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The inevitability of international business for organization is very well expressed by many management experts. Globalization has gone through many historical phases. Many reasons have facilitated its growth. Globalization has its impact on every sector of the economy across the world. When a firm decides to enter the international arena it must make a choice regarding different strategies to be adopted. Many MNC’s have made their presence felt worldwide. The aim of every economy must be to go for inclusive globalization which will give equal opportunities to all the nations to navigate the global seas. This paper deals with all the aspects mentioned herein.
INTRODUCTION International business is a term which involves import and export of goods and services manufactured and marketed by MNC are to source globally. It describes all commercial transactions that take place between two or more countries for profit. International business is the economic system of exchanging goods and services, conducted between individuals and business in multiple countries. Differences in the business environment between regions or nations may call for different business strategies. A firm in international business encounters different sets of environment: Internal environment Domestic environment Foreign environment Global environment. The competence of a firm to do International Business depends on a number of internal factors such as the mission and vision of the firm, the attitude, the people in the organization, etc. domestic environment includes micro and macro environment. Foreign environment refers to the environment of the relevant foreign market. And the global environment refers to the global factors that are relevant to business such as the WTO principles and agreements. GLOBALIZATION Globalization means integrating the domestic economy with the world economy. It is a process that draws countries out of their insulation and makes them join rest of the world in its match towards a new world economic order. It involves increasing among national economic systems, more integrated financial markets, economies of trade, higher factor mobility, free flow of technology and spread of knowledge through out the world. Globalization means opening up of the economy to foreign direct investment by providing requisite facilities, removing administrative and other constraints, allowing domestic companies to enter into joint ventures and foreign collaborations, bringing down quantitative and non-quantitative restrictions to trade, diluting the role of public sector and encouraging privatization and so on. It would eventually mean being able to manufacture in the most effective way anywhere in the world. It aims at integrating the world into one global village. Globalization is the shedding down of walls of distrust
and barriers of suspicion in between countries, to make a bridge where ideas and beliefs can cross the borders. THE GROWING RELEVANCE OF GLOBALIZATION The inevitable of globalization for organization is very well expressed by management guru Peter Drucker in his management challenges for 21st century. “All institution has to make global competitions a strategic goal. No institution whether a business, a university or a hospital can hope to survive let alone to succeed, unless it measures up to the standards set by the leaders in its field, any place in the world.” HISTORICAL PHASES OF GLOBALIZATION 1. The germinal phase (Europe, 1400-1750): • • • Dissolution of Christendom and emergence of state Communities Catholic church European exploration of Africa, Asia and the Americas Colonialism Individual. Establishing of nation state Citizenship and passports International exhibitions and communication agreements First World War Mass international migration and restrictions thereon
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2. The incipient phase (1750-1875):
3. The take-off phase (1875-1925):
4. The struggle for hegemony phase (1952-1969):
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League of Nations and UN Second World War Emergence of third World War Exploration of space World communities based on gender, ethnicity and race International relation more complex and fluid Global environment problem recognized Global mass media via space technology
5. The uncertainty phase (1969-1992):
PRO’S OF GLOBALIZATION 1. The steady of cash flows into the developing countries decreases the dollar difference.
2. 3. 4. 5. 6. 7. 8. 9.
There is a worldwide market for the companies and for the people there is more access to products of different countries. Increase in the production sector, due to worldwide market. Politics is emerging and the decisions taken are beneficial for the people worldwide. Advancement in technology. Influx of information between two countries. Cross cultural communication between two countries. Decrease in brain drain. With globalization, there is a global market for companies to trade their products and a wider range of option for people.
