GLOBALIZATION

AND
INTERNATIONAL BUSINESS

MBA EVENING PROGRAM

3rd September ,2021
Presented By: Dr. Rajesh P Ganatra

Afilliation: Faculty
Bk School of Professional and
Management Studies
 Flow
1. Business Environment
2. Globalization
3. International Business
4. International Business Transaction
5. Factors Affecting Globalization
6. Globalization Strategy
7. Case Study - Wipro Ltd. – The New Face Of
Global Competition
 Business Environment

• The business environment poses threats to a firm or offers immense

opportunities for potential market exploitation. Stressing this aspect,
William F. Glueck and Lawrence R. Jauch wrote thus:"

• The environment includes factors outside the firm which can lead to
opportunities for or threats to the firm. Although there are many factors, the
most important of the factors are:
• socio-economic,
• technological,
• supplier,
• competitors and
• government"
 The broadening set of interdependent
relationships among people from different
parts of a world that happens to be divided into
nations is called Globalization.
All commercial transactions—including sales,
investments, and transportation—that take place
between two or more countries is called international
business. In other words international business gives rise
to exports, imports, movement of fdi etc.
Competitive advantage depends on the ability of the
organization to organize its resources and value-adding
activities in a way that is superior to its competitors and also
the study of industry forces and value chain which affect the
international business.
Preference of the US Exporter
1. Importer Pays for Goods

French Importer American Exporter

2. Exporter Ships Goods After Being Paid

Preference of the French Importer
1. Exporter Ships the Goods

French Importer American Exporter

2. Importer pays after the Goods are Received

 The Use of a Third Party

1. Importer Obtains Bank’s Promise 2. Bank Promises Exporter to

to Pay on Importers Behalf Pay on Behalf of Importer

French Importer Bank American Exporter

6. Importer Pays Bank 4. Bank Pays Exporter

5. Bank Gives Merchandise 3. Exporter Ships “to the Bank.”

to Importer Trusting Bank’s Promise to Pay
A Typical International BusinessTransaction
1. Importer Orders Goods 3. Importer
Arranges for
2. Exporter Agrees to Fill Order
LOC

American Exporter French Importer

6. Goods Shipped to France
10 and 11
Exporter 7. Exporter 12. Bank Tells 13. Importer
Sells Presents Importer Pays Bank
Draft to Draft to Bank Documents
Bank 14. B of NY Presents Matured Arrive
Draft and Gets Payment
Bank of New York Bank of Paris
5. B of NY 8. B of NY Presents Draft to Bank of Paris
Informs
9. Bank of Paris Returns Accepted Draft
Exporter
of LOC 4. Bank of Paris Sends LOC to B of NY
 Factors Affecting Globalization

Increase in and Expansion of Technology

Vast improvements in transportation and communications

technology—including the development of the Internet—have
significantly increased the effectiveness and efficiency of
international business operations.

Today, a much larger portion of the population is involved in the

development of new products, than just the production of
products.
 Factors Affecting Globalization

Liberalization of Cross-Border Trade and Resource Movement

Over time most governments have lowered restrictions on trade

and foreign investment in response to the expressed desires of
their citizens and producers.

The primary motives for this change include giving citizens

greater consumer choice and lower prices, international
competition making domestic producers more efficient, and the
hope that liberalization will cause other countries to also lower
trade barriers
 Factors Affecting Globalization

Development of Services That Support International

Business

Services provided by government, banks,

transportation companies, and other businesses greatly
facilitate the conduct and reduce the risks of doing
business internationally.
 Factors Affecting Globalization

Growing Consumer Pressures

Because of innovations in transportation and communications

technology, consumers are well-informed about and often able
to access foreign products.

Thus competitors the world over have been forced to respond to

consumers’ demand for increasingly higher quality, more cost-
competitive offerings.
 Factors Affecting Globalization

Increased Global Competition

The pressures of increased foreign competition

often persuade firms to expand internationally
in order to gain access to foreign opportunities
and to improve their overall operational
flexibility and competitiveness.
 Factors Affecting Globalization

Changing Political Situations

The transformation of the political and economic policies of

Eastern Europe, Vietnam, and China has led to vast increases in
trade between those countries and the rest of the world.

