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Geography & Impact of geographical aspects
Let us define Commercial geography: Form of geography, concerned with production and supply of raw materials, including agricultural output, and finished goods. Commercial Geography is now replaced with Economic status & progress. Commercial geography has assumed international importance as global market has paved significant scope for a Commercial Geography. What is Geography? It is a comparatively small but lively and challenging discipline that provides approach societal problems and issues. Some of them are economic/social inequality; cost/quality of health care, food supply patterns &hunger, education and child labor; environmental/pollution problems; activities and behaviors of transnational corporations; and many more. Economic & Business Geography: includes ways how individuals and enterprises organize their economic activities in space and extent to which society recognizes socio-economic impacts of such activities. What is Geography? Economic & Business Geography: This emphases leads naturally to 3 perspectives of economic activities: different
1. Location/distribution of economic activities with questions of "place", "locality", "site and situation" and land use; 2. Spatial interaction/economic dependence & interdependence (exchange/trade/transportation/migration/information/capital flows, communication networks and economic geography of Internet); 3. Economic change in a spatial context (regional growth/decline, technological innovation, processes of structural change, regional economic development etc.). What is Geography? In Geography increased emphasis is placed on societal/economic facets as: Communications-related transactions: from face-to-face or via paper-and-pen to digital/GIS/Internet based presentation and exchange
Differentiation/turbulence and rapid restructuring in the Service sector Breakdown of traditional boundaries and surge of boundary-spanning economic activities and transactions, manifested by international economic flows, strategic alliances, collaboration/teamwork at all levels. Changes in the nature of jobs and work & peculiarities of economic activities in rural/urban places and particular 'economic localities'. What is Geography? Thus, We are interested in practical problems and 'real world' issues in private and public sectors and enhance our understanding and the bases for potential intervention. E-Commerce Labor Markets Infrastructure Industrial Linkages Tele-Communications Information Economy International Trade Technological Change Transportation Studies Resource Use & Analysis Location Theory & Analysis Retail & Marketing Geography Regional & Global Development EFFECT OF GEOGRAPHICAL ASPECTS ON INTERNATIONAL BUSINESS: BU ENVIRONMENT: Uncontrollable environment that –vely affects organization's efforts. Needs overall collaborative efforts. There are 2 types environment : 1. Internal: Management, Manpower, Machine, Material, Money. 2. External: Political, Legal, Economic, Competitition, Technology, Infrastructure and Cultural
EFFECT OF GEOGRAPHICAL ASPECTS ON INTERNATIONAL BUSINESS: 1. INTERNAL: Management, Manpower, Machine, Material, Money. Organization: EUREKA FORBES, India: followed 'tried and tested' direct selling route to be first direct selling companies in India. It believed that its core strength was its people. Related to (1) Direct marketing (2) Importance of sales force (4) Advertising strategies in consumer appliances industry (3) CRM
Results: 70% share in water purifier market AQUAGUARD. 80% share in vacuum cleaner market EURO-CLEAN 2. External: Political, Legal, Economic, Competitition, Technology, Infrastructure and Cultural: a. POLITICAL: Policies/attitudes towards business are government best idea considering its resources and political philosophy. Govt. controls/restricts by banning/restricting activities. encouraging/supporting or discouraging/
Example: In Italy, political parties changed 50 times since WW II but business continues. We changed 45 times & still are hostile to foreign investments. Thus, change in government does not mean level of political risks. POLITICAL: African countries are unstable with civil wars, boundary disputes/military regimes. For Hong Kong it is too early to say. b. Legal: includes flexibility/adaptability of law/legal rules governing business. It affects business and its managers to a great extent. EXAMPLE: In 1992, SC ordered closure of # of tanneries in Kanpur for polluting Holi Ganga. In August 1993 several foundries around famous Taj Mahal were ordered be closed due to air-pollution caused by them had adverse impact on whiteness of Taj Mahal.
C. Economic: refers to economic systems/Govt. policies/Capital market/ and socio-economic infrastructure. Income distribution & discretionary income Productivity: Relates to costs in various regions for competitors to manufacture. Major international debtors relate to Govt. tax burden on citizens(trade surplus/deficit, bond debt) Inflation, interest rates.
ECONOMIC STUDY: Age distribution affects lifestyle such as transportation, food consumption, entertainment, Birth rate Education and literacy rates Population density Rural - urban population shifts.
D. COMPETITIVE FACTOR: Ability of country (or firm) to provide goods and services which provide better value than rivals . Advantage are seen in price, marketing, innovation, or other factors. Number/comparative capabilities of competitors differ by country. E. TECHNICAL ENVIRONMENT: Influenced by technology adopted. Decides type/quality/services produced and type/quality of plant/equipment to be used. Technology dictates investment & it’s application decides market effects. TECH.LEADERS JAPAN US EU CHINA F. SOCIAL AND CULTURAL: Social environment determines value system of society. Factors costs structure, customs & conventions, cultural heritage, respect for seniority, mobility of labour have far-reaching impact. These factors decide culture and mobility of labour, work groups. CULTURAL PROBLEMS Lack of Communication, Language, Values, belief systems, business ethics & practices, behaviour, etiquette and expectations. Example of cultural environment: Classic culture aspect is food. McDonalds has globally approx. 34,000 locations & an example of food causing cultural influence on the global scale.
G. GEOGRAPHICAL: # of Physical and environmental forces influence/affect Int'l business via Geosize, topography,climatic challenges, natural resources. Time zones, distances to travel for work and leisure, Population density outside of major urban centers are also important. Topographical, "Latitude" and climatic challenges: Many areas may not be suitable to living as Weather has effects on food, cost of food, health and lifestyles, Mountains act as barriers to transportation, communication, and limit habitable land space.
It is represented as: Currently has 32 members of OECD (not India). Chile became a member on 7 May 2010 and Slovenia on 21 July 2010 & invited Estonia and Israel on 10 May 2010. Each country’s membership will become official once necessary formalities.UNIT # 2 : Global Dynamics OECD: (Organization for Economic Co-operation and Development) OECD is international organization of countries with highly developed economies and democratic governments. and in fact gives the Commission quasi-Member status. Latin America. enables leaders from business. including parliamentary approval. The others have joined over the years. Out of 32. have been completed. Centre for Co-operation with Non-Members (CCNM) develops and oversees strategic orientations of OECD’s global relations with non-members. International Monetary Fund. OECD: 32 member list: Australia Austria Belgium Canada Chile. . when Convention establishing organization was signed. International Atomic Energy Agency. and United Nations bodies. OECD countries offered enhanced engagement to Brazil. JV with EU to transition economies of Central and Eastern Europe as Support for Improvement in Governance and Management (SIGMA). the Middle East and North Africa (MENA). labor and non-governmental organisations to discuss key issues with officials of international organisations. Regional initiatives cover Europe. This participation goes well beyond that of a mere observer. Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg Mexico Holland New Zealand Norway Poland Portugal Slovak Republic Slovenia Spain Sweden Switzerland Turkey United Kingdom United States Signatory states decided that Commission of European Community “shall participate in Organisation. India. 20 members became members on 14 December 1960. Co-ordinates with the International Transport Forum to deal with issues of improvement of all forms of transport. Sahel & West Africa Club facilitates between OECD countries & West Africa. China. In May 2007 . Asia. Such as International Labour Organization. Accession procedure is complex and involves series of examinations to assess ability to meet OECD standards in a wide range of policy areas. Annual OECD Forum. the Caucasus and Central Asia. World Bank. Indonesia and South Africa While enhanced engagement is distinct from accession to OECD. Food and Agriculture Organization. it has potential in the future to lead to membership.
de Klerk met with Nelson Mandela for first joint appearance outside South Africa. form of capitalism that works both to generate profits and solve world’s inequities. In 2008 it launched the "Summit on the Global Agenda" in Dubai.org/ best known for annual meeting at Davos. Davos Declaration was signed in 1988 by Greece and Turkey. Africa. As years went by. In 2008 Bill Gates gave keynote speech on Creative Capitalism. W.weforum. helped turn back from from brink of war. Switzerland bringing together top business/international political leaders/selected intellectuals & journalists to discuss most pressing issues facing including health and the environment. World Economic Forum: World Economic Forum Formation Type Legal status Headquarters Region served CEO Website 1971 Non-profit organization Foundation Cologny. using market forces to better address the needs of poor. the Russia CEO Roundtable. Switzerland Worldwide Klaus Martin Schwab http://www. Co-operation with Non-Members (CCNM) develops and oversees strategic orientations of OECD’s global relations with non-members. and the World Economic Forum on Latin America. Israeli FM Shimon Peres and PLO Chairman Yasser Arafat reached a draft agreement on Gaza and Jericho In 1994 . political leaders began to use Davos as a neutral platform to resolve their differences. In 1992 SA President F. . Produces series of research reports and engages its members in sector specific initiatives.). Organizes series of regional meetings throughout the year including East Asia. the Middle East.
