January 9, 2018

MB0053 [International Business Management] Set1 Q1

Q.1 What is globalization? What are its benefits? How does globalization help in international business? Give some instances.


Globalization: Globlization is a process where businesses are dealt in markets around the world, apart from the local and national markets. According to business terminologies, globalization defined as, “the worldwide trend of businesses expanding beyond their domestic boundaries’. It is advantageous for the economy of the countries because it promotes prosperity in the countries that embrace globalization.

Globalization describes the process by which regional economies, societies, and cultures have become integrated through a global network of political ideas through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence.However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors.The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. An aspect of the world which has gone through the process can be said to be globalized.

Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural contacts while increasing the possibility of international and intra-national conflict. 

Globalization has various aspects which affect the world in several different ways
Industrial - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955.China's trade with Africa rose sevenfold during 2000-07 alone.
Financial - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment
Economic - realization of a global common market, based on the freedom of exchange of goods and capital
Job Market- competition in a global job market. In the past, the economic fate of workers was tied to the fate of national economies. With the advent of the information age and improvements in communication, this is no longer the case. Because workers compete in a global market, wages are less dependent on the success or failure of individual economies. This has had a major effect on wages and income distribution
Political - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of the United States’ own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power.

Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. In fact, there is a considerable difference between the two terms.

International Vs. Global Business:

Most of us assume that international and global business are the same and that any company that deals with another country for its business is an international or global company. In fact there is a considerable difference between the two terms.

International Companies: Companies that deal with foreign companies for their business are considered as international companies. They can be exporters or importers who may not have any investments in any other country, apart from their home country.

Global Companies: Companies, which invest in other countries for business and also operates from other countries, are considered as global companies. They have multiple manufacturing plants across the globe, catering to multiple markets.

The transformation of a company from domestic to international is by entering just one market or a few selected foreign markets as an exporter or importer. Competing on a truly global scale comes later, after the company has established operations in several countries across continents and is racing against rivals for global market leadership. Thus, there is a meaningful distinction between a company that operates in a few selected foreign countries and a company that operates and market its products across several countries and continents with manufacturing capabilities in several of these countries.

Companies can also be differentiated by the kind of competitive strategy they adopt while dealing internationally. Multinational strategy and global competitive strategy are the two types of competitive strategy.

a. Multinational Strategy: Companies adopt this strategy when each countries market needs to be treated as self contained. It can be for the following reasons:

Customers from different countries have different preferences and expectations about a product or service.

Competition in each national market is essentially independent of competition in other national markets and the set of competitors also differ from country to country.

A company’s reputation, customer base, and competitive position in one nation have little or no bearing on its ability to successfully compete in another market.

Some of the industry example for multinational competition includes beer, life insurance and food products.

b. Global Competitive Strategy: Companies adopt this strategy when prices and competitive conditions across the different countries are strongly linked together and have common synergies. In a globally competitive industry, a company’s business gets affected by the changing environment in different countries. The same set of competitors may compete against each other in several countries. In a global scenario, a company’s overall competitive advantage is gauged by the cumulative efforts of its domestic operations and the international operations worldwide.

A good example to illustrate is Sony Ericssson, which has its headquarters in Sweden, Research and Development setup in USA and India, manufacturing and Assembly plants in low wage countries like China and sales and marketing worldwide. This is made possible because of the ease in transferring technology and expertise from country to country.

Industries that have a global competition are automobiles, consumer electronics, watches and commercial aircraft and so on.

Differences between International and Global Strategies

Selected target countries and trading areas
Most global businesses operate in North America, Europe, Asia Pacific, and Latin America
Custom strategies to fit the circumstances of each host country situation
Same basic strategy worldwide with minor country customisation where necessary
Adopted to local culture and particular needs and expectations of local buyers
Mostly standardised products sold worldwide, moderate customisation depending on the regulatory framework
Plants scattered across many host countries, each producing versions suitable for the surrounding environment
Plants located on the basis of maximum competitive advantage (in low cost countries close to major markets, geographically scattered to minimise shipping costs, or use of a few world scale plants to maximise economies of scale)
Source of supply of raw materials
Suppliers in host country preferred
Attractive suppliers from across the world
Marketing and distribution
Adapted to practices and culture of each host country
Much more worldwide coordination; minor adaptation to host country situations if required
Cross country connections
Efforts made to transfer ideas, technologies, competencies and capabilities that work successfully in one country to another country whenever such a transfer appears advantageous
Efforts made to use almost the same technologies, competencies, and capabilities in all country markets (to promote use of a mostly standard strategy), new successful competitive capabilities are transferred to different country markets
Company organisation
Form subsidiary companies to handle operations in each host country; each subsidiary operates more or less autonomously to fit host country conditions
All major strategic decisions closely coordinated at global headquarters; a global organisational structure is used to unify the operations in each country

Benefits of Globalization:

The merits and demerits of globalization are highly debatable. While globalization creates employment opportunities in the host countries, it also exploits labour at a very low cost compared to home country. 

Some of the benefits of globalization are as follows:

Commerce as a percentage of gross world product has increased in 1986 from 15% to nearly 27% in recent years. 

The stock of foreign direct investment resources has increased rapidly as a percentage of gross world product in the past twenty years. 

For the purpose of commerce and pleasure, more and more people are crossing national borders. Globally, on average nations in 1950 witnessed just one overseas visitor for every 100 citizens. By the mid-1980s it increased to six and ever since the number has doubled to 12. 

Worldwide telephone traffic has tripled since 1991. The number of mobile subscribers has elevated from almost zero to 1.8 billion indicating around 30% of the world population. Internet users will quickly touch 1 billion.

Promotes foreign trade and liberalization of economies.

Increases the living standards of people in several developing countries through the capital investments in developing countries by developed countries.

Benefits customers as companies outsource to low wage countries. Outsourcing helps the companies to be competitive by keeping the cost low with increased productivity.

Promotes better education and jobs.

Leads to free flow of information and wide acceptance of foreign products, ideas, ethics, best practices and culture.

Provides better quality of products, customer services and standardised delivery model across countries.

Give better access to finance for corporate and sovereign borrowers.

Increase business travel, which in turn leads to flourishing travel and hospitality industry across the world.

Incease sales as the availability of cutting edge technologies and production techniques decrease the cost of production.

Provide several platforms for international dispute resolutions in business, which facilitates international trade.

Some of the ill-effects of globalisation are as follows:

• Leads to exploitation of labour in several cases.
• Causes unemployment in the developed countries due to outsourcing.
• Leads to the misuse of IPR, copyrights and so on due to the easy availability of technology, digital communication, travel and so on.
• Influences political decisions in foreign countries. The MNCs increasingly use their economical powers to influence political decisions.
• Causes ecological damage as the companies set up polluting production plants in countries with limited or no regulations on pollution.
• Harms the local businesses of a country due to dumping of cheaper foreign goods.
• Leads to adverse health issues due to rapid expansion of fast food chains and increased consumption of junk food.
• Causes destruction of ethnicity and culture of several regions worldwide in favour of more accepted western culture.

In spite of its disadvantages, globalisation has improved our lives in various fields like communication, transportation, healthcare, and education.

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