10. Competition keeps prices low; as a result inflation is less likely to occur. 11. Ecological imbalances melted out, governments of countries show concern about each other. CON’S OF GLOBALIZATION 1. 2. 3. 4. 5. It leads to competition for the small domestic players of company Globalization is causing Europeans to lose their jobs as work is being outsourced to the Asian countries. The cost of labor in the Asian countries is low as compared to other countries. There are experts, who believe that globalization is the cause for the invasion of communicable diseases and social degeneration in countries. Poor countries are exploited by the richer countries where the workforce is taken advantage of and low wages are implemented. it is becoming hard for the countries to ask their public to go through the pains and uncertainties of structural adjustment for the sake of benefits yet to come. DRIVES TOWARDS GLOBALIZATION Globalization started after World War II, but since the mid-1980’s it has improved considerably globalization is driven by how much factors: one involves technological advances that have lowered the cost of transportation, communication and computation for a firm to locate different phases of production in different countries. The other factors has to do with the increasing liberalization of trade and capital markets: more and more governments are refusing to protest their economies from foreign competition or influence through import tariffs and non-tariff barriers such as import, export restraints and legal prohibitions. An increase in interaction of national economic systems all over the world through the growth in international trade, investment and capital flows is seen as a worldwide drive toward globalization. TECHNOLOGICAL ADVANCEMENTS FACILITATING GLOBALIZATION Technological developments are considered as the main facilitator and driving force of globalization. In this era of rapid technological advances, the business sector has done well to adapt and exploit the enormous advantages of scientific and techno-innovations to improve their operations and bottom-line. Technology gave birth to several innovations in telecommunications such as the local and international
direct dial telephone system, fax machines, computers, and the Internet. These innovations are used to improve the performance of business organizations in terms of operations and marketing.. The world had become “flat” in terms of how information is shared and received; how business and trade is done; and how people from different countries interact with each other. Science and technology has broken down walls and divisions that have kept many countries and people apart. In the early days of globalization, people were afraid that it would usher in an era of unprecedented monopoly and control over the world economy by a few powerful, industrialized nations. After economic safety nets were put in place, it is now possible for small countries to gradually penetrate the market of the larger, more advanced nations. The Internet has made it possible to communicate with other people and companies across the oceans in real-time. It has enabled trouble-free communication during a business meeting or in the middle of a business production process. Indeed, the Internet and the phenomenon called globalization revolutionized the way business and trade is done. The Internet and globalization gave birth to new industries such as Business Process Outsourcing or BPO. The BPO industry actually includes much business such as the contact center services, accounting services, web-design, and other back-office services Time, distance, and geography are fast becoming irrelevant when it comes to doing business due to globalization and technological advancements. The good news is, these sweeping changes have also helped companies to improve their profitability and expand their market reach. INCLUSIVE GLOBALIZATION In the latter decades of the 20th century, there was a widely held view that a rising tide of global economic integration would lift all boats. Some developing countries have indeed been lifted up and are now sailing ahead so fast that they are starting to catch up with developed countries. But many other poor nations have been left behind by the tide, and are not yet able to navigate global seas The gap between rich and poor citizens, within both developed and developing nations, is also growing; the richest two percent of the world’s adult population now owns more than half of global household wealth. The bottom half of adults own barely one percent. So the gains from global growth are being highly unequally distributed. In 2007, over a billion people had almost no income (the equivalent of a dollar a day or less for each). They typically spent more than half of what they did earn on food for their families, leaving even less for shelter, water, education and health care. Most of these people pooled their incomes through work that was insecure, underpaid and at times unsafe. The relevance of inclusive globalization can be very well understood from the golden words of Jawaharlal Nehru "There can be no security or real peace if vast numbers of people in various parts of the world live in poverty and misery. Nor can there be a balanced economy for the world as a whole if the underdeveloped parts continue to upset that balance and drag down even the more prosperous nations." Nations need institutions capable of providing sound economic governance to reduce the disparities. Democratic participation can ensure that economic decision-making and other public policies take into account the realities of people’s lives at all levels of society (not just the rich and powerful). The UN system, grounded in the universal values inscribed in the UN Charter, supports collective efforts in nearly every developing country GLOBALIZATION AND GOVERNANCE Global governance is the system of rules and institutions established by the international community and private sectors to manage political, economic and social affairs. Good governance at both the national and global level, should future values such as freedom, security, diversity, fairness and solidarity. It should also
ensure respect for human rights, international rule of law, democracy and participation, promote entrepreneurship and adhere to the principles of accountability. Increasing globalization has generated a need for better global governance, broadening range of issues that cannot be dealt with except through collaborative globalization. To strength respect for core labor standards and a coherent framework for the cross-border movement of people, WTO rules now make the selective protection or strategic promotion of domestic firms’ vis-à-vis foreign competition much more difficult that it was under the GATT. All the global rules should be reviewed to allow greater policy spare for developing countries to adopt measures to accelerate their developing in an open economic development.
