International Business
Class 1
16.09.2014
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Almira Yusupova
(Юсупова Альмира Талгатовна)
IEIE SB RAS, NSU
Courses: Industrial Economics,
Contemporary Industrial Markets,
Economic Nature of Leasing, International
Business;
• Research interests: - leasing, industrial
markets in Russia, innovative
entrepreneurship
• [email protected]
Course format
• - classes on Tuesdays;
• - all materials in “Econom” system;
• - written exam at the end;
weak
Influence
strong
Assignment: Think about the consequences of the world scale
events (financial crisis) to a particular firm
high
low
Probability
Class 1– Globalization
• Globalization and growing integration –
tendencies of contemporary economic
development
• Prime examples - Coca-Cola, McDonald’s
Kentucky Fried Chicken (KFC).
• Coca-Cola soft drink is enjoyed across
the world in 250 countries.
• Global – 1) referring to the
territory of the whole globe, worldwide;
• 2) whole, universal, including all aspects;
Globalization definitions
• “The shift toward a more integrated and
interdependent world economy”
• “The increasing integration between the
markets for goods, services and capital
and at the same time the breakdown of
borders”
• “A process of increasing connectivity,
where ideas, capital, goods, services and
people are transferred across country
borders”
Multinational and Global
Corporation
• Multinational Corporation “operates in a
number of countries, and adjusts its
products and practices in each – at high
relative cost” (transnational, international)
• Global Corporation “operates at low
relative cost – as if the entire world (or
major regions of it) were a single entity; it
sells the same things in the same way
everywhere”
Globalization
2 aspects:
• Globalization of markets;
• Globalization of production;
Globalization of markets
• “merging of historically distinct and
separate national markets into one huge
global marketplace”
Globalization of markets
• Till the middle of the XX-th century – many
separated national markets;
• 1983 – Т. Lewitt «Globalization of markets»
• Globalization of markets– one homogeneous
global market;
• Global firm is oriented to the global market, to
the production of products which meet general
common standards.
• Economy of scale determinates globalization
advantages;
• Coca-Cola, MTV, Gucci, MacDonald's …
Opposite tendencies
• National economic differences
• First level – differences in utilization of
products (automobiles)
• Markets of consumer goods keep special
features;
Globalization of production
• Different stages are located in different
countries;
• Production – developing countries;
• R&D – countries with high qualified labor;
• Assembling – transportation convenience;
• Considered aspects: costs of production factors,
infrastructure, state regulation etc.
Global product
• Difficult to match product with particular
country
• Boing 777 – 132500 parts, produced by
545 suppliers; 8 from Japan (fuselage,
doors and parts of wings), one from
Singapore, 3 Italian etc.
Foundations of globalization
• International trade– export of goods and
services to other countries
• Foreign direct investments FDI– investing
outside the home country
• Requirement - low barriers
Globalization drivers – barriers
decreasing
• Decreasing of barriers to trade and
investments after depression and World
War, need in free flows of goods, services
and capital; Result – 1947 GATT (General
Agreement on Tariffs and Trade),
interactive negotiations, now more than
146 members;
• Next step - 1995 WTO (World Trade
Organization)
Drivers of Globalization - Technologies
• Innovations of the XX century;
• Communications instruments;
• Increasing productivity and decreasing
costs;
• Integration of activities and capital;
• New possibilities of transportation (people
and commodities);
Drivers of Globalization– «Economic
Demography»
• US dominance in international trade;
• US dominance in international
investments;
• Dominance of the US multinational
corporations;
• Countries with planning economy were
outside international business;
Drivers of Globalization– Political
Changes
• Democratization in Eastern Europe;
• Creation of CIS (Commonwealth of
Independent States);
• Movement to more open economy in
China;
• Favorable environment for globalization;
• Number of regional trade agreements;
Changes in International Trade, shares of
countries, %
Country
World
output1963
World output
2004
World export
2004
USA
40,3
20,9
10,4
Germany
9,7
4,3
9,5
France
6,3
3,1
4,8
Great Britain
6,5
3,1
4,7
Japan
5,5
6,9
5,7
Italy
3,4
2,9
3,8
Canada
3,0
3,5
3,4
China
-
13,2
5,9
Ambiguousness of Globalization
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Anti globalists protests;
Environment;
National sovereignty ;
Globalization and less developed
countries;
• …..other negative effects;
