O Free trade allows each country use its competetive advantage (low cost);

o Global markets present greater opportunities for countries to have access to more funds, know-how, cheaper imports, and larger export markets;

o Competition keeps prices relatively low, and as a result, inflation is less likely to occur

o Large frms in a globalized economy have subsidiaries in many countries and compete in global markets rather than in segmented national markets;

o Small and medium enterprises are increasingly taking into account the global opportunities and constraints of their investment decisions. Like China invested in Ukrainian aqua park “Jungles”;

o Socially we have become more open and tolerant towards each other and they who live in the other part of the world are not aliens as we always thought. There are examples like now Indian girls work in call centers and work nights, which was a taboo even two years back. We are celebrating Valentine’s Day, scraping on Orkut, watching the Idol series, Fear factor, the Indian version Big Brother.

There are cons:

o Benefits of globalization are not equally distributed. The gap between rich and poor countries has grown. Rich countries integrated in global economy faster, than poor like Latin America and Africa with such results as high inflation and poverty

o Companies are hunting for cheaper labor force and now they have opportunities to take it abroad. So Europeans are losing jobs and that is posing a problem for them since the companies are outsourcing work to the Asian countries since the cost of labor is low and profits the company considerably

o Developed countries workers (USA) can lose their comparative advantage when companies build advanced factories in low-wage countries (Africa), making them as productive as those at home.

o Free trade hurts certain sectors as they lose market shares from low-cost competitors. There were protests in Washington, Seattle, Prague, that low-cost competitors threat their jobs from countries like China, Pakistan, Malaysia;

o Advanced countries (Australia, Switzerland, Canada) still protect their markets asking developing (England, France, Germany, Belgium, Israel, Cyprys) to open markets for them

o The problem becomes more acute for poor developing countries where unemployment is high and capital scarce. The removal of trade barriers can exacerbate the situation, as the loss of jobs can be rapid and the required investment may be too low to allow them to exploit their comparative advantage.

o leading to appearance of negatives like communicable diseases and social degeneration. Like harm from MacDonald’s

7. What is the globalization of markets? Of production? Provide examples.

The globalization of markets refers to the merging of historically distinct and separate markets into one huge global marketplace. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping to create a global market. For example global acceptance of consumer products such as Citicorp credit cards, Coca-Cola, Levi’s jeans, Sony Walkmans, and McDonald’s hamburgers. By offering a standardized product worldwide, they are helping to create a global market.

In many global markets, the same firms frequently confront each other as competitors in nation after nation. Coca-Cola’s rivalry with Pepsi is a global one, as are rivalries between Ford and Toyota, Boeing and Airbus, Caterpillar and Komatsu, and Nintendo and Sega. As rivals follow rivals around the world, these multinational enterprises emerge as an important driver of the convergence of different national markets into a single, and increasingly homogenous, global marketplace.

The globalization of production refers to the tendency among firms to source goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital). By doing so, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. For example Boeing Company’s latest commercial jet airliner, the 777. It contains 132, 500 major component parts that are produced around the world by 545 suppliers. Eight Japanese suppliers make parts for the fuselage, doors, and wings; a supplier in Singapore makes the doors for the nose landing gear; three suppliers in Italy manufacture wing.aps; and so on.

The result of having a global web of suppliers is a better final product, which enhances the chances of Boeing winning a greater share of total orders for aircraft than its global rival, Airbus. Boeing also outsources some production to foreign countries to increase its chance of winning significant orders from airliners based in that country.

8. Why do we study international business? Why has studying it become more important today than ever before?

A simple answer is that international business comprises a large and growing portion of the world’s total business. Today, global events and competition affect almost all companies—large or small because most sell output to and secure supplies from foreign countries. Many companies also compete against products and services that come from abroad. A more complex answer is that a company operating in the international business field will engage in modes of business, such as exporting and importing, that differ from those it is accustomed to on a domestic level.

We study international business so that we can become more educated consumers and more knowledgeable about international events that have an impact on us on a daily basis. Since we are operating in this global village, more and more international business opportunities will become available; thus we need to be well prepared to face these challenges and to take advantage of them.

