Incoterms 2010 and International Business - 101
International Business: Environments and Operations, 15e (Daniels et al.)
International Business - Daniels - 15th Edition - Case Study - Chapter 1
CHAPTER ONE
GLOBALIZATION AND INTERNATIONAL BUSINESS
OPENING CASE: THE GLOBALIZED BUSINESS OF SPORTS
[See Map 1.1]
Although not everyone agrees that the unbridled globalization of professional sports is all for the good, the process and possibilities are definitely far reaching. Today’s satellite television broadcasts enable fans to watch top players and teams in nearly any sport from almost anywhere on earth. Professional teams scour the world to find and develop the most talented athletes, and players forsake home country allegiances in their pursuit of the world’s highest salaries. Further, the more people that tournaments can attract through attendance and television, the more money that sponsors and advertisers are willing to pay—and the greater the likelihood that those sponsors and advertisers will have business operations that span the globe. In addition, sports and nonsports companies alike pay famous athletes and teams generous sums to endorse their products. Successful teams have opened shops both domestically and internationally to sell souvenirs bearing their logos and may make more money on merchandise than from TV rights and sponsorships combined. Most recently, as teams and leagues have begun to seek income opportunities outside their home countries, foreign investors have acquired a U.S. baseball team; another group of foreign investors acquired controlling interest in a British soccer (football) team, and the National Football League (NFL) of the United States underwrites flag football games in Chinese schools, and is playing some regular season NFL games in Europe. Map 1.1 outlines national sports in a variety of countries and can be used to discuss how culture impacts globalization.
Questions
1-1 Professional athlete A is a star. And professional athlete B is an average player. How has the globalization of professional sports affected each of these both positively and negatively?
All athletes playing abroad may generate interest in a player’s native country, due in part to the ability to watch games taking place anywhere in the world through live Web stream or satellite television. This gives not just the team owners, league representatives, but also the players a broadened audience exposure, expanded fan base and the opportunities for additional revenues. On the negative side, in undertaking any international sports effort, the athletes and teams must be sensitive to cultural differences. They need to appreciate differences in the world and understand how the same sport can be interpreted differently from country to country. It can also be noted that the average players can benefit by playing and presenting his skills to professional teams from foreign markets, which can in turn potentially offer them a contract. (LO: 2, Learning Outcome: To understand why companies engage in international business and why international business growth has accelerated, AACSB: Analytical Skills)
1-2 As you read the chapter, identify and show an example of each international mode of operations that is illustrated in the globalization of professional sports.
Using the NBA as an example in the opening case, it searches globally for talent and additional markets for its product. This is similar to any manager in almost any industry, who needs to identify where you can obtain the best inputs at the best price and where you can best sell the product that you have put together from those inputs. (LO: 2, Learning Outcome: To understand why companies engage in international business and why international business growth has accelerated, AACSB: Analytical Skills)
CLOSING CASE: Carnival Cruise Lines
Although sea voyages have held an aura of mystique for centuries, only in recent decades have the general masses been able to experience open seas and exotic ports of call as a purely recreational activity. Cruises, i.e., sea voyages for pleasure, offer passengers the convenience of an assigned cabin as they sail along a fixed itinerary that concludes at their original point of sea embarkation. Almost everything about the entire cruise industry is international, from the routes traveled to the use of flags of convenience to the locations of shipyards to the staffing of vessels. By far the largest cruise competitor is Carnival Corp., which owns a number of different lines that it calls brands. Because Carnival operates globally, it can treat the entire world as a source of both customers and supplies. At the same time, its widespread operations also leave Carnival vulnerable to political upheavals, health crises, economic recessions, and natural disasters. Still, in all, the future outlook both for the industry and for Carnival is bright as more people the world over choose a holiday cruise.
Questions
1-3 What global forces have contributed to the growth of the cruise-line industry?
Two major factors that have contributed to the growth of the cruise industry are the change in the competitive environment brought about by the advent of transoceanic airline service and increasing discretionary incomes. As demand for liner travel declined in response to the development of less expensive and much faster air service, shipping lines were forced to respond to the new market conditions by developing sea travel for the middle class, i.e., cruises. In addition, all-inclusive prices, a wide range of on-board and on-shore offerings, and the additional safety and security measures provided by the cruise industry have proven very attractive in light of recent political and socio-economic events. (LO: 1, Learning Outcome: Define globalization and international business and show how they affect each other, AACSB: Analytical Skills)
1-4 What specific steps has Carnival Cruise Lines taken to benefit from global social changes?
