INTERNATIONA

BUSINESS
 GLOBALIZATION

• Globalization has changed the way the world does business.

It is unstoppable. The challenge that individuals and
businesses face is learning how to live with it, manage it and
take advantage of the benefits it offers…. Peter Drucker
 GLOBALIZATION
• For an organization to be termed global, it should not necessarily
be doing business globally but it should be able to survive global
competition

• Globalization is essential because a company that fails to go

global is in danger of losing it’s domestic business to competitors
with lower costs, greater experience, better products and more
value for the consumer

• No business can hope to survive, let alone succeed, unless it

measures up to the standards set by leaders in its field anywhere
in the world.
 GLOBALIZATION
• GLOBAL MARKETING: (coordinating marketing in multiple
markets in the face of globalization)
• DEFINITIONS:
– Finding what customers want around the world and then satisfying these
wants better than competition, both domestic and international…. Terpstra
and Sarathy

– Global marketing is the process of focusing resources and objectives of an

organization on global market opportunities and threats…. Keegan

– It is an attitude of mind, the approach of a company with a totally global

outlook, seeking its profit impartially around the world (home market
included) in a planned and systematic manner.
 GLOBALIZATION
• PROBLEMS IN INTERNATIONAL BUSINESS:

– Political and Legal differences

– Cultural differences
– Economic differences
– Differences in Currency unit
– Differences in Language
– Differences in Marketing Infrastructure
– Trade and Investment restrictions
– Higher cost of Logistics due to distances
– Differences in Business Practices
 GLOBALIZATION
• Economic Definition: The process of integration of economies
across the world through cross-border flow of factors, products
and information

• Sociological Definition: Globalization has resulted in “global

villages” where technological and communication revolutions
have brought people of different cultures across the world, closer

• Corporate Definition: Globalization is a mind-set which views

the entire world as a single market so that the corporate strategy
is based on the dynamics of the global business environment
 GLOBALIZATION
• Globalization is:
– Operating or planning to operate business globally
– Developing a global outlook for the business without differentiating between
the domestic and foreign markets (HONDA, CASIO)
– Creating production and physical facilities across the globe based on business
dynamics without nationalist considerations (TOYOTA)
– Creating new product development and production planning based on global
market requirements
– Global sourcing of factors of operation/ production (raw material, machinery,
finance, people, etc)
– Creation of an organizational structure and culture based on a global outlook

A truly globalized product is the MAZDA sports car MX-5 Miata

Designed in California, prototype in England, assembly Michigan, electronic
components invented in New Jersey and fabricated in Japan, financed from
Tokyo and New York and marketed globally
 GLOBALIZATION
• Current scenario:

– International trade growing faster than world output

– International market is more dynamic than domestic markets
– Global trade-GDP ratio is 50%
– 20% of domestic consumption is through products manufactured globally
– In China, the export-GDP ratio rose to 25% in 2001 from 6% in 1980
– Foreign investment inflows in developing countries has grown
substantially
– Increase in EPZs
 GLOBALIZATION
Globalization can be considered at 2 levels:
• MACRO LEVEL- Globalization of World Economy
• MICRO LEVEL- Globalization of the business or organization

MACRO LEVEL: WORLD ECONOMY GLOBALIZATION

• Transnational Economy: Transcends national borders unhindered
by artificial restrictions like Governmental restrictions on trade
and product movements
v/s
• International Economy: The existence of different national
economies where economic relations are regulated by national
governments
 GLOBALIZATION
MACRO LEVEL- Globalization of World Economy
• Features of transnational economy:
– Shaped mainly by flow of money rather than trade in goods and services.
Monetary and fiscal polices of governments react to rather than shape
international money and capital markets
– Management of production is the major decisive factor rather than the
traditional factors of production, land and labor.
– The goal is market maximization, not profit maximization
– Trade becomes a function of investment
– Decision-making power shifts from State to regional communities (EU,
NAFTA, SAARC)
– There is a genuine world economy of money, credit and investment flows
not contained within national boundaries
– Growing viewpoint of transnational corporations to look at the entire world
as a single market for production and marketing of goods and services
 GLOBALIZATION
MICRO LEVEL- Globalization of the business or organization
• Corporations need to pass 5 stages before they can become truly
global corporations
– 1. Arms-length service where the company moves into overseas markets
through local distributors
– 2. The company takes over these activities on their own
– 3. The company begins own manufacturing, marketing and sales activities
in the foreign markets
– 4. The company moves to a full insider position with a complete business
system, extending the reach of domestic headquarters to all overseas
activities.
– 5. The company moves to genuinely global operations by denationalizing
operations, creating a system of values shared globally and tries to become
“globally localised”
 GLOBALIZATION
• Globalization has taken place in 2 phases:
– OLD ( 1870 to 1913)
– NEW ( 1950 onwards)

• SIMILARITIES:
– Characterized by rising trade-GDP ratios and rising international
investments
– Absence or dismantling of trade barriers
– Development of enabling technology
– Emerging forms of industrial organizations
– Political hegemony or dominance
 GLOBALIZATION
DIFFERENCES:

• TRADE FLOWS:
– OLD: Mainly inter-sectoral trade where primary commodities (natural
resources) were exchanged for manufactured goods

