IB Chapter One 2011

8/6/2019 IB Chapter One 2011

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Contents of the Book

Introduction (1)

Multinational Enterprise

(2) The Trial (3)

International Political (4)

International Cultural (5)

International Trade (6) International Financial (7)

Multinational strategy (8)

Organizing strategy (9)

Production strategy (10) Marketing strategy (11)

Human resource strategy(12)

Political risk (13) Financial strategy (14)


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Objectives of Chapter One:

This chapter is looking at some of the challenges

conducting international business in the 21st century.

It will begin by examining trade and foreign direct

investments, as well as the emergence of the triadeconomic block of north America, the European union (EU

), and Japan.

This chapter also examine some of the worldwide

economic and political changes that are taking place andlook at how technology is altering the way international

business is conducted.

It will also study some of the approaches being used by

multinational enterprises both to establish and to

maintain their competitive advantages.


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Introduction:

What is International Business?

International business is the studyof transactions taking place acrossnational boarders for the purpose ofsatisfying the needs of individualsand organizations.


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These transactions consist of:

Trade, as in the case of

exporting and importing,Foreign direct investments, as

in the case of companies

funding operations in othercountries.


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Over half of all world trade andapproximately 80 percent of allforeign direct investments is made by

the 500 largest firms in the world. These companies, calledMultinational

Enterprises (MNEs).


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1. Wal-Mart (US)

2. BP (Britain)

3. Exxon Mobile (US)4. Royal Dutch/Shell Group (Britain/Netherlands)

5. General Motors (US)

6. Ford (US)

7. DaimlerChrysler (Germany)

8.Toyota (Japan)

9. General Electric (US)

10. Total (France)

11. Allianz (Germany)

12. ChevronTexaco (US)

13. AXA (France)

A list of those MNEs that grossed morethan $100 billion in 2003.


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World Business: A brief overview

There are thousands ofMultinationalenterprises that collectively perform

a wide range of operations andservices. All of them doing twothings:

1- Import and export2- Foreign direct investment


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What is Export?

The goods and services producedby a firm in one country and thensend to another country.

For example, many companies inChina export clothing and othertextile products to the united States.

What OUR country Export?


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What is Import?

The goods and services producedin one country and brought in byanother country.

For example, Japan is a majorimporter of petroleum because it mustrely on outside suppliers for all its

energy needs.

What Arab Countries Import?


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What is International Trade?

The exchange of goods andservices across internationalborders

It also Known as import and export


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Country/Region Billions of US $ % of Total Billions of US $ % of Total

North America 1,487.50 23.2 1,175.30 17.7

United States 1,132.90 17.6 751.80 11.3Canada 219.10 3.4 260.90 3.9

Mexico 135.50 2.1 162.70 2.5

European Union (15) 2,328.30 36.3 2,295.80 34.6

Asia including Japan 1,529.20 23.8 1,938.30 29.2

Japan 305.70 4.8 457.30 6.9

Other Asia 1,073.60 16.7 1,227.50 18.5

Total 6,418.60 100.0 6,636.90 100.0

Imports Exports

Table 1 . 1 Wo rld Trade, 20 0 2


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What goods export and import?

That the majority of this export and import activitiesinvolves Manufactured goods such as:

Industrial machineries,

Computers, Cars,

Televisions and other

Electronic goods.However, as will be seen later, an increasingproportion of world trade is in services.


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The Importance of Export and Import

Why export and imports is important to thestudy of international business? There aremany reasons such as:

1-Trade is the historical basis of internationalbusiness and trade activities help usunderstand MNE practices and strategies.

For example: In 2002 the worlds largest

importer and exporter were the UnitedStates, and China.


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Why export and imports is important to the studyof international business?

2-T

rade helps us better understand the impact ofinternational business on world economies.

For example, Japan import all of its oils. So whenthe price of oil in the world market rises sharply, we can

readily predict that the cost of manufacturing cars inJapan will rise and Japanese export will decline.

Conversely, ifoil prices decline, we can predict that theworld imports of Japanese cars are likely to increase.


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Why export and imports is important to thestudy of international business?

3- Import and Export are the main drivers ofinternational trade, (also FDI is another driveforce)

For example: Many companies use FDIto establish foothold in the world marketplace.


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FDI

What is Foreign Direct Investment (FDI)?

Foreign direct investment (FDI) is:

Equity funds invested in other nationswhich undertaken by MNEs firms whoexercise control of their foreign affiliates,

like export and imports

Why Firms engage in FDI?


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Why firms engage in FDI

1.To increase sales and profits

2.To enter rapidly growing markets

3.To reduce costs4.To gain foothold in economic unions

5.To protect domestic markets

6.To protect foreign markets

7.To acquire technological and managerialknow-how


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The Triad

What is Triad?

The Triad is a group of three major trading and

investment blocs in the international arena:United States, the EU, and Japan.

Companies in the United States, Western Europe,

and Japan conduct most of the worlds trade andFDI.


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Triad: United States

The first of these: the United States,

It has the largest economy in the world with a grossdomestic product (GDP) of over $10 Trillion!

Sometimes when the United States is discussed as amember of the triad, Canada and Mexico are included.

This is because these three countries implemented the

North American Free Trade Agreement (NAFTA)

NAFTA: is a regional free trade agreementamong Canadam and Miexico


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Triad: European Union

The second segment of the triad is the European Union.

This group of nations, whose history and current developmentswill be discussed in chapter 3 and 16, was formed by sixcountries in the late 1950s.

Today there are 25 members of the EU. This includes the EU(15),Austria, Belgium, Denmark, Finland, Germany, Greece, France,Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain,Sweden, and the UK .

