ADMS 3960 Chapter all: 3960 notes.pdf

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ADMS 3960 IB Notes
Ch 1- Globalization and International Business
Globalization- the integration of world economies through the elimination of barriers to movements of
goods, services, capital, technology and people
How Does International Business Fit In?
-globalization enables us to get more variety, better quality, lower prices
IB- all commercial transactions that take place between 2+ countries
-goal of private business is to make profits
-government business may or may not be motivated by profit
Study of IB
-managers need to consider where to obtain the inputs needed of the required quality at the best price
-and also where they can best sell the product
Understanding the Environment/Operations Relationship
-companies operating internationally have more diverse and complex operating environments than
those at home due to cultures and values
Forces Driving Globalization
-import restrictions have been decreasing, and output from foreign-owned investments as a percentage
of world production has increased
-world trade has grown more rapidly than world production
-only a few counties sell over half their production abroad/ depend on foreign output for their cnsmp’n
-the Foreign Policy Globalization Index ranks countries across four dimensions:
Economicint’l trade and investment
TechnologicalInternect connectivity
Personal contactint’l travel/ tourism, int’l telephone traffic, personal transfers of funds abroad
Politicalparticipation in int’l orgs and gov monetary transfers
Factors in Increased Globalization
Increase in and the application of technology
-advances in technology in many dff countries
-is due to population growth, economic growth, freeing up more people to develop new products
-innovations in transportation mean more countries can compete for sales to any market
-it can speed up interactions, enhance a manager’s ability to oversee foreign operations
Liberalization of Cross-Border Trade and Resource Movements
-over time, most governments have reduced restrictions for three main reasons:
-citizens want a greater variety of goods
-competition spurs domestic producers to become more efficient
-they hope other countries will reduce barriers as well
Development of Services that Support Int’l Business
-bank credit agreements, clearing arrangements that convert one currency into another
Growing Consumer Pressures
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-we want more, newer, better products that are also differentiated from others
-it has spurred companies to spend more on R&D for innovations
Greater Global Competition
-present pressures can persuade companies to buy/sell abroad
-a firm might introduce products in markets where competitors are already gaining sales
Born-global companies- start out with a global focus because of their founders’ int’l experience
-many new companies locate in areas with numerous competitors and suppliers (clustering)
Changing Political Situations
-end of communist countries and the rest of the world
-willingness of governments to support programs to foster speed and cost efficiencies
-help domestic companies sell abroad more
Expanded Cross-National Cooperation
-govs have recognized their interests can be addressed through treaties, agreements, consultation
Pursuing these policies is due to the three needs:
Gain reciprocal advantagesgovs join orgs for a variety of commercial activities
-allows the countries’ commercial ships & planes to use certain seaports for reciprocal port use
Multinational problem solvingthe resources needed to solve issue may be too big for one to handle
-one country’s policies may also affect those of others (Eg. Interest rate)
Areas outside national territoriesnobody owns the oceans, outerspace or Antarctica
-agreements are needed to specify the amounts and rights of taking those resources
Costs of Globalization
-antiglobalization can sometimes lead to protests and violent lashes
Threats to National Sovereignty
Sovereignty- freedom to act locally and without externally imposed restrictions
Local Objectives and Policies
-countries fulfill their citizens’ objectives by setting rules reflecting national priorities
-some argue that countries’ priorities are undermined by opening borders to trade
Small Economies’ Overdependence
-small economics depend so much on larger ones for supplies and sales
-int’l companies are powerful enough to dictate their operating terms
Cultural Homogeneity
- of products, co’s, work methods, social structures, language
-it is harder to maintain the traditional ways of life
Economic Growth and Environmental Stress
Argument for Global Growth and Global Cooperation
-some argue globalization has positive results; it fosters uniform standards for combating environmental
problems so everybody can act together
-sustaining economic growth will continue to be a problem in the future though
Growing Income Inequality and Personal Stress
Income Inequality
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-global superstar system, creating access to a greater supply of low-cost labour
-in sports where stars earn more than other professionals in sports
-profits have disproportionately gone to the top execs
-the challenge is to maximize the gains from globalization while minimizing the costs by the losers
Personal Stress
-some are stressed from social status suffers, and those who fear the loss of their jobs
Why Companies Engage in IB
Expanding Sales
-higher sales create value only if the costs of making the add’l sales don’t increase disproportionately
-increased sales are a major motive for expanding into int’l markets
Acquiring Resources
-distributors seek out products from foreign countries because domestic supplies are inadequate
-they look for anything that will create a competitive advantage, by improving the quality of their
product of by differentiating it
Reducing Risk
-operating in countries with diff business cycles can minimize swings in sales
-by obtaining products domestically and internationally,companies can soften the impact of price swings
Modes of Operations in IB
Merchandise Imports and Exports
Merchandise imports- goods brought into a country
Merchandise exports- tangible goods sent out of a country
Service Imports and Exports
Service import-recipient and payer of payment
Service export- provider and receiver of payment
-service exports take many forms:
Tourism and Transportationairlines, shipping companies, travel agencies, hotels
Service Performance performance of those services
Turnkey operations- construction projects done under contract &transferred to owners when completed
Management contracts- one company provides personnel to perform management fnctions for another
Asset useLicensing agreements-when a company allows another to use its assets
Royalties- earnings that are received
Franchising- when one party allows another to use a trademark as an asset of the franchisee’s business
-dividends and interest paid represent the use of assets
Direct InvestmentFDI- investor takes a controlling interest in a foreign company
Joint venture- when 2+ companies share ownership of an FDI
Portfolio InvestmentDef’n- financial interest in another entity
-is either through stock in a company, or loans to a company in bonds, bills, or notes
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