Module 1

The Shrinking Globe

MADE IN CHINA

SOME MORE…………………

Let’s view……. • The top 5 exporting countries of merchandise? • The top 5 exporting countries of services? • The top 5 importing countries of merchandise? • The top 5 importing countries of commercial services?

Leading exporters in world merchandise trade, 2005 (in billions of dollars) (source: www.wto.org)

1000 900 800 700 600 500 400 300 200 100 0 Germany

U.S.

China

Japan

France

Leading exporters in world commercial services trade, 2005 (in billions of dollars) (source: www.wto.org)

400 350 300 250 200 150 100 50 0 U.S.

U.K.

Germany

France

Japan

Leading importers in world merchandise trade, 2005 (in billions of dollars) (source: www.wto.org) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 U.S.

Germany

China

Japan

U.K.

Leading importers in world commercial services trade, 2005 (in billions of dollars) (source: www.wto.org) 300 250 200 150 100 50 0

U.S.

Germany

U.K.

Japan

France

McDonalds Corporation • McDonalds does business in 120 countries • 65% of total revenue is derived outside the U.S.

International Business • International business consists of transactions that are devised and carried out across national borders to satisfy objectives of individuals, companies and organizations

Benefits of international business • Causes the flow of ideas, services, and capital around the world • Offers consumers new choices and greater variety • Allows the mobility of labor, capital and technology • Provides employment opportunities • Reallocates resources and shifts activities to a global level

Expansion of International Trade • In the past 30 years, the volume of international trade has expanded from $200 billion to over $7.5 trillion. • The sales of foreign affiliates of multinational corporations are now twice as high as global exports.

International Business Questions • How will an idea, good, or service fit into the international market? • Should trade or investment be used to enter a foreign market? • Should supplies be obtained domestically or abroad? • What product adjustments are necessary to be responsive to local conditions? • What are the threats from global competitors, and how can these threats be counteracted?

World Value in Exports and Imports (in billions of dollars) (source: www.wto.org) 12000 10000 8000 Exports Imports

6000 4000 2000 0

1948 1953 1963 1973 1983 1993 2003 2005

The Composition of Trade • Between the 1960’s and the 1990’s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased. • More recently, there has been a shift of manufacturing to countries with emerging economies. • There has been an increase in the area of services trade in recent years.

Interdependence of economies • As international business increases, economies worldwide become more interdependent • Example one: On February 27, the Shanghai composite index lost 9% of it’s value. In response, the Dow Jones Industrial Average dropped @ 3.5%, and the FTSE 100 dropped 2.86%. • Why? • U.S. and EU consumption helps fuel Chinese business growth • Chinese economic growth is seen as essential to continued growth globally

Interdependence of economies (cont.) • Example Two: • As of one year ago, China held $194 billion in U.S. treasury securities • China exports to the U.S. far exceed imports from the U.S.

Trade with China : 2006 NOTE: All figures are in millions of U.S. dollars. Month

Exports

Imports

Balance

January 2006

3,494.1

21,404.9

-17,910.9

February 2006

4,087.0

17,926.5

-13,839.5

March 2006

4,955.4

20,526.1

-15,570.7

April 2006

4,343.7

21,377.2

-17,033.5

May 2006

4,542.0

22,253.6

-17,711.6

June 2006

4,347.0

24,052.4

-19,705.4

July 2006

5,064.6

24,639.6

-19,574.9

August 2006

4,764.3

26,723.4

-21,959.0

September 2006

4,637.5

27,596.8

-22,959.3

October 2006

4,941.7

29,306.8

-24,365.1

November 2006

4,858.3

27,777.1

-22,918.8

December 2006

5,188.4

24,188.4

-19,000.0

55,224.2

287,772.8

-232,548.6

TOTAL

•'TOTAL' may not add due to rounding. •Table reflects only those months for which there was trade. •CONTACT: Data Dissemination Branch, U.S. Census Bureau, (301) 763-2311 •SOURCE: U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washignton, D.C. 20233

The Scenario…….. • Japan is the biggest customer for Boeing

• Japan is also a dominant market (in dollar value) from which Boeing buys major assemblies, products and services.

Volkswagen Group • One of the world’s leading automobile manufacturers and the largest car producer in Europe • 44 production plants in eleven european countries, and seven countries in the America, Asia and Africa • Sells in more than 150 countries

Coca Cola • Corporate headquarters in Canada with local operations in over 200 countries around the world • More than 70% income comes outside the US

Example of Globalized Production Of the $20,000 sticker price of a General Motors Automobile LeMans: – $6,000 goes to South Korea, where the car was assembled – $3,000 goes to Japan for sophisticated high-tech parts (engines, transaxles, electronics) – $800 goes to Taiwan, Singapore, and Japan for small parts – $500 goes to Great Britain for advertising and marketing services – $1,000 goes to Ireland for data processing – $7,600 goes to GM and its external professional firms in the United States

All this is part of…….

International Business

International Business • All business transactions • Private or Governmental • That involves • Two or more countries

The Changing Pattern of International Business • Changing world output and world trade picture  The U.S. no longer dominates the world economy  Large U.S. multinationals no longer dominate international business  The centrally planned communist economies that made up roughly half the world suddenly become accessible to Western businesses  The global economy has become more knowledge-intensive

The Changing Pattern of International Business (continued) • Lowered trade barriers  General Agreement on Tariffs and Trade (GATT)  World Trade Organization (WTO) • Integrated Economic Markets  The European Union (EU)  The North American Free Trade Act (NAFTA)  The Association of Southeast Asian Nations (ASEAN)  The Asia Pacific Economic Cooperation (APEC)

The Changing Pattern of International Business (continued) • Global consumer preferences  Tastes and preferences are converging  Presence of mass media, exposure to goods from various countries, and standardized products • Globalized production  Cost efficiency

The Changing Pattern of International Business (continued) • Technological innovations  Advances in communications, information processing, and transportation technology  Fiber optics, wireless technology, the Internet and World Wide Web, and satellite technology • Management across cultures  Adaptation to business strategies, structures, operational policies, and human resource programs

We will be learning more…….