THE EVOLUTION OF INTERNATIONAL BUSINESS

The Early Era of International Business

A. International business has been around for centuries. In fact, its origins can be
traced back as far as 2000 B C to the trading that took place between north African
tribes and parts of the Middle East. Greece and the Roman Empire owe part of their
early prosperity to international trade and its associated political and military power.
Some significant trading relationships that endure today were developed during the
Middle Ages.

Ancient Trade Routes

B. The colonization of America, brought about in part because important trading

routes to the Middle East were cut off when the Turks conquered Constantinople,
brought new trading avenues, particularly with Europe.

C. During the colonial period and the subsequent Age of Imperialism, foreign direct
investment and multinational companies grew rapidly as Europeans invested in their
colonial empires in America, Asia, and Africa. The invention of the steam- engine and
its associated low cost transportation further encouraged foreign investments in the
nineteenth century.

Australia and New Zealand are recent arrivals on the scene in terms of international
business development. The sheep and gold industry were important in
internationalising the Australian economy.

International Business Growth Since the Second World War

*The Growth of Exports since 1969.

D. 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. Most investment has taken place within the industrialised world, although
there is a growing trend toward FDI in lesser developed nations.

The United States has seen its role as leader in investment, accounting for more than
half of all FDI in the 1960s, diminish to just 24.1 percent in 1998 as firms from
Europe, Japan, and nations making up the Four Tigers increased their investments.

Destination and Source of FDI, 1967-1998 (US $billion)

The Golden Era of US Business: 1945- 1960

E. US companies enjoyed an unusual advantage during this time period since much of
Europe and Japan were devastated by the war. Not only did US companies face little
international competition in their home markets, but they had little competition in
foreign markets as well.
F. During this time, the United States provided assistance to other countries to help in
the repair of their infrastructure. The assistance came in the form of the Marshall
Plan, a massive aid program funded primarily by the United States to help European
nations work together to rebuild themselves.

US companies benefited from the program as they performed some of the

reconstruction work; however, much of the work was done by local companies, which
had the effect of strengthening them competitively.

The Resurgence of Europe and Japan: 1960-1980

G. European and Japanese firms began to reclaim their positions in the world
marketplace at the start of the 1960s. Investments were made by industrial and non-
industrial firms alike. At the same time, US firms continued their expansion into other
markets. In the 1970s, however, US firms faced a slowdown as foreign firms became
ever stronger competitors from other parts of the globe. The foreign competitors were
very efficient and conscious of quality, two areas where US firms were weak.
Consequently, US firms suffered. During this period Australian and New Zealand
firms also looked “offshore” for markets.

* The Middle East

H. The oil crisis also had an impact on world trade and investment forcing companies
and countries to reassess their usage of energy. In particular petro-chemical
companies, principal airlines and vehicle producers suffered losses in market share
because of fuel inefficiency.

During the 1970’s entire industry structures shifted. For example, the Japanese
increasingly dominated the steel and electronics industries, and European vehicle
producers dominated the luxury end of the vehicle market. At other levels of the
vehicle market in different countries Japanese producers replaced General Motors,
Ford and Chrysler as market leaders.

The New Global Marketplace: 1980 to the Present

I. At the end of the 1970s, recognising the need for a change in their business
policies, manufacturers began to copy the competitive practices that had
made foreign firms so successful. For example, the concept known as
Theory Z (the participative organisational practices of Japanese firms)
became popular in Western firms which then began to adopt techniques
such as quality circles and just-in-time inventory systems. Firms combined
such Japanese business practices with their own and began to emerge as
stronger global competitors.

The 1980’s represented a period of mixed fortunes for Australian and New
Zealand firms. Corporate empires were built during a “boom” period of rapid
economic growth in Australia. Some of these empires continue whereas others
collapsed following the share market crash of 1987.
J. By the end of the 1980’s, both the Australian and New Zealand economies required
major restructuring to enable firms to enter the global marketplace. A
succession of governments in both countries introduced economic and labour
market reforms, and enhanced deregulation and privatisation.

K. By the 1990s, the rules of the global economy had changed. Today, three
important geographic marketplaces dominate the world economy: The United
States, the European Union, and Japan. Moreover, industries (motor vehicles,
consumer electronics, chemicals and steel) that had been domestic are becoming
global. 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 World Economy: 1970 and 1999

1.6 REASONS FOR INTERNATIONAL BUSINESS GROWTH

A. There are several reasons why the growth in international business has occurred
and is expected to continue. The desire to increase returns for shareholders is
perhaps the most significant catalyst for increased international growth. This desire
leads to market expansion as firms seek new markets through growth strategies,
and factories outgrow the size of their home markets. Firms seeking materials,
labour, and/or capital unavailable in their own countries must go to foreign sources.
Therefore resource acquisition is another reason for the growth of international
business .

B. The presence of competitive forces also prompts foreign investment as firms

struggle to keep pace with their rivals.

Changes in technology have spurred the growth of international business as firms

capitalise on computer technology and better transportation when developing their
strategies. 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.

Social change is also responsible for the expansion of international business. Today's
consumers are more aware of the products and services offered in other countries and
frequently seek such products to replace domestically produced ones.

C. Finally, government trade and investment polices are making it easier for firms
to develop foreign markets. Import tariffs and barriers to foreign investment have
been reduced in the last forty years, and regional trading alliances have been
established - all of which is expanding opportunities for international transactions.