Globalization and international business

Chapter 1
Globalization
and International
Business
Dr. Binod Ghimire,
Lecturer, Tribhuvan University 1-1

Chapter Details
 Concept of globalization and international
business
 Forms of globalization
 Reasons for international business expansion
 Drivers of market globalization
 Domestic vs international business
Dr. Binod Ghimire, Lecturer, Tribhuvan University 1-3

Globalization—An unstoppable
force?
 This is the golden age for business, commerce
and trade. Never before in the history of the
world has there been such an opportunity to
sell as many goods to as many people as there
is right now.
 With instant information and communication,
virtually everything is available to anyone,
anywhere. Markets are now global and many
corporations are often richer and more
powerful than many countries.
4Dr. Binod Ghimire, Lecturer,Tribhuvan University

 There has always been trade between
countries and societies, but never on a
scale close to today's levels.
 A combination of reduced trade barriers,
financial liberalization and a technological
revolution have completely changed the
nature of business in virtually all of the
industrialized countries.

 More trade, more markets, more business, more
information, more jobs, more opportunities.
 This whirlwind of economic activity has brought
many benefits, and wealth, to many people.This is
the promise of a globalized world.
 There has been faster economic growth, higher
living standards, accelerated innovation, and new
opportunities for both individuals and countries.
Accompanied by a revolution in information and
technology, the world is very much a smaller and
more integrated planet than ever before.

But if globalization can generate
wealth, it can also take it away:
 The billions of investment dollars that washed up on
Asian shores in the mid-1990's abruptly reversed
direction in 1997, sending millions of people back
into poverty in what has become known as the Asian
financial crises, although its impact was so
widespread it affected countries on virtually every
continent.
 The benefits of globalization have largely bypassed
over half of the world's population, or close to 3
billion people who make do on less than US$2 a day.

Statistics
 Of the world's six billion people, 1.2 billion live in
extreme poverty, or on an income of roughly US
$1 a day or less. Just under 3 billion people live on
$2 a day or less.
 Industrialized countries, with 19 per cent of the
world's population, account for 71% of global
trade in goods and services, 58 per cent of
foreign direct investment, and 91% of all Internet
users.
 More than US$1.5 billion is now exchanged on
the world's currency markets each day.
8
Dr. Binod Ghimire, Lecturer,Tribhuvan
University

Globalisation
 There was a time when most regions were
economically self-sufficient. Locally produced foods,
fuels and raw materials were generally processed for
local consumption. Trade between different regions
was quite limited.
 Today, the economies of most countries are so
interconnected that they form part of a single,
interdependent global economy.
9
University

Globalization Definition
 -“Processes by which goods, services, capital,
people, information, and ideas flow across
national borders.” (Grewal/Levy)
 - “Trend toward greater economic, cultural ,
political, and technological interdependence
among national institutions and economies.”
(Wild/Wild/Han)

In Conclusion
Dr. Binod Ghimire, Lecturer, Tribhuvan
University
1-
11
Globalization is the ongoing process that deepens and
broadens the relationships and interdependence among
countries.
Globalisation refers to the increasing integration of
markets (exchange) and production. It incorporates the
mobility of resources (capital, labour, ‘organization and
knowledge’).

Globalization Involving Us All
 Your Everyday Life:
◦ Wake up to a GE alarm clock made in China
◦ Slip on Adidas sandals made in Indonesia
◦ Put your American Eagle clothes on from Mexico
◦ Unplug your Nokia phone made in the U.S. and Taiwan
◦ Hop into your Toyota made in Kentucky
◦ Listen to musical play from England
◦ Grap a Starbuck’s coffee harvested in Columbia
12
University

Globalization (Continued)
Two Characteristics: Two Forces:
Falling Barriers
to Trade/
Investment
• GATT
• WTO
Technological
Innovation
• Internet
• Communication
• Transportation
Denationalization- national
boundaries becoming less
relevant.
Internationalization- entities
cooperating across national
borders.
13
University

Globalization (Continued)
Top Ten Globalized Countries
Datenreihen1
14
University

