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GLOBALIZATION : 

GLOBALIZATION Module 1

Need for International Business : 

3 Need for International Business More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance, consulting firms) Art, film, and music companies

Need for International Business : 

4 Need for International Business International business: causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level

What is Globalization? : 

What is Globalization? Globalization refers to the shift towards a more integrated and interdependent world economy. Globalization has several facets including the globalization of market and the globalization of the production.

What is International Business? : 

6 What is International Business? International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

Types of International Business : 

7 Types of International Business Export-import trade Foreign direct investment Licensing Franchising Management contracts

International Business Questions : 

8 International Business Questions How will an idea, good, or service fit into the international market? Should trade or investment be used to enter a foreign market? Should supplies be obtained domestically or abroad? What product adjustments are necessary to be responsive to local conditions? and What are the threats from global competitors, and how can these threats be counteracted?

Factors in International Business Operations : 

Factors in International Business Operations Physical & Social factor Political policies & legal practices Cultural factors Economics forces Geographical Factors Competitive Factors Competitive product strategy Company resource and experience Competitors in each market Operations Objectives Sales expansion Resource acquisition Risk minimization Operating Environment Strategy Modes Importing & Exporting Tourism & Transportation Licensing & Franching Turnkey operations Management contracts Direct & Portfolio investment (including joint venture ) Means Functions Marketing Global manufacturing & supply chain mgnt Accounting Finance Human Resources Overlying Alternatives Choice of countries Organization & control mechanisms

The Globalization of Market : 

The Globalization of Market Globalization of market refers to the merging of historically distinct and separate national market into one huge global market place. Falling barriers to cross – border trade have made it easier to sell internationally . Consumer products such as Citigroup credit cards, Coca- Cola soft drinks, Sony PlayStation video games, McDonald’s hamburgers, and Starbuck coffee are frequently held up as prototypical example of this trend. These products are just benefactors of this trends: they are also facilitators of it. By offering the same basic products worldwide. They help to create a global market .

The Globalization of Production : 

The Globalization of Production The globalization of production refers to the sourcing of the goods and services from locations around the globe to take advantage of national differences in the cost and the quality of factors of production (such as labor, energy, land and capital). By doing this companies hope to lower their overall cost structure and/ or improve the quality or functionality of their products offering, thereby allowing them to compete more effectively.

The Globalization of Production : 

The Globalization of Production The Boeing Company’s commercial jet airliner, the 777. eight Japanese suppliers make parts for the fuselage, doors and wings. A supplier in Singapore makes the doors for the nose landing gars; three suppliers in Italy manufactures wing flaps; and so on. In total some 30% of the 777, by value , is built by the foreign companies. For its next jet airliner, the 787, Boeing is pushing this trend even further, with some 65% of the total value of the aircraft scheduled to be outsourced too the foreign companies, 35 % of which will go to the three major Japanese companies .

The Emergence of Global Institution : 

The Emergence of Global Institution Over the half century a number of important global institutions have been created to help perform these functions. There institutions include the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO); the International Monetary Fund (IMF); and its sister institution, the World Bank and the United Nations (UN). All these institutions were created by the voluntary agreement between individual nation- states, and their functions are enshrined in international treaties.

World Trade Organization : 

World Trade Organization WTO is primarily responsible for policing the world trading system and making sure nation- states adhere to the rules laid down in trade treaties signed by WTO member states. As of May 2005, 148 nations that collectively accounted for 97% of world trade were WTO members. Its also responsible for facilitating the establishment of additional multinational agreement between WTO members states. WTO had promoted the lowering of barriers to cross- borders trade and investments. Without an institution such as WTO, the globalization of market and production is unlikely to have proceeds as far as it has.

International Monetary Fund : 

International Monetary Fund IMF and World Bank were established in 1944 by 44 nations at Bretton Woods, New Hampshire. The task of the IMF was to maintain order in the international monetary system, and that of the World Bank was to promote economic development. IMF has focused on low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments. IMF is often seen as the lender of last resort to nation-states whose economies are in turmoil and currencies are losing value against those of other nations.

International Monetary Fund : 

International Monetary Fund In the past decade IMF has lend money to the troubled countries like Argentina, Indonesia, Mexico, Russia, South Korea, Thailand and Turkey. IMF loans come with the strings attached; in return for loans, the IMF requires nation –states to adopt specific economic policies aimed at returning their troubled economics to stability and growth.

The United Nations : 

The United Nations The United Nations was established on October 27, 1945, by 51 countries committed to preserving peace through international cooperation and collective security. When states become member of United Nations, they agree to accept the obligations of the UN charter, an international treaty that establishes basic principles of international relations. UN is best know for peacekeeping role, one of the organization's central mandates is the promotion of higher standards of living, full employment and conditions of economics and social progress and development that are related to the creation of vibrant global economy

The United Nations : 

The United Nations Four purpose of United Nations To maintain international peace and security. To develop friendly relations amongst nations. To cooperate in solving the international problems, and Promoting respect for human rights and to be a center of harmonizing the actions of nations.

Drivers of Globalization : 

Drivers of Globalization Two macro factors seem to decline the trend toward greater globalization. The decline in the barriers to the free flow of goods, services, and capital that has occurred since the end of World War II, and Technological changes, particularly the dramatic development in the recent years in communication, information processing, and transportation technologies.

