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Regional and global strategy. Chapter 1. Regional and global strategy. Objectives Introduction World business: a brief overview Today’s international environment Globalization and strategic management The study of international business Framework for this book. Objectives.
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Regional and global strategy Chapter 1
Regional and global strategy Objectives Introduction World business: a brief overview Today’s international environment Globalization and strategic management The study of international business Framework for this book
Objectives Define the terms international business and MNE. Discuss thetwo primary ways in which international business occurs: trade and FDI. Examine the impact of the triad on international trade and investment. Describe the current state of world economies and the role of government and trade regulations in the conduct of international business. Discuss the importance of technology and the role of SMEs in the international business arena. Examine how MNEs use triad/regional strategies to compete effectively in the international marketplace. Discuss the determinants of national competitive advantage.
Introduction International business: the study of transactions taking place across national borders for the purpose of satisfying the needs of individuals and organizations. Multinational enterprises (MNEs): a company headquartered in one country but having operations in other countries.
Most MNE activity can be classified into two major categories:(1) Trade (exports and imports): More than 50% of all trade is made by the world’s largest 500 MNEs. (2) Foreign direct investment (FDI): 80% of all FDI is made by the world’s largest 500 MNEs. MNE activity
Trade and investment Trade consists of exports and imports: Exports: goods and services produced in one country and then sent to another country. Imports: goods and services produced in one country and bought in another country. Foreign Investment: consists of companies investing funds to start or improve operations in another country.
Table 1.1 World Trade, 2005 Note: Data for European Union include intra-EU trade. Exports are calculated by including freight and insurance while imports do not include freight and insurance. As a result data might not be consistent with other data in this book Source: Adapted from International Monetary Fund, Direction of Trade Statistics Yearbook, 2006 (Washington, DC: IMF, 2006), pp. 2–5
Table 1.2 Intra-regional trade in the triad, 1980–2005 Note: Asia data were calculated using information for exports from Japan, China, India, Indonesia, South Korea, Malaysia, Singapore, Thailand and Australia to the Asian region and the world. Data for EU are for intra-EU exports in 2000 and 2005 and intra-EEC Exports in 1980 Source: Authors’ calculations based on the IMF, Direction of Trade Statistics Yearbook, 2006 and 1985
Table 1.3a Foreign direct investment in the United States, 2005 Note: Data are on a historical-cost basis. Numbers might not add up due to rounding Sources: Authors’ calculations and US Department of Commerce, Survey of Current Business, June 2007, p. D67
Table 1.3b Foreign direct investment by the United States, 2005 Note: Data are on a historical-cost basis. Numbers might not add up due to rounding Sources: Authors’ calculations and US Department of Commerce, Survey of Current Business, June 2007, p. D65
The triad Most global transactions take place within and between three key regions: the United States, the European Union and Japan; these are referred to as: the ‘triad’.
The triad: the United States (US) The US has the largest economy in the world with a GDP of over $10 trillion. The US is part of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. The US economy is significantly larger than that of its two trading partners and is therefore a triad member on its own.
The triad: the European Union (EU) The EU (or EU27) is composed of the countries in the EU15 (Austria, Belgium, Denmark, Finland, Germany, Greece, France, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the UK) and twelve new, mainly Central European, countries that joined in 2004 and 2007. The collective GDP of the EU is greater than that of the US and Japan. The EU27 is the world’s largest importer and exporter.
The triad: Japan Japan is the largest economy in Asia. Japan is the 4th largest importer and 4th largest exporter in the world.
The international business environment has changed rapidly in recent years as a result of: an overall slowdown of triad economies; increased trade liberalization through trade agreements; improvements in technology; the emergence of SMEs. International business environment
Slowdown of triad economies In the late 1990s and early 2000s, the United States, the EU and Japan all experienced a reduction in economic activity, which in turn decreased international business activity.
International trade regulation An important international business trend has been the emergence of regional and global trade and investment liberalization and international regulation. The World Trade Organization (WTO). General Agreement on Tariffs and Trade (GATT).
The world trade organization Established on January 1, 1995. An international organization that deals with rules of trade among member countries. Enforces the provisions of the General Agreement on Tariffs and Trade (GATT). Acts as a dispute-settlement mechanism.
The general agreement on tariffs and trade (GATT) Established in 1947 to liberalize trade and to negotiate trade concessions among member countries. Today, the WTO is enforcing the provisions of the GATT.
Improved technology More powerful and affordable technology has promoted fast easy worldwide communication and improved production capabilities enabling organizations to operate more effectively in the international marketplace.
Small and medium-sizedenterprises (SMEs) The definition of SMEs varies according to the nation. In general, it refers to companies with between 11 and 500 employees with sales of less than $5 million. MNEs often purchase from SMEs. This is because their specialized workforces, innovation and technology allows SMEs to provide goods and services more efficiently than if the MNE were to source these internally.
Globalization and strategic management Regional triad strategies
Misconceptions about MNEs Common misconceptions about MNEs: MNEs have far-flung operations or earn most of their revenues overseas. MNEs are globally monolithic and excessively powerful in political terms. MNEs produce homogeneous products for the world market and through their efficient techniques are able to dominate local markets everywhere.
In fact, MNEs earn most of their revenues in their home regions. The largest 500 MNEs are not spread around the world but clustered around the triad. These MNEs engage not in global competition but in triad/regional competition; this rivalry effectively eliminates enduring political advantage. MNEs adapt their products for the local market. Misconceptions about MNEs (Continued)
Globalization and strategic management Maintaining economic competitiveness
Porter’s determinants ofnational competitive advantage Why are some firms able to innovate consistently while others are not? Factor conditions Demand conditions Related and supporting industries Firm strategy, structure, and rivalry. Each of these determinants depends on the others as a system.
The study of international business From general to strategic emphasis
Table 1.4 Comparative differences in the study of international business, 1950–2010