– NEW: Inter-industry trade in manufacturing based on difference in labor

productivity, technological lead, economies of scale, product
differentiation. Now 1/3 of trade is intra-firm, trade between affiliates of
the same company based in different countries (finished and intermediate
goods)
 GLOBALIZATION
DIFFERENCES:

• FDI FLOWS:
– OLD: Primary sector accounted for more than 55% of long-term foreign
investment, trade & distribution (30%) and manufacturing sector(10%)

– NEW: FDI shift has been more towards the services sector(50%),
manufacturing(40%) and primary sector(10%)
 GLOBALIZATION
DIFFERENCES:
• FINANCIAL FLOWS

PARAMETERS OLD NEW

CAPITAL FLOW to underdeveloped/new to industrialized countries with
industrializing countries high deficits and interest rates
OBJECTIVE long-term investment for profit short-term capital gains
INTERMEDIARIE Banks were only intermediaries Institutional investors like pension
S with long-term bonds funds and MFs

BONDS Long-term bonds with sovereign Financial innovation through

guarantees by governments introduction of derivatives (futures,
swaps, options)
TERM Only long-term outlook for Borrow short- lend long
investment/ profits resulting in maturity mismatch
 GLOBALIZATION
DIFFERENCES:

• LABOUR FLOWS
PARAMETER OLD NEW
S
MOBILITY Not restricted Restricted
WHO/ WHAT? Mobility of labor Mobility of manufactured goods
that use less labor
EXCHANGE Of goods through movement of Less of labor, more of goods,
capital and labor ideas, services, capital, technology
LABOR Vertical division of labor Vertical and Horizontal division of
between countries labor
 GLOBALIZATION
New features of Current phase of Globalization
• New Markets:
– Growing global markets in service sectors
– New financial markets, deregulated, working around-the-clock, in real time
– Proliferation of M&As
– Global consumer market with global brands
• New Players:
– MNCs integrating production & marketing, dominating food production
– WTO : multilateral organization with authority to enforce compliance
– International criminal court
– International network of NGOs
– Regional blocs : EU, ASEAN, NAFTA, SAARC
 GLOBALIZATION
• New rules and norms:
– Increasing privatization and liberalization in countries across the world
– Widespread adoption of democracy
– Consensus on goals and action agenda for development
– Multilateral agreements on trade (environment, social conditions)
– Multilateral agreements for services, IPR, communications made more
binding on governments
• New tools of communication:
– Internet and electronic communication connecting many people
simultaneously
– Cellular phones, fax machines
– Faster and cheaper transport by air, rail, road
 GLOBALIZATION
• ESSENTIAL CONDITIONS FOR GLOBALIZATION:

– BUSINESS FREEDOM: No unnecessary government restrictions that

come in the way of globalization
– FACILITIES: Infrastructural facilities made available
– GOVERNMENT SUPPORT: In the form of policy, procedural or financial
reforms
– RESOURCES: Organizations should have resources like finance,
technology, R&D capabilities, HR, managerial expertise
– COMPETITIVENESS: Low costs and price, product quality, product
differentiation, technological superiority, marketing strength
– ORIENTATION: Global orientation and suitable global strategies are
essential
 GLOBALIZATION
IMPLICATIONS AND IMPACT OF GLOBALIZATION:

• ILL-EFFECTS:
– Greater dominance of MNCs (10% in 2000 v/s 5% in 1980)
– Indiscriminate foreign investment being allowed
– Allowing higher FDI in industries that do not require so
– Increase in takeovers of local firms
– Nexus between MNCs and governments
– Replacement of traditional and indigenous products by modern products
– MNCs bring in technology suitable not to the host country but to the MNC
– Dumping of obsolete technology
– Lack of focus on underdeveloped countries
– Lowering of wages in developed countries
 GLOBALIZATION
IMPLICATIONS AND IMPACT OF GLOBALIZATION:

• BENEFITS:
– Foreign capital, if properly utilized, can impact the economic development f
the nation
– Productivity increases dramatically when nations produce according to
competitive advantage
– Improved cost and quality consciousness due to competition
– Global competition and imports control prices
– Enhancement of consumer choice and surplus due to global competition
– Spurs innovation with fresh ideas from abroad
– Higher capital flows from foreign investments keep interest rates low
– Opening up of greater domestic and global opportunities for local firms
 GLOBALIZATION
• IMPLICATIONS AND IMPACT OF GLOBALIZATION:

• CHALLENGES:
– A global firm can survive only if it is efficient
– Greater challenge for nations to attract FDI
– Increase in economic inequality
– MNCs by virtue of their size and resources have advantages. However,
smaller firms have advantages due to standardized technology and products,
adaptability, lower overheads, closeness with customers
– Domestic and cross border M&As pose challenges to the governments to
ensure fair competition
– Is successful only if the policy is proper and clear and has the required
political mandate, will and boldness
 GLOBALIZATION
SUGGESTED POLICIES FROM UNDP:

• To minimize damages and maximize opportunities of

globalization
– Manage trade and capita flows more carefully
– Invest in poor people
– Foster small enterprises
– Manage new technology properly
– Reduce poverty and introduce safety nets
– Influence governance
 GLOBALIZATION
To maximize benefits from globalization, developing countries
need:

– A more supportive macroeconomic policy environment for poverty

eradication
– A fairer institutional environment for global trade
– A partnership with MNCs to promote growth for poverty reduction
– Action to stop the race to the bottom
– Selective support for global technology and R&D priorities
– Action on global debt