International Business

1. International Business

2. Contact Details • Lecturer: Mr. Shane Kartabil • Email: prof.shane@gucb.com

3. Overview of Course • Text: • Mahoney, D., Trigg, M., Griffin, R. & Pustay, M. 2001, International Business: A Managerial Perspective, 2nd edn, Pearson Education, Australia. • Materials will be: • predominantly from your text • examples from my own experience • other materials when cited • Each week: • we will discuss a hot topic in international business (discussion board) • you will given a case to have a look at (mostly from the text) and this will also be used for discussion

4. Brief Outline of Course (First few weeks requires solid reading) • Introduction to International Business • International Cooperation • Legal & Political Forces • The Role of Culture

5. Brief Outline of Course (cont) • International Strategic Management • Analyzing & Entering Foreign Markets • International Strategic Alliances • Organizational Design for International Business • Managing Behavior and Interpersonal Relations • Controlling the International Business & Course Review

6. Course Aim & Objectives • Aim: To put you in the “shoes” of the International Manager • A manager facing the changes and vagaries of the rapidly e-Globalizing international marketplace • Objectives: • introduce a conceptual framework to critically analyse issues re international business and globalisation. • investigate differences in political, technological, economic, social, and cultural environment • develop skills for critically appraising and analysing on-line data sources. • look at strategies and structures of contemporary international businesses • develop your ability on a theoretical and practical level for international business

7. Introduction to International Business (Ch1 & Ch2) After studying chapters 1 & 2 students should be able to: • Discuss the meaning and importance of international business. • Identify and describe the basic forms of international business. • Discuss the evolution of international business. • Describe the value of economic geography to international business people. • Appreciate the uses of national income data in making business decisions. • Have a more sophisticated understanding of the following potential business destinations: • North America, Western Europe, Eastern and Central Europe, Asia, Australia, New Zealand and the Pacific, North and South Africa, The Middle East and South America.

8. A few questions for you to ponder before beginning • 1. What is the relative impact of international business on your daily lives? • 2. If you had to combine a list of the ten most common products you use, how many would relate to IB? • Best to think also in Brand names • Your decisions will most likely change as we progress through this subject

9. What is International Business? • International business involves any business transaction between parties from more than one country. • It includes such activities as: • buying and selling raw materials, • taking finished products across borders, • operating plants in other countries to take advantage of local resources, • and borrowing money in one country to finance operations in a second country. • International business is different from domestic business in that it necessarily involves transactions that cross national borders while domestic business does not.

10. Why study international business? • This question is posed to you… • Answer: • For you to stay competitive in this marketplace you need to be aware of the IB game • A student of business is naturally (in this global village) a student of IB • Most students will almost certainly work for a company that is: • either foreign owned; • domestically owned, but has some foreign operations, • or domestically owned, but is affected by the global economy. • It is important for you as future managers to have a cultural business literacy

11. International Business Activity Five key forms of IB activity Most common form of IB activity is: • Exporting & Importing • Exporting involves the selling of goods or services made in one's own country for use in other countries. • Importing is the buying of goods or services made in other countries for use in one's own country. • Goodsrefers to trade in goods (visible trade) while servicesrefers to trade in intangible products (invisible trade). • Why export or import? • the risk involved is minimal • opportunity often “knocks”particularly in the third industrial revolution (knowledge economy)

12. Figure 1.3 The growth of export of goods since 1969 Source: International Monetary Fund, International Financial Statistics Yearbook 1999, p. 7. Refer to page 23

13. Figure 1.2 Export of goods as a percentage of GDP for selected countriesSource: Economist Intelligence Unit, Fact Sheet—Global Economy, EIU Country. Refer to page 14

14. IB Activity (cont) • International investments-residents of one country supply capital to those of a second country • Foreign direct investments (FDI) • investments in property, assets, or companies located in foreign host countries • Portfolio investments • purchases of foreign financial assets such as shares & bonds (not for a takeover) • Licensing agreements - allows a firm in one country to use all or some of the intellectual property of a firm in a second country • Franchising - use the brand names, logos, and operating techniques of a firm in a second country • Management contracts - an agreement in which a firm in one country agrees to operate a business for a fee in another

15. Words of caution • Texts are notorious for favoring the “Big End of Town” (this one is an exception) • Big is not always beautiful • Most Australian business is based around SMEs • SMEs are the largest employers in Australia • SMEs or TVEs are growing rapidly in China • Text also often ignores the role of services (eg consulting, communications, transportation, and tourism) • Services largest portion of our GDP • 23.0 per cent of all Australian exports

16. The extent of internationalization • There are several ways to describe the extent of a firm's international orientation • The international business is the broadest • an organization involved in commercial transactions with individuals, private firms, or public sector organisations across borders. • The multinational corporation (MNC) • engages in foreign direct investment and owns or controls value-adding activities in more than one country • buys resources, create goods and/or services, and then sell those goods and services in a variety of countries • most often coordinates from headquarters with subsidiaries making adjustments as necessary

