Question

• Compare and Contrast the approaches to international management as it relates to value creation.

Answer 1

International management is a critical area for any serious student of management because of globalization, the worldwide phenomenon whereby the countries of the world are becoming more interconnected and where trade barriers among nations are disappearing. Companies of all kinds are no longer limited to producing and selling their goods and services in domestic markets. In fact, companies are encouraged to explore global markets to stay competitive and are thus likely to have business activity anywhere in the world. Globalization is being facilitated by several key factors, and companies that want to succeed in this environment must understand the key factors that are making the business world more globally connected.

Globalization Factor 1: Lowering Trade Barriers
The first critical factor is the lowering of trade barriers through trade agreements, government policies through which countries agree to eliminate cross-border barriers to trade and to promote global integration. To understand the importance of trade agreements, it is necessary to note that countries have long used tariffs to protect local industries and companies. Tariffs are taxes that are added to the price of imported international products. Because these tariffs are usually passed along to the consumer in the form of higher prices, imposing tariffs on imported goods gives domestic companies a price advantage and protects them from foreign competition.

Globalization Factor 2: Foreign Direct Investment
Foreign direct investment (FDI) refers to deliberate efforts of a country or company to invest in another country through the form of ownership positions in companies in another country. In 2017, global FDI flows amounted to USD $1.52 trillion.

Foreign Direct Investment Inflows from Other Countries
Based on: UNCTAD, 2016, World Investment Report, 2016.
A vertical bar graph shows the top 15 recipients of Foreign direct investment in 2016

An important consequence of the rise of emerging markets has been the growing importance of emerging market multinationals. Emerging market multinationals are influential companies from emerging markets that compete head-on with established multinationals and rewrite the rules of competition by using new business models. Consider the case of CEMEX, the Mexican cement manufacturer; Shoprite, the South African retailer; and WIPRO and Infosys, India’s leading software companies. These emerging market multinationals are industry leaders in their fields and are pushing more established multinationals to the competitive edge.

A CEMEX train in Germany
Mexican company CEMEX, whose primary businesses are cement and concrete, has pursued a strategy of differentiation. It defines itself as a provider of solutions for builders and local governments, particularly in emerging economies and for those seeking environmental sustainability.
The lowering of trade barriers and the increase in foreign direct investment indicate that global trade will continue to stay strong and contribute to globalization. Such trends suggest that companies will need to continue to contend with and take advantage of global opportunities. The rising competition from emerging markets and emerging market multinationals means that companies will need to continue to understand and manage the global environment to compete.

Globalization Factor 3: The Internet
Thanks to the pervasiveness of the Internet today, any company in the world can sell its products to anyone in the world. In fact, the developments in information technology and the reduction in costs of technological equipment mean that any multinational can reach anyone in the world. Social media, such as Twitter and Facebook, also provide a means for multinationals to build relationships with customers worldwide. Data also suggests that even countries that previously had little access to the Internet are now experiencing tremendous growth.