GLOBAL BUSINESS ENVIRONMENT

FIRST SESSION: INTRODUCTION

Globalization is the process by which an activity or undertaking becomes worldwide by scope. Process of
globalization as such started since sixteenth century when different countries started trading with each
other. However, the term globalization has been getting used liberally and debated since the last couple
of decades with a large number of countries realizing importance of opening up of their economies. In
India, with implementation of big-ticket economic reforms since 1991, twine terms, namely,
liberalization and globalization have become bench-mark for all economic policy measures.

Why Firms go Global?

Business units may have to go global either because of external factors or internal factors. When firms
look at business opportunity outside the country naturally they would like to seize it. Sometimes,
business units may be compelled to explore business opportunity outside the country when domestic
business environment becomes investment-unfriendly.

Product Life-cycle

When a product is innovated the promoting firm enjoys advantages of being a monopolist with wider
profit margin. However, the innovator ceases to be a monopoly firm with entry of competitors having
got attracted due to wider profit margin and in the process, all end up as price-takers. At that stage the
original innovator tries to explore a new market so as to enjoy benefits of introducing new product with
a hope of earning large profit margin once again. In the process, the firms may end up finding market
base outside boundaries of the country.

How to go Global?

Initially, a firm would prefer to produce at home and export the surplus to other countries. However,
once the market abroad gets established and be confident of selling products he may think in terms of
setting up manufacturing base abroad instead of exporting home-manufactured products. In fact, this
strategy would help in conserving transportation cost on account of insurance and freight charges. How
to set up a unit abroad?

One option is to acquire an existing unit through mergers and acquisition. Or else, they may produce
under licensing arrangement or franchising. They may even try for joint venture along with a local
partner. Other option is setting up of a green-field project by setting up of a manufacturing unit from the
scratch.

MACRO FORCES INFLUENCING GLOBALIZATION

During the last couple of decades many developments have taken place resulting in narrowing down of
distances among the countries. Getting integrated into global economic system has become compulsion
of sustaining domestic economy. No country can afford to be a closed economy today. The following are
some of major developments which taken place in recent years compelling countries to become integral
part of globalization.

1. Globalization of Capital Markets: With free flow of capital-both inward and outward
movement- structure and modus operandi of international economic relations, especially, trade
relations have undergone drastic transformation. Influence of free inflow and outflow of capital
no more restricted to market fluctuations. Immediate consequence would be in terms of
fluctuation in terms of rates of exchange which in turn, obviously impact trading structure.
2. Technological Development: With fast development in technology cost of transportation as well
as communication has fallen substantially even if one compares with a situation a decade back.
Access to easy communication along with affordable transportation cost resulted in people
across the world becoming familiar with types of products and services available in different
markets-in terms of quality and price. Besides, markets started attracting new products as a
result of continued technological up-gradation. In the background of fast technological
advancement trade pattern has undergone drastic changes.
3. Growth of Multilateral Trade Arrangements: The above changes necessitated changes in terms
of trade relations too. Realization to change in trading terms led to transformation in
multilateral trade arrangements. For instance, GATT [General Agreement on Trade and Tariffs]
which used to resolve trade related issues from a narrow angle got replaced by WTO with
enlarged trade agenda –including issues like IPRs, Services and Subsidies which hitherto
considered issues not related to trade. With realization among the countries about their
ultimate impact on trade, though indirectly, resulted in emergence of WTO with much wider
trade agenda.
Thus, international trade relations have become more complex with emergence of many macro-
level forces. Hence, it is necessary to keep these developments while strategizing trade relations
with other countries.