Unit-1
Globalization
&
International Business
1.1 Concept of Globalization &
International Business
Globalization:
It is a process of interaction and integration
among the people, companies, and
governments of different nations, a process
driven by international trade and investment
and aided by information technology.
Globalization
Economic interdependence of countries
Integration of national market into global
market-result in MNC
Free movement of products across borders.
Flow of factors of production across
national boundaries
Advancement of Communication
Technologies
Forms of Globalization:
Globalization
Globalization of Market Cultural Globalization
Globalization of Production Political Globalization
Economic Globalization Environmental Globalization
Forms of Globalization:
Globalization of Market:
It refers to the merging of historically distinct
& separate national market into one mere
global market .
Less trade barrier
Possible for small sizes business to go global
Converging consumer preference of different
nations
Globalization of Production:
It is tendency among companies to source goods
& services from location around the globe to take
advantage of national differences in cost & quality
of factors of production.
Reduces cost and improves quality of product
American companies shifting software
development in Asian countries like India
Economic Globalization:
The increasing interdependence of world economies as a
result of the growing scale of cross-border trade of
commodities and services, flow of international capital and
wide and rapid spread of technologies.
Country depend on other country’s product
Many countries have created free trade agreements with
other countries
Private and public companies investing in international
market
Has allowed many corporations based in the West to move
factories and jobs to less economically developed
countries-outsourcing
Cultural Globalization:
The convergence of cultures across the
world
Facilitated by the movement of people,
objects, signs and symbols.
Key: forms of communication and
transportation
Influential in the field of arts- music,
movies and fashion
Political Globalization:
Declining importance of the nation-state and the
rise of other actors on the political scene.
The intensification and expansion of political
interrelations across the globe.
The spread and influence of International non-
governmental organizations, social movement
organizations and transnational advocacy
networks
For example: the existence of The United
Nations‘, The World Trade, IMF and World Bank.
Environmental Globalization
It refers to the internationally coordinated
practices and regulations (often in the form
of international treaties regarding environment
protection.
Countries coming together to solve the alarming
problems like global warming, ozone layer
depletion and loss of biodiversity.
For example: Kyoto Protocol- UN treaty that
commits state parties to reduce greenhouse gas
emissions
International Business
International Business:
Business activities that involve the transfer of
resources, goods services, knowledge, skills or
information across the national boundaries.
Contractual agreements that allow foreign firms to
use products, services, and processes from other
nations (licensing, franchising).
The formation and operations of sales,
manufacturing, research and development, and
distribution facilities in foreign markets
Participants of International Business:
Individuals: Individual Investors, Tourist,
Students
Company: Private & Public
Government: Central Bank, Government
Institutions
International Institutions: World Bank,
WTO, IMF
Objectives Of International Business:
To expand sales
To acquire resources
To minimize risk
Modes Of International Business
Merchandise exports & imports
Service export import
Investments
Importance of International Business:
Market Expansion
Earn Foreign Currency
Optimum Utilization of Resources
Minimize Business Risk
Increase Competitive Capacity.
1.2 Factors affecting Globalization
History Economy
Resources
and Market
Factors Affecting
Technologies
Globalization
Production
Issues
Industrial
Organization Political
1.2 Factors Affecting Globalization
Historical:
The trade routes were made over the years so that goods
from one kingdom or country moved to another.
Examples:
Britain’s colony in India, for instance, supplied cotton to
British merchants and traders.
The Silk Road, a trade
route between China and the
Mediterranean Sea, promoted
the exchange of ideas and
knowledge, along with trade
goods and foods such as silk,
spices, porcelain, and other
treasures from the East.
Economy: The cost of goods and values to the end
user determine the movement of goods and value
addition. The overall economics of a particular
industry or trade is an important factor in
globalization.
Example of interdependent economies:
American software companies, such as Microsoft, rely on
international trade to make large profits.
The economy of the country of Saudi Arabia is almost
entirely dependent on oil exports.
Resources and Markets:
The natural resources like minerals, coal, oil, gas,
human resources, water, etc. make an important
contribution in globalization.
Near distance to end user or consumer also is an
important factor in globalization.
The large markets as consumer bases in Asian countries
have led many European, Korean to Japanese
manufacturing corporations and shift their
manufacturing and trading bases in Asian countries.