creation of plan to reach vision of world could be like in 2030. It is funded by its member companies (company is global enterprise with more than $ 5 billion in turnover). Initiatives: . 3. Young Global Leaders: established in 2005 it is successor to Global Leaders of Tomorrow consisting of under 40 year leaders from all around world and myriad of disciplines and sectors. 5. Selected social entrepreneurs participate in regional meetings and the Annual Meetings of the Forum. In particular. 1. It strives to be impartial and is not tied to political. poverty and environmental problems) and possible solutions. local government leaders and NGOs in Africa. 6. held annually in China alternating between Dalian and from rapidly growing emerging countries such as China. Mexico. 4. including former Tony Blair and Queen Rania of Jordan. Social Entrepreneurs: Since 2000. East Asia. and publishes wide range of reports on issues of concern and importance to Forum communities. Strategic Insight Teams focus on producing reports of relevance in fields of competitiveness. In 2006 it opened regional offices in Beijing and New York City. Annual Meeting in Davos: Flagship event of WEF is the invitation-only & held every year at the end of January at Davos with some 220 sessions focus around key issues of global concern (international conflicts. India. WEF established Annual Meeting of New Champions (aka Summer Davos). Switzerland. Latin America and Middle East. and Brazil. WEF is promoting models by world's leading social entrepreneurs in close collaboration with Schwab Foundation for Social Entrepreneurship. enabling close contact between corporate business leaders. In 2007. Meeting also engages next generation of global leaders. competitive cities and technology pioneers from around the globe. 2. Regional meetings: Each year 10 regional meetings take place. Research Reports: WEF serves as think tank. fast-growing regions. partisan or national interests. and is under supervision of Swiss Federal Government. Russia. China and India have hosted consistently. global risks and scenario thinking. It is "committed to improving the State of the World“ and has observer status with the United Nations Economic and Social Councel. Though hosting countries vary. WEF is headquartered in Cologny. Geneva. Its highest governance body is Foundation Board consisting of 22 members. Leaders engage 2030 Initiative. These enterprises rank among the top companies within their industry and play leading role in shaping future of their industry and/or region.
iii) Environmental Initiative covers Climate Change and Water. Davos now features top media political causes of day. World Economic Forum: Awards: i) Technology Pioneers Program: recognizes companies all over world designing and developing new technologies. The GHI’s mission is to engage businesses in public-private partnerships to tackle HIV/AIDS. Also are repeatedly held in Davos. and criticized for moving away from serious economics and accomplishing little of substance. v) In an effort to combat corruption. create economic growth and enhance global communication. i) Global Health Initiative (GHI) was launched by Kofi Annan at the Annual Meeting in 2002. such as global climate change and AIDS in Africa. Malaria and Health Systems. brought together international IT companies/governments in Jordan/Egypt/ India resulted e-learning. iii) Annual Meeting is also been decried as a "mix of pomp and platitude". First given in 2003 & so far 454 companies have been so recognized. PACI is a platform for peer exchange on practical experience and dilemma situations. ii) Global Education Initiative (GEI). World Economic Forum: Criticism: i) WEF came under criticism by anti-globalisation activists when 1500 demonstrators disrupted WEF in Melbourne obstructing passage of 200 delegates. ii) American Noam Chomsky thinks that globalization in sense of investors and privileged elites/participants of WEF is a propaganda term whereas many felt that due to centrist approach. UK requested WEF at G8 Summit in 2005 to develop recommendations to reduce green gas emissions. . innovative and entrepreneurial ways such as to find new vaccines. iv) Water Initiative brings together different stakeholders to develop public-private partnerships on water management in South Africa and India. TB. iii) Refugee Run: Co-hosted by UNHCR and Hong Kong based charity Crossroads Foundation. ii) Tech Pioneers are integrated to identify/address future oriented issues in proactive. particularly with the increasing involvement of NGOs that have little or no expertise in economics. iv) Instead of a discussion on world economy with knowledgeable experts alongside key business and political players. launched during Annual Meeting in 2003. the Partnering Against Corruption Initiative (PACI) was launched at Davos in January 2004. this is simply vulgar propaganda. Refugee Run provides snapshot of terrifying ordeal suffered by people forced to flee their homes because of violence or persecution.
. USSR. it became G8. Germany. Canada. Japan. UK & USA. In addition. hosting rotates as: France. Commission President José Manuel Barroso European Union: Council President Herman Van Rompuy Concept of a forum for world's major industrialized democracies emerged following 1973 oil crisis. Italy. UK. EU is represented within G8. G8 (formerly G6/G7) is a forum. US. Germany."Group of Eight" G8: Group of Eight: Canada : President of the G8 for 2010 PM Stephen Harper France : President Nicolas Sarkozy Germany: Chancellor Angela Merkel Italy: Prime Minister Silvio Berlusconi Japan: Prime Minister Naoto Kan Russia: President Dmitry Medvedev UK: Prime Minister David Cameron United States: President Barack Obama Also represented by: European Union. but cannot host or chair. With Canada in 1976 it became G7 & with Russia in 1997. created by France in 1975 with 6 countries France. Japan. Italy. Each new year.
Germany.) & 7 largest donors to UN budget for 2009 are in the G8 (U. "Group of Eight" G8: Structure and activities: G8 FMs. Presidency holder sets agenda & hosts summit for the year. and trade. Germany. In June’05. WB & does not have permanent secretariat/offices. energy.S. Japan. Ministers supported launch of new Climate Investment Funds (CIFs) by World Bank to help existing efforts until new framework is implemented after 2012. foreign affairs. Canada. France.) All G8 and G8+5 countries (minus SA) are in top twenty (20) nations ranked by the amount of voting power in the IMF organization. justice and interior. Ministerial meetings involves those responsible for various portfolios to discuss issues of mutual/global concern. Global energy: In ‘07. subject to restrictions by privacy and security laws in individual countries. which are sometimes called G8+5. G8 with China. .S. means to promote energy efficiency internationally. but they represent about 60% of the Gross World Product as measured by gross domestic product. India.) 7 of 9 largest nuclear energy producers (USA. G8. France. An year later. Japan. He decides the calendar of ministerial meetings. (O5) Outreach 5/Plus 5: Brazil/China/India/Mexico/SA & have participated as guests in previous meetings. UK. South Korea and European Community established I’national Partnership for Energy Efficiency Cooperation. Italy. G8 agreed to explore. Germany. Cumulative influence of member nations: Together eight countries of G8 represent about 14% of the world population. environment. agreed to “G8 Action Plan for Climate Change to Enhance Engagement of Private and Public Financial Institutions. UK. law enforcement.” In closing. at Energy meeting hosted by Japan holding 2008 G8 Presidency. France./Japan/UK.. Canada. economic and social development. in 2008. justice & interior ministers from G8 countries agreed to launch an international database on pedophiles as well as have pool data on terrorism. labor. terrorism. Canada. Of late France and UK indicated to include five developing countries. G8 member facts: All G8 countries are amongst top fifteen leading export countries with few of them with largest gold reserves. Italy. by design. Topics also include health. deliberately lacks administrative structure like international organizations like UN. Russia. The G8 countries represent 7 of the 9 largest economies by nominal GDP Some of the world's twenty-five largest stock exchanges by traded value and market capitalization are in G8 countries (U.
UK. According to the mingle trend survey. China has recently surpassed every economy except US & Japan. 4 of G8 members. One of the largest and most violent anti-globalization movement protests occurred for the 27th G8 summit.due to strict medicine patent policy and other issues as globalization. France & Russia account for 96–99% of the world's nuclear weapons. Majority of global military power (7 are in top 8 nations for military expenditure and almost all of world's active nuclear weapons. combined G8 military spending was US$850 billion which is 72% of the world's total military expenditures. It was created in order to help a group of countries that were all facing similar problems. the G8 have met at more remote locations. In particular. Russia and Spain by nominal GDP in recent years . US. The group is also criticized for its membership as it argued that it is unrepresentative of world's most powerful economies. 51% of Britons think the G8 summit is no longer an appropriate way of making world decisions G33 (developing countries) The G33 is a group of developing countries that coordinate on trade and economic issues. 2001 attacks two months later.carbon dioxide emissions. In 2007. they are subject to extensive lobbying by advocacy groups and street demonstrations by activists. and AIDS problem . Canada has been overtaken by Brazil. global warming . "Group of Eight" G8: Criticism and demonstrations: As annual summits are extremely high profile. Most widespread criticisms are that G8 is responsible for global problems such as poverty in Africa/developing countries thru’ debt and trade policy.Following those events and the September 11. .