17. Figure 2.1 Headquarters of the largest 500 corporationsSource: Fortune, ‘FortuneGlobal 500’, 24 July 2000, pp. F1-F10. Refer to page 52

18. The extent of internationalization Three main types of MNC: • Multidomestic corporation • A corporation with a collection of relatively independent operating subsidiaries, each of which is focused on a specific domestic market. • Global corporation • A corporation that views the world as a single marketplace and striving to create standardised goods and services • Transnational corporation • A corporation that seeks to combine the benefits of global-scale efficiencies with the benefits of local responsiveness. • A new corporation? The World company – transcends national boundaries and Nationless (Ohmae – eg Nestle) • Be careful as some texts vary in their interpretation of the above

19. The evolution of International Business • Early origins in a snapshot • International business has originsas far back as 2000 B C • 500 BC – Greek purple patch & Chinese silk road • Romans at the turn of AD • Italy had its moments in the Middle Ages • 1400s saw the Spanish in good traveling spirit • British and the Dutch strong in the 1600-1900s • US has dominated the latter stages with 1945-60 a golden age • Marshall plan instituted post WW2 to aid Europe • Since the Second World War, international business has seen continued growth. • World exports have grown from about US$53 billion in 1950 to US$5.5 trillion by 1998. • Similarly, FDI has grown from US$105 billion in 1967 to over US$1.2 trillion in 1988.

20. The evolution of International Business • 1960s – Strengthening of Europe and Japan • 1970s – OPEC oil crisis & small car invasion from Japan • End of the 1970s, manufacturers began to copy the Japanese - Theory Z (the participative organisational practices), TQM , JIT • 1980’s, Australian and New Zealand introduced • economic and labour market reforms, and enhanced deregulation and privatisation (positive ecomomic benefits) • 1987 – stock market crash & property boom/bust • 80-90s Emergence of the four Asian “tigers”

21. Modern IB & Globalisation • Today’s market has increasingly gone global through transport, communication and the Net • Three important geographic marketplaces dominate the world economy (possibly four with China): • The United States, the European Union, and Japan. • A key concept you must understand is Globalisation • Has been called many things by many people but for our purposes: • Globalisation refers to the production and distribution of products and services of a homogeneous type and quality on a world wide basis to customers whose tastes and preferences are similar and converging. • The most stunning changes to international business during the 1990s were developments in electronic commerce. • Electronic commerce is the buying and selling of information, products and services via computer networks.

22. Remember the Game for us is now Global Refer to page 47

23. Reasons for IB growth • Several reasons international business growth has occurred and will continue. • The desire to increase returns for shareholders • Leads to market expansion as firms seek new markets • Firms seeking materials, unavailable in their own countries must go to foreign sources. • The presence of competitive forces also prompts foreign investment as firms struggle to keep pace with their rivals. • Changes in technology as discussed have also spurred the growth of international business • Firms have capitalised on computer technology and better transportation • Shift in tastes • Today's consumers are “globe-savvy” and aware of the products and services offered in other countries • Freer trade has been a major advantage for IB

24. How well do you know the IB territory • Do you know the World IB setting? • Plenty of mistakes have been made in IB • The text on page 44-45 shows numerous blunders • Mercedes tried to roll off its “trash” • Energiser Bunny – you better make sure the wedding ring finger is right • How far apart are Tokyo & Singapore • 5300km • What is the capital of the Ukraine? • Kiev • What is Brazil’s official language • Portuguese • What countries border France? Andorra, Belgium, Luxembourg, Monaco, Germany, Switzerland, Italy & Spain

25. Structure & characteristics of the world economy • Various factors of economic geography affect international trade • shared borders • common heritage • similar income levels • and ownership of natural resources • see Jared Diamond (Guns, Germs & Steel) • Your assignment requires you to ponder the regions and make specific choices as to what region and what countries to select  • Keep this in mind in this early chapter • For example a good article on classifying countries according to GDP, GNP, Purchase Power Parity (pp. 48-49)

26. Important Reading • We cannot cover chapter 2 in detail in the lecture • NAFTA and The EU and other blocs will become increasingly important • You need an understanding of the circumstances of the following: • The US • Canada • Mexico, Central America & The Caribbean • Western Europe • Central & Eastern Europe • Russia and the new States • Japan,Four Tigers, China • Malaysia, Indonesia, Thailand & Vietnam • India, Pakistan & Sri Lanka • Australia, NZ & The Pacific • Africa, The Middle East & South America

27. Traps for young IB players • The closing case on page 85-86 is interesting • Focuses on the opportunities in China • Also the down side • Many have failed • Do you think you understand China • Need to snap your myth of a simple homogeneous population • See also India • Next week we will move on to chapter 3 & 4