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6169856 International Business Management as Per VTU

6169856 International Business Management as Per VTU

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Published by: senthil245 on Jul 15, 2009
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11/24/2012

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CHAPTER 1: GLOBALIZATION
Contents:
Understand what is meant by globalization.
Be familiar with the causes of globalization.Changing international trade patterns, FDI flow, differences in economicgrowth among countries, and the rise of new MNCs are changing the natureof the world economy.
Debate over the impact of globalization.
Numerous opportunities and challenges due to globalization.
Introduction
Whether a business student is studying marketing, finance, accounting,strategy, human relations, or operations management, the differences betweencountries in which a firm does business will affect decisions that must be made.A fundamental shift is occurring in the world economy. The world is gettingcloser in terms of cross border trade and investment, by distance, time zones,languages and by national differences in government regulation, culture andbusiness systems and toward a world in which national economies are merginginto one huge interdependent global economic system. Globalization is affectingfirms that previously operated in a nice, easy, protected national market. It alsoillustrates the increasing importance of thinking globally.
What is globalization?Definition: globalization is the trend toward a more integrated globaleconomic system.
 The rate at which this shift is occurring has been accelerated recently.
Globalization has two faces
:
Globalization of marketsGlobalization of productionGlobalization of markets:Globalization of markets refers to the fact that in many industrieshistorically distinct and separate national markets are merging intoone huge global marketplace.
International Business Management1
 
 There is a movement towards a globalization of markets, as the tastes andpreferences of consumers in different nations are beginning to converge uponsome global norm. The global acceptance of Coca-Cola, Levi’s jeans, SonyWalkmans, and McDonald’s hamburgers are all examples. By offering astandard product worldwide, they are helping to create a global market. Evensmaller companies can get the benefits from the globalization of markets.Despite the global prevalence of global brands such as Levis, City Bank, Pepsietc, national markets are not disappearing. There are still significant differences- Germany still leads in per capita beer consumption, with a local pub on almostevery corner and in some cities, women selling beer out of their front windowsto passers by on the street. The French lead in wine consumption, and theconsumption of wine is a natural part of life anywhere in France. Italians lead inpasta eaten, and these differences are unlikely to be eliminated any time soon.Hence, often there is still a need for marketing strategies and product featuresto be customized to local conditions.
Globalization of production
:
The globalization of production refers to the tendency among manyfirms to source goods and services from different locations around theglobe in an attempt to take advantage of national differences in thecost and quality of factors of production. (labor, energy, land andcapital)
 Through this companies hope to lower their overall cost structure and orimprove the quality or functionality of their product, thereby allowing them tocompete more effectively against their rivals. The examples of Boeing and SwanOptical illustrate how production is dispersed.Boeing company’s commercial jet airliner, Boeing 777 contains 132,500 majorcomponents parts that are produced around the world by 545 differentsuppliers. Eight Japanese suppliers make parts of fuselage, doors and wings, asupplier in Singapore make the doors for the nose landing gear, three suppliersin Italy manufacture wing flaps etc. The result of having a global web of suppliers is a
better final product
, whichenhances the chances of Boeing wining a greater share of aircraft orders thanits global rival
Airbus
.While part of the rationale is based on costs and finding the best suppliers inthe world, there are also other factors. In Boeing’s case, if it wishes to sellairliners to countries like China, these countries often demand that domestic
International Business Management2
 
firms be contracted to supply portions of the plane - otherwise they will findanother supplier (Airbus) who is willing to support local industry.
Drivers of globalizationTwo key factors seem to underlie the trend towards the increasingglobalization of markets and production:
The decline of barriers to trade and investment and
Technological change.
The decline of barriers to trade and investment:Decline in Trade barriers
:
Definition: International trade occurs when a firm exports goods orservices to consumers in another country.
Many of the barriers to international trade took the form of high tariffs onimports of manufactured goods. However, this depressed world demand andcontributed to the great depression of the 1930’s.After World War II, the industrialized countries of the West started a process of removing barriers to the free flow of goods, services, and capital betweennations. Under GATT, over 140 nations negotiated even further to decreasetariffs and made significant progress on a number of non-tariff issues (e.g.intellectual property, trade in services). The most recent round of negotiationsknown as Uruguay round was competed in December 1993. The Uruguay roundfurther reduced trade barriers, covering services as well as manufactured goodsprovided enhanced protection for patents, trade marks and copyrights andestablished WTO to police the international trading system. With theestablishment of the WTO, a mechanism now exists for dispute resolution andthe enforcement of trade laws.Average tariff rates have fallen significantly since 1950’s, and under theUruguay agreement, they have approached 3.9 percent by 2000. This removal of barriers to trade has taken place in conjunction with increasedtrade, world output, and foreign direct investment.
Decline in investment barriers
:
Definition: The Foreign direct Investment
:
FDI occurs when a firm
International Business Management3

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