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Q.1 What is globalization?
Globalization: Globalization is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization defined as, “the worldwide trend of businesses expanding beyond their domestic boundaries’. It is advantageous for the economy of the countries because it promotes prosperity in the countries that embrace globalization. . Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence.However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors.The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. An aspect of the world which has gone through the process can be said to be globalized. Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural contacts while increasing the possibility of international and intra-national conflict.
Globalization has various aspects which affect the world in several different ways
• Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955.China's trade with Africa rose sevenfold during 2000-07 alone . • Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment • Economic - realization of a global common market, based on the freedom of exchange of goods and capital . • Job Market - competition in a global job market. In the past, the economic fate of workers was tied to the fate of national economies. With the advent of the information age and improvements in communication, this is no longer the case. Because workers compete in a global market, wages are less dependent on the success or failure of individual economies. This has had a major effect on wages and income distribution .
Roll No.- 511121896
the People's Republic of China has experienced some tremendous growth within the past decade. Global Business : Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. In fact. in part because of its strong and wealthy economy. Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. With the influence of globalization and with the help of the United States’ own economy. The transformation of a company from domestic to international is by entering just one market or a few selected foreign markets as an exporter or importer.some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Global Companies: Companies. a.. Multinational strategy and global competitive strategy are the two types of competitive strategy . apart from their home country . are considered as global companies. If China continues to grow at the rate projected by the trends. there is a considerable difference between the two terms . there will be a major reallocation of power among the world leaders. They can be exporters or importers who may not have any investments in any other country. In fact there is a considerable difference between the two terms . International Companies: Companies that deal with foreign companies for their business are considered as international companies. It can be for the following reasons : : Dheeraj kumar Roll No. which invest in other countries for business and also operates from other countries. Politically. industry. then it is very likely that in the next twenty years. and technology to rival the United States for the position of leading world power . Companies can also be differentiated by the kind of competitive strategy they adopt while dealing internationally. China will have enough wealth. International Vs.511121896 . They have multiple manufacturing plants across the globe. Competing on a truly global scale comes later. after the company has established operations in several countries across continents and is racing against rivals for global market leadership. there is a meaningful distinction between a company that operates in a few selected foreign countries and a company that operates and market its products across several countries and continents with manufacturing capabilities in several of these countries . Thus.SEM-4 MB0053 • Political . Multinational Strategy: Companies adopt this strategy when each countries market needs to be treated as self contained. catering to multiple markets . the United States has enjoyed a position of power among the world powers.
In a globally competitive industry. • A company’s reputation. . In a global scenario. which has its headquarters in Sweden. on average nations in 1950 witnessed just one overseas visitor for every 100 Dheeraj kumar Roll No. This is made possible because of the ease in transferring technology and expertise from country to country. Globally. Some of the industry example for multinational competition includes beer. . • Commerce as a percentage of gross world product has increased in 1986 from 15% to nearly 27% in recent years. The same set of competitors may compete against each other in several countries. . a company’s overall competitive advantage is gauged by the cumulative efforts of its domestic operations and the international operations worldwide. b. customer base. consumer electronics. • The stock of foreign direct investment resources has increased rapidly as a percentage of gross world product in the past twenty years. Benefits of Globalization: . and competitive position in one nation have little or no bearing on its ability to successfully compete in another market .. Industries that have a global competition are automobiles. . Some of the benefits of globalization are as follows: . manufacturing and Assembly plants in low wage countries like China and sales and marketing worldwide. • For the purpose of commerce and pleasure.SEM-4 MB0053 • Customers from different countries have different preferences and expectations about a product or service. more and more people are crossing national borders. it also exploits labour at a very low cost compared to home country. The merits and demerits of globalization are highly debatable. While globalization creates employment opportunities in the host countries. Global Competitive Strategy: Companies adopt this strategy when prices and competitive conditions across the different countries are strongly linked together and have common synergies.511121896 . Research and Development setup in USA and India. life insurance and food products . watches and commercial aircraft and so on . a company’s business gets affected by the changing environment in different countries. • Competition in each national market is essentially independent of competition in other national markets and the set of competitors also differ from country to country . A good example to illustrate is Sony Ericssson.
