GLOBALIZATION

The term globalization denotes the globe as

single market, product presence in different
markets of the world, production bases across
the globe, human resources from all across the
world, investment in international services,
transactions involving intellectual properties
etc.
Globalization helps the consumers to obtain
advanced products available in the world.
Globalization also implies considering whole
globe as one from the economic and business
point of view.

Features of Globalization

A global organization will operate and plan to
expand all over the world.
It engages in buying and selling all across the globe.
Establishing manufacturing and production any
where around the world as per scale of economy.
It carries out product planning and development
based on market consideration of the different
countries of the world.
It sources human resources, raw material, finances,
machinery etc. all across the world.
It creates a global culture among the minds of
employees.
Globalization carries both promises and threats at
the national, regional, organizational and individual
level.
INTERNATIONAL BUSINESS
DEFINITION:
Refers to any form of commercial exchange of materials,
goods, services or any other resource that involves transfer
across boundaries.
International business has created a network of global
links that bind countries, institutions and individuals with
trade, financial markets, technology and living standards.
e.g. a reduction in coffee production in brazil would effect
individuals and economies worldwide.
Why go international?
Profit advantage
Growth opportunities
Domestic market constraints/restrictions/
saturation
Strategic vision
Seeking greater operational efficiency
Seeking new markets
Seeking new resources
Efficient use of economies of scale
Taking advantage of product differentiation.
Need for international business
Causes the flow of ideas, services and capital
across the world
Offers consumers new choices
Permits the acquisition of a wider variety of
products
Facilitates the mobility of labour, capital and
technology
Provides challenging employment
opportunities
Reallocates resources, makes preferential
choices and shifts activities to a global level.
INTERNATIONAL MANAGEMENT
Process of applying management concepts and
techniques in a multinational environment and
adapting management practices to different
economic, political and cultural environment.
Linkage between international business and
international management

Corporate strategy
- The decision to get into international business
International management deals with
- Managing the foreign operations strategically by
controlling the various functional imperatives
Major decisions in international business

1. Deciding whether to go abroad or not
2. Deciding which market to enter
3. Deciding how to enter the market
Mercantilism: mid-16th century
A nations wealth depends on
accumulated treasure
Gold and silver are the mainstays of
national wealth and are currency of trade.
Theory says you should have a trade
surplus.
Maximize exports through subsidies.
Minimize imports through tariffs and
quotas
Theory of Absolute Advantage
Adam Smith: Wealth of Nations (1776).
Capability of one country to produce more of a
product with the same amount of input than
another country.
Produce only goods where you are most efficient,
trade for those where you are not efficient.
Assumes there is an
absolute advantage balance among nations,
Product Life-Cycle Theory
(Raymond Vernon, 1966)

As products mature, both location of sales and
optimal production changes.
Affects the direction and flow of imports and exports.
Globalization and integration of the economy makes
this theory less valid.
The New Trade Theory
Began to be recognized in the 1970s.
Deals with the returns on specialization where
substantial economies of scale are present.
Specialization increases output, ability to
enhance economies of scale increase.
In addition to economies of scale, learning
effects also exist.
Learning effects are cost savings that come
from learning by doing.

Application of the New Trade Theory
Typically, requires industries with high, fixed
costs.
World demand will support few competitors.
Competitors may emerge because they got there
first.
First-mover advantage.
Some argue that it generates government
intervention and strategic trade policy.
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Porters Diamond
(Harvard Business School, 1990)
The Competitive Advantage of Nations.
Looked at 100 industries in 10 nations.
Thought existing theories didnt go far
enough.
Question: Why does a nation achieve
international success in a particular industry?
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Porters Diamond
Determinants of National Competitive Advantage
Factor Endowments
Firm Strategy,
Structure and
Rivalry
Demand Conditions
Related and
Supporting
Industries
4-30
Factor endowments: Nations position in factors of
production such as skilled labor or infrastructure
necessary to compete in a given industry.
Demand conditions: The nature of home demand for the
industrys product or service.
Related and supporting industries: The presence or
absence in a nation of supplier industries or related
industries that are nationally competitive.
Firm strategy, structure and rivalry: The conditions in
the nation governing how companies are created,
organized, and managed and the nature of domestic
rivalry.
EPRG APPROACH
Organizations orientation towards
internationalization:

