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International Business: The New Realities
by
Cavusgil, Knight and Riesenberger
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
Dimensions of Market Globalization
Dimensions of Market Globalization
Integration and interdependence of national economies
Rise of regional economic integration blocs
Growth of global investment and financial flows
Convergence of buyer lifestyles and preferences
Globalization of production activities
Globalization of services
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-2
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Stages of Economic Integration
A Free Trade Area
Tariffs and quotas abolished within the FTA, i.e. between the participating
countries. No harmonization of the external trade regime.
A Customs Union
Equalize external tariffs (customs) and common quotas.
A Common Market
Further abolish restrictions on the movement of production factors (workers,
goods, capital and services).[ECSC- Euratom EEC]
Further Union
Some degree of harmonization of national economic policies.Supranationality:
unification of monetary, fiscal, social policies.
Free trade areas
Team 1- ASEA Free Trade Area !AFTA"
Team #- orth American Free Trade Agreement !AFTA"
Team $- %ulf &ooperation &ouncil !%&&"
Team '- Southern &ommon (ar)et !(E*&+S,*"
Team -- European ,nion
Team .- Asia-/acific Trade Agreement !A/TA"
Team 0- &ommon (ar)et for Eastern and Southern Africa
!&+(ESA"
Team 1 2 3lac) Sea &ooperation Agreement
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This sessions learning objectives
1. Why globalization is not new :
Dimensions and Drivers of market globalization
2. Participants in international business arranged by value-chain (incl. SME
specificities)
3. Discussing some entry-strategies: BOP, franchising/licensing
1141-4#51$ -
Why globalization is not new :
Drivers of market globalization
6nternational 3usiness: The e7 *ealities .
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8istory of international trade
3efore the rise of the 9nation state:
;< 9trade over long distances:
Sil) *oad !#55 3&E": connected Asia, Africa and Europe
!.,-55 )m" a good e=ample of the transformati>e po7er of
international e=change : religions, languages, arts spread
and mi=ed as products and ideas 7ere e=changed .
1-
th
!A?": the domestication of camel allo7s Ara@ian
nomads to control long distance trade in spices and sil)
from the Far East.
6nternational 3usiness: The e7 *ealities 0
*oman trade 7ith 6ndia
6nternational 3usiness: The e7 *ealities 1
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Chart of undersea telegraph cabling in 1899.
Eastern Telegraph &ompany 11AA.
An e=ample of modern glo@alizing technology in the @eginning of the #5th century.
A
4 Phases of Globalization
Phase 1: 1830 to late 1800s
Aided by railroads and ocean transport; the rise of
manufacturing and trading companies
Phase 2: 1900 to 1930
Fueled by electricity and steel; early MNEs
Phase 3: 1948 to 1970s
GATT, post-war era; reduction of trade barriers WW;
rise of global capital markets
Phase 4: 1980 to present
Fueled by Internet and other technologies; rapid liberalization in
emerging markets
2-10
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The Death of Distance
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-11
The Drivers of Market Globalization
Worldwide reduction of barriers to trade and investment
Market liberalization and adoption of free markets
Industrialization, economic development, and
modernization
Integration of world financial markets
Advances in technology
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-12
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Declining Cost of Global Communication
and Growing Number of Internet Users
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-13
NTIC - Manufacturing and
Transportation Technologies
Revolutionary developments permit manufacturing that is low scale and low
cost, via computer-aided design of products (CAD), robotics, and IT-managed
production lines.
In transportation, key advances include fuel-efficient jumbo jets, giant ocean-
going freighters, and containerized shipping. The cost of international
transportation has declined substantially, spurring rapid growth in global trade.
Collectively, technological advances have greatly reduced the costs of doing
business internationally.
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-14
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Drivers of Market Globalization
Worldwide reduction of barriers to trade and investment: Over time,
national governments
have greatly reduced trade and investment barriers. The trend is partly
facilitated by the World Trade Organization (WTO), an organization of
some 150 member nations.
Market liberalization and adoption of free markets: The launch of free
market reforms in China and the former Soviet Union marked the
opening of roughly one-third of the world to freer trade.