• Promotes foreign trade and liberalization of economies. The evidence on this is clear. Q. The number of mobile subscribers has elevated from almost zero to 1. . best practices and culture.SEM-4 MB0053 citizens.511121896 .. Outsourcing helps the companies to be competitive by keeping the cost low with increased productivity. . Internet users will quickly touch 1 billion. •Give better access to finance for corporate and sovereign borrowers. . • Provide several platforms for international dispute resolutions in business. • Increases the living standards of people in several developing countries through the capital investments in developing countries by developed countries. • Benefits customers as companies outsource to low wage countries. . ethics. Dheeraj kumar Roll No.2 Describe the positives of trade liberalization. ideas. . in terms of substantial increases in living standards for its people. without being open to the rest of the world. • Incease sales as the availability of cutting edge technologies and production techniques decrease the cost of production.8 billion indicating around 30% of the world population. By the mid-1980s it increased to six and ever since the number has doubled to 12. • Increase business travel. • Promotes better education and jobs. trade opening (along with opening to foreign direct investment) has been an important element in the economic success of East Asia. Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. . No country in recent decades has achieved economic success. In contrast. customer services and standardised delivery model across countries. which facilitates international trade. which in turn leads to flourishing travel and hospitality industry across the world. • Leads to free flow of information and wide acceptance of foreign products. . . . • Provides better quality of products. • Worldwide telephone traffic has tripled since 1991.
such access should be made permanent.511121896 . the elimination of tariff peaks and escalation in agriculture and manufacturing also needs to be pursued. New jobs are created for unskilled workers. Developing countries would gain about equally from liberalization of manufacturing and agriculture. Although quotas under the so-called Multi-fibre Agreement are due to be phased out by 2005. and accompanied by simple. inequality among countries has been on the decline since 1990. The recent market-opening initiatives of the EU and some other countries are important steps in this regard. Enhanced market access for the poorest developing countries would provide them with the means to harness trade for development and poverty reduction. have experienced faster growth and more poverty reduction.. countries benefit most from liberalizing their own markets. extended to all goods." the number of people in absolute poverty declined by over 120 million (14 percent) between 1993 and 1998. Developing countries can ill-afford the large implicit subsidies. Further liberalization – by both industrial and developing countries – will be needed to realize trade’s potential as a driving force for economic growth and development. reflecting more rapid economic growth in developing countries. The main benefits for industrial countries would come from the liberalization of their agricultural markets. This would give the poorest countries the confidence to persist with difficult domestic reforms and ensure effective use of debt relief and aid flows. speedier liberalization of textiles and clothing and of agriculture is particularly important. Countries that have opened their economies in recent years. the increased growth that results from free trade itself tends to increase the incomes of the poor in roughly the same proportion as those of the population as a whole. Moreover.SEM-4 MB0053 Opening up their economies to the global economy has been essential in enabling many developing countries to develop competitive advantages in the manufacture of certain products. defined by the World Bank as the "new globalizers. Freeing trade frequently benefits the poor especially. Dheeraj kumar Roll No. To be completely effective. There is considerable evidence that more outward-oriented countries tend consistently to grow faster than ones that are inward-looking. raising them into the middle class. Greater efforts by industrial countries and the international community more broadly. developing countries would strengthen their own economies (and their trading partners’) if they made a sustained effort to reduce their own trade barriers further. Overall. one finding is that the benefits of trade liberalization can exceed the costs by more than a factor of 10. and Uganda. including India. Although there are benefits from improved access to other countries’ markets. transparent rules of origin. The group of low-income countries. In these countries. particularly the poorest countries. often channeled to narrow privileged interests that trade protection provides. in part the result of trade liberalization. however. are called for to remove the trade barriers facing developing countries. those developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than those that did not. would gain most from agricultural liberalization in industrial countries because of the greater relative importance of agriculture in their economies. On average. Vietnam. Indeed. Offering the poorest countries duty – and quota – free access to world markets would greatly benefit these countries at little cost to the rest of the world. Similarly. In turn.
