The Rapid Change of International Business

McGraw-Hill/IrwinInternational Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Introduction to IB

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International Business Terminology

• International business• Foreign business• Multidomestic company (MDC)• Global company (GC)• International company (IC)

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International Business Terminology, cont’d.

• International Business – A business whose activities are carried out across national

boarders• Foreign Business

– The operations of a company outside its home or domestic market

• Multidomestic Company– An organization with multicountry affiliates

• Each formulates its own business strategy on perceived market differences

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International Business Terminology, cont’d.

• Global Company – an organization that attempts to standardize and integrate

operations worldwide in most of all functional areas

• International Company – A global or multidomestic company

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History of International Business

• Early traders– Well before the time of Christ, Phoenician and Greek

merchants – China stimulated the emergence of an internationally

integrated trading system• “all roads lead to China”

• 17th Century mercantilism/colonialism– British East India Company– Dutch East India Company– Portugal and France

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Globalization

• Globalization (សាលកភាវនីូយកម្ម) – Coined by Theodore Levitt

• “as if the entire world (or major regions of it) were a single entity; [such an organization] sells the same things in the same way everywhere”

• Economic Globalization(សេ ដ្ឋកិច្ចសាលកភាវនីូយកម្ម) – International integration of goods, technology, information,

labor, and capital– Process of making this integration happen

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Table 1.1 Globalization Rankings: The KOF Index of Globalization and the A.T Kearney/Foreign Policy Globalization Index

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Globalization Forces

• Political forces (កត្តា� ជំរញុផ្នែ��កនសេ�បាយ)– Reduction of barriers to trade and foreign investment by governments– Privatization of former communist nations

• Technological forces (កត្តា� ជំរញុផ្នែ��កបសេច្ចកវទិ្យា)– Advances in computers and communications technology– Internet and network computing

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Globalization Forces, cont’d.

• Market forces (កត្តា� ជំរញុផ្នែ��កទី�្សារ)– Globalizing companies become global customers

• Cost forces (កត្តា� ជំរញុផ្នែ��កថ្លៃ%&សេដីម)– Goal for economies of scale to reduce unit costs

• Competitive forces (កត្តា� ជំរញុផ្នែ��កប្របកួតប្របផ្នែជង)– Increase in intensity due to explosive growth in international business

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Explosive Growth (សន្ទុះនៃនកំណើ� ន)

• Foreign Direct Investment and Exporting (ការវនិិសេ�គផ្ទា. ល់និងការនាសំេចញ)

– FDI - Direct investment in equipment, structures, and organizations in a foreign country• level sufficient to obtain significant management control

(Table 1.2)– Exporting – transportation of any domestic good/service to a

destination outside a country or region

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Table 1.2 FDI Indicators and Multinational Company Statistics (billions of dollars and percentages)

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Table 1.3 Ranking of International Companies and nations according to GNI (Atlas Method) or Total Sales

Note: Belgium (B), China (PRC), France (F), Germany (G), Italy (It), Netherlands (N), Switzerland (S), United Kingdom (U.K.), and United States (U.S.). Source: World Development Indicators database, http://devdata.worldbank.org/data-query/ (July 4, 2006); and Fortune 2005 Global 500, http://money.cnn.com/magazines/fortune/global500/2005 (July 4, 2006).

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Environments of IB

• Environment (បរ�ិកា )– All the forces influencing the life and development of the firm

• Forces (កត្តា� ជំរញុ)– External Forces (កត្តា� ជំរញុខាងសេប្រ2) (Uncontrollable: មិនអាចប្រតតួពិនិត្យបាន) – Forces over which management has no direct control

– Internal Forces (កត្តា� ជំរញុខាងក�ងុ) (Controllable: អាចប្រតតួពិនិត្យបាន) – Forces that management can use to adapt to external forces

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External Forces

• Competitive (ការប្របកួតប្របកួត) – Kind, number, location

• Distributive (ការផ្នែចកចាយ) – For distributing goods and services

• Economic (កត្តា� សេ ដ្ឋកិច្ច) – GNP, unit labor cost, personal consumption expenditure

• Socioeconomic (សេ ដ្ឋកិច្ច ង្គម)– Characteristics of human population

• Financial (កត្តា� ហិរញ្ញវត្ថុ)– Interest rates, inflation rates, taxation

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External Forces, cont’d.

• Legal (កត្តា� ច្បាប់) – Laws governing how international firms must operate

• Physical (កត្តា� របូវទិ្យា)– Topography, climate, and natural resources

• Political (កត្តា� នសេ�បាយ)– Forms of government, and international organizations

• Sociocultural (កត្តា� វប្បធម៌ ង្គម)– Attitudes, beliefs, and opinions

• Labor (កត្តា� ពលកម្ម)– Skills, attitudes of labor

• Technological (កត្តា� បសេច្ចកវទិ្យា)– Equipment and skills that affect how resources are converted to

products

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Internal Environmental Forces

• Factors of Production (កត្តា� �លិតកម្ម)– Capital, raw materials, and people

• Activities of the organization ( កម្មភាពរប ់អង្គភាព)– Personnel, finance, production, and marketing

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Why Is International Business Different?

• Domestic Environment (បរដិ្ឋា្ឋ នក�ងុតំបន់)– All the uncontrollable forces in the home country that surround and

influence the firm’s life and development• Foreign Environment (បរដិ្ឋា្ឋ នបរសេទ )

– All the uncontrollable forces originating outside the home country that surround and influence the firm• different values• difficult to assess

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Why Is International Business Different? cont’d.

• International Environment (បរដិ្ឋា្ឋ នអត�ជាតិ)– Interaction between domestic and foreign environmental

forces or between sets of foreign environmental forces– Increased complexity for decision-making

• Decision making more complex (ការ ំសេរចចិត�មានលក្ខណៈ ្មបុ្រគសា្ម ញ)