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What is Global Business ?

Global business is a business philosophy based on the belief that the world is becoming more
homogeneous - national distinctions are fading and will eventually disappear.

Global business arena is an increase in interconnectedness and interdependence of economic


activity and social relations.

If the world is homogeneous then companies need to think globally and standardise their strategy
across national boundaries.

Global business concerns:

• Trade in goods and services


• Investment
• Labour force movement
• Products
• Production
• Technology
• Research and development
• Exchange of ideas and knowledge
• Intellectual property

Key features of global business

• Rapid expansion of international trade


• Internationalisation of products and services by large firms
• Growing importance of multinational corporations
• Increase in capital transfers across national borders
• Globalisation of technology
• Shifts in production from country to country
• Increased freedom and capacity and firms to undertake economic transactions across
national
• boundaries
• Fusing of national markets
• Economic integration
• Global economic interdependence
What is Multinational Company (MNC)

A corporation that has its facilities and other assets in at least one country other than its home
country. Such companies have offices and or factories in different countries and usually have a
centralized head office where they co-ordinate global management. Very large multinationals
have budgets that exceed those of many small countries.

The first modern MNC is generally thought to be the Dutch East India Company, established in
1602. Multinational corporations can have a powerful influence in local economies as well as the
world economy and play an important role in international relations and globalization.

Examples for Multinational Companies:

• Unilever
• Nestle
• Shell
• Caltex
• HSBC
• Citi Bank
• Cocacola
• Pepsi

Multinational companies do bring some benefits to developing countries. They provide jobs and
increase the wealth of the local people. The country gains some wealth by way of taxes.
However, there are some problems as well. The jobs are often low-skilled and poorly paid. Much
of the profit will go out of the country, and the company may pull out to relocate in a country
where it can make a greater profit. Multinational companies are primarily interested in making
profits for their shareholders. Paying wages is an expense that the company will try to reduce to
as low a level as possible.
Managing interdependence in the global business arena

Because multinational firms represent global interdependency managers must recognize that
what they do has long-term implications for the socioeconomic interdependence of nations

The hyper-competitive global arena of the twenty-first century mandates that managers develop
the skills necessary to design and implement global strategies, to conduct effective cross-national
interactions, and to manage daily operations in foreign subsidiaries. This means that the fate of
overseas operations depends at least in part on the international manager's cultural skills and
sensitivity, and the ability to carry out the company's strategy within the host country's business
practices. is the reliance of each sub-unit of the company, including corporate head office, on
other sub-units for its operations. Multiple conceptual perspectives profess the importance of
interdependence for the performance of company in a global business. Early economic theories
contended that multinational companies “internalized” overseas operations to capitalize on
relative efficiencies of internal coordination when facing market uncertainties. It thus followed
that individual sub-units of the MNC could not exist as completely autonomous units and had to
work in conjunction with other sub-units. Hence, interdependence came to be seen an inevitable
consequence of the existence of an MNC, and appropriate structures and control mechanisms
that efficiently channeled interdependence were observed to enhance the performance of the
company in the global business.

Because multinational firms (or other organizations, such as the Red Cross) represent global
interdependency, their managers at all levels must recognize that what they do, in the aggregate,
has long-term implications for the socioeconomic interdependence of nations. Simply to describe
ethical issues as part of the general environment does not stress the fact that managers need to
control their activities at all levels for the long-term benefit of all concerned. The powerful long-
term effects of MNC activities should be considered as an area for managerial planning and
control, not as haphazard side effects of business.

The good news for multinationals is that globalization is creating more universal standards of
business conduct, and these are becoming more rigorous. As more companies adopt these
standards, it becomes increasingly important for every multinational to establish companywide
core values, standards of behavior, and relevant policies in tune with the rest of the world’s
ethics and compliance environment. The benefits of an ethical culture outweigh the costs.
Globally ethical companies will be those that maintain a strong reputation in all their markets,
experience increased employee commitment and loyalty, garner advantages in attracting and
retaining customers, and generate superior levels of performance and success.