Carnival has responded to global environmental changes in a variety of ways. Because a ship is highly vulnerable to terrorist acts, Carnival has instituted very strict security measures. It has also implemented strict health and safety measures. Carnival has dealt with economic recessions by offering shorter cruises that embark closer to home and with times of economic prosperity by offering longer cruises that incorporate more exotic destinations. It minimizes staffing costs by sourcing employees on a global basis. In addition, across its various lines, Carnival offers a wide variety of themes, classes of service, and destinations. (LO: 2, Learning Outcome: To understand why companies engage in international business and why international business growth has accelerated, AACSB: Analytical Skills)
1-5 What economic factors influence success of the international cruise industry? Explain how each affects such success.
Economic factors affect the operations of cruise lines, which are truly international in nature. For example, most shipping lines choose to flag their vessels in countries such as Liberia, Mongolia, or Panama because of the lower taxes and less stringent employment practices required by the laws of those countries. Relatively few countries (Finland, France, Germany, Italy, Japan, and South Korea, for example) have shipyards capable of building cruise ships. Consequently, governments (e.g., Italy) may choose to subsidize the ship-building industry in order to secure contracts for their domestic firms. (LO: 5, Learning Outcome: To apply social science disciplines to understanding the differences between international and domestic business, AACSB: Multicultural and Diversity Understanding)
1-6 Although most cruise line passengers are from the United States, the average number of annual vacation days taken by U.S. residents is lower than that of workers in most other high-income countries (13 days, compared with 42 days in Italy, 37 in France, 35 in Germany, and 25 in Japan). How might the cruise lines increase sales to people outside the United States?
Given that the majority of people in the targeted income segment have yet to take a cruise, the major task confronting the cruise line industry is one of marketing. In addition to promoting the many appealing features of its various cruises and lines throughout the developed world and selected developing countries, Carnival could partner with foreign airlines and travel agents in order to get foreign vacationers to its many ports of embarkation. (LO: 4, Learning Outcome: To become familiar with different ways in which a company can accomplish its global objectives, AACSB: Dynamics of a Global Economy)
1-7 What threats exist for the future performance of the cruise-line industry and, specifically, of Carnival Cruise Lines? If you were in charge of Carnival, how would you (a) try to prevent these threats from becoming reality, and (b) deal with them if they were realized?
While the potential market for Carnival seems very attractive, port capacity could well become an issue. The deep water and the massive facilities required to dock a liner in any port are limited. In addition, there are passionate cries from environmentalists regarding the damage (pollution of the seas, disorientation of sea mammals caused by the noise of the propellers, etc.) being caused by liners both in port and at sea. Should there be a major global economic disaster or a global health pandemic, the cruise line industry will surely suffer.
To proactively deal with the possibility of a downturn, Carnival should invest heavily in research and development in order to continually minimize the environmental impact of its ships and their operation. It must also carefully develop its global cruise structure in a way that complements existing capacity—or else work with ports to provide additional capacity.
If Carnival finds that it must react to a downturn, it should always think in terms of all of its stakeholders, not just its stockholders. Of course, it will want to minimize any damage to its operations and profits. However, given the immense size of the firm, it may also be possible for Carnival to reach out to others (such as providing liners to be used as housing for workers, as in the case of Hurricane Katrina). Carnival will be better served by a long-term rather than a short-term orientation. (LO: 3, Learning Outcome: To discuss globalization’s future and the major criticisms of globalization, AACSB: Reflective Thinking Skills)
1-8 Discuss the ethics of cruise lines regarding the avoidance of taxes while buying ships built with governmental subsidies.
This is definitely a complex issue. While cruise lines avoid most taxes by flying flags of convenience, they argue that they must do so for competitive (cost-savings) reasons—and that other governments could choose to offer the same benefits. Their supporters also argue that the lost taxes are at least to some extent indirectly offset by port fees and passenger spending, and that the taxes realized by less developed countries are important contributions to their economies. However, others argue that the less restrictive staffing, safety, and operating requirements associated with flags of convenience are intolerable. They argue that lesser standards pose both safety and environmental hazards and that in the long run, the costs to society are high. They feel strongly that if shipping lines receive government subsidies on the one hand, it is immoral and should be illegal for them to avoid paying taxes on the other. (LO: 4, Learning Outcome: To become familiar with different ways in which a company can accomplish its global objectives, AACSB: Ethical Understanding and Reasoning Ability)
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