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Global Economy & International Business - Coggle Diagram
Global Economy & International Business
Global Economy
The global economy provides linkages between the regions and nations of the world in a system of economic relationships. These relationships involve the exchange of goods and services, financial flows across borders, exchanging of different nations' currencies, and movement of people in search of better standards of living.
Long History of Global Economy
Long time ago, the center gravity of international global economy was in the East. Almost 80% of the shares in global economy coming from the east, as you can see from the table. Most of it came from China and India. At this time was called, the rise of the the east. However in the industrial revolution start from 1950, the rapid technology growth cost the GDP of the western country increased significantly.
Industry Revolution 1.0 and 2.0
Was related to the physicall technology
Industry Revolution 3.0 & 4.0
Mostly about the Virtual Technology
The New Economy
The domination of the eastern countries in the Global Economy of the world, creates a new economy. This happened after a long process from Old Economy (Industrial Revolution), and then Digitization Economy or digital revolution that also be called, the Dotcom Revolution (Forces driving globalization technology innovation like e-commerce, email, internet, etc), and after that globalization happened, then it creates the new economy. The New economy makes everything new. Newmarket structure, new industry structure, new firm structure, and new business model.
Three Pillars of The New Economy
Cost Reduction : happened in industry revolution 1 and 2, and mainly happened in interaction cost and transformation cost.
Better Customer Service : There will be more choices, 24 hour service, and it will be just a “click” away
Transparency & Competition : And from the macroeconomic perspective there will be transparency and good competition. Because the customer can always choose and see the performance of the company.
Higher return & risk : More faster in interaction and transaction, the product or service will be not only localized but also globalized.
Global Economic Turmoil Disruption & V.U.C.A
This was caused by the new economy. And V.U.C.A came from Volatility, Uncertainty, Complexity, and Amenity that again, were caused by the new economy. It creates, a trade war, natural disaster, budget deficit, China slowing down, slower domestic growth, corruption cases, investment fraud, middle east turmoil, trade deficit, high political costs, safety, and GIPSI: Greece, Ireland, Portugal, Spain and Italy
Disruption is Everywhere
This condition was already predicted long time ago by Jospeh Alois Schumpeter. That long run competition will not about price and output competition but it is more about new commodity, bew technology, new sources of supply, new type of organization, and new business models. That proved in the S curved.
5 Largest companies in 1996
The new S Curved company
Conclusion
Now mostly dominated by the digital companies. Even the biggest piped company was beated by Apple. Only in one generation, we can really see what kind of company dominated. And it is 10 times bigger. And this proved how technology really impacted the economy.
Indonesia’s Weakness in Global Economy
Indonesia is a rising country because it is predicted that Indonesia will be included among the top 4. However, we need to improve significantly in some areas to improve our competitiveness. Based on the Economic World Forum, that Professor Roy Sembel wrote 3 years ago, these will be the main thing that needed to improve in order to increase the agility from 5 years ago :
Healthcare
Labor Market
Infrastructure
Capability of Innovation and Skills
Indonesia and The Unicorn
Indonesia dominated the economy in ASEAN in 2021. There are over 12 companies that are stated as unicorn company. And according to the prediction, Indonesia will lead the economy.
International Finance
International finance, sometimes known as international macroeconomics, is the study of monetary interactions between two or more countries, focusing on areas such as foreign direct investment and currency exchange rates.
Absolut vs Comparative Advantage
The Ability to produce a specific product more efficiency than any other nation
Comparative Advantages
The ability to produce a specific product more efficiently than other product
International Opportunities
– The marginal returns on MNC projects are above those of purely domestic firms since MNCs have expanded opportunity sets of possible projects from which to select.
Financing opportunities
MNCs can obtain capital funding at a lower cost due to their larger opportunity set of
funding sources around the world.
International Financial Management Tasks
Choose a capital structure – Determine the ideal long-term mix of debt versus equity financing.
Raise funds for the firm – Acquire equity, debt, or intracorporate financing for funding activities and investments.
Working capital and cash flow management – Manage funds passing in and out of the firm’s value-adding activities.
Capital budgeting – Assess financial attractiveness of major investment projects (e.g., Foreign market expansion and entry).
Managing currency risk – Manage the multiple-currency transactions of the firm and the exposure
to exchange-rate fluctuations Manage the diversity of international accounting and tax practices – Learn to operate in a global environment with diverse accounting practices and international tax regimes.
