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Chapter 1 Introduction to Business Environment


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Title: Chapter 1 Introduction to Business Environment

Chapter 1 Introduction to Business Environment
Origin of Business
  • Searching for natural resources
  • Searching for human resources
  • Declining of domestic demand of the products
  • Reducing costs of production
  • Standardizing of the products

Business Activities
  • Exporting and Importing
  • Domestic International Investments
  • Licensing, Franchising, and Management Contracts

Exporting and Importing
  • Exporting selling of products made in ones own
    country for use or resale in other countries
  • Importing buying of products made in other
    countries for use or resale in ones own country

Visible and Invisible Trade
  • Trade in Goods
  • Merchandise exports and imports
  • Visible trade
  • Trade in Services
  • Service exports and imports
  • Invisible trade

Business Investments
  • Capital supplied by residents of one country to
    residents of another
  • 2 categories
  • Foreign direct investments
  • Portfolio investments

Other Forms of Business Activity
  • Licensing firm in one country licenses the use
    of its intellectual property to a firm in a
    second country in return for a royalty payment
  • Franchising firm in one country authorizes a
    firm in another country to utilize its operating
    system and intellectual property

Management Contracts
  • A firm in one country agrees to operate
    facilities or provide other management services
    to a firm in another country for an agreed-upon
  • Common in upper-end international hotel industry

Variations of Organizations
  • Multinational Corporation (MNC)
  • Multinational Enterprise (MNE)
  • Multinational Organization (MNO)

Multinational Corporations (MNCs)
  • Engage in foreign direct investment
  • Own and control foreign assets
  • Buy resources in multiple countries
  • Create goods and services in multiple countries
  • Sell goods and services in multiple countries

Table 1.1 The Worlds Largest Corporations 2007
Rank Name Country Revenues Mil
1 Wal-Mart Stores U.S. 351,139.0
2 Exxon Mobil U.S. 347,254.0
3 Royal Dutch/Shell Netherlands 318,845.0
4 BP Britain 274,316.0
5 General Motors U.S. 207,349.0
6 Toyota Motor Japan 204,746.4
7 Chevron U.S. 200,567.0
8 DaimlerChrysler Germany 190,191.4
9 ConocoPhillips U.S. 172,451.0
10 Total France 168,356.7
Case Wal-marts global expansion
  • Largest retailer in the world Over 4500 stores
  • International expansion in 1991begins with Mexico
    in response to market saturation in the US
  • Localization strategy adopted after trial and
  • Global buying power has allowed it to reap
    economies of scale
  • Wal-mart faces significant competition from other
    global retailers, but has the first mover
    advantage in some markets

What is globalization?
  • The shift towards a more integrated and
    interdependent world economy
  • Two components
  • The globalization of markets
  • The globalization of production

Motives for Globalization
  • To leverage core competencies
  • To acquire resources and supplies
  • To seek new markets
  • To better compete with rivals

Globalization of markets
  • The merging of distinctly separate national
    markets into a global marketplace
  • Tastes and preferences converge onto a global
  • Firms offer standardized products worldwide
    creating a world market

Globalization of markets
  • Significant differences still exist between
    national markets on many relevant dimensions
  • These differences require that marketing and
    operating strategies and product features be
    customized to best match conditions in a country.

Globalization of markets
  • Countries are different
  • Range of problems are wider and more complex
  • Government intervention in trade and investment
    creates problems
  • International investment is impacted by different

Globalization of production
  • Refers to sourcing of goods and services from
    locations around the world to take advantage of
  • Differences in cost or quality of the factors of
  • Labor
  • Land
  • Capital

Global drivers
  • Macro factors that underlie trend towards greater
  • Decline in trade barriers
  • Technological change

Pattern of declining tariffs
Globalization debate-Pro
  • Lower prices for goods and services
  • Economic growth stimulation
  • Increase in consumer income
  • Creates jobs
  • Countries specialize in production of goods and
    services that are produced most efficiently

Globalization debate-Con
  • Destroys manufacturing jobs in wealthy, advanced
  • Wage rates of unskilled workers in advanced
    countries declines
  • Companies move to countries with fewer labor and
    environment regulations
  • Loss of sovereignty