9. How would you define the nature and purpose of international management?

10. What advantages do multinational corporations have? What challenges must they meet? Give examples.

MNC can raise money for its operations through the world.

MNC benefit by being able to establish production facilities in countries where its products can be produced most effectively and efficiently.

MNC can have access to natural resources and materials that may not be available to domestic firms.

Large MNC’s can recruit managers and other personnel from a worldwide labor pool.

1. Multinational Companies are able to sell far more than other type of company.

2. Multinational companies can avoid transport costs.

3. Multinationals can take advantage of different wage levels in different countries (as in some countries only women and children work, so the wages can be low)

4. Multinationals can achieve great economies of scale.

5. Multinationals have less chance of going bankrupt than small companies.

6. Multinationals can carry out a lot of research and development.

Challenges: Increasing a nationalism in many countries

Ex: Risk Averse Means Written Documentation

Germans do not like to take risks. That’s why Germans carefully document business details exhaustively before coming to a decision.

Any foreign multinational wishing to do business in Germany must prepare thorough documentation that explains their products and services in painful detail. And because 95% of Germans speak their native language in business, that typically requires formal translation of documents from the home country's language into German.

11. Do you think the managerial practices applied in one country can be transferred to other? Explain by referring to the example in rectangle Ukraine – USA – Germany – Japan.

No, because of Differences in the legal—political, economic, and cultural environment.

12. How do business functions and managerial functions interact? How do the international environment factors may influence business functions and managerial functions? Provide examples.

13. Why do firms exist? Why do multinational firms exist?

Companies exist to exploit the benefits of being big. They exist, in other words, to maximize efficiency at scale. The experience curve nicely represents this relationship: The bigger a company gets, the more experience it accumulates, and the more its performance--particularly cost performance--improves.

14. Why do firms go international?

Companies engage in international business in order to:

• Minimize competitive risk

• Acquire resources

• Expand sales

• Diversify sources of sales and supplies.

Minimize Competitive Risk. Many companies enter into international business for defensive reasons. They want to protect themselves against domestic companies that might gain advantages in foreign markets, and then use that advantage in the domestic market. Company X may fear that Company Y will generate large profits from a foreign market if left alone to serve that market. Company Y then might use those profits to improve its competitive position domestically. Thus, companies, being afraid of such activities, may enter a foreign market primarily to prevent a competitor from gaining advantages.

Acquire Resources. Manufacturers and distributors seek out products, services, and components produced in foreign countries. They also look for foreign capital, technologies, and information they can use at home. Sometimes they do this to reduce their costs. For example, Nike relies on cheap manufacturing operations in Southeast Asian countries to make its products. Acquiring resources may enable a company to improve its product quality and differentiate itself from competitors, potentially increasing market share and profits. Although a company may initially use domestic resources to expand abroad, once the foreign operations are in place, the foreign earnings may then serve as resources for domestic operations; for example, McDonald’s used the strong financial performance of its foreign operations to invest in more resources for domestic growth.3

Expand Sales. By reaching international markets, companies increase their sales faster than when they focus on a single market, that being the domestic one. These sales depend on the consumers’ interest in the product and their ability to purchase the product. Ordinarily, higher sales mean higher profits and that in itself is a motive for companies to go international. Many of the world’s largest companies derive over half their sales from outside their home country, such as BASF of Germany, Electrolux of Sweden, Gillette and Coca-Cola of the United States, Michelin of France, Philips of the Netherlands, Sony of Japan, Nestle of Switzerland.

Diversify Sources of Sales and Supplies. In order to minimize fluctuations in sales and profits, many companies may look for foreign markets to take advantage of the business cycle differences among countries. Sales increase in a country that is expanding economically and decrease in another that is in recession. Consequently, companies may be able to avoid the full impact of price fluctuations or shortages in any one country, by obtaining supplies of the same product or component from different countries. In addition to the aforementioned reasons for international business, there are some additional factors that have contributed to the increased international business activities in more recent years. These factors, which are sometimes interrelated, are (1) increase in global competition; (2) the development and expansion of technology; (3) the liberalization of crossborder movements; and (4) the development of supporting services.