THE IMPACT OF GLOBALIZATION Globalization has significantly enhanced the speeding up of development and the reduction of absolute poverty in the world with economic, social and environmental sustainability. ➢ The Impact on Economic Growth
Growth plan has unevenly distributed across countries, among both industrialized and developed countries. In terms of per capital income growth, only 16 developing countries grow at more than 3% per annum between 1985&2000.At the same type, the income gap between the richest and poorest countries increased significantly. ➢ Uneven impact across countries GDP per capita in the poorest and the richest countries, 1960-62&2000-02
Source: Based on a sample of 94 countries & territories with continuous time series data from 1960 to 02, as available from World Bank world development indicators 2003 (Online Version)
The industrial countries, with their strong initial economic base, abundance of capital & skill, and the technological leadership, were well placed to gain substantial benefits from increasing globalization of the world economy. The impacts of trade, investment and financial liberalization cross borders investments have raised the rate of growth from the transfer of technology and skills to the local economy. The investment raises labor productivity and incomes and hence exerts a positive effect on growth and employment. Globalization also affects public finances. Tax rates have particularly declined on relatively more mobile factors of production. In the worlds 30 richest countries the average level of corporate tax fell from 37.6% in 1996 to 30.8% in 2003. ➢ Employment, inequality & poverty
The share of self-employment, which for most developing regions is a proxy indicator for the size of the informal economy, increased in all developing regions except for East and South-East Asia. Outside the industrialized countries, there has been a mixed picture on changes in income inequality while the large majority of countries have experienced a rise in income inequality; it remains an open question as to what extent globalization is to blame. The number of people living in absolute poverty has declined significantly from 1237 million in 1990 to 1100 million in 2000.However,most of this improvement is accounted for by the changes in first two very large countries, China & India, where 38% of the worlds population live. ➢ The Impact on People. Globalization has not evenly distributed the economic benefits and social costs among social groups. People with capital, entrepreneurial ability and education and skills have benefited. Others like the poor, illiterate and unskilled workers and indigenous have lost out. ➢ Wider-Effects There is other far reaching ways in which globalization has touched the lives of people. We focus on two key aspects: increased global interconnectivity and the growth of illicit cross-border activities. It has made people aware of events and issue everywhere. This has vastly expanded awareness of global disparities in living standards and life chances, and political and social rights. GLOBAL STRATEGY What must be (versus what is) the extent of market presence in the world's major markets? How to build the necessary global presence? What must be (versus what is) the optimal locations around the world for the various value chain activities? How to run global presence into global competitive advantage? These are the questions which must be answered by a sound global strategy. Global strategy is an organization guide to globalization.
MARKET ENTRT STRATEGY
Once the firm has decided to enter the international arena it must make a choice regarding the strategy to be adopted for organizing its foreign business activities. Following are the different entry modes: Exporting Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another
Licensing: Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor" Joint ventures Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". Joint ventures are a more extensive form of participation than either exporting or licensing Export processing zones (EPZ) Whilst not strictly speaking an entry-strategy, EPZs serve as an "entry" into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country. MULTINATIONAL CORPORATION An MNC is one with significant investments and operations in a number of countries, generating significant share of the total revenue from foreign markets. The headquarters of an MNC are located in one country (home country) while the enterprise carries out operations in a number of other countries as well (host countries).The Multinational corporations is also known by names such as international corporations, transnational corporations, global corporations (or firms, companies or enterprises) etc.The MNC’s account for a significant share of the world’s industrial investment, production, employment and trade.
1) 2) 3) 4) MNC’s may destroy competition and acquire monopoly powers MNC’s retard growth of employment in the home country. The MNC’s are often criticized for their business strategies and practices in the host countries. The high power of the MNC’s poses the risk that they may threaten the sovereignty of the nations in which they do business. 5) MNC’s are accused of major environmental issues like polluting the environment, depletion of non-renewable natural resources etc. 6) MNC’s can evade national economic autonomy due to their power and flexibility.
Criticisms of Multinational Corporations
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Companies interested in profit at the expense of the consumer. Multinational companies often have monopoly power which enables them to make excess profit. Their market dominance makes it difficult for local small firms to thrive. For example, it is argued that big supermarkets are squeezing the margins of local corner shops leading to less diversity. In the pursuit of profit, Multinational companies often contribute to pollution and use of non renewable resources which is putting the environment under threat. MNC’s have been criticized for using ’slave labor’ workers who are paid a pittance by Western standards International companies are importers and exporters; they have no investment outside of their home country. Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. More focused on adapting their products and service to each individual local market. Global companies have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible for global strategy. Emphasis on volume, cost management and efficiency. Transnational companies are much more complex organizations. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market.
