IBUS 311 1st Edition Lecture 3 Outline of Last Lecture I. What is International Business?II. How Does International Business Differ from Domestic?III. Does the Company Change its Business Model When Operating Across Borders?IV. Why do Firms Participate in International Business?V. Who Participates in International Business?VI. How Do Firms Internationalize?Outline of Current Lecture I. What is globalization? Is it a new phenomenon?II. What are the drivers of market globalization?III. What are the dimensions of market globalization?IV. What are the consequences of market globalization for society?V. What are the consequences of market globalization for the firm?VI. Who are the Participants in international business? How are they arranged by value-chain activity?VII. Four Major Participants in International BusinessCurrent LectureI. What is globalization? Is it a new phenomenon?- Globalization: The process by which an activity or undertaking becomes worldwide in scope; a network of global linkages around the world that binds s all-countries, institutions and individual- The integration of economies and societies around the world- Many faces: Economic Political Societal Cultural Business Perspective- There are 4 main phases of globalization- There is emphasis on growth after WWII. - The world is becoming smaller and smaller. We have entered a new phase of globalization where the world is becoming tiny because of software applications suchas email, Google and Microsoft.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.II. What are the drivers of market globalization?- Worldwide reduction of barriers to trade and invest. The trend is party facilitated to the World Trade Organization (WTO)- Market liberalization and adoption of free markets- Industrialization, economic development and modernization- Integration of world financial markets- Advances in technologyIII. What are the dimensions of market globalization?- Integration and interdependence of national economies Results from firms’ collective international activities. Governments contribute by lowering trade and investments barriers- Rise of regional economic integration blocs Free trade areas are formed by two or more countries to reduce or eliminate barriers to trade and investment, such as the EU, NAFTA and MERCOSUR A project was proposed which was the free trade area of the Americas. It included all countries expect for Cuba. Since, Cuba was n ot included - Growth of global investment and financial flows- Convergence of buyer lifestyles and preferences- Globalization of production activities - Globalization of services- Special Attention to: Regional Economic integration blocs IV. What are the consequences of market globalization for society?- Contagion: Rapid spread of financial or monetary crises from one country to another Wealthy countries are focused on pouring funds in their military but do not focuson fixing hunger crises.- Loss of national sovereignty- Off shoring and the flight of jobs Jobs are lost as firms shift production of goods and services abroad, in order to cut costs and obtain other advantages. Firms benefit, communities and industriesare disrupted.- Effect on the poor In poor countries, while globalization usually creates jobs and raises wages, it also tends to disrupt local job markets. MNEs may pay low wages, and many exploit workers or employ child labor. Globalization’s benefits are not evenly distributed. Example: Many people in India are losing jobs as the hand-woven textiles industry is being gradually automated. Two biggest concerns: Sweatshops and Child labor. Maybe not your company is participating in these areas but their supplier might be. Try to have suppliers improve their working conditions. Anything that happens along the value chain has an effect on their company. Companies will give free lunch to their employees if they bring their children to school. Instead of having their children go to work.- Effect on the natural environment- Effect on national culture- Not covered in textbook: Globalization is increasing global terrorism V. What are the consequences of market globalization for the firm?- Countless new business opportunities for internationalizing firms- New risks and intense rivalry from foreign countries- More demanding buyers who source from suppliers worldwide- Great emphasis on proactive internationalization- Internationalization of firm’s value chain*Even if you sell domestically, you are still international.*Organizational Participants in International BusinessVI. Who are the Participants in international business? How are they arranged by value-chain activity?- Intergovernmental organization ( UN, IMF, WB, WTO)- International/transnational non-governmental organizations (International Committee of the Red Cross; Transparency International; Greenpeace)- The anti-globalization movementVII. Four Major Participants in International Business1. Focal firm: Initiator of an international business transaction Ex: MNEs and SMEs (Willbe on exam)2. Distribution channel intermediary: A specialist firm that provides distribution, logistics, and marketing services in the international value chain3. Facilitator: A firm that provides special expertise in banking, the law, customs clearance, market research or other4. Governments: Active in international business as suppliers, buyers and regulatorsTypical Positions of Intermediaries and Facilitators in the International Value ChainMarket Research → Research and Development → Souring → Production → Marketing → Distribution → After Sales