(iii) scientific understanding of interactive Earth System is very weak. Despite the name. In relentless war of nerves between USA & USSR from 1945 to 1991. Contents of Earth Summit reveal colossal environment/development-related challenges and threats for G33. Antigua and Barbuda Botswana Barbados China Belize Cote d'Ivoire Benin Cuba Democratic Republic of Congo El Salvador Haiti Jamaica Madagascar Nigeria Philippines Grenada Honduras Kenya Mongolia Pakistan Dominican Republic Guyana India Laos Mozambique Panama Guatemala Indonesia Mauritius Nicaragua Peru Saint Lucia South Korea Saint Kitts and Nevis Senegal Tanzania Uganda Saint Vincent and the Grenadines Sri Lanka Trinidad and Tobago Zimbabwe G33 (developing countries): Activities: Suriname Turkey Zambia Global warming. cyclones and typhoons of unprecedented velocity are resulting in destruction of agriculture patterns. G33 is dismayed with the new challenges. reduction in snowcaps of both the poles. (ii) Capital needed for sustainable development is nowhere in sight. rising sea-levels are few examples. Maldives. (sea-levels causes submergence of parts of the globe like Mauritius. there are currently 44 member nations. Changing patterns of monsoon. Rapid glacial meltdown. The implications are horrendous: (i) coming at a time when it is already gasping to provide a better life to its people. many countries were ruthlessly/arbitrarily divided to balance their power equation. Seychelles. Sunderbans in India. . a result of CO2 emission is impacting and will jeopardise future of planet.
e. good of all countries. and (vi) repeated interventions of UN/G8 Global good vs national good: Horrific inequalities prevalent in economic/human development conditions within/between countries must quickly be lessened.(iv) eco-friendly/energy-saving technology and know-how is absent. Self-interest of nations is only served through global good. Ignoring this will result in destruction of human civilization. (v) expertise/capacity to protect/promote national interests in international negotiations are weak. i. Global Factors Influencing Business Strategy . Compulsions of sustainable development and protection for common good must create universal awareness.
Japanese companies building plants in the UK to help overcome exposure to the Common External Tariff) International Growth Growth not just through expansion of the size of the firm but also through external growth: Acquisitions – mergers. Key strategic decisions relate to: Access to international markets Spotting new markets Building exports The extent to which the business will be competitive in international markets The effect on decision making of the existence of trade blocs Consideration on the necessity and importance of acquisitions Trade Blocs Trade Blocs influence ease of access to new markets/ affect relative costs of trading in different regions of world: EU NAFTA Locating within a trading bloc could help to reduce long term trading costs (e.PEST .g. takeovers Multi-National Corporations – global presence Brings with it a range of issues for the business to consider .
Political uncertainty can lead to a fall in investment by businesses and influence decisions on expansion and business ventures War/Terrorism – create uncertainty Political Doctrine – can affect the ease with which business is conducted Economic All these factors need to be considered in any global business venture: . Change in government through democratic election can influence future business strategy.g. etc. the opportunities that are now available in Russia and Eastern Europe following the collapse of communism Political Uncertainty – in countries like Zimbabwe. Sudan. Venezuela. e. violence.Factors Key factors influencing global business strategy can be summarised under the PEST heading: Political Economic Social Technological Political Political Change – regime change through coup.
selling family planning goods in staunchly Catholic countries Impact on local communities of business development – availability of jobs. energy. training. Access to bandwidth PC ownership Technology and sales – processing payments and sales Compatibility of technologies in Business Management – accounting systems. Tax Systems Investment Considerations and Allowances Sophistication of Financial Markets – ease with which capital can be moved and raised Commodity Prices – oil. . environmental impact for these communities Impact on the environment – can impact on the businesses image Ethical considerations Cultural issues Technological Availability and developments in technology can have a powerful influence on global business strategy: e. metals Monetary and Fiscal Policies – interest rates. government aid Internal Regulation and Bureaucracy – can be stifling! Exchange Rates Social Religious Considerations – appropriateness of some business ventures – e. language differences.g. etc.g. tax regimes.
This is expressed as opening/deregulation of commodity. capital. He also argues that pace of globalization is quickening and continue to have growing impact on business organization and practice. technological globalisation. however. temporal frames. Globalization is not a new phenomenon & began in late nineteenth century. capital and labour markets which led to worldwide homogenisation of culture. urban spaces.000 tons. for better and worse. This slowdown is attributed to inward-looking policies pursued by # of countries in order to protect their respective industries. social globalisation. Globalization is systemic trend of grow-or-die dynamics & as these are not offset by countertendencies emanated from trade-union/political activity. Globalization is usually recognized as being driven by a combination of economic. Saskia Sassen writes that “good part of globalization consists of enormous variety of microprocesses that begin to denationalize what is constructed as national — whether policies. political subjectivity. the annual trade may have reached 300. knowledge and technology. or any other of a variety of dynamics and domains. technological. Aka Economic globalization: integration of national economies with the international economy through trade. The Islamic Golden Age is early stage when Jewish/ Muslim traders sustained economy resulting in globalization of crops. It slowed down during start of World War-I until 3rd quarter of 20th century.UNIT # 3 : Reconciliation of global aspirations Globalization: It is process by which regional economies/societies/cultures have integrated through global network of communication/transportation/trade. . Friedman says that due to flattening of world. ideological globalisation.“ Thomas L. and the spread of technology. and biological factors. migration. sociocultural. foreign direct investment. globalized trade/ outsourcing/supplychaining/political forces have changed world permanently. capital flows. political. An early form of globalized economics existed during increasing articulation of commercial links between powers inspired development of Silk Road which started in western China to boundaries of Parthian empire towards Rome. trade. it picked up pace rapidly during 4th quarter of 20th century. With 300 Greek ships a year sailing between the Greco-Roman world and India.
e. with the first world war. China has recently become world's largest exporter surpassing Germany. human population. technology and products. is result of planning by politicians to break down borders hampering trade to increase prosperity/interdependence thereby decreasing chance of future war. Globally significant crops such as sugar/cotton became widely cultivated across Muslim world. by Europeans yielded valuable natural resources such as rubber. Globalization: nationalistic compulsions: Globalization. Worldwide export of western culture went through the new mass media: film. though destabilizing to commercial centers of Middle East and China. radio and television and recorded music. and founding of several international institutions intended to oversee the processes of globalization. and culture between the Eastern and Western hemispheres. foods. vast populations of these regions became consumers of European exports. This led to “Bretton Woods conference” i. much of the industrialized world entered into a deep recession. globalization decisively shaped by nineteenth-century imperialism. In late 2000s. Global integration continued with European colonization of Americas initiating the Columbian Exchange of plants. as well as rapid transmission of epidemic diseases such as bubonic plague across the newly unified regions of Central Asia. Mongol Empire. With completion of British conquest of India. During same time. 1st phase of "modern globalization" began to break down at beginning of 20th century. animals. The final death knell for this phase came during the gold standard crisis and Great recession in late 20s and early 1930s. notably sub-Saharan Africa. . Meanwhile. Development and growth of international transport and telecommunication played a decisive role. In 19th century with industrialization. greatly facilitated travel along Silk Road. diamonds and coal and helped fuel trade and investment between the European imperial powers. communicable diseases. and the United States. It witnessed creation of first international postal service. since World War II. their colonies. conquest of new parts of globe. Up to 45% of global wealth had been destroyed by the global financial crisis in little less than a year and a half. In middle decades of 20th century globalization was driven by expansion of multinational corporations based in UK/US and worldwide exchange of new developments in science. The so-called Pax Mongolica of 13th century had several other notable globalizing effects. agreement by world's leading politicians to lay framework for international commerce and finance. while necessity of learning Arabic and completing the Hajj created a cosmopolitan culture.