Assignment – combine countries
according their relations
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Belgium
Cyprus
Denmark
Finland
France
Germany
Greece
Japan
Turkey
Country in International Trade
• Export – import, GDP share obtained due
to international trade;
• Balance of Payments – efforts of individual
firms influence the position of the country;
• Internationalization of individual
organization (actor);
Internationalization Theories
• Incremental theory – school Uppsala
• Incremental Scandinavian model of
gradual assimilation of successful foreign
markets;
• Important aspect – commitments
• 2 crucial factors – international activities
experience and territorial neighborhood;
Internationalization Theories –
Incremental Growth
• The first step – countries close in culture
or territory (Germany - Austria)
• Simple strategy, minimal risk – agents and
distributors;
• Next stage – more remote markets,
complex strategies;
Stages of Internationalization
• Stage 1 Domestic market
• – limited sales
• Stage 2 Before export
• – collection of information and evaluation of exporting
perspectives;
• Stage 3 Experimental trials
• – limited export to close countries
• Stage 4 Active assimilation
• – increasing number of countries, direct increasing
export;
• Stage 5 Commitments
• Involving in decision making, distribution of resources
between internal and external markets;
Other approaches
• Popular model;
• 1980-е critics, fast changes – no time for
incremental growth;
• European Union – all countries
• This model doesn’t work for services;
Transactional Costs Approach
• Real markets – transactional costs
Transactional
costs
Ex ante
information
Contracting
Ex Post
Monitoring
Enforcement
Transactional Costs Approach
• Choice is made basing on the criteria if
transactional costs minimization;
• Real decisions not always are based on rational
choice;
• Internal transactional costs also exist;
• Effective cooperation;
Strategies of External Economic Activities
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International strategy
«Multi subsidiaries» strategy
Global strategy
Transnational strategy
International Strategy
• Innovation transfer to other countries;
• Products created inside the country are
transferred to other markets;
• Strong control of R&D, production, technology
and marketing;
• Product development – internal function;
• Manufacturing, assembling, marketing – other
countries;
• Examples– Proctor & Gamble, Wall – Mart,
Microsoft, IBM, Kellogg, McDonald’s, IKEA
International Strategy
• Local market actors don’t have key
competences of the firm;
• No requirements and commitments concerning
local authorities;
• Relatively low costs;
• Complexity of organization;
«Multi Subsidiaries» Strategy
• Main feature – concentration on local conditions;
• Development and adaptation of product for the
environment of each country;
• Doubling of activities in different countries;
• High autonomy of subsidiaries
• Top level of management – only financial strategy;
• High level of adaptivety for each country;
• Consideration of each country’s features,
competitiveness comparing with local producers;
• Local situation consideration;
Global Strategy
• Costs decreasing basing on scale economy
• Standard product, high level of centralization
• Less attention to local conditions - Intel,
Motorola
• High bureaucratic costs
• Large volume of in house flows;
• Macroeconomic risk;
Transnational Strategy
• Combination of all other strategies;
• Flow of goods and competencies in all
directions;
• Firm tends to:
 Decrease costs;
 Consider local conditions;
 Use advantages of globalization;
• Complexity;
Strategy Choice
• International: creation of value by transfer of
skills to local markets;
• Multi subsidiary – consideration of local
conditions;
• Global– growth of profit due to costs reduction,
learning and location effects;
• Transnational – all sources of economy and
local features;
Strategy
Advantages
Disadvantages
Global
Experience
Location
Ignorance of local
conditions
International
Transfer of key
competencies
Weak consideration
of local conditions,
advantages of
location, learning
experience
Multi subsidiary
Consideration of local
conditions
Weak consideration
of, advantages of
location, learning
experience, key
competencies
Transnational
Advantages of all other
strategies.
cooperation
Complexity
Assignment – group discussion
• 1. The study of international business is fine if
you are going to work within a large multinational or global organisation. However it has
no relevance for individuals who are going to
work in small firms.
• 2. China could obtain leading positions in work
economy up to 2050. What would be the
consequences concerning trade system,
monetary system, leading corporations.
Home Assignment
• Class 1 material;
• Case IKEA – The Global Retailer