Managerial Guidelines for Managing Currency Risk
Seek expert advice
Centralize currency management within the MNE
Decide on the level of risk the firm can tolerate
Devise a system to measure exchange-rate movements and currency risk
Monitor changes in key currencies
Be wary of unstable currencies or those subject to exchange controls
Monitor long-term economic and regulatory trends
Distinguish economic exposure from transaction and translation exposures
Emphasize flexibility in international operations
Global Financial Crisis: SPMC
In 2008, a major crisis emerged in the global financial and monetary systems.
It initially arose in the U.S., when investors lost confidence in the value of securitized home mortgages ➔ Sub-prime Mortgage Crisis (SPMC)
Banks, lenders and insurance companies became volatile, and stock markets crashed worldwide.
Many national economies sank into recession.
The world experienced sharp declines in consumer wealth, economic activity, and international trade.
Overview of the Subprime Mortgage Crisis (SPMC)
The subprime meltdown was the sharp increase in high-risk mortgages that went into default beginning in 2007, contributing to the most severe recession in decades. The housing boom of the mid-2000s—combined with low-interest rates at the time—prompted many lenders to offer home loans to individuals with poor credit.
The economic is declining
SPMC: an ongoing economic problem manifesting itself through liquidity issues in the global banking system owing to foreclosures which accelerated in the US in late 2006.
Complex interactions of the financial institutions, mortgage brokers, and securities dealers triggered a global financial crisis during 2007 and 2008
In 2007 1.3M home loans nationwide went into default (up 75% from prior year) and less than 800K instances in 2005.
More than 1⁄2 of the foreclosure starts are subprime mortgages (2007)
By August 08 losses or write-downs exceeding U.S. $400 bln & be expected reach $1 trillion (Business Week 6 August 2008)
Impacts Of The Crisis
Economy Condition
Recession
Low GDP growth rate
Business close out or lose money (banks, builders etc.)
Weak financial market
Low consumer spending
Lose jobs
Tariff & Quota
The Theory of Tariff and Quota is that The analysis of tariffs and quotas is called commercial policy. Tariffs and quotas also have effects that spread through the economic system.
A Tariff
A tariff is a tax on imports. For example, It may be a set amount: $5 per ton of steel. Or, it may be a percentage: 10% of the import value.
A Quota
is a physical limit on import quantity. Quotas come in many forms, for example import licensing requirements or voluntary export restraints. The analysis is similar to a tariff, although the effects are slightly different.
Form of Quotas
Voluntary export restraints (VER) are agreements between an importing and exporting countries to voluntarily limit exports.
Import licensing requirements are requirements that any importer must obtain a license; the number of licenses and amounts are limited.
Differences between quotas and tariffs:
3 Dimension
Quotas do not generate revenue for the government.
Increases in foreign productivity do not result in lower prices with a quota but they do with a tariff.
Quotas can increase foreign profits.
Important Rules of Tariff and Quotas
Tariffs and quotas cause changes in the production, consumption, and importation of the good on which they are levied. There are changes in other industries and on the performance of the economy as a whole as the effects work through the system.
Resource Allocation and Income Distribution Effects
Deadweight loss: A destruction of consumer or producer surplus that is not matched by a gain elsewhere in the system. Deadweight losses can be either consumption side or production side.
Efficiency loss: A deadweight loss on the production side.
Other Costs of Tariffs
Retaliation by other countries.
Innovation: Tariffs on imported machinery may slow the adoption of new techniques; and Protection reduces incentives to increase productivity, improve products.
Rent seeking: Firms spend time and money seeking protection rather than increasing productivity.
Comparison of Tarrifs Rate
The Patterns
Have to be exact
Generally, tariffs are lower in high income countries.
Tariffs tend to be higher in lower income countries partly because they rely on them for government revenue.
Tariffs are higher in agricultural products, apparel manufacturing, and textiles.
In theory, large countries can improve their welfare by using tariffs. This assumes no retaliation. The tariff cannot be too large.
Consumer Suplus
is the value of a good or service that is in excess of what a consumer has to pay. Example: You are willing to pay $100 for a pair of shoes, but can buy them for $60. Your consumer surplus is $40. Different consumers have different levels of consumer surplus.