patents granted by China would be recognized in the United States) Cultural globalization.emergence of worldwide financial markets/better access to external financing for borrowers. and the International Monetary Fund. as seen by Financial crisis of 2007–2010. b. was understood at first as a process of homogenization.5 trillion in national currencies traded daily to support expanded levels of trade and investment. As these worldwide structures grew quickly than transnational regulatory regime. Reduced transportation costs. and trade negotiation rounds. creation of FTZs with small or no tariffs 2. These institutions include the International Bank for Reconstruction and Development (the World Bank). Supranational recognition of IPR (e.g. which led to a series of agreements to remove restrictions on free trade. Reduction/elimination/harmonization of subsidies for locals 5. Reduction or elimination of capital controls 4. originally under the auspices of the General Agreement on Tariffs and Trade (GATT). Financial . contrasting trend emerged protesting against globalization & momentum to defense of local uniqueness/individuality/ identity. 3. Harmonization of IPR laws across majority of states. elimination of tariffs. for which GATT is the foundation for Promotion of free trade included included: 1. Globalization is facilitated by advances in technology which have reduced costs of trade. However. ease of movement of material/goods between/within national boundaries. Creation of subsidies for global corporations 6. Since World War II. instability of global financial infrastructure dramatically increased. International trade in manufactured goods has increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955. By early 21st century more than $1. especially from containerization for ocean shipping. gave Effects: Globalization aspects which affect world in several ways such as: a. with more restrictions 7. Industrial – Availability of global products locally & access to est technology. driven by communication technology and worldwide marketing of Western cultural industries. barriers to international trade are considerably lowered through GATT. . as the global domination of American culture at the expense of traditional diversity. China's trade with Africa rose sevenfold during 2000-07 alone. Particular initiatives carried out by WTO.
Survival in the new global business market calls for improved productivity and increased competition. it shall lead to relocation of power among the world leaders. However the most popular business language is undoubtedly English (@35% of communications. overfishing of the ocean. health policy is directed by technological advances and innovative medical trade. f. d. Influenced by global trade/economy.. Competition .the most popular first language is Mandarin (845 million speakers) followed by Spanish (329 million speakers) and English (328 million speakers). health systems are fragmented and privatized & resulted in privatization in health sector. Economic development historically required industrial stage.realization of global common market. g. Informational . based on freedom of exchange of goods and capital. since it supplants local culture. however. Ecological . The interconnectedness of these markets. h. China registered some tremendous growth & if it continues to grow at rate projected. some to promote peace and understanding between people. cross-boundary water and air pollution. e. be prohibited from increasing their standard of living. Cultural . c. meant that economic collapse in any one country could not be contained.increase in information flows between remote locations with technological change. 40% of radio programs & 50% of Internet traffic). Some consider the "imported" culture a danger. Health Policy –In developing nations under demands of Structural Adjustment Programs. globalism and free trade may increase pollution and impact on precious fresh water resources. Economic . via regulation. Global priorities are sometimes at odds with national priorities where increased health infrastructure and basic primary care are of more value to the public than privatized care for the wealthy. Since many factories are built in developing countries with less environmental regulation. and developing countries should not. Political – US has enjoyed a position of power among world powers. With globalization help of The USs’ own economy. Language . and spread of invasive species. .environmental challenges might be solved with international cooperation. h.Some bemoan the resulting consumerism and loss of languages. in part because of its strong and wealthy economy. such as climate change.
Technical: Development of a Global Information System. patents and world trade agreements. people who always lived in their native countries maintain their cultures & people who are newly arrived simply keep their own culture/part of it despite assimilation. copyright laws. and wireless telephones.development of system of NGOs as main agents of global public policy. Greater immigration including illegal immigration. submarine fiber optic cable. Accessible to those who have Internet or Television. WHO estimates that up to 500.. h. i. there were over 922 million international tourist arrivals. Social . l. Sudoku. Orkut. The emergence of Global administrative law. In 2008. communication satellites. . with a growth of 1. Increase in # of standards applied globally. global telecommunications infrastructue and greater transborder data flow. In reality. including humanitarian aid and developmental efforts. Facebook. Legal/Ethical: Creation of the international criminal court and international justice movements. e.Crime importation and raising awareness of global crime-fighting efforts and cooperation. YouTube. Estimates are more than 200 million migrants around world today & remittance flows to developing countries reached $328 billion in 2008.000 people are on planes at any one time. and practices of the meanings and values of particular spaces. and MySpace. using such technologies as the Internet.. leaving out a substantial segment of the Earth's population. Greater international travel and tourism.Some bemoan the resulting consumerism and loss of languages.g.9% as compared to 2007. Religious: Spread and increased interrelations of various religious groups. Cultural . Spread of local consumer products (e. Worldwide fads and pop culture as Pokémon. ideas. food) to other countries (often adapted to their culture).g. j.
abilities. but more accessible/integrated operations/events and embedded Global Marketplace. Digital telecom has led to cheaper/faster. and labor would flow as easily between countries as they do within a country. Global corporations that shall make everything/where and sell it to everybody.UNIT # 4 : Concept of Borderless World Globalization projects an image of worldwide society as we speak or hear. production activities. But is this picture of economic "global village" accurate? Not quite as despite expansion of international economic activity in recent years. financial capital. It is this phenomenon that is driving "borderless economy.e. French felt in 60s. Economically. in truly borderless world. no boundaries/borders/barriers. 1st 3 decades post 2nd World War saw all these firms entering geographic/product markets around world to ensure that: To ensure that: Rivals do not capture & integrate suppliers/distributors for value chain. Instead.” Borderless World: CORPORATE RESTRUCTURING AND GLOBAL INTEGRATION For postwar period. see i. But while these villains changed. This transformation has unraveled/disintegrated our firms. Americans felt in 80s that they were going to be Japanese. . that companies were going to be American. integration globally has travelled as: Analysts have seen it as vehicle for integrating world's economies. modern firm search world for value-creating skills. daily Borderless economy is phenomenon of Information Revolution but pressures have led to integration that differs for businesses/capital markets and governments. we haven't yet achieved a barrier-free world. their role did not. and assets to lever its own. allowing them to act globally without having to achieve global scale.
Mr. With these 2 propositions.” There 2 main messages Ohmae emphasizes: 1. These customers run this world-not the corporations themselves.S. 2. T. It didn't work as it had overextension as its own undoing. Governments have become obsolete. Thus each activity of concern had not to reside within it provided externally and brought into the firm via these new networks. Ohmae has arguments based on own understanding/experience of business strategy/competition with beliefs/analysis of macroeconomic issues. Up/down verification/distribution/action. Eliot asked few questions @ 5 decades ago known as “original questions”: Where is the Life we have lost in living? Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information? Mr. Utilize scarce managerial skills/provide investors with diversification without their having to diversify. Cheap/fast/accessible information processing transformed organizational structure to an outmoded nuisance. he generates hope that utility will triumph over ideology. This is with a faith in man as inventor and power of informed customers to triumph over man as regulator. It is well-informed/demanding customers dictating what/when/where/how/how much to produce. Coordinating activities were not accomplished by vertical structures that sent info. Mr. Eliot was concerned about quickly industrializing. It's the regulator we have to fear. Mr. Kenichi Ohmae has added “where is information we have lost in government data?" While Mr. Ohmae is stressing drastically diminishing govt.” The State of the Nation-state: Sovereignty at Bay: . role in today's interlinked economies.
Size is a state of mind.” Ongoing integration of global economy will lead to inevitable undermining of the nation in favor of region. are sizable economic players in world 3. nation is irrelevant. Not just a novelty: Here global economy acts to discipline governments/streamline regions. “Next Global Stage. Hold human development via artificial verticals of skills and markets. population size is important but not crucial. They no longer think in terms of political monoliths. As today far from making things better. though the edge is worn out. declared that "the nationstate is just about through as an economic unit. He says that increasing economic interdependence/technological advances in communication/transportation were making nation-state an anachronism. Regions came closer mainly but not solely due to technology. Raymond Vernon. Therefore as the rule of globalization suggests “survival of fittest”. In modern era of instant communications. amazingly many border disputes continue to rumble on. Ohmae argues that nation states are declining because their fixation on borders is not in line with today's transnational world. Charles Kindleberger. Not just a novelty: ." Mr. Limited areas bred limited horizons & never think big. but as amalgams. Regions comprising of nations. The nations promised much but delivered little. published “Sovereignty at Bay”. 3. Arguments on ability of nation to keep pace with technological/economic/corporate developments is an old one. However. In the 21st century it is established that idea of nation is anti-progressive and introspective against regions that are outwardly mobile/work/think in global and borderless perspective. regional approach in economic world has come to stay. well-known Harvard researcher. In a similar tone. Is national border manned/screened via papers/barricaded controls in world of Internet? Thus the past concept of government of progressive/forward-looking is contrasted by regional level as parochial and inward-looking. his colleague. border control threatens to make nation states worse. but the most essential element of any successful region must be openness to the outside world. For aspiring region-states.
