Fred Luthans | Jonathan P.

Doh

Globalization and
International Linkages
Chapter 1
International Management
Lecturer: Dr. Ir. Perdana Wahyu Santosa, MM

Course Outline
The Global
Environment
of Business

Culture
in Global
Business

Global
Strategic
Management

Organizational
Behavior and
Global Human
Resources
Management

International Management
Lecturer: Dr. Ir. Perdana Wahyu Santosa, MM

The Global Environment of

Business
Chapter 1: Globalization and international
linkages
Chapter 2: The political, legal, and technological
environment of business
Chapter 3: Ethics and social responsibility

Chapter 1 Outline
International business and management
Globalization

Outsourcing and offshoring

Advantages and disadvantages
The World Trade Organization
Regional trade blocs
The shifting balance of economic power

Chapter 1 Outline (2)

Regional economic issues
Japan
China
Other economies in East Asia
India
Russia
South America

International Management
The process of
applying management concepts and
techniques in a multinational
environment and
adapting management practices to
different economic, political, and
cultural environments

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

International Business Activity

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

1-8

International Business Activity (2)

International Investments
Foreign direct investment: the investor has
control, or shares control, in the management of
the asset
Home country: the country in which the parent
company's headquarters is located
Host country: any other country in which the company
does business

Portfolio investment: the purchase of financial

assets, such as stocks and bonds, issued by
companies outside your own country
1-9

Firms Involved in International Business

Multinational corporations (MNC's)
Operations in more than one country
International sales
Nationality mix of managers and owners

Small and medium-sized enterprises

(SME's)

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Globalization of Business
Globalization of business functions

Marketing
Manufacturing and service operations
Finance
Purchasing and supplier networks
Business process outsourcing: call centers,
technical service, financial research

Global business environment with global

competition

Outsourcing and Offshoring

Outsourcing is contracting to buy goods or
services that your company produced in the
past. When the work is done outside your own
country, offshore outsourcing occurs.
Offshoring means performing business activities
outside the country where the resulting goods or
services are sold.

Stages in Economic Development

Advanced economies are post-industrial countries
characterized by high per-capita income, highly
competitive industries, well-developed commercial
infrastructure, and a large service sector.
Developing economies are low-income countries
characterized by limited industrialization and stagnant
economies, with little economic growth.
Emerging markets are former developing economies that
have achieved substantial industrialization,
modernization, and rapid economic growth

International Business: Strategy,

Management, and the New Realities

Country Expected & Global

Demographics

Trade Definitions
A tariff is a tax on an imported good.
A subsidy is a government payment
to producers of certain products.
Farm products are often subsidized.

World Trade Organization (WTO)

153 member countries
Russia is not a member.

Oversees regulations for

international trade in goods and services

international investment
protection of intellectual property
settling trade and investment disputes between
countries

World Trade Organization (2)

Developing countries can charge higher tariffs
and impose more restrictions on investment than
developed countries
Developing countries want the WTO to change
its rules so that they will be more competitive in
the global economy.
The biggest issue is subsidies that developed
countries pay to their own farmers to encourage crop
production.

North American Free Trade

Agreement (NAFTA)
Free trade agreement among Canada, United States,
and Mexico
Free trade agreement means that there are no tariffs on
goods traded among member countries
This provision applies only to goods that were produced in
one of the 3 countries

Most restrictions on foreign investment among the 3

countries have been abolished.
Firms in member countries can compete for
government contracts.

NAFTA (2)
Financial services firms can do business in all 3
countries.
There is a dispute resolution procedure.
Each country agreed to enforce its own laws
related to

Environmental protection
Child labor
Minimum wages
Workplace safety

Free Trade Agreements in Central

and South America and the Caribbean

10-21

Other Free Trade Areas

in the Americas
Mercosur includes Brazil, the largest economy
in South America
The Andean Community
The Caribbean Community (CARICOM)
Central American Common Market
Tariffs are imposed on U. S. goods exported to
Mercosur, the Andean Community, and
CARICOM

10-22

Other Free Trade Areas

in the Americas (2)
ALADI is a free trade area among
Mercosur
The Andean Community
Mexico, Chile, and Cuba

CAFTA-DR is a free trade agreement among the

United States, the Central American Common
Market, and the Dominican Republic
A proposed Free Trade Area of the Americas has
made little progress

European Union (EU) Before 2004 Enlargement

Candidate Countries
Turkey
Croatia
Macedonia

The European Union Today

The European Union (EU)

Almost 500 million people
27 member countries
2006 Gross Domestic Product (GDP) was
about 13.5 trillion dollars
Slightly higher than U. S. GDP

16 EU members use the euro currency

The European Central Bank manages the euro
currency (similar to the Federal Reserve Bank in the
United States)

The European Union

A Single Market
Free trade in goods and services among
member countries
Common tariffs on goods imported from
outside the EU
Common (minimum) product standards CE mark is required to sell many goods
Business is subject to many regulations
The EU Commission settles trade disputes
among EU members.

Rights of EU Citizens
EU citizens have a right to live and work in any
EU country
These rights take effect 7 years after a country
joins the EU
2011 for countries that joined in 2004
2014 for Bulgaria and Romania

Individual countries can choose to grant

residency and work rights sooner.

The Shifting Balance

of World Economic Power
For about 20 years, 55 60% of global imports and
exports have come from four areas: the United States,
the EU, Japan, and China
The BRIC countries Brazil, Russia, India, and China
are expected to be among the fastest growing
economies for the next 20 40 years
To continue rapid growth, Russia must make its
economy less dependent on oil and gas.
China, India, Brazil, and several Arab countries are
increasing their foreign direct investment.