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Introduction to International Business - Rutgers University

1 International BusinessDefinitions1) IB field is concerned with the issues facing International companies and governments in dealing with all types of cross-border ) IB involves all Business transactions that involve two or more ) IB consists of transactions that are devised and carried out across borders to satisfy the objectives of individuals and ) IB consists of those activities private and public enterprises that involve the movement across national boundaries of goods and services, resources, knowledge or EnterprisesA MNE has a worldwide approach to foreign markets and production and an integrated global philosophy encompassing both domestic and International Managementdefined as a process of accomplishing the global objectives of a firm by (1) effectively coordinating the procurement, allocation, and utilization of the human, financial, intellectu

International Business Definitions 1) IB field is concerned with the issues facing international companies and governments in dealing with all types of cross-border transactions. 2) IB involves all business transactions that involve two or more countries. 3) IB consists of transactions that are devised and carried out

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Transcription of Introduction to International Business - Rutgers University

1 1 International BusinessDefinitions1) IB field is concerned with the issues facing International companies and governments in dealing with all types of cross-border ) IB involves all Business transactions that involve two or more ) IB consists of transactions that are devised and carried out across borders to satisfy the objectives of individuals and ) IB consists of those activities private and public enterprises that involve the movement across national boundaries of goods and services, resources, knowledge or EnterprisesA MNE has a worldwide approach to foreign markets and production and an integrated global philosophy encompassing both domestic and International Managementdefined as a process of accomplishing the global objectives of a firm by (1)

2 Effectively coordinating the procurement, allocation, and utilization of the human, financial, intellectual, and physical resources of the firm within and across national boundaries and (2) effectively charting the path toward the desired organizational goals by navigating the firm through a global environment that is not only dynamic but often very hostile to the firm s very Trade:When a firm exports goods or services to consumers in another Direct Investment:When a firm invests resources in Business activities outside its home Globalization of the World EconomyuGlobalization of marketsuGlobalization of productionuDecline of barriers to trade (WTO)uIncreased technological capabilitiesu60,000 International firms with 500,000 foreign affiliates that generate $11 trillion in sales in 1998 GlobalizationuTrade and investment barriers are distances are shrinking due to advances in transportation and culture is beginning to look economies merging into an interdependent global economic.

3 Pros& ConsuPros Increased revenue opportunity through global sales. Reduced costs by producing in low cost Different nations = different problems. Similarities between nations may be superficial. Global planning may be easy, but global execution is is Globalization ? The shift toward a more integrated and interdependent world economy. MarketsProductionGlobalization of Marketsu Merging of historically distinct and separate nationalmarkets into one huge global marketplace. Facilitated by offering standardized products: Citicorp Coca-Cola Sony PlayStation McDonalds Does not have to be a big company to participate.

4 Over 200,00 companies with less than 100 employees had foreign sales in Largest Global MarketsNot Consumer GoodsNot Consumer GoodsIndustrial Goods andMaterials4 Commoditiessuch as aluminum, oil and productssuch asmicroprocessors, assets such as Treasury bills Goods andMaterials4 Commoditiessuch as aluminum, oil and productssuch asmicroprocessors, assets such as Treasury bills of productionuRefers to sourcing of goods and services from locations around the world to take advantage of Differences in cost or quality of the factors of production Labor Land CapitalGlobalization of Productionu The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor,energy, land and capital).

5 UCompanies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering - increasing their competitiveness. Global Products 5 Volume of world trade and production, 1950-2002 Fig: FactorsDecline in Trade BarriersDecline in Trade BarriersGlobalizationTechnologicalChange TechnologicalChangeGeneral Agreement on Tariffs and TradeMember states (140) in eight negotiating rounds worked to lower barriers to the free flow of goods and the most recent round, the Uruguay Round, nations agreed to enhanced patent, copyright and trademark protections and established the World Trade Tariff Rates on Manufactured Products as Percent of Value1913 1950 1990 2000 France 21% 18% 20 26 18 25 30 5 11 9 23 14 FDI Restrictions Between 1991 and 2000of the 1.

6 121 changes worldwide in laws governing FDI, 95% created a more favorable investment environment. During 2000, 69 countries made 150changes to FDI regulations, 147 or 98%were more favorable to Growth of World Trade and Output0500100015002000250019501960197019 8019902000 TradeOutputGDPT radeFigure share of total FDI stockFig: Role of Technological ChangeuMicroprocessors and TelecommunicationsuThe Internet and World Wide WebWorldwide E-Commerce Growth Forecast01000200030004000500060007000800 020002001200220032004 Rest of W orldLatin A m PacificNorth AmericaFigure Shrinking Globe1500-18401850-19301950s1960sBest average speed of horse-drawn coaches and sailing ships, locomotives average 65mph.

7 Steamships average aircraft 300-400 passenger aircraft for Production and Market GlobalizationProduction dispersed toeconomical locations due to transportation and communication advances. New markets opened through aircraft move people and media creatinga worldwide markets opened through aircraft move people and media creatinga worldwide Changing Paradigm of the Global EconomyuOld: dominance of the world economy and world trade. dominance in world FDI. firms dominance of International Business . of the world economies (Communist dominated) were off-limits to western SHARE OF WORLD OUTPUT 1963 SHARE OF WORLD OUTPUT 2000 SHARE OF WORLD EXPORTS2000 United States 27% Japan Germany (W.)

8 Ger.) France United Kingdom Italy Canada China NA South Korea NA The Changing Pattern of World Output and TradeTable Output measured by Share of Total FDI Stock, Inflows, 1988-2000($ Billions)02004006008001000 Developed CountriesDeveloping CountriesUnited StatesChinaFigure National Composition of the Largest Multinationals 1973 1990 1997 2000 26% Japan 12 17 8 France 13 Germany.

9 9 12 Table Changing World OrderuThe fall of Communism in Eastern Europe and the former Soviet has divided itself into two has divided into 5 (often warring) successor movement (suppressed) in America has seen both democracy and free market and Income Firms move jobs to low cost countries. Countries specialize in efficiently produced goods and import those they can not efficiently produce. Increases income in less developed countries. May lead to income Policies and the Environment Firms move to countries with weak laws. Economic progress leads to stronger laws.

10 By creating wealth and incentives for technology improvements, world will be better. Tie strong laws to International agreements. Firms are not Performance and IncomeFigure IndexEnvironmental Performance IndexGlobalization debate-ConuDestroys manufacturing jobs in wealthy, advanced countriesuWage rates of unskilled workers in advanced countries declinesuCompanies move to countries with fewer labor and environment regulationsuLoss of sovereigntyGlobalization and National SovereigntyUnder the new system, many decisions that affect billions of people are no longer made by local and national governments but instead, if challenged by any WTO member nation.


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