Appreciate the magnitude of international trade and how it has grown.

The volume of international trade in goods and services measured in current dollars exceeded $11 trillion in 2004. Merchandise exports, at $8.9 trillion, were about 4.5 times what they were in 1980. Services exports were only $2.1 trillion in 2004, but their rate of growth since 1980 has been faster than that of merchandise exports.

Identify the direction of trade, or who trades with whom.

Developed countries tend to trade with developed countries, with such trade accounting for more than 70 percent of their total trade, and they account for a majority of the exports worldwide. More than half of the exports from developed countries also go to developed countries, though this proportion has been declining for the past 35 years. The results for services exports are similar in many ways to those found for merchandise exports. The rise of regional trade agreements, as well as other factors, is transforming the volume and direction of world trade in merchandise and services. Over 70 percent of world trade now occurs between members of regional trade agreements.

Explain the size, growth, and direction of foreign direct investment, worldwide and in the United States.

The book value of foreign direct investment was nearly $10 trillion at the end of 2004. The United States is the largest source of this FDI, with a total value of outstanding investments 1.46 times that of the United Kingdom, the next-largest investor, and 2.4 times that of Germany, the third-largest investor. The proportion of global foreign direct investment accounted for by the United States has been declining, falling from 36 percent in 1985 to 21 percent in 2004, while the proportion accounted for by the European Union has risen to 53 percent. The proportion of FDI originating in the developing nations has also been increasing, reaching 11 percent in 2004. On an annual basis, the United States was the largest source of FDI flows in 2004, with $229 billion in outflows, over 350 percent of the level of the second-largest FDI source, the United Kingdom. Overall, over 70 percent of annual FDI investments flow into developed countries, with a majority of this investment occurring in the form of acquisitions of existing companies. The leader in FDI inflows at a national level was China for each of the years 2001 through 2004, the first time an emerging market has held such a distinction as the target for worldwide FDI investments. The direction of FDI follows the direction of foreign trade; that is, developed nations invest in each other just as they trade with each other. Note that because of the new business environment, many international firms are dispersing the activities of their manufacturing systems to locations closer to available resources. Deciding where to locate may be either an FDI or a trade decision.

Identify who invests and how much is invested in the United States.

Foreign direct investment in the United States rose from $185 billion in 1985 to $1,874 billion in 2005. Firms from just eight nations—United Kingdom, Japan, Germany, Netherlands, France, Canada, Switzerland, and Luxembourg—own about 85 percent of the total stock of foreign direct investment in the United States.

Understand the reasons for entering foreign markets.

Companies enter foreign markets (exporting to and manufacturing in) to increase sales and profits and to protect markets, sales, and profits. Foreign firms often buy American firms to acquire technology and marketing know-how. Foreign investment also enables a company to diversify geographically.

Comprehend that globalization of an international firm occurs over at least seven dimensions and that a company can be partially global in some dimensions and completely global in others.

A firm can have, and usually does have, an international strategy that is partially multidomestic in some dimensions and partially global in others. Management must decide the extent to which the firm should globalize along each dimension.