Global Environment of Business

Globalization

Trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies.

Globalization of markets

Convergence in buyer preferences in markets around the world.

Globalization of production

Dispersal of activities that helps a company achieve cost-minimization or quality-maximization objectives.

Gross domestic product (GDP)

Value of all goods and services produced by a domestic economy during a one-year period.

Gross national product (GNP)

Value of all goods and services produced by a country's domestic and international activities during a one-year period.

GDP or GNP per capita

A nation's GDP or GNP divided by its population.

Sustainability

Development that meets present needs without compromising the ability of future generations to meet their own needs.

Global trade trend

Trade as a share of GDP rose substantially over time, from about 10% before 1870 to about 27% in 1970 and about 60% by 2008.

International business

Commercial transaction that crosses the borders of two or more nations.

Imports

Goods and services purchased abroad and brought into a country.

Exports

Goods and services sold abroad and sent out of a country.

Multinational corporation (MNC)

Business that has direct investments abroad in multiple countries.

Foreign direct investment (FDI)

Purchase of physical assets or a significant amount of ownership in a company in another country to gain a measure of management control.

Born global firm

Company with a global perspective that engages in international business from inception and quickly achieves competitive advantage.

Two broad forces driving globalization:

Technological innovation and falling barriers to trade and investment.

General Agreement on Tariffs and Trade (GATT):

Treaty designed to promote free trade by reducing tariffs and nontariff barriers.

World Trade Organization (WTO):

International organization that enforces the rules of international trade.

Regional trade agreements

Achieving consensus may be easier among a smaller group of nations.

World Bank

Agency created to provide financing for national economic development efforts.

International Monetary Fund (IMF)

Institution associated with the international monetary system and exchange-rate stability.

E-commerce

Use of computer networks to purchase, sell, or exchange products; service customers; and collaborate with partners.

Internet of Things

All devices and equipment that are readable, recognizable, locatable, addressable, and/or controllable via the internet.

Digitization

Process of changing information from analog to digital form for use by computers and other information technologies.

Digitalization

Use of digital data and technology to develop new business operations, strategies, or business models.

Digital transformation

Fundamental change in which digital technologies penetrate all areas of operations, strategy, and culture to produce customer-focused competitive advantage.

Transportation technologies

RFID tags and GPS satellites are used to increase efficiency and dependability.

Manufacturing jobs

Outsourcing might reduce these in developed nations.

Standard of living

Trade might increase this in developing nations.

Income inequality

Trade might reduce this in developing nations.

Extreme poverty

Living on less than $1.90 per day, as defined in the course material.

Large U.S. multinationals

Sometimes blamed, rightly or wrongly, for cultural homogenization.

National sovereignty

Globalization might undermine policies of democratically elected leaders.

Reasonable environmental laws

Most international firms today support these.

Application of knowledge

Ability to learn a concept and apply that knowledge in another setting to achieve a higher level of understanding.

Reflective (critical) thinking

Purposeful and goal-directed thinking used to define and solve problems, make decisions, or form judgments related to a set of circumstances.

Communication skills

Use of oral, written, and nonverbal language, along with technology, to communicate ideas effectively and to listen effectively.

Ethical understanding and social responsibility

Sets of guiding principles that influence the way individuals and organizations behave within society.

Global business environment

Reveals the complexities of international business and the interrelations between its main elements.

Planning

Process of identifying and selecting an organization's objectives and deciding how the organization will achieve those objectives.

Strategy

Set of planned actions taken by managers to help a company meet its objectives.

Mission statement

Written statement of why a company exists and what it plans to accomplish.

Core competency

ability of a company that competitors find extremely difficult or impossible to equal.

Value chain analysis

Process of dividing a company's activities into primary and support activities and identifying those that create value for customers.

Primary activities

Activities directly related to creating a product, marketing and delivering it to buyers, and after-sales support and service.

Support activities

Activities that contribute to the value-creating potential of each primary activity.

Multinational (multidomestic) strategy

Adapts products and marketing strategies in each national market to suit local preferences.

Global strategy

Offers the same products using the same marketing strategy in all national markets.

Growth strategy

Increases the scale (size of activities) or scope (kinds of activities) of a corporation's operations.

