Globalization and International Business 2

Transcription

1 IM 535 International Operations Management 1 Globalization and International Business 2 Prof. Aziz Ezzat ElSayed, Ph.D. Professor of Industrial Engineering College of Engineering and Technology Arab Academy for Science and Technology Abu-Kir Campus, Alexandria, Egypt Main reference: International Business: Environment and Operations, John Daniels, Lee Radebaugh, and Daniel Sullivan (15th Ed), 2015 Pearson Higher Education Lecture handout site: Forces Driving Globalization 1. Increase in and application of technology. 2. Liberalization of cross-border trade and resource movements. 3. Development of services that support international business. 4. Growth of consumer pressures. 5. Increased global competition. 6. Changing political situations and government policies. 7. Expanded cross-national cooperation

2 Why Companies Engage in IB? 1. To expand sales pursuing international sales increases the potential market and potential profits 2. To acquire resources may give companies lower costs, new and better products, and additional operating knowledge 3. To diversify or reduce risks international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage 1-3 Modes of Operations in IB 1. Merchandise exports and imports goods that are sent out of a country goods that are brought into a country Sometimes referred to as visible exports and imports 1-4 2

3 Modes of Operations in IB 2. Service Exports and Imports Exporter: provider and receiver of payment Importer: recipient and payer of payment Examples a) Tourism and transportation b) Turnkey operations (construction projects) c) Management contracts (personnel that perform general or specialized management functions). d) Asset use (allowing use trademarks, patents, copyrights, or expertise in exchange for royalties). e.g. Licensing and Franchising 1-5 Modes of Operations in IB 3. Foreign Direct Investment (FDI) A controlling investment made by an entity based in one country, into an entity based in another country. Examples: Toyota in USA American Companies in China Canadian Companies investing in mineral deposits in Chile. 4. Portfolio Investment a non-controlling financial interest in another entity (investing in equities listed on a nation s stock exchange). In FDI the foreign investor must own 10% of the voting stock or ordinary shares of the investee company

4 Modes of Operations in IB 5. Collaborative arrangements Joint ventures مشاريع مشتركة Licensing arrangements Management contracts Minority ownership Long-term contractual arrangements 6. Strategic alliance companies that work together, but the agreement is critical to at least one partner an agreement that does not involve joint ownership 1-7 Types of International Organizations Multinational enterprises (MNEs) Any company with foreign direct investments. Sometimes they are referred to as Multinational Corporations (MNCs) Multinational Companies (MNCs) Transnational Companies (TNCs) 1-8 4

5 Multi-National Enterprises MNE s Top 10 World Companies 2016 Rank Company Revenues ($ millions) 1 Wal-Mart Stores 482,130 2 State Grid 329,601 3 China National Petroleum 292,271 4 Sinopec Group 294,344 5 Royal Dutch Shell 272,156 6 Exxon Mobil 246,204 7 Volkswagen 236,600 8 Toyota Motor 236,592 9 Apple 233, BP 225,98 ( ) 1-9 Cost / Benefit of Globalization (Pros & Cons) Supporters believe that increased trade and cross-border investment mean Lower prices for goods and services Greater economic growth Higher consumer income, and more jobs Critics worry that globalization will cause Job losses Environmental degradation Cultural imperialism of global media and MNEs Increasing Income Inequality (Rich-Poor Gap) Threats to National independence (Sovereignty)

6 Terminology : Off shoring The practice of outsourcing operations overseas, usually by companies from developed countries to less-developed countries, with the intention of reducing the cost of doing business because of : 1. lower labor costs, 2. more relaxed environmental regulations, 3. less strict labor regulations, 4. favourable tax conditions, and 5. proximity to raw materials. Source: Why IB is Different The external environment affects a company s international operations IB Managers must understand external influences from other disciplines and how they affect functional business fields like: Physical and social factors competitive factors

7 External Influences External Influences Physical and Social Factors Competitive Environment 1-13 Physical and Social Factors Geographic influences natural conditions influence business locations Cultural factors may require adaptation in to local conditions Political policies countries determine where and how business occurs within their borders Legal policies influence how a company operates Economic forces Differences in costs, currency values, market size

8 The Competitive Environment Competitive strategy for products Cost strategy Differentiation strategy Focus strategy Company resources and experience market leaders have more resources for international operations Competitors faced in each market local or international