International Marketing

Lecture 3

International Business Terminology

The United Nations
uses transnational instead of multinational to describe a firm doing business in more than one country.

Business people
define a transnational as a company formed by a merger of two firms of approximately the same size that are from two different countries
Unilever (Dutch-English) Dunlop-Pirelli (English-Italian)

Definitions
International Business
is a business whose activities are carried out across national borders.
includes international trade and foreign manufacturing also includes a growing service industry in areas such as
transportation, tourism, advertising, construction, retailing, wholesaling, and mass communication.

Definitions
Foreign Business
domestic operations within a foreign country

A Multidomestic Company
has multicountry affiliates, each of which formulates its own business strategy based on perceived market differences.

A Global Company
attempts to standardize and integrate operations worldwide in all functional areas.

International Company
describes both global and multidomestic companies

What Challenges Face Business Leaders and Managers Today?

A changing business environment in terms of:

The external environment (outside your firm) The internal environment (within your firm) Developing skills required for:
establishing and maintaining competitiveness and economic growth strategic thinking - local and global effective leadership and management

Forces in the Environment

Environment
The sum of all forces surrounding and influencing the life and development of the firm. Forces can be classified as External forces Management can exert influence but cannot control Internal forces Management must administer and adapt

External Environmental Forces

Competitive Kind, number, location Distributive For goods and services Economic GNP, labor cost Socioeconomic Characteristics of population Financial Interest rates, inflation, taxes Legal Laws governing business Physical Topography, climate Political Form of government Sociocultural Attitudes, beliefs Labor Skills, attitudes Technological Equipment, skills

Internal Environmental Forces

Factors of production
Capital, raw material, and people

Activities of the organization

Personnel, finance, production, and marketing

Domestic Environment
Composed of all the uncontrollable forces originating in the home country that surrounds and influences the life and

development of the firm

Managers most familiar

May affect foreign operations

Foreign Environment
Operates differently than the domestic environment for the following reasons
Different force values Changes difficult to assess
Particularly political and legal forces

Forces interrelated

International Environment
The International Environment is
the interaction between the domestic environmental forces and the foreign environmental forces. the interaction between the foreign environmental forces of two countries when an affiliate in one country does business with customers in another.
Decision making is more complex

International Business Model

Figure 1.2 here

International business transactions take place across national borders and may involve three environments.

Domestic Foreign International

Globalization (Charles W.L. Hill)

The shift towards a more integrated and interdependent world economy Two components:

The globalization of markets The globalization of production

Does everybody agree?

1-2

Globalization (Adapted From C.W.L. Hill Competing in the Global

Marketplace)

Sales

Manufacturing

Design

Global Drivers
Positive Technology Open Markets Economic Integration Peace Corporate Strategy Global Focus

(C.W.L. Hill International Business: Competing in the Global Marketplace)

Negative Culture

Market Barriers
National Barriers War Corporate Strategy Local Focus

World getting smaller

Increasing speed - knowledge, communication, transport

The Globalization Debate

Supporting
Free trade advances economic development
Reduces poverty, improves education, health and life expectancy

Globalization Concerns
produces uneven results across nations and people
Increases gap between rich and poor

has negative effects on labor and labor standards

Jobs migrate to developing nations

Expanded trade creates more and better jobs

Must manage the costs and transition of workers

contributes to decline in environment and health conditions

Global Company- By Whose Definition?

Have a worldwide presence in its market

Allen-Edmonds produces all shoes in Port Washington, Wisconsin ships to over 33 nations
Standardize operations worldwide in one or more functional areas

P&G has operations in more than 70 countries and sells essentially the same products in over 140 countries
Integrate operations worldwide

Multicultural multinationals respond to local markets, produce products worldwide, exploit knowledge and technology on a global basis

Globalization
Economic Globalization
is the international integration of goods, technology, labor, and capital. refers to the implementation of global strategies which link and coordinate a firms international activities on a worldwide basis. definition continues to broaden to include
political, social, environmental, historical, geographical, and cultural implications

Globalization Forces
There are five major kinds of drivers that are leading international firms to the globalization of their operations. Political Technological Market Cost Competitive

Globalization Forces
Political
There is a trend toward the unification and socialization of the global community. Preferential trading agreements
NAFTA European Union

Globalization Forces
Technological
Advancents in computers and communication technology are permitting an increased flow of ideas and information across borders.
The Internet and network computing enables small companies to compete globally. Business to business commerce is experiencing significant savings by using the Internet for business exchanges.
Web is used to find suppliers Web is used to process purchase orders

Globalization Forces
Market
As companies globalize, they also become global customers. Companies follow customers abroad Saturation of the home market Customer tastes and lifestyles are converging

Globalization Forces
Cost
Economies of scale to reduce unit cost are always a management goal.

Globalizing product lines can reduce development, production, and inventory costs can help achieve economies of scale. Companies can also locate production in countries where production costs are lower.

Globalization Forces
Competitive
Competition continues to increase in intensity.
Newly industrialized and developing countries

Companies are defending their home markets from competitors by entering the competitors home markets to distract them.

Explosive Growth
Foreign Direct Investment
One commonly used measure of growth
Refers to direct investment into equipment, structures, and organizations in a foreign country sufficient to obtain management control

World stock of FDI rose from $519 billion in 1980 to $6.6 trillion in 2001.

Explosive Growth
Exporting
Refers to the transportation of any domestic good or service to a destination outside the home country or region The level of world merchandise exports more than tripled from 1980 to 2002. The level of service exports worldwide more than quadrupled in the same period.

Regional Economic Integration

Agreements among countries in a geographic region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services and factors of production among each other

Levels of Economic Integration

Political Economic Union NAFTA Common Union Free Customs Market Union Trade Area EU 1992

Economic Case for Regional Integration

Stimulates economic growth in countries Countries specialize in those goods and services efficiently produced Additional gains from free trade beyond international agreements such as GATT and WTO

Political Case for Economic Integration

Economic interdependence creates incentives for political cooperation and reduces potential for violent confrontation. Together, the countries have the economic clout to enhance trade with other countries or trading blocs.

Impediments to Regional Integration

Groups within countries may be hurt Potential loss of sovereignty and control over domestic issues Debate:
Integration is trade creation? Integration is trade diversion?

The Foreign Exchange Market

Foreign Exchange
A commodity that consists of currencies issued by countries other than ones own

The Foreign Exchange Market: a market for converting the currency of one country into the currency of another country An Exchange Rate: is the rate at which one currency is converted into another

Currency Convertibility
Freely convertible Externally convertible Not convertible

Preserve foreign exchange reserves

Service international debt Purchase imports Political decision Many countries have some kind of restrictions Counter-trade

Number of International Companies

In 2002, the United Nations estimated there were over 63,800 companies with a total of over 866,000 foreign affiliates accounting for two-thirds of world trade. Foreign affiliates sales were $17.7 trillion in 2002. Growth due in part to liberalization of government policies toward foreign investment

Top Five Global Companies*

Europe
BP Royal Dutch/Shell Group Daimler Chrysler Total Allianz

Asia
Toyota Motor Nippon Telegraph and Telephone Hitachi Honda Motor Sony

*According to Fortune 500