When managing interdependence, international managers must go beyond general issues of


social responsibility and deal with specific concerns of the MNC subsidiary-host country
relationship
Love – hate relationship between MNC’s and host countries

Multinational firms, relocating their operations beyond the boundaries of their home country,
influence and are influenced by the political, economical, social and cultural environment of the
host state. These impacts may be both positive and negative ones. It can be observed that the
multinationals may have a positive contribution to the trade balance of the host developing
country by producing goods that used to be imported (import substitution) and which can ever be
exported (reversal of the direction of trade). Thanks to their experience and advanced
technology, the multinationals are likely to be more productive then their local counterparts and
this is why they can offer higher incomes to the employees

Having high levels of efficiency, the multinational companies increase the quality of goods
produced and consumed locally; in this way they raise the satisfaction of the national consumers
and ensure a convergence of the global clients’ tastes. This may be regarded as an advantage in
bringing different cultures closer and in reducing the marketing costs of the multinationals. The
investments made by multinational companies in new plants and factories may create new jobs in
the emerging markets. Moreover, these firms pay taxes, in the benefit of local economy that may
use them to improve the educational system, the transports, or other services.

Numerous conflicts arise between MNC companies or subsidiaries and host countries, including
conflicting goals (both economic and non-economic) and conflicting concerns, such as the
security of proprietary technology, patents, or information. Overall, the resulting tradeoffs create
an interdependent relationship between the subsidiary and the host government, based on relative
bargaining power.
Advantages for host country are as fallows

• They are the source of income for the state government as it collects lots of the tax from
them.

• The seccand advantage is that it peovides enployement uppertunties to the local people
and living standard of the people will increase.

• It also trains the local people and the skill, effency, confidence of the local people will
increase resulting the increase in the skilled manpower for the country.

• Local people can use the goods of the international standard in the cheap price.

• There will be the utilization of the local resources.

• The reputation of the country's product will increase in the international market.

Most criticisms of MNC subsidiary activities, whether in less developed or more developed
countries, are along these lines:

• MNCs raise capital locally.

• The majority of the venture’s stock is usually held by the parent company.

• MNCs usually reserve key management positions for expatriates.

• The transfer-in of inappropriate technology

• MNCs concentrate their R&D at home.

• MNCs give rise to demand for luxury goods in economies that are not meeting
demands for necessities.

• MNCs start their operations by purchasing existing firms rather than developing new
productive facilities in the host countries.

• MNCs dominate major industrial sectors.

• MNCs are not accountable to the host government but respond the home country.

• Rise of interest rates because capital needed locally.


• Majority of ownership (by shareholders) of subsidiary are owned by parent company,
• therefore, residents don’t have control over operations of company within borders.

• Key managerial and technical positions are held by expatriates, as a result, they do not
• contribute in the “learning by doing” process of host country.

• Little training to host employer/employees.


• They do not adapt technology to host country’s needs.
• Concentration of research and development in home country.
• Lack of contribution to host exports and balance of payments.
• Worsen Y ( income) distribution.
• Earn excessive profits and fees due to their goals, particularly monopoly power.
• Dominate major industrial sector.
• Tend to be more accountable to home country.
• Contribute to inflation by stimulating D (demand) for scarce resources.
• Create alliances with corrupt host country elites.
• They recruit best personnel and managers from host at the expense of local entrepreneurs.
• Host country educates and trains employer/employees.
• Disregard to employer/employee safety and environment.
• Disregard culture and social impact

There are several recommendations for MNCs operating in, and doing business with, developing
countries:

• Do not intentional harm


• Produce more good than harm for the host country
• Contribute by their activity to the host country’s development
• Respect the human rights of the employees
• To the extent that local culture does not violate ethical norms, MNCs should respect
the local culture and work with it.
• Pay their fair share of taxes
• Cooperate with the local government in developing and enforcing just background
institutions.