Globalization’s Current Issue
 Rise of the Anti-Nike Movement (1990’s-
early 2000’s)
◦ One of the top companies that use factories
◦ Manufactured lower cost products in factory
countries
 Underpaid workers in Indonesia
 Less than minimum wage (2,100 rupiah to $1 U.S.)
 Child labor (12 and under) in Cambodia and
Pakistan
 Poor work conditions in China and Vietnam
 Auditors found out poor health and safety standards in
several plants
15
University

Globalization’s Current Issue
(Cont.)
Nike’s Response: Learning to Become a Global
Corporate Citizen.
• New Staff and Training
• Dedicated to labor and environmental compliance
• Increase Monitoring of its Suppliers
• Safe/clean work conditions, respectful labor-management
relations and fair wages.
• Relations with Non-Profit Organizations
• United Nations Global Compact
•Locke, R., & Siteman, A. (2004). The Promise and Perils of Globalization: The Case of Nike. Retrieved February 28,
2009, from http://web.mit.edu/polisci/research/locke/nikepaperFINAL.pdf.
16
University

Globalization and Ethics
Unethical Problems:
• Global Inequality
− Widening gap of rich and
poor
• Environmental Regulations
◦ Unhealthy plants
◦ Emission of harmful toxins
 Exploits Labor Standards
◦ Reduction of wages
◦ Long hours (12 or more)
◦ No benefits
Sweatshop ( Factories) in Malaysia
2006, Feb. 6). Anti-Sweatshop League (ASSL). Retrieved February 28, 2009, Web site:
http://www.geocities.com/whydoyoukeepdeletingme/ASSLLeague.html
17
University

Globalization and Marketing
 Expands the market
in which consumers
buy from anywhere.
◦ Access EBay sellers
from across the globe.
 Two Strategies for
Businesses:
◦ Global Strategy
 Reduce marketing costs
by standardizing product
and marketing strategy
◦ Multi-National
Strategy
 Adapt products and
marketing strategies in
each national market to
suit local preferences
Wild, J., Wild, K., & Han, J. (2008). International Business: The Challenges of
Globalization. Upper Saddle River, NJ: Pearson Prentice Hall.
18
University

Several views about Globalization
University
1-
19
a. Economic View: Integration with world
economy. Global linkage
b. Company View: Multi-plant operations.
Establishing plants around the world.
c. Competition view: Compete in free market.
d. Structural view: Synonymous to multinational
enterprises

Assignment:
Explain arguments for and
against Globalization.
University
1-
20

Globalization
• Increases wealth and
efficiency in developed
and developing nations
• Creates jobs in
developed and
developing nations
• Advances developing
nations’economies
• Decreases poverty in
developing nations
Advantages:
•Wild, J., Wild, K., & Han, J. (2008). International Business: The Challenges of Globalization. Upper Saddle River, NJ: Pearson Prentice Hall.
21
University

Causes of Globalisation:
1. Improved Communications
 The development of communication
technologies such as internet, email and mobile
phones have been vital to the growth of
globalisation because they help MNCs to
operate throughout the world.
 The development of satelliteTV channels such
as Sky and CNN have also provided worldwide
marketing avenues for the concept and
products of globalisation.
22
University

Causes of Globalisation
2. ImprovedTransport
 The development of refrigerated and
container transport, bulk shipping and
improved air transport has allowed the
easy mass movement of goods
throughout the world.This assists
globalisation.
23
University

3. FreeTrade Agreements
 MNCs and rich capitalist countries have
always promoted global free trade as a
way of increasing their own wealth and
influence.
 International organisations such as the
World Trade Organisation and the IMF
also promote free trade.
24
University

4. Global Banking
 Modern communication technologies allow vast
amounts of capital to flow freely and instantly
throughout the world.
 The equivalent of up to $US1.3 trillion is traded
each day through international stock exchanges
in cities such as NewYork, London and Tokyo.
25
University

5.The Growth of MNCs
 The rapid growth of big MNCs such as Microsoft,
McDonalds and Nike is a cause as well as a
consequence of globalisation.
 The investment of MNCs in farms, mines and factories
across the world is a major part of globalisation.
 Globalisation allows MNCs to produce goods and
services and to sell products on a massive scale
throughout the world.
26
University

The Effects of Globalisation:
1. Changed Food Supply
 Food supply is no longer tied to the
seasons.We can buy food anywhere in the
world at any time of the year.
27
University

