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Fourth Edition ESSENTIALS BUSINESS Ronald J. Ebert & Ricky W. Griffin Copyright ©2003 Prentice Hall, Inc. PART 1 . . . . . . . . . . . . . . . . . . . . . . . . Understanding the Contemporary Business Environment

Chapter 2:

Chapter 2 The Global Context of Business

Exercise :

Exercise Give me stories of different products and marketing approaches in other countries, and compare them in Palestine?. What evidence have we seen in the last ten years of growing international business partnership?. Trade agreements- global mergers- joint ventures- licensing.

“We are in the midst of a great transition from narrow nationalism to international partnership.” ~ Lyndon Baines Johnson:

“ We are in the midst of a great transition from narrow nationalism to international partnership. ” ~ Lyndon Baines Johnson

Key Topics :

Key Topics The rise of global business Major world marketplaces and Palestine trading partners Influences on international business International business management The impact of differences among nations

The key drivers to globalization:

The key drivers to globalization Drivers: Global market Convergence Global Competition Government Influence Cost Advantages Global Strategies Similar customer needs, Global customers, Transferable marketing Trade policies, Technical Standards, host government, policies Scale economies, Sourcing efficiencies Countries costs, High product development costs Interdependence, Competitors global High exports/imports,

Globalization Is Gaining Speed:

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

Globalization Is Gaining Speed:

Globalization Is Gaining Speed Example: Asian financial markets in the late 90s directly affects stock markets worldwide. Discussion: what product from other countries do you use\consume? Why have you chosen it? Why not Palestinian product?

Categorizing Economies :

Categorizing Economies High Income Countries: Per capita income greater than $9,386 Middle Income Countries: Per capita income between $7,65 and $9,386 Low Income Countries: Per capita income of less than $7,65 Discussion: what countries fall into each category?

Major World Marketplaces :

North America NAFTA Europe EU Pacific Asia Do we have any economic agreement with other countries. What are they? Major World Marketplaces

The North American Marketplace (NAFTA):

The North American Marketplace (NAFTA) Canada United States Mexico Copyright ©2003 Prentice Hall, Inc. 2 - 11

Europe and the Nations of the European Union:

Europe and the Nations of the European Union Copyright ©2003 Prentice Hall, Inc. 2 - 12 Austria Belgium Denmark Finland France Germany Greece Ireland Italy Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom

The Nations of ASEAN:

The Nations of ASEAN Brunei Indonesia Malaysia Philippines Singapore Thailand Vietnam Copyright ©2003 Prentice Hall, Inc. 2 - 13

Pacific Asia Represents Enormous Business Potential:

Pacific Asia Represents Enormous Business Potential In less than a decade, Asian language speakers on the web will far exceed English speakers Source: Time Global Business, Nov. 2001 English Japanese Chinese Korean 0 50 100 150 200 250 300 350 400 450 500 415 96 432 34 Projections for 2010 (in millions) 2 - 14

Forms of Competitive Advantage:

Forms of Competitive Advantage Absolute Advantage, Comparative Advantage, Competitive Advantage, National Competitive Advantage. Absolute Advantage when one country can produce a product cheaper and\or higher quality than any other country. Ex. OPEC Comparative Advantage : when one country can produce certain goods or services more efficiently and effectively than others. Ex. US software

Competitive advantages:

Competitive advantages When competitive advantage is materialized? When a firm earns persistently higher rate of profit over its rivals. Determinants of profit level Value of company products in customers’ eyes. Company production cost.

Competitive advantage:

Competitive advantage It can be created in certain industrial field, through the adoption of low-cost-differentiation strategy. . M. Porter

National Competitive Advantage:

National Competitive Advantage Factor conditions Demand conditions Related and supporting industries Strategies, structures, and rivalries Qui. Evaluate Palestine?

Import/Export Balances:

Import/Export Balances Balance of Trade Economic value of all products country imports minus the economic value of all products it exports Trade Deficits: Situation in which country's exceed it’s exports, creating a negative balance of trade . Trade Surpluses: Situation in which country's exceed it’s imports, creating a positive balance of trade. Balance of Payments The total flow of money into or out of an economy.