TYPES OF MNC’S
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EFFECT OF GLOBALIZATION ON INDIAN ECONOMY 1) India’s share in the world trade has risen to .86% in 2003 from .53% in 1991. 2) Exporters are responding well to sweeping reforms in exchange rate and trade policies. 3) Exports now finance over 80% of imports. 4) During 2001-2009 we had surplus in current account ranging between 07-08% of GDP. 5) Exchange rate for the rupee has remained almost steady. 6) International confidence in India has been restored 7) Certain benefits have accrued to the Indian consumer in the form of large variety of consumer goods, improved quality of goods. 8) Markets have stared responding to the movements ahead. A fluctuation in the U.S market or U>K market has started affecting Indian market. 9) The rating agencies which rate investment risks in countries for global investors, have upgraded India’s rating. 10) More and more companies are opening branch offices/subsidiaries in other countries and are making their presence felt. Example: Asian paints, Tata’s, Ranbaxy Infosys etc.
MEASURES TOWARDS GLOBALIZATION To pursue the objective of globalization, the following measures have been taken: 1) Convertibility of rupee The most important measure for integrating the economy of any country is to make its currency fully convertible i.e., allow it to determine its own exchange rate in the international market without any official intervention. 2) Import liberalization As per the recommendation of the World Bank, free trade of all terms except negative list of imports and exports has been allowed. In addition, import duties on a wide range of capital commodities have been drastically cut down. India, being a member of WTO has since April 2001, totally removed the quantitative restrictions on foreign trade. 3) Opening the capital to foreign capital The government has taken a number of measures to encourage foreign capital in India. The foreign direct investment floodgates have been opened.
MAIN ORGANISATIONS FOR FACILITATING GLOBALIZATION
The international monetary fund
The IMF was organized in 1946 and commenced its operations in March, 1947 The following are the major functions of the IMF: 1) it functions as a short term credit institution. 2) It provides machinery for the orderly adjustment of exchange rates. 3) It is a reservoir of the currencies of all the member nations. 5) It is a sort of lending institution in foreign exchange. 5) It provides machinery for international consultations.
The World Bank The international bank for reconstruction and development (IBRD) more popularly known as the he World Bank was formed as a part of the deliberations of Bretton Woods in 1945. The main functions of the World Bank are: 1) To help its member countries in the reconstruction and development of their territories. 2) To encourage private foreign investment and credit by providing guarantee of repayment of the private investors. 3) To promote the long term balanced growth of international trade. The world trade organization a powerful body which broadly aims at making this world a big village where there is free flow of goods and service and where there’re no barriers to trade. WORLD TRADE ORGANIZATION The WTO came into existence on 1st January, 1995. WTO is Following are the functions of WTO: 1) The WTO shall facilitate the implementation, administration and operation of world trade agreements. 2) The WTO shall provide the forum for trade negotiations among its member countries. 3) The WTO shall handle trade disputes. 4) The WTO shall monitor national trade policies. 5) It shall provide technical assistance and training to developing countries. CONCLUSION Globalization is the interaction, integration of all the economies of the world through free trade treaties.The term “globalization” has quickly become one of the most fashionable buzzwords of contemporary political and academic debate. It has significantly enhanced the speeding up of development of all the economies. Its impact has been on every person, company,
organization, and economy globalization is not merely an intensification of global interconnectedness brought about by market forces and technological change. Rather, it is a worldview shaped by capital and hegemonic power that aspires to establish a global system in line with the interests of capital. Capitalism, as a market-oriented system of production, has an inherent globalizing tendency. The financial crises affecting different countries have shaken the confidence of the advocates of Globalization. Yet despite notable setbacks and shaken confidence, the advocacy for globalization remains strong. There are many organizations like the IMF, World Bank and WTO which has facilitated the growth of MNC’s and continuously provides full support to them.
REFERNCES Bhagwati Jagdish: In Defense of Globalization: Oxford University Press, 2004 Friedman, Thomas L: The World Is Flat, 2005 Porter Michael and Ed: Competition in Global Industries: Harvard Business School, 1986 A fair Globalization (creating opportunity for all): Academic foundation, 2004 Cherunilam.Francis: International Business Environment: Himalaya publishing House, 2009-11-16 UNDP 2007 ANNUAL REPORT World Bank development indicators 2003 Special Report - The Global 2000," Forbes, April 2, 2008 Friedman, Thomas L. (2005). The World Is Flat Yenijurt.Sengun: a literature review and integrative performance measurement framework for MNC: 21, issue3
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