2. Division of Labour
 Because MNCs search for the cheapest
locations to manufacture and assemble
components, production processes may
be moved from developed to developing
countries where costs are lower.
28
University

3. Less Job Security
 In the global economy jobs are becoming more
temporary and insecure.
 A survey of American workers showed that
people now hold 7 to 10 jobs over their
working life.
29
University

4. Damage to the Environment
 More trade means more
transport which uses more fossil
fuels and causes pollution.
 Climate change is a serious
threat to our future.
30
University

5. Cultural Impact
 Websites such asYouTube connect people
across the planet.As the world becomes
more unified, diverse cultures are being
ignored. MNCs can create a monoculture
as they remove local competition and
thereby force local firms to close.
Replacing
31
University

The Effects of Globalisation
6. Increase in anti-Globalisation
Protests
 There is a growing awareness of the
negative impacts of globalisation. People
have begun to realise that globalisation
can be challenged by communities
supporting each other in business and
society and through public protest and
political lobbying.
32
University

Nature and Forms of globalization
33
 It has four dimensions.
a. Economic globalization- It is inter linkage of the
market in goods, services, capital, trade and
finance. It is contributed by liberalization,
deregulation, privatization and declining costs of
transport.WTO and many regional blocs have
given impetus for this process.
b. Cultural globalization- Globalization has brought
cultural diversities together to form a global
culture.Advances in communication, television
network, transportation technologies have been
reducing the barriers of distance and culture.
University

c. Political globalization- Exchange of views and
experiences between nations regarding the
establishment of good governance system, legal system,
human rights, free media etc. Regional grouping of nation
creates pressure for democracy and human rights. It is
shifting away from command economy and mixed
economy to the free market model. .
d. Environmental globalization-World is facing global
warming, depletion of the ozone layer, loss of bio-
diversity, pollution etc.World community is trying to
encourage countries to adopt legal and other measures
to protect the environment.
34
University

35
GLOBALIZATION
 Challenges that must be confronted to
succeed in a global business environment
include:
◦ Cultural Business Challenges
◦ Political Business Challenges
◦ Geoeconomic (geographic and economic)
Business Challenges
University

Cultural Business Challenges
36
 Cultural business challenges include differences
in…
◦ Languages
◦ Cultural interests
◦ Religions
◦ Customs
◦ Social attitudes
◦ Political philosophies
◦ Business practices
◦ Work ethic
◦ Currencies
University

Political Business Challenges
37
 Political business challenges include:
◦ Numerous rules and regulations surrounding the
business activity
◦ Tax implications
◦ Problems in importing and exporting
◦ Trade agreements
◦ Differences in laws such as privacy, security
University

Geoeconomic Business
Challenges
38
 Geoeconomic - refers to the effects of
geography on the economic realities of
international business activities
◦ Distances
◦ Time zone differences
◦ Skilled labor supply & cost of labor
◦ Cost of living
◦ Infrastructure issues
University

Multinational Companies
 It is generally defined as a company engaged in
producing and selling goods and services in more
than one country. It ordinarily consists of a parent
company located in the home country and at least
three or four subsidiaries in other countries.
Types of MNCs
a. Raw material seekers: cheapest raw materials
are brought from the local suppliers, processed it and
shipped them to the home country to be used for
production. During colonial period, it was done to
exploit raw materials.
39
University

b. Market Seekers: It is the modern form
of MNC that goes overseas to produce and
sell in foreign market. Most common form
of MNCs. Recently, Japanese and Korean
firms are investing different countries.
c. Cost Minimizers: These firms seek out
and invest in lower-cost production sites
overseas. It is to remain cost competitive
both at home and abroad.
40
University

International Business
International Business is a mechanism to bring about
globalization.
International business consists of all commercial
transactions—including sales, investments, and
transportation—that take place between two or
more countries
University
1-
41

 International Business (IB) deals with the nature,
strategy and management of international business
enterprises and their effects on business and national
performance (e.g., efficiency, growth, profitability,
employment).
 IB is interdisciplinary. It draws, among others, on
economics, politics, sociology, marketing, management
(human resources, strategic).
University
1-
42