Italy was studded with such centers & offered other contributions including double-entry bookkeeping. per capita income in areas such as Dalian. with ands outstretched. Thus boundaries may remain but demise of nation state will not usher in a bland. Obviously economics/technology enforce geopolitical organization. onedimensional. 4. not part of political monoliths. such Gurgaon. Not only it be good place to do business. not crucial but most essential element of successful region is openness to outside world. has been near-miraculous.g. but attractive place to work and to raise kids. Shutoken metropolitan area of Tokyo/Kanagawa/Chiba/Saitama prefectures with GNP of $1. This model is repeated in many places. Economic players: Region states work within a truly borderless perspective i. e. 5. The Hanseatic League: Farther north in Europe was Hanseatic League.e. after China.g.000 per year & may have surpassed Guangzhou in less than a decade. Region states are not a novelty.5 trillion in the top three in the world. Shutoken area of Japan has GNP $1. The level of local decision-making allowed to them by centralized Japanese political system is miniscule.5 trillion one of top three. Tallin and Danzig were region states of day & looked outward for prosperity than Govt. but amalgams of regions. . population size is important. There are now malls lined with shops selling everything from consumer electronics to Western clothing. collective of trading cities on shores of Baltic and the North Sea. monocultural world. Hyderabad. 7th in world. Centers such as Riga. Kansai area centered on Osaka has GNP of $770 billion. Both these areas by numbers qualify for membership to the G7. 7. Growth in per capita: In many regions are literally unrecognizable from five to ten years ago. transformation in India. Venice was originally region state that grew into an empire. Defining the region-state: For aspiring region states. Zhejiang Beijing and Shanghai is approaching $5. 6. After Venice. Likewise. E.
also benefit. 10. The power of magnetism: San Jose is almost as autonomous/self-supporting as San Francisco & is not necessary to go to San Francisco to get every service. A typical region may defy existing political borders. In 1990s. It is as if Austin has grown from being an IT cluster to its own region state. outsourced business functions on behalf of American and European companies. A "human magnet“: Such a "human magnet" is Michael Dell of Dell computers. . Catalonia in northeastern Spain became a successful economic region. # of software/IT engineering facilities grown up there. but there is surge in biotechnology. so neighboring areas in southwest France. 8. such as Langedoc-Roussillon. His impact on Dell's original location Austin. Development of Hyderabad is phenomena of self-sufficiency like other side of Pacific in California can be emulated by other Indian regions. Expanding regions: Region states in India are closely integrated as they not only develop software and systems but conduct fixed-line. Texas has been no less monumental. 9. A zone of success tends to spread.
Economic. Some forces affect business directly which others have indirect effect on business. or influences. 2. organisms. Organization of capital market. business cycles. 4.UNIT # 5 : Diverse environment forces Diverse Environment forces & influence on IB: Dictionary results of en·vi·ron·ment 1. surroundings. and all other surrounding and affecting any time. Diverse environment is all external forces affecting organisation/business operations. fair wages. socioeconomic infrastructure etc.g. fashion etc. social. An In door or outdoor setting characterized by presence of environmental art that is itself designed to be site-specific. technological and political factors affect business as they collectively form diverse environment. Economic dimensions of environment: refer to economic system of country. Socio-cultural environment dictates code of conduct business follows. Social groups such as trade unions/consumer forum intervene in case of unethical practices (e. Social and cultural forces that shape the life of a person or a population. customs. adulteration) . These forces are classified in three major categories: Internal environment Operational environment General/external environment Internal and operational environments are creation of the enterprise itself. milieu. conditions. Ecology: The air. external factors those 3. cultural values. Externals are broad & least controlled/influenced by enterprises. changes to get maximum with minimize cost. Successful businessman visualizes external factors anticipating prospective market situations. Social dimensions or environment: The nature of goods/services depends on demand of people which in turn is affected by attitudes. structural anatomy of economic policies of government. water. black marketing. minerals. legal. the aggregate of surrounding things.
"Made in France“ was symbol of "quality. Business success depends on degree of its international expansion. Economic growth versus economic development: implies change in way production has gone up not with increase achieved using old methods on a wider scale. Political environment: influenced by philosophy of political parties. The industrial regulations on environment. It is measured by percent GDP increase per year. Globally advancements in automation/technology have posed greater challenges in terms of economics. Change from historically run monocultural spirit of native country has given rise to outsourcing. GDP does not account aspects such as leisure time. E.g Coca Cola in India in 70’s & 90’s. nature/extent of bureaucracy influence.g. country and its leaders image in/outside matters. Legal regulatory environment: It indicates seriousness with which laws & regulations are implemented & affects rules governing business. While such expansion may be a necessity.” . environmental quality. e. culture. Economic growth implies quantitative output but may/may not involve development. environment & lifestyle. culture. Defense/military policy. foreign policy. good taste and tradition. Development involves indicators as literacy rates. disposition of waste & consequences of violation. intensive growth is recent that came with modern economic growth. freedom. or social justice. Thus while economies in pre-industrialization period grew extensively. Intensive versus extensive growth: Extensive growth refers to increase of overall wealth. Technical environment: Consistent application/innovations in technology & of technology and the effects of technology on markets. Trend towards globalization and signing of GATT in 1993 have posed new challenges before Indian business. life expectancy. of economics. Gross domestic product is aggregate value-added by economic activity within a country's borders. pollution. while intensive growth is increase of per capita wealth. Intensive growth is driven by productivity rise & technological progress. Political environment of country influences to great extent. e. Economic development relates to human development includes health and education. Political stability. communications can affect widely. ideology of government in power. in past slogan. and poverty rates. environment & lifestyle.g.
The business which has eliminated international aspect is considered as having global culture when it replaces national culture. As in past divisions of power are no longer as centered as they traditionally have been. .g DuPont and BP. and global diffusion of products. has made communication easy making large-scale marketing indispensable. E. Unmediated crisis in IB can lead to confrontation & management team role of defending foreign interests is critical as company culture faces its strongest challenge. lack of flexibility/group dynamics encourages environment resistant to change. There is nothing as a world defined in two: one as indigenous and other as international. migrating populations. In actuality. satellites and Internet. By not emphasizing aspects of their foreign identity while working abroad. Businesses opted to promote individual "global" images suffer from an "international disease": They consistently alter messages and adapt concepts originating abroad to fit their precise "global" company image.g "NIH" for "Not Invented Here". Progress can only be achieved once NIH virus has been eliminated. Expansion of mass media as TV. avoids considerable risks of local customs and clashing with local mentalities. History of monocultural policy was short-lived & today few cosmetics/ fashion/alcoholic beverages retain such policies.“ While growth conceals conflicts/differences. Excessive controls/direct instructions reduce responsibilities for local authorities & jeopardize position in foreign market. business has modified strategies to promote monolithic images to company culture with no regard to nationality. Thus promotion of universal public relations schemes to formulate clear strategies/comprehensible policies/coherent company culture and image reduces resistance to acceptance. implying. fundamentalism of business work against leading to close as it isolates them from local cultural realities. we choose to work differently. An efficient intercultural management team is most valuable during periods of economic crisis. Thus to encounter markets. crisis works to reveal/amplify. Technology advancements force businesses to formulate global strategies to balance globalism and localism. E. As for issues of internal concern.
The next step is to ensure that this company culture can be easily modified and adapted accordingly to cultures worldwide. IB has educational opportunity as it depends on local expertise leading to up-gradation of capabilities and contribution in global network. However. Today's business is no longer geographic Monocultural/ethnocentric zones have disintegrated. interests of international sub-groups contribute to strategic company decisions. The success of IB today ultimately depends on preservation of this equilibrium & influence. or proximate cultures. Previously. External business communication is important as globalization has led to compete worldwide. the way it be comprehended be clearly communicated to understand. adapting communication to international environments cannot be accomplished through language alone. IB is forced to adapt to customs/practices of local governments. The process includes certain number of global values within company that must remain same everywhere. . geographic origin was considered most influential economic factor however now. Knowledge of client's culture/values serve as vital in determination of a company's success. As for internal communication.