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-15
Drivers of Market Globalization (cont.)
Industrialization, economic development, and modernization:
These trends transformed many developing economies from producers
of low-value goods to higher-value goods, such as electronics and
computers.
Simultaneously, rising living standards have
made such countries more attractive as
target markets for sales
and investment.
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-16
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Drivers of Market Globalization (cont.)
Integration of world financial markets: Enables firms to raise capital,
borrow funds, and engage in foreign currency transactions wherever
they go. Banks now provide a
range of services that facilitate
global transactions.
Advances in technology: Reduces the cost of doing business
internationally by allowing firms to interact cheaply with suppliers,
distributors, and customers worldwide. Facilitates the internationalization
of companies, including countless small firms.
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-17
Participants in Intl. Business
1. Governments & Intl. Institutions: Active in international business as
regulatorssuppliers and buyers.
2. NGOs
3. Focal firm: Initiator of an international business transaction; e.g., MNEs and
SMEs
4. Distribution channel intermediary: Specialist firm that provides distribution,
logistics, and marketing services in the international value chain
5. Facilitator: Firm that provides special expertise in banking, the law, customs
clearance, market research, or another field (ex. Visa.)
3-18 Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
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Governments as participants in international
business.
3-19 Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
WTO - Ministerial Conference 18-20 May 1998
meets every two years, brings together all members of the WTO (countries or customs unions).
The Ministerial Conference can take decisions on all matters under any of
the multilateral trade agreements.
Non-governmental organizations:
Many of nonprofit organizations conduct cross-border activities. They pursue
special causes and serve as advocates for social issues, education, politics, and
research.
Examples
The Bill and Melinda Gates Foundation and the British Wellcome Trust both
support health and educational initiatives
CARE is an international nonpro!it or"ani#ation dedicated to reducin" povert$
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 1-20
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International Focal firms
Multinational enterprise (MNE): A large company with
substantial resources that performs various business
activities through a network of subsidiaries and affiliates
located in multiple countries;
e.g., Caterpillar, Samsung, Unilever, Vodafone, Disney.
Small and medium-sized enterprise (SME): Typically a
company with 500 or fewer employees. Over 90% of all
firms in most countries are SMEs. SMEs increasingly
engage in international business.
-> Born global firm: A young, entrepreneurial SME that
undertakes substantial international business at or near the
time of its founding.
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 1-21
2. Focal firms, facilitators and distribution
intermediaries arranged by value-chain activity
3-22 Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
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Company Internationalization
and the Value Chain
The most significant implication of market globalization for companies is
that a purely domestic focus is no longer viable in most cases.
Market globalization compels firms to internationalize their value chain
and access the benefits of international business.
Value chain: The sequence of value-adding activities performed by the
firm in the process of developing, producing, and marketing a product or
a service.
Globalization allows the firm to internationalize its value chain, leading to
various advantages.
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-23
The Firms Value Chain
Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall 2-24
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Typical Positions of Intermediaries
and Facilitators in the International Value Chain
3-25 Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
Dells International Value Chain
3-26 Copyright 2012 Pearson Education, Inc. publishing as Prentice Hall
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Dell to illustrate the International Value Chain.
Dell is based in USA-Texas. On a typical day, Dell processes orders for 140,000 computers,
which are sold and distributed to customers worldwide. Non-U.S. orders account for roughly
half its total sales.
A Dell customer places an order for a notebook.
The Dell representative (India/Belgium/Taiwan/South Africa) enters the specifications into
Dells order management system.
He verifies his credit card through Dells workflow connection with Visa, a global financial
services facilitator; and then releases the order into Dells production system.
That day, the order is sent to the Dell notebook factory in Malaysia, where employees access
from nearby suppliers (Malaysia, China, Costa Rica) the parts that comprise the 30 key
components of Dell notebooks these suppliers source from 400 suppliers primarily in Asia,
but also in Europe and the Americas.
A hallmark of Dells value chain is collaboration.
Dell constantly work with their suppliers to make process improvements in Dells value chain.
6nternational 3usiness: The e7 *ealities #0