Global Business Environment and Economics

Global Business Environment and
Economics
Copyright © 2019, 2015, 2009 Pearson Education, Inc. All Rights Reserved
Introduction
The process of globalization is changing the world—economically,
politically, socially and culturally. Its impact is obvious in the everyday life
of a typical household in a every country. Globalization leads to
increased competition. This competition can be related to product and
service cost and price, target market, technological adaptation, quick
response, quick production by companies etc. When
a company produces with less cost and sells cheaper, it is able to
increase its market share
Learning outcomes
Having read this chapter you should be able
•to understand the changing nature of business environment

•to learn about the role of firms and governments in developing
countries
•to study the dynamics of economic framework in which firms
operate
The Global Capitalism-Free Market
Model
In simple teams Capitalism is an economic system
characterized by private or corporate ownership of capital
goods, by investments that are determined by private
decision, and by prices, production, and the distribution of
goods that are determined mainly by competition in a free
market.
Global capitalism is capitalism that transcends national
borders.
*
1-5
Global Capitalism
Capitalism is often characterized by free market

forces, profit and private property. This economic *
system manifests itself in two broad directions.
•First, it leads to the development of large-scale
multinational organizations.
•Second, it rationalizes values, attitudes and
behaviors with corporate goals and objectives to
make abnormal profit.
1-6
Problems with Global Capitalism
Race to the
Volatility
bottom *
Inequality Degradation of
Democracy
1-7
Interesting Fact
“Of the 100 largest economies in

the world, 51 are corporations, not
countries”
ROLE OF DEVELOPING COUNTRIES
(a) Create a new, inclusive international dialogue

worldwide on the future of the global economy. *
(b) Develop a new international financial strategy that
supports sustainable development through
coordinated economic policies.
(c) Redesign existing institutions of the global
economy to make sustainable development rather
than unlimited mobility of capital their goal.
1-9
Challenge for Developing
Countries
Scope of Globalization
• Increased international trade *

• The growth of multinational corporations
• The internationalization of finance
• The application of new technologies in all these
operations, especially computer and other
information technologies
1-11
Two macro factors seem to underlie
the trend towards greater globalization
• The decline in trade barriers to the free flow of
*
goods, services, and capital that has occurred
since the end of world war.
• The technological change, particularly the dramatic
developments that have occurred in recent years in
communications, information processing and
transportation technologies
1-12
Globalization-Phases
• 1870–1914: First Wave of Globalization

*
Globalization drivers during this period were:

• Falling transportation costs
• Lowering of tariff barriers
1-13
• 1914–1945: Retreat to Nationalism Globally, *

protectionism drove international trade back down due
to World War - I.
• The retreat into nationalism produced anti-immigrant
sentiment and government imposed drastic reductions
on newcomers.
1-14
• 1945–1980: Second Wave of Globalization: *

Globalization drivers during the post-world war stage
(1945–80) were:
• Lack of growth with protective policies in nationalism
• Reduction in transport cost
• Reduction of the trade barriers and tariff
1-15
1980 onwards: Third Wave of Globalization

This stage is distinctive mainly because of two reasons. *
(a) A large group of developing countries actively involved
in global business.
(b) International migration and capital movements, which
were negligible during second wave of globalization, have
become substantial
1-16
The impact of this wave is visible in terms of:
*
•Movement towards Free Trade Creation of a Global Labor
Force
•Economic interdependence among countries
•Significant increase in cross-border investments
•Capital flows to developing countries increased over ten
times
1-17
*
• Globalization of Financial Markets Interest rates,
• Stock markets, currency values are all interconnected
• Significant and sustained growth in the world GDP
1-18
Globalization-Indicators
• 1. Foreign Direct Investments ( FDI) Investment in *

the real assets like factories, sales offices etc. by
foreign fi rms falls under the category of Foreign
Direct Investment. Total inflow of FDI has increased
many folds during the last 15 years
1-19
2. Foreign Portfolio Investments (FPI) Accompanying
the FDI boom, foreign portfolio equity investment has

*
also accelerated globally. Cross border transactions
in bonds and equities have soared in most countries,
from less than 10% of GDP in 1980 to 150–250% in the
recent past
1-20
3. Trade Since 1983, the pace of world trade has
accelerated, reaching an average annual rate of 6 to *

7%. This well outpaces the expansion of the world
GDP, which has risen at an average of only 3.5% per
year. However, the pace of world trade has been
slower than the pace of world FDI, which has risen at
above 15% per year since 1985
1-21
4. Global Governance by International Organizations
like World Trade Organization. This is clear from the *

three factors outlined below:
•Deepening economic integration
•Reduction of import duty rates
•Increasing cooperation between countries for foreign
investment
1-22
• 5. Business Restructuring—Flexibility and Closeness to Market
For many companies, this new environment of continuous change
meant restructuring, and in particular:
• Flexible, just-in-time production systems (to supply a greater

*
variety of goods in smaller lots, and to offer rapid response to
market impulses with minimal inventories)
• Moving production closer to the consumer and securing access to
the local market (replacing exports with Foreign Direct
Investment)
• Diversification of operations (shifting resources out of declining
sectors or regions and into promising ones)
1-23

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Global Business Environment and

Having read this chapter you should be able

•to understand the changing nature of business environment

Capitalism is often characterized by free market

“Of the 100 largest economies in

(a) Create a new, inclusive international dialogue

• Increased international trade *

• 1870–1914: First Wave of Globalization

Globalization drivers during this period were:

• 1914–1945: Retreat to Nationalism Globally, *

• 1945–1980: Second Wave of Globalization: *

1980 onwards: Third Wave of Globalization

The impact of this wave is visible in terms of:

• Stock markets, currency values are all interconnected

• Significant and sustained growth in the world GDP

• 1. Foreign Direct Investments ( FDI) Investment in *

foreign fi rms falls under the category of Foreign

Direct Investment. Total inflow of FDI has increased

many folds during the last 15 years

2. Foreign Portfolio Investments (FPI) Accompanying

the FDI boom, foreign portfolio equity investment has

in bonds and equities have soared in most countries,

from less than 10% of GDP in 1980 to 150–250% in the

accelerated, reaching an average annual rate of 6 to *

GDP, which has risen at an average of only 3.5% per

year. However, the pace of world trade has been

slower than the pace of world FDI, which has risen at

above 15% per year since 1985

like World Trade Organization. This is clear from the *

•Deepening economic integration

•Reduction of import duty rates

•Increasing cooperation between countries for foreign

For many companies, this new environment of continuous change

meant restructuring, and in particular:

• Flexible, just-in-time production systems (to supply a greater

market impulses with minimal inventories)

• Moving production closer to the consumer and securing access to

the local market (replacing exports with Foreign Direct

• Diversification of operations (shifting resources out of declining

sectors or regions and into promising ones)

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