Competitiveness to global business is inextricably linked to country's standard of living. tariffs on goods are less than 4% among members of World Trade Organization (WTO).g. Environment protection. Competitiveness cannot only focus on aggressiveness on world markets through exports/FDIs. education and other "soft" attributes of the standard of living. since its creation. A school of thought is not nations but enterprises compete & these are main engines of a competitiveness. sometimes adjusted to Purchasing Power Parity. OECD. Enterprises have enormous choice in selecting business locations & consequently. while simultaneously maintaining/expanding real incomes of its people over the long term“. It is ability to develop attractiveness for wealth creation activities but this policy does not guarantee in long term standard of living. under free and fair market conditions.UNIT # 6 : Definition & scope of competitiveness Why do Nations Compete? To impact their standard of living via indicator of country's per capita Gross Domestic Product (GDP).. nations compete to attract/retain enterprises. That’s why OECD defines competitiveness as “degree to which country can. "sustainable growth“ encompasses some of these concerns. at first among industrialized nations. Finally. produce goods/services which meet international markets. It promotes that objectives of present growth should account impact on future generations. the fall of the Berlin Wall and technological revolution of 1990s have accelerated development of World that is fundamentally open and transparent. Today. goods and services. GDP does not include many items that people would generally consider part of standard of living. has fostered development of free movement of capital. . Free trade areas such as NAFTA and regional integration organizations as EU have reinforced this trend. Competitiveness needs to balance economic factors with social requirements of nation as they result from history/value systems/tradition. and then worldwide. personal security. e.
nations not only rely on products/services. This is achievable thru’ excellent education system and knowledge in labor force through training. Historical Perspective: Thus competitiveness involves different dimensions interacting with one another. economic responsibilities of governments have been so that it is impossible to ignore its influence on modern economics. Ricardo's famous theory on comparative advantage. inwardly focused in search perfection. e. . natural resources and labor. Recent scholars emphasize "knowledge" as increasingly important input factor for competitiveness. still valid today. Competitive advantage of certain nations stems from aggressive incentive policies in tax breaks/subsidies designed to attract FDI. However. Historical Perspective: Competitiveness amongst nations is derived on factors of production. e. Peter Drucker applied the same theory to management). Historical Perspective: In 20th century. How knowledge is acquired/managed is each nation's responsibility. land. did not have industrial revolution.g. Robert Solow. Knowledge is critical factor as countries move up economic scale. attributed it to importance of technological innovation and increased know-how in an economy. In modern economy. with superior technology level advanced to UK at end of 18th century? Answer is. Why China (7th to 10th century AD). but also compete with brains. Economists later realized that facts of production alone could not explain everything. MIT economist and Nobel Prize winner. after studying factors in US economy between 1948-82. Britain had dynamic class eager to succeed/make money while China created society. Schumpeter emphasized role entrepreneurship has played as engine for development (more recently.g. was attempt to understand how nations compete. capital. Ireland. Michael Porter: systemic relationship between factors of competitiveness known as "diamond approach”. they thrive to ensure prosperity and compete in world markets.
Government Efficiency. educational. Social Cohesiveness . marketing. Globality Assets vs. Four broad areas of "stand-alone variables" . concept led to methodology followed by many economists. The result was too complex and rigid to be workable. However. Let is try to integrate them in overall theory to describe relationships among the four axes: Attractiveness vs. Richman from US characterized competitiveness with matrix approach. including the IMD team. socio-cultural and economic were matched up with business functions as planning. World Competitiveness Yearbook: What theory provides a basis? Countries manage environments according to 4 fundamental forces & shape the country's competitiveness environment. Processes Individual Risk Taking vs. Aggressiveness Proximity vs. Farmer and B. or production. They are result of tradition/history/value systems and deeply rooted to be clearly stated or defined. R. Data is obtained from international/regional/national organizations. Competitive Advantage: About the WCY: World Competitiveness Yearbook: It ranks/analyzes ability of nations to provide environment in which enterprises can compete. Business Efficiency Infrastructure.political and legal. Businesses find it as basic research on location decisions. while governments compare their countries' performance with competitors. In 1965. WCY uses 286 valuable statistics for 49 industrialized/emerging economies in four Input Factors: Economic Performance.
World Competitiveness Yearbook: What theory provides a basis? a) Attractiveness vs. The proportion between these two economies in national prosperity varies with the size and the economic development of a country. such as Britain. b) Proximity vs. through incentives. exports/FDI. Larger countries. competitiveness is linked to international aggressiveness i. direct investment. and it benefits from the comparative advantages of markets world-wide. administrative activities. such as government and justice. privatization and deregulation). Ireland and Singapore have increased. It is generally competitive and price effective. such as Germany and Switzerland. On average. the economy of globality has grown enormously. regional integration. such as doctors and teachers. Chile and Singapore. still very much rely on their huge domestic markets. The economy of proximity comprises traditional activities: crafts. especially with regard to operational costs. . sometimes invading the turf of the economy of proximity (with such measures as opening of trade barriers.e. Other countries. Nations with high domestic standards of living and operating costs. Germany. such as after-sales service and customization. Some nations manage competitiveness by being attractive i. and finally. although the trend towards globalization is increasing. but short on income because of incentives. Aggressiveness: Variation in way to manage relationship with world business community. it can be assumed that in Western Europe two-thirds of the GDP is generated by the economy of proximity and the remaining one-third by the economy of globality. Over the past 25 years. but not necessarily jobs. Smaller countries are much more dependent on their economy of globality. It is generally protectionist and expensive. Attractiveness creates jobs in FDI host countries. have developed the globalization of their economies. nations have to deal with 2 types of coexistent economies i.e. such as the United States. margins and wages. b) Proximity vs. Japan and Korea followed this strategy. Traditionally. The economy of globality is composed of companies with international operations. consumersupport activities.e. social and personal services. Globality: It is seen that in Western Europe two-thirds of GDP is generated by economy of proximity and balance by globality. of proximity & of globality. It assumes that production need not necessarily be close to the end-user. Aggressiveness generates income in home country. are going through a harsh adaptation process. One important consequence of globalization is that it exercises strong pressure on prices. The economy of proximity provides value-added close to the end user. trade agreements. Globality: Economic system of country being generally not homogeneous.
These policies provoked friction when applied to economies as it otherwise had lived in protected and managed environments. US/UK being pioneers/leaders in international business. Over past few years. Some nations can be rich in assets . This impacts nations with high living standards and operating costs like Germany and Switzerland. or opening up to former communist countries.g. trade agreements. privatization and entrepreneurship. Anglo-Saxon model is prevailing now. Brazil. but also infrastructure. C) Assets vs. d) Individual Risk Taking vs. Smaller countries are more dependent on economy of globality while large countries rely on huge domestic markets. It generates complacency in "old" nations confuse with wealth/competitiveness. New-Labour" party in Britain. UK. India and Russia.g. and natural resources . education and skills are assets accumulated. Continental European Model relies heavily on social consensus.land. In general.but are not necessarily competitive. globality has grown enormously invading in proximity (via opening of trade barriers. Japan and Switzerland are poor in resources and relied on transformation processes. people. Processes: Competition is also managed by relying heavily on assets or processes. privatization and deregulation). Globality and Risk Taking: Global economy is influenced by Individual Risk Taking approach (Anglo-Saxon model). . Globalization exercises strong pressure on prices. EU legislation has moved to more deregulation/privatization e. e. Anglo-Saxon model emphasizes on risk/deregulation/privatization and responsibility of individual to welfare system. Singapore. influence the world model by views of competitiveness based on deregulation. After competing for many years. the latter nations are more competitive than the former. egalitarian approach to responsibilities and an extensive welfare system. Chile. The inherited assets are not necessarily only natural resources. margins and wages. Social Cohesiveness: 4th force shaping competitive environment is distinction between promotion of individual risk and preservation of social cohesiveness. industrial power. Some nations as Singapore. although trend towards globalization is increasing. have developed globalization of their economies. regional integration.