E : ethnocentric
P : polycentric
R : Regiocentric
G : Geocentric
Ethnocentric approach
A nationalistic philosophy of management whereby
the values and interests of the parent company guide
strategic decisions. Stresses nationalism and puts
home office people in charge of key international
management positions. The MNC headquarters and
the subsidiarys managers all have the same basic
experience, attitudes and beliefs about how to manage
operations. Many Japanese firms follow these
practices.
Polycentric
A philosophy of management whereby strategic
decisions are tailored to suit the cultures of the
countries where the MNC operates. Places local
nationals in key positions and allows these
managers to appoint and develop their own
people. MNC headquarters gives the subsidiary
managers authority to manage their operations
just as long as these operations are sufficiently
profitable . Some MNCs use this approach in East
Asia and other markets that are deemed too
expensive to staff with expatriates
Expatriates- refers to those who live and work
outside their home country. They are citizens of the
country where the MNC is headquartered.
Regiocentric
The philosophy of management whereby the firm
tries to blend its own interests with those of its
subsidiaries on a regional basis. Relies on local
managers from a particular geographic region to
handle operations in and around that area.
Example : advertising managers from subsidiaries
in Italy , Germany, France, and Spain would come
together and formulate an European advertising
campaign for the companys product . A
Regiocentric approach often relies on regional
group cooperation of local managers.
Geocentric
a philosophy of management whereby the
company tries to integrate a global systems
approach to decision making. Seeks to integrate
diverse regions of the world through a global
approach to decision making, assignments are
based on qualifications, and all subsidiary
managers throughout the structure are regarded as
equal to those at headquarters.
International environment
International business environment the
external context in which organizations operate
across the world. It is characterised by
increased complexity and by expanding and
deepening ties between the different
stakeholder groups within it. To gain an
understanding of the contemporary
international business environment, some
knowledge of global political economy is
necessary.

Environmental Challenges of International
Management
Major Environmental factors
Economic Factors
Social Factors
Political Factors
Technological Factors
Ecological Factors
Economic Factors
1. Prime interest rates
2. Inflation rates
3. Trends in the growth of the gross national product
4. Unemployment rates
5. Globalization of the economy
6. Outsourcing
Social Factors
Present in the external environment:
Beliefs & Values
Attitudes & Opinions
Lifestyles
Developed from:
Cultural conditioning
Ecological conditioning
Demographic makeup
Religion
Education
Ethnic conditioning.
Political Factors
Political constraints on firms:
Fair-trade Decisions
Antitrust Laws
Tax Programs
Minimum Wage Legislation
Pollution and Pricing Policies
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Technological Factors
Technological forecasting helps protect and
improve the profitability of firms in growing
industries.
It alerts strategic managers to impending
challenges and promising opportunities.
The key to beneficial forecasting of technological
advancement lies in accurately predicting future
technological capabilities and their probable
impacts.
Ecological Factors
Ecology refers to the relationships among human
beings and other living things and the air, soil,
and water that supports them.
Threats to our life-supporting ecology caused
principally by human activities in an industrial
society are commonly referred to as pollution
Loss of habitat and biodiversity
Environmental legislation
Eco-efficiency
International Environment analysis

Monitoring the international environment
involves assessing each non-domestic market on the
same factors that are used in a domestic assessment.
While the importance of factors will differ, the same
set of considerations can be used for each country.
Economic, political, legal, and social factors are used
to assess international environments.
One complication to this process is that the interplay
among international markets must be considered.
Industry Environment
Harvard professor Michael E. Porter propelled the
concept of industry environment into the foreground
of strategic thought and business planning.
The cornerstone of Porters work first appeared in the
Harvard Business Review, in which he explains the five
forces that shape competition in an industry.
Porters well-defined analytic framework helps
strategic managers to link remote factors to their
effects on a firms operating environment.
Competitive Forces Shape Strategy
The essence of strategy formulation is coping with
competition.
Intense competition in an industry is neither
coincidence nor bad luck.
Competition in an industry is rooted in its underlying
economics, and competitive forces exist that go well
beyond the established combatants in a particular
industry.
The corporate strategists goal is to find a position in the
industry where his or her company can best defend itself
against these forces or can influence them in its favor.





















Ex. 4.8 Forces Driving Industry Competition