Retrenchment strategy

Reduces the scale or scope of a corporation's businesses.

Stability strategy

Guards against change and is used to avoid either growth or retrenchment.

Combination strategy

Mixes growth, retrenchment, and stability strategies across a corporation's business units.

Low-cost leadership strategy

Exploits economies of scale to achieve the lowest cost structure of any competitor in the industry.

Differentiation strategy

Designs products to be perceived as unique by buyers throughout the industry.

Focus strategy

Serves a narrowly defined market segment through low cost, differentiation, or both.

First step

Assess basic demand for the product in each potential market.

Screening process

1) Assess basic demand. 2) Assess the national business environment. 3) Measure market or site potential. 4) Select the market or site.

Step 3:

Measure the market or site potential.

Step 3 components

Market size, growth rate, future outlook, and the quality/suitability of labor, managers, materials, and infrastructure.

Income elasticity

Sensitivity of demand for a product relative to changes in income.

Market-Potential Index

Ranking potential markets on attractiveness using various national data.

Step 4

Select the market or site. Conduct field trips and perform competitor analysis.

Secondary market research

Obtaining information that already exists within the company or can be obtained from outside sources.

WTO, United Nations, International Trade Centre

Global institutions promoting freer trade that collect and distribute national economic data.

IMF, World Bank, Asian Development Bank

International aid agencies that collect and distribute large amounts of secondary data.

National government agencies

Useful sources, but their information may present a nation in the best light.

International Trade Administration

U.S. resource for importers and exporters seeking information about other countries.

Private information sources

Trade/industry associations, financial firms, and management consulting firms.

Data availability, reliability, and comparability

Potential problems when researching different markets and sites.

Entry mode

Institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.

Direct exporting

Company sells directly to buyers in a target market.

Indirect exporting

Company sells to intermediaries who resell to buyers in a target market.

Agent

Individual or organization representing one or more indirect exporters.

Export Management Company (EMC)

Exports products on behalf of indirect exporters.

Export Trading Company (ETC)

Provides services to indirect exporters in addition to activities directly related to clients' exporting.

Freight forwarder

Specialist in customs clearing, tariff schedules, shipping, and insurance fees.

Countertrade

Goods or services are paid for, in whole or part, with other goods or services.

Barter

Direct exchange of goods/services without money.

Counterpurchase

The company promises a future purchase of a specific product from the country.

Offset

The company offsets a hard-currency sale with a future hard-currency purchase of an unspecified product.

Switch trading

One company sells another its obligation to make a countertrade purchase.

Buyback

Industrial equipment is exported in return for products produced by that equipment.

Licensing

The licensor grants a licensee the right to use intangible property for a limited period.

Cross-licensing

Companies exchange intangible property through licensing agreements.

Franchising

A franchisor supplies a franchisee with intangible property and other assistance over an extended period.

Management contract

The company supplies another with managerial expertise for a specific period.

Turnkey (build-operate-transfer) project

The company designs, constructs, and tests a production facility for a client.

Licensing advantage

A licensor can use licensing as a cost-effective strategy to expand internationally.

Licensing drawback

A licensor might lend strategically important property to future competitors.

Wholly owned subsidiary

Facility entirely owned and controlled by a single parent company.

Joint venture

Separate company created and jointly owned by two or more independent entities for a common business objective.

Forward integration joint venture

Partners invest in activities normally performed later in the value system.

Backward integration joint venture

Partners invest in activities normally performed earlier in the value system.

Buyback joint venture

Both partners supply the venture's input and absorb its output.

Multistage joint venture

One partner integrates backward, and one integrates forward.

Strategic alliance

Two or more entities cooperate without forming a separate company to achieve strategic goals.

Culture

Set of values, beliefs, rules, and institutions held by a specific group of people.

Ethnocentricity

Belief that one's own ethnic group or culture is superior to that of others.

Cross-Cultural Literacy

Detailed knowledge about a culture that enables a person to work happily and effectively within it.

Subculture

A group of people who share a unique way of life within a larger, dominant culture.

Physical Environment

Land and surface features, as well as climate, that affect how products are distributed throughout a country.