Einheit 1 Flashcards
History of international business/Globalization
Global business and international trade flows have a long history -> trade routes to China have existed since 500 BC (e.g. Silk Road)
The term globalization became popular in the 1990s to describe the unprecedented
international connectivity of the post-Cold War world
Economically, globalization involves goods, services, data, technology, and the
economic resources of capital – certain factors enable economic globalization
(which we will discuss in the following)
Depending on the paradigm, economic globalization can be viewed as either a positive
or a negative phenomenon
main international business transactions are: international trade // international investments
International trade
Exchange of goods and services across
national borders in the form of importing and exporting
Importing: refers to the activities when
firms buy and import goods and services
that were produced in another country
Exporting: refers to the activities when
firms sell and send goods or services
produced in one country to another country
Each inter-country trade always represents an exporting and importing activity
International investments
International investments gained relevance in the late 19th century, accompanied by the rise
of MNCs
International (or foreign) investments per se refer to any movement of capital across national borders
The term foreign direct investment (FDI)
denotes investments by companies that involve ownership, strategic, and managerial control.
This differentiates FDI from “portfolio”
investments in shares, stocks, and other
financial products abroad for the sole purpose of risk diversification and rent generation
Trading on the Silk Road
involved a high level of logistic complexity
Europe -> Asia: fur, bronze, iron, jade
Asia -> EUrope: silk, spices, china wear, glass
The long trip implied substantial logistical challenges
Information asymmetry (specifically regarding information on supply and
demand) complicated the selection of traded goods
Limited exchange rate information made it hard to assess the value of currencies (if used)
Communication was complicated by cultural & language differences
Security of traders and traded goods had to be assured across multiple
different institutional environments
Along the way, tariffs had to be paid to different landowners, etc.
Substantial ex-ante financing was necessary for the long trip
Managing and controlling the behavior and performance of the team along
the trip was a challenging task
Trade in Middle Ages
Global trade was dominated by southern German and northern Italian families e.g. Tucher
Esp 15th to 17th century: Tucher, Welser, Jakob Fugger in Southern Germany
15th century Italy: Cosimo de Medici
operated multiple foreign subsidiaries around Europe: Foreign subsidiaries were often managed by the families’ sons after they have completed their apprenticeship in the parent firm, increasing opportunities for management and control
Hanse
12th-17th century: The German Hanse gained tremendous wealth by means of trade in the Baltic Sea area
Nearly 200 towns largely in the
Northern and Baltic Sea
The Hanse had no constitution,
register of members, mutual
finances or officials
Children of Hanse Families had to
spend time abroad
Success of German Hanse was
based on deeply rooted common norms and values (first example of a successful
‘corporate’ culture)
The strong corporate culture of the alliance is visible on the license plates of many Hanse cities today, 350+ years after the end of their maybe 500-year-long existence: e.g., HH (Hansestadt Hamburg), HL (Hansestadt Lübeck), HR (Hansestadt Rostock).
Colonialization Asia & Africa
Private enterprises gained in importance (e.g. British East India Company)
1600 British East India Company was founded by a charter of Queen
Elisabeth to London businesspeople to conduct trade between the Cape of Good Hope (Africa) and the Strait of Magellan
(South America)
1661 Karl II confirmed former privileges and granted civil justice,
military power, and the right to wage war and make peace in
India
1858 Jakob II gave the right to build fortresses, recruit troops, and
coin money
After several rebellions, the company‘s rights were transferred to the English crown and its possessions were nationalized
1874 British East India Company was dissolved
During imperialism, many European colonial powers used violence to exploit the resources of ‘their’ colonies. This is a dark spot in European history, and at the same time an extreme case that highlights the interaction between politics and economics.
End of the 19th century:
MNEs emerged for different reasons with important consequences
Resons for the rise of MNEs:
Technological innovations e.g. locomotive 1769, morse taper 1837
Effect on barrier: logistics, information asymmetry
Resons for the rise of MNEs: Liberalizations (since 18th century)
e.g. Adam smith, father of capitalism”
Effect on barrier: Tariffs in trade, Security
Resons for the rise of MNEs: Stock Corporation Law 20th century
Effecgt on barrier: ex-ante financing
Resons for the rise of MNEs: Gold Standard (1823), i.e. there is a fixed exchange rate for gold
Effect on barrier: exchange rate information
MNEs emerged, such as Unilever, Shell, HBC, SKF
Siemens in Russia
German firms have
expanded abroad since the end of the 19th centur
1847: Telegraph-building establishment of Siemens & Halske was founded
Siemens Schukcert was founded in St. Petersburg
1853-1872: Siemens generated more than 25% of its worldwide sales in Russia
Wienerberger AG
Austrian firms have a long history
of international operations
founded in 1819
Expansion in other countries of Austro-Hungarian Monarchy
-> Biggest brick manufacturer on the continent
1869: Quotation at the Vienna Stock Exchange
1918: Plants were confiscated in Croatia, Hungary, and Czechoslovakia (WW I)
Inter-war period
The world economy suffered after World
War I; dynamics of foreign trade strongly decreased
war loser’s property nationalized abroad
nationalism and protectionism
currency depreciation (beggar-thy-neighbor-policy)
world economic crisis (1929)
since WWII
Gloibal exports and foreign direct investment flows grew exponentially
A core reason for the significant growth of international business activity after WW II
was the development of relevant institutions that govern and support cross-country trade and investment.
Bretton Woods
Bretton Woods Agreement
introduced a system of fixed exchange rates (1944)
The IMF and World Bank were founded
A system of fixed exchange rates with the US Dollar as a leading currency was established
35 USD per fine ounce gold (1 US-$ = 26 Schilling = 3,67 DM) was defined
The Fed was obliged to exchange USD into gold at any time
1973: Obligation to exchange gold was canceled -> Collapse of Bretton Woods System
Exchange rate dropped to 1 US-$ = 2 DM
Free Trade Frameworks
After WWII: WTO forms the institutional framework for trade between the economically most powerful nations
Today: GATT, GATS and TRIPS form the most important framework of world trade
WTO (1995) consists of three pillars: GATT (1948), GATS (1995), TRIPS (1995)
Most Favored Nation (MFN)
Trade advantages granted to one nation partner must also be granted to other
nations
National treatment
Foreign and domestic suppliers must generally be treated equally
Quota restriction
Quantitative restrictions on imports or exports are generally prohibited
Incoterms
Today: Besides WTO, Incoterms provide a relevant framework for risk transfer in international trade
EXW: Works(named place)
Sellers make goods
available at their premises
(places the maximum
obligation on the buyer)
DAP: Delivered at Port
Seller covers all the costs
of transport (export fees,
carriage, unloading main
carrier at destination port,
destination port charges)
DDP: Delivered Duty Paid
Seller assumes all risk until destination port or terminal