Origins of IB
 IB is the result of the internationalisation of
production and the emergence of the
multinational corporations (MNCs), the
subject matter of IB.
 Internationalisation of production (‘globalization’)
involves international capital flows, international
trade of commodities (exports-imports) and
Foreign Direct Investment (FDI) by MNCs.
43
University

Origins of IB
 Until the 1980s, there has been a tendency towards concentration
of industry, and oligopolistic (market control by small number of producers
who can influence price and affect competitors) market structures. Firms
have observed a ‘law of increasing size’ consisting of four stages:
First, the owner managed and controlled small firm (nineteenth
century).
Second, the public limited ‘national’ company (limited liability,
separation of ownership from management).
Third, the multidivisional organisation (division- based),
separation of strategic (long term) and operational (day-to-day)
decisions.
Fourth, multinational corporations (MNCs) with production
activities outside (and including) their home-base.
44
University

Drivers of Globalization
A. Technological advancement: (in terms of communication,
production, and transportation)
B. Comparative/ Competitive advantage
C. Decreasing barriers to trade and investment
D. International media exposure
E. Increasing market size
F. Growing consumer pressures
University
1-
45

Factors Contributing to Rapid
Growth of International Business
A. Increase in and Expansion ofTechnology
Vast improvements in transportation and communications
technology—including the development of the Internet—
have significantly increased the effectiveness and efficiency of
international business operations.
B. Liberalization of Cross-Border Trade and Resource
Movements
Over time most governments have lowered restrictions on
trade and foreign investment in response to the expressed
desires of their citizens and producers. In addition, the
General Agreement on Tariffs and Trade, the development of
economic blocs such as the European Union, and other such
facilitating mechanisms have provided increased access to
many foreign markets.
46
University

C. Development of ServicesThat 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.
D. 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.
47
University

E. 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.
F. Changing Political Situations
The transformation of the political and economic policies of
the former Soviet Union and the People’s Republic of 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.

G. Expansion of Cross-National Cooperation
Governments have increasingly entered into cross-
national treaties and agreements in order to gain
reciprocal advantages for their own firms, to solve
problems jointly 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
United Nations, the International Monetary Fund, the
World Trade Organization, and the International Bank
for Reconstruction and Development (World Bank).

What’sWrong with Globalization
 Threats to national sovereignty.
 Economic growth and environmental stress.
 Growing income inequality and personal stress.
 Offshoring – the transferring of production abroad –
is controversial in terms of who benefits when costs
are reduced and whether the process exchanges
good jobs for bad ones.
Dr. Binod Ghimire, Lecturer, Tribhuvan University
1-
50

Reasons for International Business Expansion
 To Expand Sales: Pursuing international sales increases the potential
market and potential profits (Companies may increase the potential
market for their sales by pursuing international consumer and
industrial markets.)
 To Acquire Resources: IB may give companies lower costs, new and
better products, additional operating knowledge (Foreign-sourced
goods, services, components, capital, technology, and information
can make a firm more competitive both at home and abroad.)
 To Diversify or Reduce Risks: International operations may reduce
operating risk by smoothing sales and profits, preventing
competitors from gaining advantage (Firms seek foreign markets in
order to minimize cyclical effects on sales and profits. Defensively,
they may also wish to counter the potential advantages that
competitors might gain from participating in foreign market
opportunities.)
Dr. Binod Ghimire, Lecturer, Tribhuvan University 1-51

DomesticVs International Business
Dr. Binod Ghimire, Lecturer,Tribhuvan University
1-
52

Suggested Activities for
Students
 Make an informal survey of objects in your home
to determine where they were made. Observe
and share what items are made from where.
OR
 Select a meal and list all the components of that
meal.Where does each component come from?
OR
 Visit a local supermarket. Look at the labels and
find out the geographic origin of each product on
the shelves. Share your findings with the class.
What conclusions can you draw?

References
1. International Business by Charles W. L. Hill
2. International Business by Arhan Sthapit
3. International Business by Murari Prasad Gautam
4. Economics by Paul A. Samuelson and Nordhaus
5. Wikipedia - www.wikipedia.org
6. www. slideshare. net
Dr. Binod Ghimire, Lecturer,Tribhuvan University

Globalization and international business

Globalization and international business

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Globalization and international business

Similar to Globalization and international business (20)

Recently uploaded

Recently uploaded (20)

Globalization and international business