Chapter 3

Multinational

We are in the midst of a great

transition from narrow nationalism to
international partnership.
Lyndon Baines
Johnson

Key Topics

The rise of global business

Major world marketplaces and U.S. trading partners
Influences on international business
International business management
The impact of differences among nations

Globalization
Consist of business transaction between parties form
more that one country
Statistic over $8 trillion in merchandise trade each
year cross national borders.
91% of the companies doing business globally
believe its important to send Employee on
assignment to other countries.

Globalization Is Gaining
Speed
The world economy is becoming a single,
interdependent system
Export:
Domestic product sold abroad
Import:
Foreign product sold domestically

Global Business Environment

Can generate sales

Produce operational efficiencies
Expose to new technology
Provide greater customer choices
Acquire resources
Minimise risk

Factors affecting IB

Laws & regulatory

Trade protectionism
Customs
Consumer preferences
Ethical standards
Labor skills
Socio-cultural
Political stability
Economic stability

Cultural Differences

Social values
Language
Decision-making habits
Attitudes towards time
Use of space
Body language
Manners
Ethical standards
Laws

Did you know?

In Turkey, its rude to cross your arms
while you are facing someone
In the Arab world, the left hand is
considered unclean; dont eat with it!
In India never touch someones head, its
the seat of the soul
The Chinese associate gift such as clocks
and handkerchiefs with funerals

Take Time to Learn the

Culture Thoroughly!
Este es nuestro
nuevo auto:
el NOVA!

10

The Customers Language: A Critical

Business Success Factor
In the U.S. alone, 18% of the population does
not speak English at home.
Only 48% of the worlds Web users are native
English speakers.
Consumers are four times more likely to buy a
product on the Internet if the website is in
their preferred language.

Source: Time Global Business, Nov. 2001

11

Business preparations
Learn about a culture, history, religion,
politics, customs
Learn about business customs
To know about the countrys law
To operate effectively in another country,
businesses must know when, and to what
extent, the government is involved in a
given industry.

12

Ways to improve
intercultural communication
Deal with the individual
Alert to other persons customs
Understand body language in different
cultures
Show respect

13

Going International ?

Figure 48

14

Entry Modes

5 main form of IB activity

a) Importing & exporting
Im buying goods and services from
another country and bringing them into
ones own country
Ex Selling & shipping g & s to another
countries

15

Entry Modes
b) Licensing
- an agreement to produce or market another
companys product or to utilize its technology
in exchange for a royalty or fee. (agreement
between Licensor & Licensee)
Benefits no shipping costs, no trade barriers, no
uncertainties of entering foreign markets, %
of the profit

16

Entry Modes
c) Franchising
- An agreement in which the franchisee obtains
the rights to duplicate a specific product or
service and the franchiser obtains a royalty fee
in exchange.
Benefits minimized costs, minimized risks & by
passed trade protections

17

Entry Modes
d) Strategic Alliances & Joint Venture
- A long- term partnership between 2 or more
companies aimed at helping establish
competitive advantages in the marketplace.
- Companies share ideas, resources &
technologies
e.g Northwest Airlines & Continental Airlines
Benefits increased competitiveness for both
companies

18

Entry Modes
Joint venture
- A partnership in which one company
cooperates with other companies or
governments to jointly develop, produce or
sell products. (usually involves major
project)
- Companies share investment costs, risks &
profits of the business venture &
management
19

Entry Modes
e) Wholly Owned Facilities
- Firms owned entirely by foreign investors
with varying levels of foreign staff and
involvement.
Benefits raw material, low wage rates,
direct access to markets in other countries

20

Entry Modes
f) Others = Multinationals Corp.
comp with operations in more than one
country. (manufacture & market product in
many diff. countries)
g) Foreign Direct Investment
- Domestic business enterprises supported in
part by foreign companies. (Firms buys or
establishes tangible assets in another country)

21

Why nations trade?

No single country has the resources to

produce everything its citizens want or need.
Mutually beneficial exchange
Countries specialize in the production of
goods that they can make more efficiently
than other countries.

22

Form of Competitive
Advantage
Absolute Advantage
- a nations ability to produce a particular product
with fewer resources per unit of output than any
other nation more efficient. (It has a monopoly
power on producing a specific product)
Comparative Advantage
- a nations ability to produce some / certain
items / products more efficiently and at a lower
cost than other items relative to other nations.

23

National Competitive
Advantage widely accepted model
of why nations engage in IB
Factor conditions factor of
production
Demand conditions customers
Related and supporting
industries
Strategies, structures, and
rivalries prod quality, cost,
productivity, innovation

24

Attributes of
National
Competitive
Adv referred
as a national
diamond.
- the
interaction of
the 4 elements
determines the
env. In which a
nations firms
compete.
Figure 45

25

Import/Export Balances
Balance of Trade = Ex - Im
Trade Deficits = Im > Ex
Trade Surpluses = Ex > Im
Balance of Payments

26

Import/Export Balances
Balance of Trade relationship between the value
of the products a nation export and those it
imports.
- Trade surplus positive trade balance (Exports >
Imports)
- Trade Deficit Negative trade balance (Imports >
Exports)
Balance of Payments total flow of money into the
country total flow of money out of the country

27

Exchange Rates Impact Global

Trade
Exchange rate rate at which the currency of
one nation can be exchanged for the currency
of another nation.
Subject to fluctuation.
When an economys currency is strong:
Domestic companies find it harder to
export products
Foreign companies find it easier to import
products
Domestic companies may move production
to cheaper sites in foreign countries
28

Exchange Rates Impact Global

Trade (contd)
When an economys currency is weak:
Domestic companies find it easier to export
products
Foreign companies find it harder to import
products
Foreign companies may invest in
production facilities

29

Protectionist Measures

Restricting trade with other countries. Why?

- Protect a nations companies from

international competition.
a) Tariffs
- taxes, surcharges, or duties levied against
imported goods
-Implications: - Raises cost of foreign items,
giving domestic product a price adv,
generate revenue to Government

30

Protectionist Measures
b) Quotas
- a limit on the amount of a particular good
countries can import during a year.
- Limits can be in the form of quantities or
value
c) Embargo
- a complete ban on the import and export of
certain products

31

Protectionist Measures
d) Subsidies
- assistance given to domestic producers so that
their prices will be lower than imports. eg.
grants., loans

e) Dumping
- Practice of selling large quantities of a product at
a price lower than the production cost or below
what the company would charge in its home
market.

32

Trading Blocs
Comprised of neighboring countries
Promotes free trade among regional members
Creates barriers against G & S to those
outside the bloc
Adv growth of commerce, promotes sharing of
knowledge, increased technology
Disadv . world splits into major camps

33

Major World Marketplaces

Europe

North America

Pacific Asia

34

The North
American
Marketplace and
the Nations of
NAFTA
to eliminate tariffs &
other trade barriers
among member
countries
Figure 42

35

Europe and the Nations of

the European Union
25 countries (the largest free
market place in the world
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
United Kingdom

Figure 43

36

The Nations of
ASEAN founded in
1967 (an orgn for
PES & cultural
cooperation

Figure 44

37

The Major
Trading
Partners
of
US

Table 41

38

International Organizational
Structures
INVOLVEMENT
INVOLVEMENT

HIGH

LOW

Foreign Investment
Strategic Alliances
Branch Offices
Licensing Arrangements
Independent Agents (sales
rep)

39

Chapter Review / discussion

Discuss the rise of international business,
describe the major world marketplaces.
Discuss what factors influence whether a
company should engage in international
business.
Describe key barriers to international trade.

40