Dheeraj kumar Roll No. Much of this was achieved through a series of "trade rounds". international investment and services. It was also agreed that the value of these concessions should be protected by early and largely "provisional" acceptance of some of the trade rules in the draft ITO Charter. restrictive business practices. High rates of unemployment and constant factory closures led governments in Europe and North America to seek bilateral market-sharing arrangements with competitors and to embark on a subsidies race to maintain their holds on agricultural trade. under the auspices of GATT – the Uruguay Round was the latest and most extensive. outside the tariff reduction results. Although. When the United States’ government announced. highlighting the difference between the two. the GATT remained the only multilateral instrument governing international trade from 1948 until the establishment of the WTO. The limited achievement of the Tokyo Round. that it would not seek Congressional ratification of the Havana Charter. there were additions in the form of "plural-lateral” voluntary membership agreements and continual efforts to reduce tariffs. The original 23 GATT countries were among over 50 which agreed a draft Charter for an International Trade Organization (ITO) – a new specialized agency of the United Nations. The tariff concessions and rules together became known as the General Agreement on Tariffs and Trade and entered into force in January 1948. The biggest leaps forward in international trade liberalization have come through multilateral trade negotiations. Despite its provisional nature. was established on a provisional basis after the Second World War in the wake of other new multilateral institutions dedicated to international economic cooperation – notably the "Britton Woods" institutions now known as the World Bank and the International Monetary Fund. the basic legal text of the GATT remained much as it was in 1948. was a sign of difficult times to come. the ITO was effectively dead. The Charter was intended to provide not only world trade disciplines but also contained rules relating to employment.000 tariff concessions affecting $10 billion or about one-fifth – of world trade.3 Write a short note on GATT and WTO. General Agreement on Tariff and Trade(GATT): The GATT. drove governments to devise other forms of protection for sectors facing increased overseas competition. commodity agreements. combined with a series of economic recessions in the 1970s and early 1980s. This first round of negotiations resulted in 45. In an effort to give an early boost to trade liberalization after the Second World War and to begin to correct the large overhang of protectionist measures which remained in place from the early 1930s-tariff negotiations were opened among the 23 founding GATT "contracting parties" in 1946. in 1950. in its 47 years. GATT’s success in reducing tariffs to such a low level. ratification in national legislatures proved impossible in some cases. Although the ITO Charter was finally agreed at a UN Conference on Trade and Employment in Havana in March 1948. Both these changes undermined the credibility and effectiveness of GATT.SEM-4 MB0053 Q.511121896 .. or "trade rounds".
At the next level. the Secretariat does not have the decision-making role that other international bureaucracies are given with. freely. Numerous specialized committees. on the contrary. The WTO Secretariat. working groups and working parties deal with the individual agreements and other areas such as the environment. based in Geneva. GATT. This is typically by consensus. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body. The WTO’s agreements have been ratified in all members’ parliaments. Since decisions are taken by the members themselves. It does not have branch offices outside Geneva. The WTO’s overriding objective is to help trade flow smoothly. the Goods Council. Around 30 others are negotiating membership.511121896 . Services Council and Intellectual Property (TRIPS) Council report to the General Council. The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years. Decisions are made by the entire membership. either by ministers (who meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). Difference between WTO and GATT:The World Trade Organization is not a simple extension of GATT. The WTO is run by its member governments. Among the principal differences are the following: Dheeraj kumar Roll No. through technical assistance and training programs Cooperating with other international organizations The WTO has nearly 150 members. has around 600 staff and is headed by a directorgeneral. accounting for over 97% of world trade. it be completely replaces its predecessor and has a very different character. membership applications and regional trade agreements..SEM-4 MB0053 WTO World Trade Organization came into existence in 1995 after the desolation of General Agreement on Tariff and Trade (GATT). Its annual budget is roughly 160 million Swiss francs. development. Below this is the General Council which meets several times a year in the Geneva headquarters. All major decisions are made by the membership as a whole. A majority vote is also possible but it has never been used in the WTO. fairly and predictably. and was extremely rare under the WTO’s predecessor. It does this by: Administering trade agreements Acting as a forum for trade negotiations Settling trade disputes Reviewing national trade policies Assisting developing countries in trade policy issues. Decisions are normally taken by consensus.
