International Business

Instructor: Tural Mammadov

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Course requirements

Learning experiences needed in this course are as follows:

• Analytcal skills• Multicultural and diversity understanding• Understanding of ethical and legal responsibilities in

organizations and societies• Understanding of domestic and global economic environments

for organizations

• Main mandatory textbook is: “Hill, Charles W.L., International Business 6th (7th, 8th) Edition, Irwin-McGraw-Charles W.L. Hill.„

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Course goals and objetcives

• Upon completing this course, you should be able to:

Analyze the effects that different social, cultural, economic, political, legal and technological environments have on business practices throughout the world;

Be familiar with the impact that international institutions and regional economic integration initiatives have on firms operating internationally;

Enhance your decision – making and problem-solving skills within an international business context;

Demonstrate an understanding of the ethical and social responsibilites of companies within a global context, etc.

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Course content

•Introduction •Globalization•National differences in Political economy•National differences in culture and ethics in International Business•International Trade Theory•Political economy of International Trade•Foreign direct investments•Regional Economic Integration•Foreign Exchange Market•Review classes and exams

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Instruction and evaluation methods

• Instruction methods:LecturesCase analysesQuizzesClass discussions

• Evaluation methods and percentage:10% - class participation (video and case discussions) + attendance25% - midterm exam 5% - case analysis 20% - Quizzes40% - final exam

chapter

Globalization

1

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Chapter Topics

•Definition of Globalization•Emergence of Global Institutions•Drivers of Globalization•Changing Demographics of the Global Economy•Globalization Debate

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What Characterizes the World Economy Today?

• A shift away from self-contained national economies with high barriers to cross-border trade and investment

• A move toward a more integrated global economic system with lower barriers to trade and investment

• The establishment of global institutions

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What is Globalization?

Hill’s Definition:

The shift towards a more integrated and interdependent world economy

Are there other definitions? Modern view about Globalization (video)

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Are There Other Definitions of Globalization?

As we discuss this chapter and other chapters in the textbook, keep in mind that:

• Hill’s definition of globalization focuses on economic processes

• Scholars from other disciplines may define globalization from other perspectives, such as political, cultural, or ideological

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Globalization of Markets

• Historically distinct and separate national markets are merging into a global marketplace in which the tastes and preferences of consumers in different nations are beginning to converge upon some global norm

Examples:

Sony Playstation

Coca-Cola McDonald's hamburgers

• However…significant differences do exist among countries!

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Globalization of Production

Tendency among firms to source goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production (e.g., land, labor, capital, and energy), allowing them to compete more effectively against their rivals.

Examples:

Boeing Apple Nike

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Emergence of Global Institutions

Global institutions:

• Help manage, regulate, and police the global market place

• Promote the establishment of multinational treaties to govern the global business system

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Global Institutions

•World Trade Organization (WTO): responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties

- In 2008, 151 nations accounting for 97% of world trade were members of the WTO

• International Monetary Fund (IMF): maintains order in the international monetary system

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Global Institutions

• World Bank: promotes economic development

• United Nations (UN): maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations

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Drivers of Globalization

Two macro factors underlie the trend toward greater globalization:

• Declining trade and investment barriers

• Role of technological change

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Declining Trade and Investment Barriers

• After WWII, the industrialized countries of the West began the process of removing barriers to the free flow of goods, services, and capital between nations

• Under GATT (the precursor to WTO), over 100 nations have negotiated further decreases in tariffs and made significant progress on a number of non-tariff issues

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Declining Trade and Investment Barriers

• Removal of barriers to trade has contributed to increased

- international trade- foreign direct investment (FDI)

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Role of Technological Change

• Microprocessors and Telecommunications - Major advances have lowered the cost of global communication

and therefore the cost of coordinating and controlling a global organization

•Internet and the World Wide Web - Online shopping and social networks

• Transportation Technology - Development of commercial jet aircraft and super freighters- Introduction of containerization

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Implications of Globalization for Business

•Improvements in transportation technology have enabled firms to better respond to international customer demands

•Managers today operate in an environment that offers more opportunities, but is also more complex and competitive than that of a generation ago

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Changing Picture of Global Economy

In the 1960s:

• U.S. dominated the world economy and the world trade picture • U.S. multinationals dominated the international business scene • About half the world-- the centrally planned economies of the communist world-- was off limits to Western international business

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Changing World Output andWorld Trade Picture

• Forecasts predict a rapid rise in the share of world output accounted for by developing nations such as China, India, Indonesia, Thailand, and South Korea, and…

• A decline in the share by industrialized countries such as Britain, Japan, and the United States, thus…

• Companies from industrialized countries are finding new markets but also new competitors in the developing regions of the world

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Changing Nature ofMultinational Enterprises

• Rise of non-U.S. multinational enterprises (MNEs) - Growth of new multinational enterprises from the world's

developing nations- Examples: Samsung of Korea;

• Increase in the number of mini-multinationals (small and medium-sized companies)

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Globalization Debate

Is the shift toward a more integrated and interdependent global economy a good thing?

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Jobs and Incomes

• Critics of globalization worry that jobs are being lost to low-wage nations • Supporters of globalization argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently – specialization brings high paid jobs

• Supporters also argue about new job openings by investing companies

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Labor Policies and the Environment

• Critics of globalization argue that that free trade encourages firms from advanced nations to move manufacturing facilities offshore to less developed countries with lax environmental and labor regulations

• Supporters of globalization point out that tougher environmental regulation and stricter labor standards go hand in hand with economic progress and that foreign investment often helps a country to raise its standards

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National Sovereignty

• Critics: of globalization worry that economic power is shifting away from national governments and toward global institutions such as the World Trade Organization (WTO), the European Union (EU), and the United Nations• FDI creates dependence on country of origin…

•Supporters of globalization maintain that the power of global institutions is limited to what countries collectively agree to grant

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World’s Poor

• Critics of globalization argue that the gap between rich and poor has gotten wider and that the benefits of globalization have not been shared equally

• Supporters of globalization suggest that the actions of governments have made limited economic improvement in many countries. Globalization will stimulate that stopped improvement

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Managing anInternational Business

Managing an international business (any firm that engages in international trade or investment) is different from managing a domestic business because:

- Countries and cultures differ - Managers face a greater and more complex range of

problems- International companies must work within the limits

imposed by governments and the global trading system- International transactions require converting funds and

being susceptible to exchange rate changes