets,liabilitiesand/oroperatingincomemaybesubstantiallyreduced.MNG00723InternationalBusinessCommercialRiskLessthanoptimalformulationand/orimplementationofstrategies,tacticsorprocedures,e.g.partneringselections,marketentrytiming,pricing,productfeatures,andpromotionalthemesFailuresininternationalmarketsarefarmorecostlythandomesticbusinessblunders.MNG00723InternationalBusinessRisks:AlwaysPresentbutManageableManagersneedtounderstandtheirimplications,anticipatethem,andtakeproactiveactiontoreduceadverseeffects.Somerisksareextremelychallenging,e.g.,theEastAsianeconomiccrisisof1998generatedsubstantialcommercial,currency,andcountryrisks-severalEastAsiancountrieslostcurrencyvaluesofbetween35and70percent,leadingtothecollapseofnationalstockmarkets,deepeningtradedeficits,andsuspensionofnormalbusinessactivity.PoliticalandsocialunrestsurgedtoIndonesia,Malaysia,SouthKorea,Thailand,andthePhilippines.MNG00723InternationalBusinessParticipantsinIBMultinationalenterprise(MNE):Alargecompanywithsubstantialresourcesthatperformsvariousbusinessactivitiesthroughanetworkofsubsidiariesandaffiliateslocatedinmultiplecountries.Inadditiontoahomeoffice,anMNEownsaworldwidenetworkofsubsidiaries.Examples-Caterpillar,Kodak,Nokia,Samsung,Unilever,Citibank,Vodafone,Carrefour,Bechtel,FourSeasonsHotels,Disney,DHL,&NipponLifeInsurance.ExamplesofFortune’sGlobal500-ExxonMobil,RoyalDutchShell,BP,GeneralMotors,DaimlerChrysler,Toyota,Ford,andWal-Mart.MNG00723InternationalBusinessGeographicLocationofMultinationalEnterprises,2006MNG00723InternationalBusinessSmallandMedium-SizedEnterpriseAcompanywith500orfeweremployeesintheUnitedStates,althoughthisnumbermayneedtobeadjusteddownwardforothercountries.Smallfirmscomprise90-95percentofallfirmsinmosteconomies.IncreasinglymoreSMEsparticipateinexporting,licensing,andglobalsourcing.Smallfirmsarethedriversforinnovation.Accountforone-thirdofexportsfromAsia;aquarteroftheexportsfromtheaffluentcountriesinEuropeandNorthAmericaContributemorethan50percentoftotalnationalexportsinItaly,SouthKorea,andChina.

MNG00723InternationalBusinessBornGlobalFirmBornglobalfirm:ayoungentrepreneurialcompanythatinitiatesinternationalbusinessactivityveryearlyinitsevolution,movingrapidlyintoforeignmarkets.SMEs:Areoftenmoreinnovative,adaptable,andhavequicker.Arebetterabletoservenichemarkets.CanbetterleveragetheInternet.Duetolimitedresources,tendtominimizefixedcostsandoutsource.Tendtoflourishonprivateknowledgethattheycultivatethroughtheirknowledgenetworksandinternationalsocialcapital.MNG00723InternationalBusinessNGOsNon-governmentalOrganizations(NGOs)Theyservespecialcauses,thearts,education,politics,religionandresearch.Examples: BillandMelindaGatesFoundation CARE&MSF-dedicatedtoreducingpoverty BritishWellcomeTrust-supportshealth andeducationMNG00723InternationalBusinessMNG00723InternationalBusinessWhydoFirmsInternationalize?

Seekopportunitiesforgrowththroughmarket diversificationEarnhighermarginsandprofitsGainnewideasaboutproducts,services,and businessmethodsBetterservekeycustomersthathaverelocated abroadBeclosertosupplysources,benefitfrom globalsourcingadvantages,orgain flexibilityinthesourcingofproductsWhydoFirmsInternationalize?

Gainaccesstolower-costorbetter-value factorsofproductionDevelopeconomiesofscaleinsourcing, production,marketing,andR&DConfrontinternationalcompetitorsmore effectivelyorthwartthegrowthof competitioninthehomemarketInvestinapotentiallyrewarding relationshipwithaforeignpartnerMNG00723InternationalBusinessWhyStudyInternationalBusiness?AfacilitatoroftheglobaleconomyandinterconnectednessAcontributortonationaleconomicwell-beingAcompetitiveadvantageforthefirmAnactivitywithsocietalimplicationsAsourceofcompetitiveadvantageforyouMNG00723InternationalBusinessFacilitatorofGlobalEconomyandInterconnectednessSinceistheGATT(1947),followingWorldWarII,theworldhastransformedwithunprecedentedgrowthinIB.Firmsincreasinglyfocusonmassproductionefficiencies.1980s-political/economictransformationsofEmergingMarkets(abouttwo-dozencountries)havegivennewimpetustoworldwideeconomicinterconnectedness.Fast-growthdevelopingeconomies-Brazil,India,China,andPoland-haveregisteredsubstantialmarketliberalization,privatization,andindustrialization,fuelingglobaleconomictransformation.Twodriversofthechangingbusinesslandscape-globalizationandtechnologyTheInternetande-commercemakeinternationalbusinessaviableandincreasinglyimperativeoptionforfirmsofallsizesandresourcelevels.MNG00723InternationalBusinessContributortoNationalEconomicWell-BeingInternationalbusinesspromoteseconomicprosperityandlivingstandards.Internationaltradeisacriticalengineforjobcreation.Itisestimatedthatevery$1billionincreaseinexportscreatesmorethan20,000newjobs.Cross-bordertradedirectlysupportsatleast12millionU.S.jobs.OneofeverysevendollarsofU.S.salesismadeabroad.OneofeverythreeU.S.farmacres;andoneofeverysixU.S.jobsisproducingforexportmarkets.Internationalbusinessisbothacauseandaresultofincreasingnationalprosperity.Benefitsoffreeexchangeofproducts,services,capital,andtechnology.Prosperityisaccompaniedbyliteracyrategains,nutritionandhealthcareimprovements,withsometendenciestowardsfreedomanddemocracy.MNG00723InternationalBusinessACompetitiveAdvantagefortheFirmInternationalBusiness=SuperiorPerformanceMaximizeReturns-Foreignmarketsoftengeneratereturnsfarsuperiortothoseindomesticmarkets.GlobalScaleEconomies-Internationalplayerscanmaximizetheirefficienciesbysecuringcost-effectivefactorinputsfromaroundtheworld.Examples-ManufacturingfacilitiesinemergingmarketslikeBrazil,Mexico,andPoland;softwaredevelopmentinIndia(Microsoft);autoassemblyinRomania(Renault)ResourceAcquisition-AccesstootherwiseunavailablecriticalresourcesEnhancedCompetitiveness/KnowledgeTransferMNG00723InternationalBusinessAnActivitywithSocietalImplicationsAstradebarriersdeclineandglobalpowerincreases,sodoesresponsibilitytosocietytobeagoodcorporatecitizen.Thismeanshavingbotheconomicandsocialgoals;transcendinglegalstandardsbyproactivelyimplementingethicalstandards.LargecorporationslikeWal-Mart,Unilever,andSonyhaveannualrevenueslargerthantheGDPsofmanyofthenationstheyoperate.Theinternationalizationofthousandsoffirmsnegativelyimpactsthenaturalenvironment,e.g.pollution(RoyalDutchShell’srefiningoperationsinNigeria).Largebanksandinternationalinvestmentbrokershavedisruptedtheeconomiesofnationsw