Globalization and global

business
• What is your understanding of
globalization?
• What are its aspects?
• Why do business students need to
understand global business?
• Aspects of globalization are:
• Political globalization
• Cultural globalization
• Economic globalization: which
includes:
– Free flow of goods and services
– Free flow of capital
– Free movement of people
 Overview of Global Business
• Simply, an act of operating worldwide
is called globalization.
• Global business is that businesses,
which have worldwide business,
network. In other words, the global
businesses are such business that
involves in commercial activities
beyond the national boundaries and
extend business activities.
• Involves in transacting its activities
worldwide.
• Many enterprises in industrial nations
are global in nature.
• Some of the small and medium
enterprises (SMEs) are also involved
globally, even though they are
involved only in export and import
activities. ( e.g. The Nepalese Carpet
and garment industry).
 Globalization of markets
• The merging of distinctly separate national
markets into a global marketplace
– Tastes and preferences converge onto a global
norm
– Firms offer standardized products worldwide
creating a world market
• Significant differences still exist between
national markets on many relevant dimensions
• These differences require that marketing and
operating strategies and product features be
customized to best match conditions in a
country.
• Countries are different
• Range of problems are wider and
more complex
• Government intervention in trade
and investment creates problems
• International investment is impacted
by different currencies
 Globalization of production

• Refers to sourcing of goods and

services from locations around the
world to take advantage of
– Differences in cost or quality of the
factors of production
•Labor
•Land
•Capital
Reasons/Forces/Drivers of Globalizations

• There are five major forces,

which drive company to
international operations.
• Political
– Unification and socialization of the
global community
– Creation of unions such as EU.
NAFTA, SAARC
– Progressive reduction of barriers to
foreign trade and investment by
most governments
Technology
• Advances in computers and
technology
• Internet and network computing
• Ease of obtaining information and
making transactions
 Market
• As companies globalize, they
become global customers
• Finding the home market saturated
is sending companies to foreign
markets
• Convergence of customer tastes
and lifestyles
Cost
• Economies of scale reduce unit
costs
• Globalize product lines to reduce
development, production and
inventory costs
• Locate production in countries
where the costs of the factors of
production are lower
• Competition
• Competition continues to increase in
intensity
• New firms have entered world markets
• Companies are defending their home
markets from competitors by entering
the competitors’ home markets
• Larger trading groups (countries) offer
attractive, large markets
 Economic Activities

• Economic activities in developed

countries are switching over from
manufacturing to service sector. This is
facilitating globalization of business
through BPO and KPO.
• In past, manufacturing activities
symbolized power, success and growth of
the nation. But, not its not so. In these
days manufacturing activities are not
carried out in a single country or single
roof.
What are the opportunities?
• Ample opportunity of expansion
• Easily acquire resources
• Get profitable business
• Get advantage of economic
environment
• Balance commercial risk
• Get Technology
• Minimize overall competition
What are the challenges?
• High Level of Risks: They are political risk,
cultural risk, commercial risks etc.
• The change in product feature, attribute,
may be accepted and rejected by the
consumer of the host country.
• Fluctuating exchange rate, changes in tax,
inflation in the host countries are the great
challenges to the firm operating globally
• Need of broad range of management
skills
 What’s wrong with
globalization
• Threats to national sovereignty: Local
policies and priorities may be
compromised by governments
(especially in small and poorer
countries) for the sake of attracting
foreign businesses, there might be
over dependence on larger countries,
there might also be cultural
hegemony.
• Economic growth though is good for
nations it also increases pressures on
environment
• There is growing income inequality in
various countries due to activities of
global businesses.
 Types of international
business
• Importing or exporting or both is the most
fundamental and largest international
business activity. It is the easiest way of
entering a market with a small outlay of
capital.
• Exporting is making a product at the
company's domestic location and selling it
in another country. Importing is bringing
goods, services and capital into the home
country from abroad. 
• Licensing is an arrangement between
companies of different countries, a
company allows another one to use
its brand name, copyright, patent,
technology, trademark or other
assets in exchange for an amount
(royalty) based on sales.
• Companies may choose to manufacture or
sell their products under licensing when
transportation or domestic production
costs are too high, government
regulations restrict business activities of
foreign companies (usually in developing
countries) or the company wants to simply
produce and sell the same quality
everywhere. For example, Starbucks all
over the world sell its same-quality
beverages in the same-looking stores
under licensing contracts.
• A strategic alliance is a cooperation
of two or more companies for mutual
gain. A special type of this is a joint
venture when the partners mutually
found a new company.
• This cooperation allows companies to
share development and production
costs, technologies and sales
networks. For example, Motorola and
Toshiba formed a strategic alliance to
develop manufacturing processes for
microprocessors. General Mills and
Nestle formed a new company,
Cereal Partners Worldwide, to
produce and sell cereals.
• Foreign direct investment is a
company's physical investment into
building a plant in another country or
acquisition of a foreign firm or
subsidiary.
• Direct investments allow companies
to access foreign markets and act as
domestic businesses in that market
with a full scale of activities, from
manufacturing to selling. Not only
can the investing companies benefit,
but also the hosting countries
through getting to know new
products, services, technologies and
managerial skills.