THE INTERNATIONAL BUSINESS IMPERATIVE

1-1 John Wiley & Sons

CHAPTER 1

THE INTERNATIONAL BUSINESS IMPERATIVE

Chapter Objectives

• To understand the history and impact of international business • To learn the definition of international business • To recognize the growth of global linkages today • To understand the U.S. position in world trade and the impact international business has on the United States • To appreciate the opportunities and challenges offered by international business • To identify the relationship between the text’s structure and the theoretical, political, and strategic aspects of international business

General Suggestions for Teaching

We find it very useful to highlight for students how intertwined nations and their economies have become. This clearly establishes in their minds that international business is a necessary activity and an activity which improves the lives of individuals and welfare of nations. It is also an activity which can lead to increased interdependence and therefore threats. This basic message should be immediately counterbalanced with a strong focus on the new international opportunities and challenges which are provided to firms and individuals. It is also important to communicate to students the dramatic impact the international environment can have on firms, and let them draw the conclusion that in today's time it is truly imperative to become international in one's outlook.

Opening Case New Challenges for International Business Managers

Summary:

The recent financial crisis and economic recession raise questions about the long-term viability of globalization of business and its shape in the future. International managers are called upon to understand and handle a changing array of opportunities and challenges in the second decade of the twenty-first century. In newly linked societies, governments and businesses will be increasingly interconnected. These growing challenges highlight the importance of the study of international business.

Teaching Hint:

To create a dialogue about the challenges of international business, ask students to provide examples of unique threats and opportunities that managers of a global business have recently faced in dealing with the economic recession.

(International Business 8e Michael Czinkota, Iikka Ronkainen, Michael Moffett) (Solution Manual all Chapters) 1 / 4

1-2 John Wiley & Sons

Chapter Outline

• The Need for International Business
• Successful participation in international business improves quality of life

for society and leads to a more peaceful world

• Students are likely to be involved in international business in their careers
• International business offers companies more new markets
• International business causes the flow of ideas, services, and capital across

the world

• International business offers consumers higher quality products, more

choices, and reduced prices through international competition II. A Definition of International Business

• International business consists of transactions that are devised and carried

out across national borders to satisfy the objectives of individuals, companies, and organizations

• Types of Transactions
• Export-import trade
• Direct foreign investment
• Licensing
• Franchising
• Management contracts
• Satisfaction of all participants
• International business is as much an art as a science

III. A Brief History

• Roman Empire
• Pax Romana – Roman peace guaranteed peaceful travel
• Common coinage simplified business transactions
• Centralized law
• Effective communications
• International business played a role in the decline of Rome as

well

• Han Empire
• While Rome flourished, the Han empire in China provided a

similar stability for nearly four centuries

• Under the Han empire, trade expanded with the development of a

system of trade routes to Central Asia that became known as the Silk Road

• Trade between the Roman and Chinese empires was not direct

and occurred through many intermediaries in India, Arabia, and central Asia

• British Empire
• Efficient transportation 2 / 4

1-3 John Wiley & Sons

• Intensive trade
• Insistence on open markets
• United States
• Pax-Americana – An American peace from 1945 to 1990 that led

to increased international business transactions

• Smoot-Hawley Act raised taxes to reduce volume of imports and

restore domestic employment

• Resulted in a trade war
• Worldwide depression and collapse of world financial

system

• Growth in the volume of world merchandise trade and GDP, 1998-2008

(Figure 1.1, page 8)

• Multinational Corporations – companies that invest in countries around

the globe

• World’s top 25 nonfinancial transnational corporations (TNCs), 2006

(Table 1.1 on page 9)

• Top 25 nonfinancial TNCs from developing countries, 2006 (Table 1.2 on

page 10) IV. Global Links Today

• The following changes have affected the international financial position of

countries and the ownership of economic activities:

• Communication has built new international bridges
• Global reorientation in production strategies
• Service firm participation in the international marketplace
• Recognizing the effects of globalization on the environment
• Foreign direct investment has increased
• Technology is increasing the rate of changes in international business
• The composition of trade is changing
• U.S. manufacturing output and employment, 1979-2007 (Figure

1.3)

• Share of global manufacturing output (Figure 1.4)

CULTURE

Make that a Caffé Latte Please

Summary:

Over the past three decades, perhaps one of the greatest transformations in daily life has been the global proliferation of chain restaurants and the food choices available to consumers worldwide. International business has brought diversity of choice, quality food, clean environments, and fast, efficient service to locations around the world.However, some criticize restaurant franchises for spreading industrialized food processes and junk food to other parts of the world.

• / 4

1-4 John Wiley & Sons

Teaching Hint:

Groups can be formed to discuss students own personal experiences with food service

during travels. Areas to explore may include the following:

• How does the fast-food experience compare locally versus abroad?
• How might independent restaurateurs in developing countries be affected by the

increased popularity of franchised chains? Discuss threats and opportunities.

• The Current U.S. International Trade Position
• Gained in prominence as a market
• Lost some importance as supplier
• U.S. market share has declined
• Exports have continued to grow
• The Impact of International Business on the United States
• U.S. international business outflows are important on the

macroeconomic level to balance the trade account

• On the microeconomic level, participation in international

business can help firms achieve economies of scale and hone their competitive skills

• Globalization is the increased mobility, services, labor,

technology, and capital throughout the world

VI. The Structure of this Book

• This book is intended to enable readers to become better, more successful

participants in the global business place.

• This book addresses the international concerns of beginning

internationalists and multinational corporations

C. Topics include:

• International trade and investment
• Culture and politics
• International business strategy
• Operational issues surrounding international business

ETHICS

Students Against Sweatshops

Summary:

In 1997, students at Georgetown, Harvard, Duke, and Holy Cross universities began to look at the labels of logo merchandise in their campus bookstores to get an idea of where the clothing was made. They soon learned that oversees workers making the apparel endured long hours, deplorable working conditions, and low and unequal pay. The students at these institutions formed the Workers Rights Consortium (WRC) to ensure that factories where school apparel was made adopted basic labor standards and fair pay.Students used tactics such as petitions, faculty and student government resolutions, and

• / 4