The implementation of WTO dispute findings will also be more easily assured. According to Franklin Root (1994). whereas "polycentric" loses its meaning when the MNCs operate only in one or two foreign countries. The WTO commitments are full and permanent. However. Q. nature. c. only a small associated secretariat which had its origins in the attempt to establish an International Trade Organization in the 1940s. and therefore selective.SEM-4 MB0053 a. While GATT was a multilateral instrument. The agreements which constitute the WTO are almost all multilateral and. implements business strategies in production.. thus. more automatic. a multilateral agreement. governments chose to treat it as a permanent commitment. b. and thus much less susceptible to blockages. finance and staffing that transcend national boundaries. In addition to goods. The GATT rules applied to trade in merchandise goods.511121896 . than the old GATT system. The WTO is a permanent institution with its own secretariat. the WTO covers trade in services and trade-related aspects of intellectual property. exercises direct control over the policies of its affiliates. b. The WTO dispute settlement system is faster. an MNC is a parent company that a. marketing. The GATT was a set of rules. e. Multinational companies (MNC) may pursue business strategies that are home country – oriented or host country – oriented or world – oriented. involve commitments for the entire membership. with no institutional foundation. especially when the home country itself is populated by many different races. polycentric and geocentric. Business strategy of a MNC can be analyzed with the help of Three Stages of Evolution 1. d. engages in foreign production through its affiliates located in several countries. The GATT was applied on a "provisional basis" even if.4 Think of any MNC and analyze its business strategy orientation.firms rely on export agents • expansion of export sales Dheeraj kumar Roll No. Perlmutter uses such terms as ethnocentric. after more than forty years. Export stage • initial inquiries . by the 1980s many new agreements had been added of a plural-lateral. c. "ethnocentric" is misleading because it focuses on race or ethnicity.
R&D.Once the firm chooses foreign production as a method of delivering goods to foreign markets. organize and coordinate production.: Kentucky Fried Chicken in the U.511121896 . When MNC incorporated in one country.5 What does FDI stand for? Why do MNCs opt for FDI to enter international market? FDI stands for Foreign Direct Investment. invests in another country. Problem that may arise while following a particular business strategy: The mother firm may find it difficult in exercise of any managerial control over the licensee (as it is independent). The main reasons for MNCs to opt for FDI to enter international market is stated as follows: 1. For each of these operations.foreign sales branch or assembly operations (to save transport cost) 2. the licensee may transfer industrial secrets to another independent firm. it is risky (lack of information) (for example-US firms tend to establish subsidiaries in Canada first. marketing. This is how a MNC decides its business strategy orientation. It requires the decision of top management because it is a critical step. the firm must find the best location.SEM-4 MB0053 • further expansion . Investment flows from regions of low anticipated profits to those of high returns. Q. NTBs). Dheeraj kumar Roll No. thereby creating a rival. export continues 3. Multinational Stage: The company becomes a multinational enterprise when it begins to plan. Secondly. Growth motive : A company may have reached a plateau satisfying domestic demand. Singer Manufacturing Company established its foreign plants in Scotland and Australia in the 1850s) plants are established in several countries licensing is switched from independent producers to its subsidiaries. financing. It is the result of conscious planning by corporate managers. Licensing is usually first experience (because it is easy) • it does not require any capital expenditure • it is not risky • payment = a fixed % of sales e.K. which is not growing.. it is said that the FDI has flowed into the other country from some foreign origin. Foreign Production Stage There is a limit to foreign sales (tariffs. The next stage for supplementing any particular business strategy is Investments involved. Looking for new markets. it must decide whether to establish a foreign production subsidiary or license the technology to a foreign firm. New MNCs do not pop up randomly in foreign nations. and staffing.g.