In addition, the improvements in national infrastructure and the

provision of trade-related services by governments the world
over have further led to substantial increases in foreign trade
and investment levels.
 Factors Affecting Globalization

Expanded Cross-National Cooperation

Governments have increasingly entered into cross-national

treaties and agreements in order to gain reciprocal advantages
for their own firms, to jointly attack problems that one country
cannot solve alone, and to deal with areas of concern that lie
outside the territory of all countries.

Often, such cooperation occurs within the framework of

international organizations such as the International Bank for
Reconstruction and Development (World Bank).
 Globalization Strategy
• A global strategy requires worldwide consistency and
standardization in order to be effective.

• Firms that choose the global strategy face strong pressures

for cost reductions but weak pressure for local
responsiveness.

• Operationally, MNEs that adopt a global strategy usually are

or aim to become the low-cost player in their industry.

• This generally requires global-scale production facilities in a

few low-cost locations.
 Case Study

WIPRO LTD. – THE NEW FACE OF GLOBAL

COMPETITION
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION
Fifteen years ago, Wipro Ltd. of India was a jumbled
conglomerate selling everything from cooking oil and personal
care products to knockoffs of Dell microcomputers and
lightbulbs. Now it is a fast-growing information technology
company at the forefront of India's rapidly expanding
technology sector. In the year ending March 2005, Wipro
generated more than $1.87 billion in sales, the majority from
export contracts in information technology services. Its sales
have grown by more than 25 percent a year since 1997, and that
growth shows no sign of slowing. The company is very
profitable, earning $363 million in net income in the year ending
March 2005.
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION

Wipro's move into technology began in 1989 when General Electric

entered into a joint venture with Wipro, Wipro GE Medical Systems, to
make and sell GE ultrasound scanners under license in India. At the
time, .Wipro's technology revenues were tiny, just $15 million. While
sales of GE scanners in India did not take off as quickly as expected, GE
quickly realized it had found a cheap source of talented engineers and
programmers. India has a solid base of technology-focused universities
and colleges that turn out many engineers every year. The vast
majority speak English. While software programmers in the United
States with two to four years of experience make $64,000 a year,
similarly skilled individuals in India can be had for as little as $2 an
hour, and programmers at Wipro on average earn $ 10,000 a year. That
might not sound like a lot, but in India, where the annual per capita
income is still less than $500, it can translate into a very good living.
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION

GE quickly set aside $5 million a year to hire Wipro software

programmers to write code for GE's ultrasound machines and its CT
scanners. By the mid-1990s, senior GE managers began to encourage
other units to follow the medical division's lead and outsource
information technology work to Indian companies. As a result, at one
point during the mid-1990s Wipro was getting as much as 50 percent
of its revenues from General Electric. However, along the way GE
taught Wipro a hard lesson. GE was soon contracting out work to
other Indian information technology companies, playing them off
against each other in its drive for ever lower costs. To hold onto its GE
business, Wipro found that it had to improve its own operating
efficiency, so Wipro looked at what GE was doing, and copied it.
Wipro's joint venture with GE helped in this regard, since it gave Wipro
a window into GE's relentless push for operating efficiencies.
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION

Thus, following GE's lead, Wipro was one of the first Indian
companies to adopt the Six Sigma process for improving
operating efficiency made famous by GE. Today, Wipro
executives credit much of their success in the international
market to the hard lessons it learned about efficiency as a GE
vendor. By the late 1990s, GE began to turn its attention from
simply buying software from India, to using the country as a base
for data entry, processing credit card applications, and other
clerical tasks that could be performed over the Internet. About
this time, other Western companies such as American Express
and British Airways began doing the same thing. GE estimates
that it cut operating costs $300 million a year by shifting such
work to India. Wipro was a major beneficiary.
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION
Today Wipro's 39,000 technology employees write software, integrate back-
office solutions, design semiconductors, debug applications, take orders, and
field help calls for some of the biggest companies in the world. Its customers
still include General Electric along with Hewlett-Packard, Home Depot, Nokia,
Sony, and Weyerhaeuser. By using the Internet, Wipro can maintain and
manage software applications for companies all over the world in real time.
Typical is Wipro's relationship with Weyerhaeuser, one of the world's largest
timber companies. Wipro's involvement with Weyerhaeuser began in 1999
when two employees conducted a modest on-site analysis at Weyerhaeuser's
U.S. headquarters just south of Seattle. By 2003, Wipro was supporting a
broad array of Weyerhaeuser's information systems including logistics, sales,
and human resource applications from Bangalore, India. Overall, Wipro
estimates it can save clients as much as 40 percent of the cost of maintaining
such systems. In a highly competitive global economy, the imperative for
companies such as Weyerhaeuser to outsource is compelling.
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION

