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An Introduction to International Business Lecturer: Paul Sorensen

An Introduction to International Business Lecturer: Paul Sorensen. Part 1. The World of International Business. Chapter 1. Objectives. Define the boundaries of the field of international business in an introductory overview of the main themes of this book.

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An Introduction to International Business Lecturer: Paul Sorensen

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  1. An Introduction to International BusinessLecturer: Paul Sorensen Part 1 The World of International Business Chapter 1

  2. Objectives Define the boundaries of the field of international business in an introductory overview of the main themes of this book. Examine how worldwide economic and political changes have driven globalization and shape the way international business is conducted. Highlight innovation and technology as major factors underlying global economic growth and greater interdependence between firms and countries. Introduce some of the main actors that feature throughout this book: multinational enterprises and small and medium-sized enterprises, which are at the core of spreading globalization; value chains and networks, which connect firms globally; and institutions (national and global), which shape how these other actors evolve.

  3. Lecture outline Introduction What is international business? Globalization Technology and innovation Socio-political developments What are institutions? Multinational enterprises Foreign direct investment International business in the modern era

  4. What is international business? International business: The study of transactions taking place across national borders for the purpose of satisfying the needs of individuals and organizations.

  5. Globalization

  6. Globalization • Economic Globalization:The growing interdependence of locations and economic actors across countries and regions. • Consequences of Globalization: Figure 1.1 The consequences of globalization

  7. Globalization (Continued) • Interdependence: Internationalization vs Globalization. • Mapping Globalization can be a difficult task. • Driving Forces: Figure 1.2 The dynamics of globalization

  8. Technology and innovation

  9. Technology and innovation • Technology implies the application of scientific knowledge for practical aims which involves applying scientific concepts that help us understand our environment. • Invention is an idea, sketch, or model of any new or improved device, product, process, or system. • Innovation occurs when the new product, device, or process is involved in a commercial transaction. Multiple inventions may be involved in achieving an innovation. • 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.

  10. 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.

  11. Socio-political developments

  12. Socio-political developments Economic interdependence is partly driven by political events, and most importantly by political stability. Stability of policies, and the creation and maintenance of the appropriate environment, plays a significant role in promoting the appropriate environment for firms to prosper.

  13. Socio-political developments Table 1.1 Measures of institutions between countries Source: World Bank Doing Business survey (http://www.doingbusiness.org).

  14. What are institutions?

  15. What are institutions? • Institutions:“Sets of common habits, routines, established practices, rules, or laws that regulate the interaction between individuals and groups.” • Formal: Rules that can be of the form of legal codes and laws. Can exist within a firm such as responsibilities, job descriptions, codes of conduct, and accounting and financial regulations. (E.g. GATT, WTO) • Informal: Are not always laid out in the form of written instruction, but come out of usage and tradition and are often unwritten and tacit.

  16. What are institutions? (Continued) • GATT: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. • WTO:Established on January 1, 1995. • An international organization that deals with the rules of trade among member countries. Enforces the provisions of the GATT. Acts as a dispute-settlement mechanism.

  17. Multinational enterprises

  18. Multinational enterprises • Multinational enterprises (MNE): “A firm that engages in value-added international business activities, that has affiliates in more than one country, and whose operations and activities in different locations are actively coordinated by one or more headquarters organizations.”

  19. 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.

  20. In fact, MNEs earn most of their revenues in their home regions. The largest 500 MNEs are not spread around the world but are 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)

  21. Most MNE activity can be classified into two major categories: (1) Trade (exports and imports): Approximately more than 50 percent of all trade is made by the world’s largest 500 MNEs. (2) Foreign direct investment (FDI): Approximately 80 percent of all FDI is made by the world’s largest 500 MNEs. MNE activity

  22. Foreign direct investment

  23. Foreign direct investment Foreign direct investment (FDI) is equity funds invested in other nations. Inward FDI flows are money coming into a country during the reporting year, from foreign-owned MNEs to their subsidiaries in country A. In this case, country A is known as the host country. Outward FDI flows are money going out, from firms that are registered in country A (known as the home country) to their subsidiaries in other countries.

  24. International business in the modern era

  25. International business in the modern era • 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 (Small and Medium- Sized Enterprises).

  26. International business in the modern era (Continued) Much of the growth in new MNEs from emerging markets reflects the growth of China. However, the number of Chinese firms entering the Global Fortune 500 tripled between 2010 and 2014 years, the evidence suggests that few of them are truly internationalized.

  27. Small and medium-sizedenterprises (SMEs) The definition of SMEs varies according to the nation. SMEs are firms with fewer than 250 employees in Europe, but fewer than 500 in the United States. MNEs often purchase from SMEs. This is because their specialized workforces, innovation and technology allow SMEs to provide goods and services more efficiently than if the MNE were to source these internally.

  28. 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.”

  29. The triad: the United States (US) The United States has the largest economy in the world with a GDP of over $17.96 trillion (2015 estimate). The United States is part of the North American Free Trade Agreement (NAFTA) with Canada and Mexico. The United States economy is significantly larger than that of its two trading partners and is therefore a triad member on its own.

  30. 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 12 new, mainly Central European, countries that joined in 2004 and 2007. The collective GDP of the EU is greater than that of the United States and Japan. The EU27 is the world’s largest importer and exporter.

  31. The triad: Japan Japan is the second largest economy in Asia. Japan is the 4th largest importer and 4th largest exporter in the world. 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.

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