10/17/2015 MBA Trương Hoàng Anh Thơ truonghoanganhtho.cs2@ftu.edu.vn INTERNATIONAL BUSINESS Chapter 1: Introduction to International Business Learning Objectives In this chapter, you’ll learn about: What is international business? How does international business differ from domestic business? What motivates firms to go international? Globalization: facets, drivers, consequences Case study 10/17/2015 Key International Business Definitions International business: Performance of any trade or investment activity by firms across national borders How does International and Domestic Business Differ? International business  is conducted across national borders;  uses distinctive business methods;  must adjust to countries that differ in culture, language, political & legal system, economic situation, infrastructure, & other factors Firms encounter four major types of risk  Cross-cultural risk  Country risk  Currency risk  Commercial risk The Four Risks of International Business Source: Cavusgil et al., 2012 10/17/2015 What Motivates Firms to Go International?    To seek opportunities for growth through market diversification - E.g., Siemens, Sony, Whirlpool To earn higher margins and profits - Often, foreign markets are more profitable E.g., Toto To gain new ideas about products, services, & business methods - E.g., GM What Motivates Firms to Go International?    To better serve key customers that have relocated abroad - E.g., Toyota To be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products -E.g., Dell To gain access to lower-cost or better-value factors of production - E.g., Sony What Motivates Firms to Go International?    To develop economies of scale in sourcing, production, marketing, and R&D -E.g., Boeing To confront international competitors more effectively or to thwart the growth of competition in the home market -E.g., Haier To invest in a potentially rewarding relationship with a foreign partner - French computer firm Groupe Bull partnered with Toshiba in Japan 10/17/2015 What Is Globalization? Globalization refers to the shift toward a more integrated and interdependent world economy Globalization has two facets:  the globalization of markets  the globalization of production The Globalization Of Markets Globalization of markets: the merging of historically distinct and separate national markets into one huge global marketplace  In many industries, it is no longer meaningful to talk about the “German market” or the “American market”  Instead, there is only the global market The Globalization Of Production Globalization of production: 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 like land, labor, and capital Companies compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offering 10/17/2015 Drivers Of Globalization  The decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II  Technological change Declining Trade & Investment Barriers Lower barriers to trade and investment mean:  that firms can view the world, rather than a single country, as their market  that firms can base production in the optimal location for that activity Declining Trade Barriers Average tariff rates on manufactured products US 1990 1995 2000 2005 2010 5.68% 4.79% 3.74% 3.26% 2.98% 9.51% 4.67% 4.13% 3.16% 16.2% 9.3% 7.69% 5.90% 5.03% Canada China Indonesia 16.9% 14.32% 8.09% Source: World Bank, 2014 10/17/2015 Declining Investment Barriers Law on foreign investment 1996 Right to Enterprises with 100% assign or foreign invested capital adjust capital shall be entitled to or investment transfer their capital but priority must be given to project the transfer to Vietnamese enterprises Repatriation Upon remitting his/her of profits profit abroad a foreign investor shall have to pay a tax of 5%, 7% and 10% of the remitted profit Law on investment 2005 Investors shall have the right to assign or adjust capital or an investment project Foreign investors not have to pay tax when transferring profits abroad The Role Of Technological Change Technological change has made the globalization of markets a reality  Information technology  Communications  Manufacturing  Transportation Declining cost of global communication & growing number of internet users Source: Cavusgil et al., 2012 10/17/2015 Source: Cavusgil et al., 2012 The Role Of Technological Change Implications of technological change for the globalization of production include: lower transportation costs that enable firms to ………………………………… to economical, geographically separate locations lower information processing and communication costs that enable firms to ………………………… globally dispersed production systems The Role Of Technological Change Implications of technological change for the globalization of markets include: low cost global communications networks help create electronic global marketplace low-cost transportation help create global markets global communication networks and global media are creating a worldwide culture, and a global market for consumer products 10/17/2015 The Globalization Debate Is the shift toward a more integrated and interdependent global economy a good thing? Anti-Globalization Protests More than 40,000 anti-globalization protesters took to the street at the WTO meeting in Seattle in 1999 Protesters now regularly show up at most major meetings of global institutions The Globalization Debate Supporters: 10/17/2015 The Globalization Debate Supporters: The Globalization Debate Critics: The Globalization Debate Critics: 10/17/2015 Homework The KOF Swiss Economic Institute prepares the annual KOF Index of Globalization, which ranks the most globalized countries The index uses different dimensions to measure globalization: • economic globalization • political globalization • social globalization Visit the index and explain what each dimension represents, and why each is important for a nation to achieve a substantial presence in the global economy 10