Wipro, however, is not content to remain in the low-margin end

of the software business. The company increasingly is moving
upstream into high value-added applications. For example, in
2002, Wipro signed a deal to design and engineer tape storage
devices for Storage Technology. In 2004, Wipro took over
responsibility for all development work on this product line from
200 employees in Minneapolis. Wipro is also moving rapidly into
high value-added software services, such as establishing global
supply chain or billing systems for large corporations, a business
that is currently dominated by Western consulting outfits such as
IBM, EDS, and Accenture.
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION
As Wipro expands its business, it is also taking steps to become a more
global company. Around the world, Wipro has been hiring local nationals to
lead its sales push. The company now has a direct sales presence in 35
countries, most of which are staffed by local nationals. By 2005, the company
hopes that three-quarters of the employees that customers see will be local
nationals—in Europe the figure is already 90 percent. According to a Wipro
spokesman, using locals "provides the cultural and linguistic ties that make
clients smile, and help us build stronger relationships." Wipro is also buying
local companies to give it instant industry presence. In November 2002,
Wipro paid $26 million for American Management Systems, buying not just
credibility but also 90 consultants and 50 existing client relationships in the
energy business. While these consultants will manage contact with U.S.
customers, much of the software development work will be moved to
Bangalore.
 WIPRO LTD. – THE NEW FACE OF GLOBAL
COMPETITION

In something of a departure from its historic strategy, since 2000

Wipro has also been moving some product development work
out of India to developed nations. It now has nine development
centers in Europe and the United States. These centers focus on
product development work where more communication
between Wipro engineers and the client is required than with
the typical outsourcing contract, and where language is an issue.
In Germany, for example, Wipro has found that it can win more
business if not only its salespeople are German, but also some
development work is done locally by German engineers.
Questions ?
 Q1

How did outsourcing work to Wipro improve

General Electric's ability to compete in the
global economy? Does such outsourcing harm or
benefit the American economy?
 A1

GE was able to reduce the labor portion of costs by outsourcing

to Wipro. This increased their ability to be competitive in the
global marketplace. Short-term, such outsourcing did hurt
American workers whose jobs were outsourced, of course, yet
long term, it improved the economy through job growth.
 Q2

Did General Electric help to create Wipro? How?

 A2

GE helped Wipro develop in several ways. First,

it provided work. Second, it provided a model
that brought along competitive pressures to
which Wipro had to respond.
 Q3

If India's information technology companies

continue to prosper, over time what do you
think will happen to the income differential
between software programmers in the United
States and India? What are the implications for
the American economy?
 A3

If India’s IT companies prosper, and demand continues to

increase, wage rates will equalize between the U.S. and India.
Given the population differentials, it is likely that new U.S.
programmers will be paid less that formerly. The implications for
the American economy are a downward pressure on wages and
the price of software will decline. If routine programming is done
in India, U.S. programmers can thrive by focusing on more
innovative work, higher-skilled activity.
 Q4

Since 2000, Wipro has moved abroad,

establishing sales offices in 35 nations and
design centers in nine. Why is Wipro doing this?
What would happen to the company if it did not
follow this strategy?
 A4

Wipro is developing client relationships that can

facilitate the import of labour into India. Wipro
knows that it needs to be close to the client. If
Wipro did not get close to its client, they would
have slower growth and loss of competitive
advantage.
 Q5

What does the rise of Wipro teach you about

the nature of the global economy in the first
decade of the twenty first century?
 A5

Wipro has a competitive advantage in terms of

cost, but it needs to reinvest some of their gain
into closer relationships with the client. Face-
to-face still matters. Just like Wal-Mart suppliers
who locate representatives in Bentonville, GA,
Wipro has discovered that it needs a local
presence.