Exchange Rates Heavily Impact Global Trade:

Exchange Rates Heavily Impact Global Trade When an economy’s 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. Implications for balance of trade?

Exchange Rates Heavily Impact Global Trade:

Exchange Rates Heavily Impact Global Trade When an economy’s 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. Implications for balance of trade?

The U.S. Economy Has a Growing Trade Deficit:

The U.S. Economy Has a Growing Trade Deficit Copyright ©2003 Prentice Hall, Inc. 2 - 22 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 $400,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 U.S. Trade Deficit (in billions) 78,857 28,266 35,666 68,949 97,039 95,947 102,113 105,932 166,898 255,971 344,716 0 200 400 600 800 1000 1200 1400 1600 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Imports Exports U.S. Imports & Exports (in billions)

Does It Make Sense to Go International?:

Does It Make Sense to Go International? Copyright ©2003 Prentice Hall, Inc. 2 - 23 YES Is there international demand for the firm’s product? NO Stay Domestic Can the product be modified to fit a foreign market? NO YES Is the foreign business climate suited to imports? NO Does the firm have or can it get the necessary skills and knowledge to do business abroad? YES NO YES Go International

Levels of International Involvement:

Levels of International Involvement Importer & Exporter International Firms: Firm that conducts a significant portion of it’s business in foreign countries. Their main concern domestic market but they have international operations. Multinational Firms: Firm that designs, produces and markets products in many nations. They do not have domestic markets but produce for many nations. They do not have headquarter.

International Organizational Structures:

International Organizational Structures Foreign Investment. Arrangement in which firms buys or establishes tangible assets on other country. Strategic Alliances (or joint venture) . Arrangement in which company finds a foreign partner to contribute approximately half of the resources needed to establish and operate anew business in the partners country. Branch Offices. (Franchise) Foreign office set up on international or multinational firm. Licensing Arrangements. Arrangement in which firms choose foreign individuals or organizations to manufacture or market their products in other country . Independent Agents. Foreign individual or organization that agrees to represent an exporter’s. INVOLVEMENT HIGH LOW

Discussion:

Discussion Select a product they would like to market to Golf and to choose whether to export, license, franchise, establish a joint venture, or build a production facility in Golf. Have each group write a list of questions they would want answered before beginning business, and compare the lists.

Barriers to International Trade:

Barriers to International Trade Social & Cultural Differences Economic Differences Legal & Political Differences

Take Time to Learn the Culture Thoroughly!:

Take Time to Learn the Culture Thoroughly! Este es nuestro nuevo auto: el NOVA! Ha, ha, ha, ha, ha, ha!!!

Cultural, and social differences:

Cultural, and social differences include language, social values, and traditional buying patterns. Whether differences are obvious or subtle, ignorance of them can be embarrassing and expensive. The classic example: General Motors introduced the Chevy Nova in Spanish speaking countries—where “no va” means “doesn’t go.” The original translation of the Intel Pentium IV computer chip in Korean was “chip of death.” (!!!) Discussion : identify other examples from your personal experience.

The Customer’s Language A Critical Business Success Factor:

The Customer’s 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 world’s 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

Economic Differences:

Economic Differences To operate effectively in another country, businesses must know when, and to what extent, the government is involved in a given industry.

Legal & Political Differences:

Legal & Political Differences Quotas, Tariffs, & Subsidies Protectionism Local Content Laws Business Practice Laws Day to day operations Cartels: association of producers whose purpose is to control supply and price. Dumping: selling the product abroad with less price than its production cost.

Definitions :

Definitions Quota: restriction on the number of certain type of product that can be imported into a country. Embargo: complete ban on imports and exports, imposed by a government for political reasons. Tariff: tax levied on imported products. Subsidy: government payments to help a domestic business compete with foreign firms. Protectionism: the practice of protecting domestic business against foreign competition.

Chapter Review:

Chapter Review Discuss the rise of international business, describe the major world marketplaces. Explain how competitive advantage, import-export balances, exchange rates, and foreign competition shape international business strategies.

Chapter Review:

Chapter Review Discuss what factors influence whether a company should engage in international business. Identify different levels of international involvement and international organizational structure. Describe key barriers to international trade.

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