studied & derived that nations do not compete with products and services alone. pay more attention to increasing their own incomes (for example. Continental European Model takes this approach due to political revolutions of19th & social upheavals of 20th century. and low labor costs. Value systems in Asia are based on Confucian principles of hard work. Cultural Impacts on Competitiveness: Out of may. saving and education. foremost is country's value system. German philosopher Max Weber. North European Model: characterized by emphasis on stability. Squaring the circle: Netherlands has been able to manage 2-tier economy with globality by fully privatized/deregulated to confront global competition and proximity by innovative measures as part time work. In the early 1900s. but also with education and value systems. This resembles Protestant work ethic that dominated Europe and US in 19th century and was root of great Industrial Revolution. loyalty. privatization. . labor flexibility and higher acceptance of risk. As countries develop. Self-achievement: People are more interested in developing private lives. business regulations.. It favors inventiveness. and social protection. to preserve social cohesion at home. the US and Europe today). values tend to evolve & go through 4 distinct phases: Hard work: people dedicated to country's corporate objectives and work many hours (for example. Proximity and Social Cohesiveness: Cohesiveness is associated with management of economy of proximity where social consequences of competitiveness matter. Korea) Wealth: While working hard. and more involved in shaping their society (US and Europe late 1960s). It favors a long term perspective. discipline. 2. a parallel economy. Behavior Models: 3 different models of society are identified below: 1. Social participation: People are less interested by hard work. South European Model: characterized by little infrastructure. Anglo-Saxon Model is characterized by deregulation. social consensus and regulations. than pursuing societal change (for example. It fosters entrepreneurship. Singapore).
telecom. E. Internet allows to develop E-commerce. is still a challenge. Destroying technological infrastructure of country is damaging for its security as traditional military attack. is becoming just as important for country as attracting FDI. harbor facilities and airports. Auctions. Priority of competitive nation is to develop people this way to have leading edge of future developments. states simply assume that for x income Y goods are bought on the Net and thus should be taxed. availability of cheap/efficient communication systems. Ireland invested to provide local/foreign enterprises with young/qualified labor force with IT skills making it attractive to foreign investment. E-procurements. How does country tax people making money on the Net? Efforts are on to either introduce a tax on net earning or Like in US. Shortage of IT skills remains endemic in most countries. Over past 10 years. and transfer data banks with personal information on individuals?) is concern and source of contention between the US and Europe today. use. Finally. Attracting R&D centers. France have objective to connect school system to Internet where Sweden and Finland are very advanced. Internet had a profound impact on competitiveness of nations. close to North European model. shift has occurred from North European model to Anglo-Saxon one. trains. However. technology is a non-negligible risk to a nation: Hackers penetrate tightly secured systems. Technology impacts education. and more socially responsible local environment. UK.g. striking a balance between hyper-competitive global business close to AngloSaxon model. However this revolution has challenged basic functions of a State. How to regulate "net company“ that operates in any country as a good old "brick and mortar" company would be? Net companies bypass social legislation (e. Today.g legislation as France's 35-hour week and Switzerland's strict opening and closing hours? ) Protecting privacy of citizens (who can develop. even in Defense. US. . develop cooperation between universities and enterprises. Impact of Technology: The technological revolution of computers. infrastructure includes over & above roads. and E-marketplaces across borders & pushes countries to develop advanced technological infrastructure.
Maintain a relationship between wage levels. 10 Golden Rules of Competitiveness: I. and in life-long training of the labor force.Terrorism is becoming High Tech. Balance economies of proximity and globality to ensure substantial wealth creation. 6. Promote private savings and domestic investment. 7. 4. while preserving value systems that citizens desire. Work on a flexible and resilient economic structure. productivity and taxation. 2. 8. blackmail. Invest in traditional and technological infrastructure. 3. especially at secondary level. 10. Invest heavily in education. speed and transparency in government and administration. Create a stable and predictable legislative environment. 5. Preserve social fabric by reducing wage disparity and strengthening middle class. Focus on quality. plain actions using latest technologies are reality for companies and governments. 9. Threats. . Develop aggressiveness on international markets (exports) as well as attractiveness for foreign direct investment.
beneficial. Most important contribution is law of comparative advantage. Also credited with undeniable influence of concepts such as "extent of the market". Adam Smith: generally ignored as a trade theorist in international economics as it is felt he only confirmed rule of absolute advantages to explain structure of foreign trade. "improved dexterity in every particular workman" and "simple inventions coming from workman" on trade theory. Assumes there is an absolute advantage balance among nations. Financer and Speculator who amassed a considerable personal fortune. Also a member of Parliament. an argument in favour of free trade among countries and of specialisation among individuals. Theory of Comparative Advantage: David Ricardo: . and John Stuart Mill. 2.UNIT # 7 : Theories of International Trade 1. unskilled laborer). therefore. Trade between countries is. as long as each concentrates on activities where it has a relative productivity advantage. David Ricardo (19 April 1772 – 11 September 1823): An English political economist credited with systematizing economics and one of most influential economists along with Thomas Malthus. However. his vent-for-surplus approach stresses importance of economies-ofscale in explaining trade structure. trade for those where you are not efficient. He said of mutual benefit from trade/exchange even if one party (e. Theory of Absolute Advantage: by Adam Smith: Wealth of Nations : Capability of one country to produce more of a product with the same amount of input than another country. resourcerich country. resource-poor country. "division of labor".g.g. highly-skilled artisan) is productive in every possible area than trading counterpart (e. Adam Smith. Business. Produce only goods where you are most efficient.
Look to see how much more efficient. Corollary: import goods made from locally scarce factors.Principles of Political Economy ( 1817). Patterns of trade are determined by differences in factor endowments .minimum wage. Factor endowments are impacted by govt.not productivity. 3. Eli Heckscher and Bertil Ohlin: Both of the economists are of Swedish origin. Remember. not absolute advantage. at the Stockholm School of Economics. 1953 disputes Heckscher-Olin in some instances. than import. focus on relative advantage. Makes better use of resources Trade is a positive-sum game. but is regarded as a capital intensive country. The Leontief Paradox. US tends to export labor-intensive products. . The model says that countries will export products that utilize their abundant and cheap factor(s) of production and import products that utilize the countries' scarce factor(s). policy . Extends free trade argument Efficiency of resource utilization leads to more productivity Should import even if country is more efficient in the product’s production than country from which it is buying. Most important contribution is general equilibrium mathematical model of international trade. Heckscher (1919)-Olin (1933) Theory: Export goods that intensively use factor endowments which are locally abundant. If only comparatively efficient.
are negligible. Argument 1: Cost of protection and its flipside.. US had quota of 2. Japan. China. costs for their rivals in poor countries must be raised by imposing same labor standards existing in rich countries. Mr Bhagwati writes about costs & benefits of protectionism when it's accompanied with industrialization policies and an efficient state. Many economists say that continual/deep labor-saving technological change. etc) has been accompanied by protectionism Arguments of protectionists. It was argued that.Europe. But problem is assumption that former would continue to be as efficient as latter despite protectionism. Every episode of development in history (England. Japanese firms will have two markets and American firms have one. not trade with poor countries is reason in stagnation seen in rich-country wages nowadays. Argument3: Free trade requires that other countries also open their markets. Former has lower unit costs than latter. Argument 2: Free trade may increase economic prosperity. They argue for leveling playing field – i. “Fair trade” masks form of protectionism to reduce import competition. This finds credibility with labor unions believing that trade with poor countries produces paupers in rich countries. open economies still profit from own free trade. US auto were convinced during Japan-bashing in 80’s that Japan was closed and the US was open. This is a refrain that recurs with US administration takes office. do not shed tears over harming country by surrendering to it. gains from trade. new and old.e. If protectionism is politically convenient. Jagadish Bhagwati: Jagdish Bhagwati. This myth is product of inappropriate methodology. South Corea. Workers profit from lower prices for goods like clothing and electronics. 4. University Professor at Columbia University and Senior Fellow in International Economics at the Council on Foreign Relations. if Japan was closed and US open. The refrain is recurring with China today. This attitude is adopted by many Democrats in the US conveniently. If other economies are closed. but it is bad for the working class.USA. can be successfully challenged. . This is more fiction and logic not compelling.2 mln Japanese cars & though Japanese market was open but difficult to penetrate.
asserted by protectionists. at cost of country with deficit. productivity in rich countries. Unbalanced Trade benefits country with surplus. Hillary Clinton. With continued imports. price level continues to go down. Argument 5: Offshoring of jobs will devastate rich countries. jobs that affect are on account of high costs. and he was the greatest economist of his time. However. its government shall make matters worse if he responded by abandoning trade with other states. It's best scenario for them and worst for poor countries. All Samuelson showed was any change could harm trading economy. Increased tradability of services has not caused economic tsunami on rich countries. products markets and protectionism in agricultural and labor markets. Jobs resurface where costs are lower providing services that would have been lost otherwise. Often. he did not argue that abandon free trade was a unfortunate response. is not. as does revenue and demand. . in campaign for US presidency. nor their earnings fallen. To which the free trader responds: no problems!!! But no radiologists have lost jobs in US then. jobs that affect are on account of high costs. This arose during John Kerry’s campaign when digitized x-rays were sent from Massachusetts General Hospital in Boston to be read in India. country’s demand is ultimately equal to revenue of its industries & internal demand declines with revenue of its industries. Argument 4: Paul Samuelson abandoned free trade. With continued erosion of revenue. While latter is true. Jobs resurface where costs are lower providing services that would have been lost otherwise. decreasing revenue available to its industries. Increased tradability of services has not caused economic tsunami on rich countries. It is like Pakistan is devastated by flood. Often. Basic idea is price level in importing country goes down. along the Aggregate Supply curve. nor their earnings fallen. But no radiologists have lost jobs in US then. Argument 5: Offshoring of jobs will devastate rich countries. To which the free trader responds: no problems!!! Rich countries want freedom in capital. mistakenly embraced this fallacy. former. productivity in rich countries. industries increasingly idle & unemployment increases forcing importing country in deflationary spiral.
