Unit 1 – Business and the Business Environment

2.2 Size and scope of organisations

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§ 2.2.2 Global growth and developments
ü 2.1 Transnational, International and Global Organisations
ü 2.2 Market Structures

§ 2.2.3 Differences between franchising, joint ventures and

licensing.

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2.1 Transnational, International and Global
Organisations

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Globalization
§ “Globalization is the spread of products, technology,
information, and jobs across national borders and
cultures. In economic terms, it describes an
interdependence of nations around the globe fostered
through free trade”

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§ In other words, globalization is deepening relationships and broadening interdependence
among people from different countries.

§ As corporations become more global in their scope and international trade continues to
expand, economies are becoming more and more integrated through trade.

§ The conduct of international business is distinct from that of domestic business because
companies in global environment is supposed to operate in a diverse environment and must
engage in specialized types transactions such as exporting and importing and currency
conversion.

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Why do Firms Go Global?
§ First mover advantage.

§ Potentials for growth.

§ Small home markets.

§ More customers.

§ Discourage local competitors.

§ Economies of scale.

§ Space for efficiency improvement.

§ Competitive advantage.

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International Business

§ International business refers to the trade of goods,

services, technology, capital and/or knowledge
across national borders and at a global or
transnational scale. It involves cross-border
transactions of goods and services between two
or more countries

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Strategies of International Business

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2.2 Market Structures

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Market Structure
§ The Market Structure refers to the characteristics of the market either organizational or
competitive, that describes the nature of competition and the pricing policy followed in the
market. Thus, it can be classified into main 4 structures as ;

“The number of firms

producing the identical
goods and services in
the market and whose
s t r u c t u r e i s
determined based on
the competition
prevailing in that
market”

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Perfect Competition
This is an ideal type of market structure where all producers and consumers have
full and symmetric information, no transaction costs, where there are many
producers and consumers competing with one another.

Characteristics :
1. Large number of buyers and sellers

2. Homogenous product is produced by every firm

3. Free entry and exit of firms

4. Zero advertising cost

5. Consumers have perfect knowledge about the market

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Monopolistic Competition
This is a type of imperfect competition such that many producers sell products that are
differentiated from one another (e.g. by branding or quality) and hence are not perfect
substitutes.

Characteristics :

1. Many producers and many consumers

2. Product differentiation (Non-price differences)

3. Producers have some control over price (Price Makers)

4. The barriers to entry and exit is comparatively low

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Oligopolistic Competition
This is a market that is dominated by only a few large firms. These firms prefer not to
compete via price wars and therefore compete in various other ways, such as advertising,
product differentiation and barriers.
Characteristics :

§ Few sellers. (Several sellers who control the market share)

§ Barriers to entry.

§ High Interdependence

§ Prevalent advertising.

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Monopoly Competition
A market structure characterized by a single seller, selling a unique product in the market.

Characteristics :

1. A Lack of Substitutes

2. Barriers to Entry

3. Competition

4. Price Maker

5. Profits

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Summary of the Market Structures

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Differences between franchising, joint
ventures and licensing.
§ Franchising, which has grown significantly in recent years, is an arrangement where one
party (the franchiser) sells the right to another party (the franchisee) to market its product
or service.

§ Licensing is another form of non-equity agreement under which a firm in one country (the
licensor) authorizes a firm in another country (the licensee) to use its intellectual property
(e.g. patents, copyrights, trade names, know-how) in return for certain considerations,
usually royalty payments.

§ The term ‘joint venture’ tends to be used in two ways: to describe a contractual agreement
involving two or more parties; or to describe a jointly owned and independently
incorporated business venture involving more than one organisation.

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