An additional 8 Eastern European countries that joined on May 1,2004- Czech Republic, Estonia, Latvia, Lithuania, Hungary,Poland, Slovenia and Slovakia as well as Cyprus and Malta.

These are the largest countries in the group, accounting for 95%

of the GDP of the EU(25).


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The European Union


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Triad: Japan

The third group in the core is Japan, which like the othertwo members plays a major role in internationalbusiness.

This is made particularly clear by looking at areas suchas importing, exporting, and FDI.

Japan is the worlds sixth largest importer and fourth

largest exporter.At market prices it is the largest economy in Asia and ithas by far the highest GDP per capita.


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Although the triad countries to dominate theinternational business arena, the internationalbusiness environment changed rapidly recent years.

Why?

I.Slowdown of triad economies

II. The introduction of more local and international

regulationIII.The impact of technology

IV.The rise of small and medium size multinational

Today's International Environment


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(1) Slowdown ofTriad Economies

It has reported that all three members of the triad wereexperiencing a decline in GDP growth, business

investment, and consumer spending in the 2001-2003period. They decides to formulate: Organization forEconomic Cooperation and Development (OECD),

It is a group of 30 relatively wealth member countriesthat facilitate a forum for the discussion of economicissues across the world.


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(2) International Trade regulation

In 1947 they established GATT General Agreement onTariffs and

Trade (GA

TT).

The purpose of the GATT was to liberalize trade and tonegotiate trade concessions among member countries.

The World Trade Organization (WTO)was established on January 1, 1995, and it is now theumbrella organization that governs the international tradingsystem.


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Example

Japan and China has been threatened with tradesanctions by the United States unless they allowUS firms to sell products and services in theircountries.

Trade conflicts between the EU and the UnitedStates over biotech foods and crops, steel, beefhormones, and export subsidies. Many suchtrade disputes, however, are handled not bycountries but by international organizations setup to regulate international commerce. The mainone is the World Trade Organization.


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3- TechnologyAnother development that is changing theway MNEs do business in technology. Twoareas having major impact:

A -Communication technology

For example: 300 million Mobile users in EU15

Over 55 % of US population has access to the

internet (see International Business Strategy inAction: Amazon.com to discuss the issue of fastgrowth of service business)


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B- Rapid production of goods and services

For example, modern factory can produce goodsin short time. and with fewer defects thanks to

production process programs

For example, 6 sigma which reduce errors permillions and create products that meet the needsand wants of consumers.


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4- Small and Medium-sized enterprises (SMEs)

SMEs are proving to be backbone of manyindustries because of their efficiency andflexibility

In addition, a number of SMEs competeeffectively against large companies in niche

market.


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Definition of Small and Medium-sized enterprises(SMEs)

It is vary according to the nations for example:

In USA It is the companies with up to 500 employees

In EU it is the companies with between 11 and 200employees and sales of under USD 40 billion.

In Japan have up to 300 employees

Developing countries use the World Bank bench mark of

11-150 employees and sales of under USD 5 billion


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Globalization and StrategicManagement

We will try to show here how companies arecoping with this international environment?

First:Looking at some of the misconceptions thatpeople have about the world of international

business

Second: look at some criteria that are important to

MNE in achieving strategic competitive advantage


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Why misconceptions?1- One of the belief that the multinationals have far-flungoperations and earn most of their revenues overseas,however, most MNEs earn the bulk of their revenues either

within their home country or by selling in nearby locales.

2- the belief they are globally monolithic and powerful inpolitical firms

3- the MNE develop homogenous products for worldmarket and through their efficient production techniquesare able to dominate local market every where.


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Regional Triad StrategiesTo be successful, MNEs need to create strategies thatare regional, not worldwide, in focus and they need tobe responsive to local consumers as opposed to being

global in nature and uniform throughout.

Strategic Alliance, a business relationship inwhich two or more companies work together to

achieve a collective advantage


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Maintaining Economic Competitiveness

After USA saw some of their competiveness

eroded by Japan and EU companies, it is decided

to be the most competitive nation in the world andachieve a competitive advantage. How? One way

was by continue to be innovative In computer and

R&D.


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Maintaining economic competitiveness

But why some firms succeed in innovative butOthers not succeed?

Porter found that the success of nations in

international competitiveness is determined byfour factors:

(1) Factor Conditions

(2) Demand Conditions

(3) Related and supporting industries

(4) Firm strategy, structure, and rivalry


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(1) Factor Conditions

According to basic international trade

theory, a nation will manufacture and exportthose goods that make most use of the factor

conditions with which it is relatively endowed.

These factors include: Land, Labor, Capital.

This will happen by creating specialized

factors and then working to upgrade them.


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(2) Demand Conditions

Porter states that: a nations competitiveadvantage is strengthened if there is stronglocal demand for its goods and services.

This demand provide a number of benefits:

It help the seller what the buyer wants The supplier can provide the customer before

competitors from abroad


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(3) Related and supporting industries

When suppliers are located near the producerthese firms often provide lower cost inputs thatare not available to the producers distancecompetitors.


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(4) Firm strategy, structure, and rivalry

Porter's fourth broad determinant of national advantage

is: the context in which the firms are created, organized

And managed as well as the nature of domestic rivalry.

No one Managerial system is universally appropriate.

Nations tend to do well in industries where the

management practices favored by the National

environment suited to their industries sources of

competitive advantage.

For example in Italy successful firms typically are smaller

medium sized


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Multinationals in Action

Here are some example how MNE are usingsome of mentioned ideas in their operation:

Volkswagen:

- Used innovative designed and feature to produce theircars in Europe and USA.

Carrefour

- The worlds second large retailer after Wal-Mart. Itsuccess because it is ability to crate a local strategy foreach of its units. It has a knack for designing its stores tomeet local tastes. And adapt its product to local culture.


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IB Chapter One 2011