industries continue to grow.Conversely in exporting country. Its industries. as does country’s demand. Argument is free trade does not exist (say. Theory of international trade – Overview Mercantilism Absolute Advantage Comparative Advantage Heckscher-Olin Theory Product Life Cycle Theory New Trade Theory Porter’s Diamond An Overview: Free Trade occurs when government does not attempt to influence. With continued exports and continuing increases of revenue. along the Aggregate Supply curve. Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). So does demand. and employment. so revenue of industries and ultimately country’s demand. some protectionist measures are warranted (like import tariffs). Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. price level goes up & including revenue from its exports. through quotas or duties. with increased revenue. artificially prolonged adjustment periods resulting in gutted domestic production capacity should not be tolerated. Mercantilism: mid-16 th century: . While some dislocation is expected during adjustment to globalization and advancement in emerging economies. grow. Others are not so easy to understand (Japan and cars). as result of exchange rate manipulation). what its citizens can buy from another country or what they can produce and sell to another country.
through quotas or duties. Theory says you should have a trade surplus. An Overview of Trade Theory: Free Trade occurs when government does not attempt to influence. Maximize exports through subsidies. An Overview of Trade Theory: Free Trade occurs when government does not attempt to influence.A nation’s wealth depends on accumulated treasure. Result: Country A sells less because of high prices and Country B sells more because of lower prices. Others are not so easy to understand (Japan and cars). no one can keep a trade surplus. Increased imports lead to lower prices. Maximize exports through subsidies. Flaw: “Zero-sum game”. what its citizens can buy from another country or what they can produce and sell to another country. Minimize imports through tariffs and quotas. In the long run. Theory of international trade – Mercantilism: mid-16 th century: A nation’s wealth depends on accumulated treasure Gold and silver are the currency of trade. through quotas or duties. Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. David Hume in 1752 established that: Increased exports leads to inflation and higher prices. Theory says you should have a trade surplus. Gold and silver are the currency of trade. Minimize imports through tariffs and quotas. what its citizens can buy from another country or what they can produce and sell to another country. .
First-Mover Advantage: Economies of scale may preclude new entrants. Specialization increases output. Heckscher vs Ricardo Economists prefer Heckscher on theoretical grounds but is a relatively poor predictor of trade patterns. Globalization & integration of economy makes this theory less valid.Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. at some point. The New Trade Theory: Began to be recognized in the 1970s. ability to enhance economies of scale increase. Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). Affects the direction and flow of imports and exports. Ricardo’s Comparative Advantage Theory. Product Life-Cycle Theory ( Raymond Vernon. regarded as too limited for predicting trade patterns. free trade can increase a country’s production resources. Deals with returns on specialization where substantial economies of scale are present. Role of government. Finally differences in productivity may be the key to determining trade patterns. and Increase the efficiency of resource utilization. will require more resources. However. . Simple Extensions of the Ricardian Model Diminishing returns: More a country produces. Others are not so easy to understand (Japan and cars). Mercantilist Theory Still Valid with qualified Yes as it equates political power with economic power and economic power with a trade surplus. actually predicts them with greater accuracy. 1966 ): As products mature. location of sales and optimal production changes.
. Porter’s Diamond ( Harvard Business School. Policy implications: promoting free trade is in best interests of home-country. Thought existing theories didn’t go far enough. First-mover implications: It pays to invest substantial financial resources in building a first-mover. Question: “Why does a nation achieve international success in a particular industry?” Location implications: makes sense to disperse production activities to countries where they can be performed most efficiently. though not always in best interests of firm. or early-mover. looked at 100 industries in 10 nations. advantage. 1990): For Competitive Advantage of Nations.
needs and access based market positions Global strategy Porter's clusters of competence for regional economic development Diamond model market Business strategy aims to achieve sustainable competitive advantage & possess it when sustains profits exceeding average over its rivals. . and role of corporations in society.E.UNIT # 8 : Porters 5 force & CA Theory Michael Eugene Porter (born 1947) is Professor at Harvard Business School. economic development. with high honors in aerospace and mechanical engineering. B. He is a leading authority on company strategy and competitiveness of nations/regions. product differentiation. and positioning strategies of variety. needs and access based market positions Global strategy Porter's clusters of competence for regional economic development Diamond model market Porter's strategic system consists primarily of: Competitive advantage Porter's Five Forces Analysis Strategic groups (also called strategic sets) The value chain Generic strategies of cost leadership. He is an MBA from Harvard & Ph. product differentiation. and positioning strategies of variety. he was elected to Phi Beta Kappa and Tau Beta Pi. Michael Porter’s core field is competition and company strategy & recognized as the father of the modern strategy field. Porter was an outstanding intercollegiate golfer while at Princeton. His work has re-defined thinking on competitiveness.D. economically distressed urban communities.S. environmental policy. in Business Economics from Harvard University in 1973. Porter's strategic system consists primarily of: Competitive advantage Porter's Five Forces Analysis Strategic groups (also called strategic sets) The value chain Generic strategies of cost leadership.
A resource-based view emphasizes resource/capabilities utilization to create an advantage resulting in superior value creation. :. Resources are firm-specific assets to create cost/differentiation advantage and that competitors can acquire easily. competitors can replicate and any advantage quickly would disappear. A Model of Competitive Advantage Business Resources and Capabilities: As per resource-based view to develop competitive advantage. Deliver benefits that exceed competing products (differentiation advantage). Differentiation advantage Competitive advantage exists when same benefits are delivered at a lower cost i. Without this superiority. Both cost and differentiation advantages are known as positional advantage as it addresses position as leader in either cost or differentiation. The following diagram combines the resource-based and positioning views to illustrate the concept of competitive advantage:. Following are examples resources: Patents and trademarks Proprietary know-how Installed customer base Reputation of the firm Brand equity Capabilities are firm's ability to utilize resources effectively. Cost advantage b. An example: ability to bring a product to market faster than competitors. Cost advantage. Such capabilities are embedded in culture & can not documented as SOP & hence are difficult for competitors to replicate. . business must have resources/capabilities superior to competitors.e. Michael Porter identified two basic types of competitive advantage which enables to create superior value for its customers and superior profits for itself: a.
competencies all leveraged & to enable create Cost Advantage and Differentiation Advantage: Competitive advantage is created by using resources/capabilities to achieve either lower cost structure or differentiated product. Value Creation: Value is created by performing activities that Porter identified as the value chain. firm must perform one/more value creating activities that creates more overall value than do competitors. Firm positions itself in industry through choice of cost or differentiation. and broad / narrow focus to identify a set of generic strategies that firm can pursue to create and sustain a competitive advantage. Superior value is created through lower costs or superior benefits to the consumer (differentiation). Value Creation: Value is created by performing activities that Porter identified as the value chain. Cost Advantage and Differentiation Advantage: Another important decision is how broad/narrow market segment to target. Mr. Superior value is created through lower costs or superior benefits to the consumer (differentiation). firm operates in a value system of vertical activities of upstream suppliers and downstream channel members. Porter formed a matrix using cost/differentiation advantage. firm must perform one/more value creating activities that creates more overall value than do competitors. . cost/differentiation advantage. In addition to own value-creating activities. To achieve competitive advantage. Resources/capabilities together form distinctive innovation/efficiency/quality/customer responsiveness. firm operates in a value system of vertical activities of upstream suppliers and downstream channel members. Mr. Cost Advantage and Differentiation Advantage: Another important decision is how broad/narrow market segment to target. In addition to own value-creating activities. and broad / narrow focus to identify a set of generic strategies that firm can pursue to create and sustain a competitive advantage. This decision is a central component of the firm's competitive strategy. To achieve competitive advantage. Porter formed a matrix using cost/differentiation advantage.