Producer Surplus
is the revenue received by producers that is in excess of the minimum they need to produce a given amount. You are willing to sell shoes you made for $40 a pair but you can get $60. Your producer surplus is $20. Different producers have different levels of producer surplus.
What is International Business
Business transaction between parties from more than one countries. Like buying and selling raw materials, finished goods or even services across broders. Operating factories or facilities overseas and also borrowing money in one country to finance operations in another.
What is Domestic Business
a business that acquires all its resources and sells its products or services within a single country.
How does international business differ from Domestic?
Currency conversion are required
Differing legal system
Cultural differences
Economic differences
Infrastructure differences
International Opportunities
Investment opportunities
The marginal returns on MNC projects are above those of purely domestic firms since MNCs have expanded opportunity sets of possible projects from which to select.
Financing opportunities
MNCs can obtain capital funding at a lower cost due to their larger opportunity set of funding sources around the world.
Key Players in International Business
Largest companies from the wealthies nations
Firms form emerging markets
Small and medium-sized companies
Multinational corporation
Born global firm
Dimensions of International Business
International Trade
International Investment
International Business Risk
Foreign Market entry Strategies
Globlization of Markets
The Four Risks of International Business
Cross-Cultural
Country Risk
Currency (Financial) Risk
Commercial Risk
Multinational business
one that has a worldwide marketplace from which it buys raw materials, borrows money, and manufactures its products and to which it subsequently sells its products.
Global business
a business that transcends national boundaries and is not committed to a single home country.
What is Globalizations
Globalization: Trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies
Globalization is characterized by denationalization
Globalization is different frominternationalization
Benefits of Globalization of Markets
Reduces marketing costs
Creates new market opportunities
Levels uneven income streams
Local buyers’ needs
Global sustainability
Multi-Domestic Industry
An industry in which competition takes place on a country-by-country basis. Examples of Multidomestic Industries :
the 3 dimension
The British publisher Bloomsbury has translated each volume of its Harry Potter series into the local language in every country where the book is sold. Including adjustment to the country culture
Beverage companies produce various brands and flavors in markets worldwide. Coca-Cola offers “Georgia Coffee” in Japan, “Café Zu” in Thailand, Inca Cola in Peru, and “Burn” energy drink in France.
In Asia, KFC restaurants are often multi-story structures that sell distinctive flavors of chicken.
Global Industry
An industry in which competition is on a regional or worldwide scale. Examples of Global Industries :
The 3 dimension
Kodak must contend with the same rivals, Japan’s Fuji and the European multinational Agfa-Gevaert, wherever it does business around the world
American Standard sells similar bathroom fixtures worldwide, competing with Toto most major markets.
Caterpillar and Komatsu compete head-on in all major markets, and offer similar brands of tractors.
MacBook, Iphone, Hp, Asus, etc
Four Strategies Emerging from the Integration Responsiveness Framework
Home replication strategy.
Products are designed for domestic customers, and international business is pursued mainly to extend the life of domestic products and replicating home market success. Example: Netflix, Starbucks, Microsoft
Multi-domestic strategy (localization strategy)
The firm develops subsidiaries or affiliates in each of its foreign markets, and appoints local managers to operate independently and be locally responsive. Products and services are adapted to suit the needs and wants of buyers in each country. (Local Taste). Example: 7 eleven, Nestle, Frito-Lay, Johnson and Johnson
Global strategy.
Headquarters seeks substantial control over all country operations in order to minimize redundancy, and achieve maximum efficiency, learning, and integration worldwide. Example : Redbull, Airbnb, Dominos, Pizza Hut
Transnational strategy
Acoordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure
efficiency and learning. Example : large fast-food chains such as McDonald’s and KFC rely on the same brand names and the same core menu items around the world. These firms make some concessions to local tastes too.
Strategy and Organization in the International Firm
What is Stragey?
set of actions that managers take to make best use of the firm’s resources and core competences to gain a competitive advantage
International Strategy
Strategy carried out in two or more countries.
Three Strategic Objectives
Efficiency – Lower the cost of the firm’s operations and activities on a global scale.
Flexibility – The agility to manage diverse country-specific risks and opportunities by tapping resources in individual countries and exploiting local opportunities.
Learning – Develop the firm’s products, technologies, capabilities, and skills by internalizing knowledge gained from international ventures.
Essentials of Successful Global Firms
Organizational Firm
Organizational Processes
Organizational Culture
Visionary Leadership