describe various levels it consists of. which is invisible and taken for granted. One is a multi-level approach . FDI is a means to bypassing protective instruments in the importing country. US companies circumvented these barriers by setting up subsidiaries. Multinational firms that invested and built production plants in the United States are better off than the exporting firms that utilized New Orleans port to ship and distribute products through New Orleans. Datsun (Nissan) and Volkswagen. group cultures. Japanese automobile firms have plants to produce automobile parts. It did not buy Toyota. through national cultures. GM purchased Monarch (GM Canada) and Opel (GM Germany). High Transportation Costs : Transportation costs are like tariffs in that they are barriers which raise consumer prices. and then. The present model proposes that culture as a multi – layer construct exists at all levels – from the global to the individual – and that at each level change first occurs at the most external layer of behaviour.. Market competition: The most certain method of preventing actual or potential competition is to acquire foreign businesses. and produce the rest in the U. For instance. and cultural values that are represented in the self at the individual level. They later became competitors. and the deepest level of basic assumption. There are two kinds of approach construct of culture. 5. when shared by individuals who belong to the same cultural context. 6. 3. (Maquildoras) Q. cost reduction: United Fruit has established banana-producing facilities in Honduras. MNCs can hold down costs by locating part of all their productive facilities abroad. Exchange Rate Fluctuations: Japanese firms invest here to produce heavy construction machines to avoid excessive exchange rate fluctuations. 4. viewing culture as a multi-level construct that consists of various levels nested withi each other from the most macro-level of a global culture. When transportation costs are high. Also. which is testable by social consensus. The second is based on Schein’s (1992) model viewing culture as a multi – layer construct consisting of the most external layer of observed artifacts and behaviours.S. Labour costs tend to differ among nations. Cheap foreign labour. Japanese corporations located auto assembly plants in the US.SEM-4 MB0053 2.511121896 . the deeper level of values.6Viewing culture as a multi-level construct. provided that they built plants in a safe area. multinational firms want to build production plants close to the market in order to save transportation costs. to bypass VERs. it Dheeraj kumar Roll No. Toyota imports engines and transmissions from Japanese plants. Protection in the importing countries : Foreign direct investment is one way to expand. organizational cultures. European Community imposed common external tariff against outsiders.
the values that dominate the global context are often based on a free market economy. the most macro-level is that of a global culture being created by global networks and global institutions that cross national and cultural borders. the values of the founders. In the model. organizations.SEM-4 MB0053 becomes a shared value that characterizes the aggregated unit (group. democracy. Further down are local organizations. the type of ownership. employees of an R&D unit are selected into the unit because of their creative cognitive style and professional expertise. but that differ from each other in their unit culture on the basis of the differences in their functions (e. Individuals who belong to the same group share the same values that differentiate them from other groups and create a group – level culture through a bottom-up process of aggregation of shared values. R&D vs manufacturing). At the bottom of this structure are individuals who through the process of socialization acquire the cultural values transmitted to them from higher levels of culture. etc. individual rights. Below the global level are nested organizations and networks at the national level with their local cultures varying from one nation or network to another. For example. and openness to change. Dheeraj kumar Roll No. their leaders’ values. or nations). they vary in their local organizational cultures. and the professional and educational level of their members. respect of freedom of choice.g. The dynamic of top-down–bottom-up processes across levels of culture.511121896 .. and although all of them share some common values of their national culture. acceptance and tolerance of diversity. which are also shaped by the type of industry that they represent.. Given the dominance of Western MNCs. Figure-1: The dynamic of top-down–bottom-up processes across levels of culture. Within each organization are sub-units and groups that share the common national and organizational culture.
over time. all members of this unit share similar core values. and local organizations that share similar values create the national culture that is different from other national cultures. changes at each level affect lower levels through a top-down process. That means that there is a continuous reciprocal process of shaping and reshaping organizations at both levels. and different parts of the multinational company. For example. These global rules and values filter down to the local organizations that constitute the global company.511121896 . which differentiate them from other organizational units. Both top-down and bottom-up processes reflect the dynamic nature of culture. and explain how culture at different levels is being shaped and reshaped by changes that occur at other levels. Global organizations and networks are being formed by having local-level organizations join the global arena. multinational companies that operate in the global market develop common rules and cultural values that enable them to create a synergy between the various regions. having local organizations join a global company may introduce changes into the global company because of its need to function effectively across different cultural boarders. and upper levels through a bottom-up process of aggregation. either above it through top-down processes or below it through ottom-up processes. Similarly. Thus. Reciprocally. Groups that share similar values create the organizational culture through a process of aggregation.SEM-4 MB0053 Their leader also typically facilitates the display of these personal characteristics because they are crucial for developing innovative products. and. Dheeraj kumar Roll No. they shape the local organizations..
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