A well known Australian cloth brand Target has its factory in Bangladesh-
(Alpha factory to name one)
Production Issues: Utilization of built up
capacities of production, slowness in
domestic market and over production
makes a manufacturing company look
outward and go global.
The development of overseas markets and
manufacturing plants in autos, four wheelers
and two wheelers is a classical example.
Political:
The political issues of a country make
globalization channelized as per political
bosses. The regional trade understandings or
agreements determine the scope of
globalization.
Trading in European Union and special
agreement in the erstwhile Soviet block and
SAARC are examples.
Industrial Organization:
The technological development in the areas
of production, product mix and firms are
helping organizations to expand their
operations.
The hiring of services and procurement of
sub-assemblies and components have a
strong influence in the globalization
process.
Technologies: The stage of technology in a
particular field gives rise to import or export
of products or services from or to the country.
European countries like England and Germany
exported their chemical, electrical, mechanical
plants in 50s and 60s and exports high tech
(then) goods to under developed countries.
Today India is exporting computer / software
related services to advanced counties like UK,
USA, etc.
1.3 Reasons For International Business
Expansion
Allorganizations, irrespective of their size,
are keen to enter in to international business.
The reason behind international business
expansion can be looked at:
1. From an individual company’s angle.
2. From the government angle.
From An Individual Company’s Angle
Managing the product life cycle:
Geographic expansion as a growth strategy
The adventurous spirit of the younger generation
Corporate ambition
Technology advantage
Building a corporate image
Incentives and business impact
Labor advantage
New business opportunities
From a Government Angle
Earning valuable foreign exchange
Interdependency of nations
Trade theories and their impact
Diplomatic relations
Core competency of nations
Investment for infrastructure
National image
Foreign trade policy and targets
WTO and international agencies
1.4 Drivers Of Market Globalization
Following are the drivers of market
globalization:
1. Technological Driver
2. Political Driver
3. Market Driver
4. Cost Driver
5. Competitive Driver
Technological Drivers
Technology shaped and set the foundation for modern
globalization. Innovations in the transportation technology
revolutionized the industry.
The most important developments among these are the commercial
jet aircraft and the concept of containerization in the late 1970s and
1980s
Inventions in the area of microprocessors and
telecommunications enabled highly effective computing
and communication at a low-cost level. Finally the rapid
growth of the Internet is the latest technological driver that
created global e-business and e-commerce.
Political Drivers:
Liberalized trading rules and deregulated
markets lead to lowered tariffs and allowed
foreign direct investments in almost all over
the world.
The institution of GATT (General Agreement
on Tariffs and Trade) 1947 and the WTO
(World Trade Organization) 1995 as well as
the ongoing opening and privatization in
Eastern Europe are only some examples of
latest developments.
Market Drivers
As domestic markets become more and
more saturated, the opportunities for growth
are limited and global expanding is a way
most organizations choose to overcome this
situation.
Common customer needs and the
opportunity to use global marketing
channels and transfer marketing to some
extent are also incentives to choose
internationalization.
Cost Drivers
Sourcing efficiency and costs vary from
country to country and global firms can take
advantage of this fact.
Other cost drivers to globalization are the
opportunity to build global scale economies
and the high product development costs
nowadays.
Competitive Drivers
With the global market, global inter-firm
competition increases and organizations are
forced to “play” international.
Strong interdependences among countries
and high two-way trades and FDI actions
also support this driver.
1.5 Domestic Vs. International Business
Comparison chart:
Basis Domestic International
Meaning A business is said to be International business is one
domestic, when its economic which is engaged in economic
transactions are conducted transaction with several
within the geographical countries in the world.
boundaries of the country.
Area of operation Within the country Whole world
Quality standards Quite low Very high
Seals in Single currency Multiple currencies
Capital Less Huge
investment
Basis Domestic International
Nature of customers Homogeneous Heterogeneous
It can be conducted It is difficult to conduct
Business research
easily. research.
Mobility of factors of Free Restricted
production
Restrictions Few Many
Questions To Be Discussed
Define international business. Enumerate
its importance.
Explain the different forms of
globalization.
What are the drivers of globalization?
Discuss briefly.
