E) Managing an international business is different from managing a purely domestic business for at least four reasons: 1) countries differ; 2) the range of problems any manager faces is greater and more complex; 3) an international business must find ways to work within the limits imposed by governmental intervention and the global trading system; and 4) international transactions require converting funds and being susceptible to exchange rate changes.

 

III. Key terms

 
Key terms
 
Asian Infrastructure Investment Bank (AIIB)
BRIC
factors of production
foreign direct investment (FDI)
General Agreement on Tariffs and Trade (GATT)
globalisation
globalisation of markets
globalisation of production
Group of Eight (G8)
Group of Twenty (G20)
international business
International Monetary Fund (IMF)
international trade
Moore’s Law
multinational enterprise (MNE)
offshoring
outsourcing
sovereign wealth fund (SWF)
United Nations (UN)
United Nations Conference on Trade and Development (UNCTAD)
World Bank
World Trade Organization (WTO)

 

IV. Chapter overview

 
This opening chapter introduces the reader to the concepts of globalisation and international trade and investment, and provides an introduction to the major issues that underlie these topics. The components of globalisation are discussed, along with the drivers of globalisation, arguing that they seem to be thrusting nation states towards a more tightly integrated global economy. With the nature of international business changing in response to the changing global economy, issues raised by rapid globalisation have impacted on what the role of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), have been able to achieve in lowering barriers to international trade and investment. The influence of technological change in facilitating globalisation is also discussed, along with the role of multinational companies in international business.
 
The chapter also describes the changing shape of the global economy, with a special emphasis on the increasingly important role of developing countries in global business. This discussion is complemented by a description of the changing world order leading into the 21st century. The chapter ends with a candid overview of the globalisation debate, pointing out that managing an international business differs from managing a domestic business, amidst challenges of country differences in marketing and management styles, as well as complexity related to intense competition, rules of international trade and monetary systems. It is the aim of the textbook to equip students with a broad understanding of the issues confronting international business managers, and the range of strategies and operating policies to compete more effectively in today’s rapidly emerging global economy.

 

V. International Business Graduate Attributes (IBGAs): Learning and Assessment Tasks

 

IBGA1: Discipline Knowledge and Skills

 
1. Describe the shifts in the world economy over the past 30 years. Compare the implications of these shifts for international businesses based in a country of your choice.
 
The shifts
Answer guide: The world economy has shifted dramatically over the past 30 years. As late as the 1980s, four stylised facts described the character of the global economy. The first was that the US was still dominant in the world economy and in world trade. The second was US dominance in the world foreign direct investment picture. Related to this, the third fact was the dominance of large, multinational US companies on the international business scene. The fourth was that roughly half of the globe—the centrally planned economies of the Communist world—was off-limits to Western international businesses. All of these characteristics have changed. Although the US remains the world’s dominant economic power, its share of world output and world exports has declined significantly with Japan and the EU (as a single entity) initially taking increasing shares. This trend does not reflect trouble in the US economy but rather reflects, in the first phase, the growth of Japan as an economic power and, in following phases, the growing industrialisation of countries such as Brazil, South Korea and Malaysia and, more recently, the rapid development of countries such as China and India. This trend is also reflected in the world foreign direct investment picture. As depicted in Table 1.2, the share of world output (or the stock of foreign direct investment) generated by developing countries has been steadily increasing, while the share of world output generated by rich industrial countries has been steadily declining. The United States and the integrated economies of the European Union, as a single entity, still dominate, but now China and India each contribute more to global production than any one of the Western European countries.