Increase in Global Competition. Many companies, of any size, decide to compete internationally because new products quickly become known globally; companies can produce in different countries; and the suppliers, competitors, and customers of domestic companies have become international as well.

Development and Expansion of Technology. Even in 1970, there was no nternet as it is known today, no commercial transatlantic supersonic travel, no faxing or e-mailing, no teleconferencing or overseas direct-dial telephone service, and no sales over the Internet (electronic commerce; e-commerce sales). All these technological advancements have enabled more and more companies to be exposed to an increased number of international business activities. Transportation and communication costs are more conducive for international business operations.

Liberalization of Cross-Border Movements. Lower governmental barriers to the movement of goods, services, and resources (financial, human, informational, physical) enable companies to take better advantage of international opportunities. The European Union, the NAFTA, and other regional economic blocs throughout the world provide fewer restrictions on cross-border movements than they did a decade or two ago.

Development of Supporting Services. Companies and governments of various countries, alike, have developed services that ease international business. Mail, which is a government monopoly, could be transferred by an airline other than that of the country of origin, with a stamp of the country of origin, and could go through many different countries before it could reach its final destination. Also, banking institutions have developed efficient and effective means for companies to receive payment for their foreign sales. The banks can assist in the payment of any currency through various international business transactions, upon the receipt of goods and/or services.

15. What are the major forms of internationalizing? How do firms choose the market entry modes?

Major Forms of International Business:

􀁼 Exporting

􀁼 Licensing

􀁼 Joint Venture

􀁼 Direct Investment

To choose between the optimal levels of the aforementioned factors the firm has to consider all the elements of the external environment that it will encounter once it enters the foreign market, in combination with the internal environment that characterizes the firms’ operations, skills, and competencies.

Most past studies on the foreign market entry strategies of multinational firms have mainly concentrated on the factors and the conditions behind the use of each entry mode and four main schools of thought have been formulated to explain the choice of entry mode. Some studies have adopted one of two theoretical approaches. One is the transaction cost analysis (TCA) approach, which prescribes international activities according to the economic rationale that firms will minimize all costs associated with the entire value-added chain (from production to consumption of goods), thereby considering the entire foreign market entry as one transaction. This approach stresses the importance of firm-specific variables and has been used to explain how firms enter and operate in foreign markets. According to this school of thought, organizations will internalize those activities that can be performed at a lower cost but will subcontract all other activities to external providers. A similar approach was proposed by Dunning5 who with his eclectic framework (or location-specific factors or contingency theory) proposes that three types of factors affect international business activities: host country-specific factors, ownership-specific factors, and (most importantly) internalization factors. The host country-specific factors include country risks and location familiarity, while ownership and internalization factors focus on the industry-specific and firm-specific variables. The agency or bargaining power theory6 views entry mode choice as an outcome of negotiations between the firm and the government or local firms of the host country. In the agency theory the principles (new entrants) are highly motivated to collect data about their agents (entry modes in foreign markets) in the target market. The relationship between the two parties is described as if a contract is to be made between them, in which one party delegates work to another. The Scandinavian “stages” model of entry suggests a gradual involvement pattern of entry into successive foreign markets, coupled with a progressive deepening of commitment to each market. Increasing commitment is particularly important for some other researchers who closely associate the stages models with the notion of “psychic distance, ” which attempts to conceptualize and, to some degree, measure the cultural distance between countries and markets 2003.7 Resource commitment and the level of risk to be accepted are the central explanatory factors in this theory. Therefore, the higher the risk in the target market, the fewer the resource commitment related entry modes that would be deployed in that market. Also, the more experience the organization has, the higher the tendency to use resource commitment-related entry modes.

16. Why is managing an international business different from managing purely domestic business?

1. Because of different cultural, political, economic, and legal systems, and so on, countries are different.

2. The issues at the international business level are more complex than those at the domestic level.

3. International business transactions involve converting money into different currencies.

4. International business must find ways to work within the limitations and constraints imposed by the various governments.