Declining Trade and Investment Barriers : 

Declining Trade and Investment Barriers International Trade: occurs when firm export goods or services to the consumer in another country Foreign direct investment: occurs when a firm invests resources in business activities outside its home country. Many of the barriers to the international trade took the form of high tariffs on imports of manufactured goods. One consequence, however was “beggar thy neighbor” retaliatory trade policies with the countries progressively raising trade barriers against each others. Ultimately, this contributed to the Great Depression of the 1930’s.

The Globalization Debate : 

The Globalization Debate Is the shift toward a more integrated and interdependent global economy a good thing?.... Well many economists, politicians and business leaders seem to think so. They argue that falling barriers to international trade and investment are twin engines the global economy toward greater prosperity. Increased international trade cross- border investment will result in the lower prices for goods and services. Globalization stimulates economics growth, raises the incomes of consumer, and helps to create jobs in all countries that participate in the global trading system.

Antiglobalization Protests : 

Antiglobalization Protests On December 1999, Street demonstration against globalization, where in 40,000 protesters blocked the street of Seattle in an attempt to shut down a WTO meeting being held in the city. The protest was on wide range of issues; Including job losses in industries under attack of foreign competitors, Downward pressure on the wage rates of unskilled workers. Environmental degradation and the cultural imperialism of global media and multinational enterprise which was seen as “Culturally impoverished” by some protesters.

Antiglobalization Protests : 

Antiglobalization Protests WTO was meeting to try to launch a new round of talks to cut the barriers to cross-border trade and investment. As such it was seen as a promoter of globalization and legitimate target for the antiglobalization protesters. But the protest turned into violent, transforming the normally placid streets, of Seattle into a running battle between “anarchists” and seattle’s bemused and poorly prepared police department The meeting failed to reach agreement, and although the protest outside the meeting halls had little to do with that failure, the impression took hold that the demonstrators had succeeded in a derailing the meeting.

Antiglobalization Protests : 

Antiglobalization Protests While violent protest may give the antiglobalization efforts a bad name, but it is clear from the demonstrators that the support for the cause goes beyond a core of anarchists. Large segment of the population in many countries believe that globalization had detrimental effects on living standards and the environmental, and the media have often fed on this fear.

Globalization, Jobs and Income : 

Globalization, Jobs and Income One concern frequently voiced by globalization opponents is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the United States and United Kingdom. The critics argue that falling barriers allow firms to move manufacturing activities to countries where wages rates are much lower. D. L. Bartlett and J.B. Steele, two journalists for the Philadelphia Inquirer who gained notoriety for their attack on free trade, cite the case of Harwood Industries, a U.S clothing manufacturing that closed its U.S. operations, where it paid workers $9 per hour and

Contd.. : 

Contd.. and shifted manufacturing to Honduras, where textile workers receive $ 4 per hour. Because of moves such as this the wages rates of poorer Americans have fallen significantly over the past quarter of a century. Globalization supporters argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently. According to this view,

Contd.. : 

Contd.. it makes little sense for the U.S to produce textile at home when they can be produced at a lower cost in Honduras or China. Importing textiles from china leads lower prices for clothes in U.S which enables consumers to spend more of their money on other items. Some supporters of globalization concede that the wage rate enjoyed by unskilled workers in many advanced economies may have declined in recent years. However globalization critics argue that the decline in unskilled wage is due to the migration of low-wages manufacturing jobs offshore and a corresponding reduction in demand for unskilled workers.

Contd… : 

Contd… They point out that many advanced economies report a shortage of highly skilled worker excess supply of unskilled workers. Thus, the growing income inequality is a result of the wages for skilled worker being bid up by the labour market and wages for unskilled workers being discounted.

Globalization, Labor Policies, and Environment. : 

Globalization, Labor Policies, and Environment. A second source of concern is that free trade encourages firm from advanced nations to move manufacturing facilities to less developed countries that lack adequate regulations to protect labor and the environment from abuse by the unscrupulous. However critics often argue that adhering to labor and environmental regulation significantly increase the cost of manufacturing enterprise and puts them at a competitive disadvantage in the global marketplace vis-à-vis firms based in developing nations that do not have to comply such regulations.

Globalization, Labor Policies, and Environment : 

Globalization, Labor Policies, and Environment Supporter of globalization argued that tougher environmental regulations and stricter labor standard go hand in hand with economics progress.

Managing In The Global Marketplace : 

Managing In The Global Marketplace A firm does not have to become a multinational enterprise, investing directly in the operations in other countries, to engage in the international business, although multinational enterprises are international business. All the firm has to do export or import product from other countries. As their organization increasingly engage in cross-broader trade and investment, managers need to recognize that the task of managing an international business differs from that of managing a purely domestic business in many ways.

Managing In The Global Marketplace : 

Managing In The Global Marketplace Countries differ in their cultures, political systems, economics system, legal system, and level of economic development. Difference between countries require that an international business vary its practices country by country. For example; marketing a product in Brazil may require a different approach from marketing the product in Germany. Managers in an international business must not only be sensitive to these differences, but they must also adopt the appropriate policies and strategies for coping with them. A further way in which international differs from domestics business is the greater complexity of managing an international business.

Managing In The Global Marketplace : 

Managing In The Global Marketplace Roles and Responsibility of manager in International Business He has to decide where in the world to site production activities to minimize costs to maximize value added. He must decide whether it is ethical to adhere to the low labor and environmental standard found in many less developed countries. He must decide how to coordinate and control globally dispersed production activities. He must also decide which market to enter and which to avoid.

Managing In The Global Marketplace : 

Managing In The Global Marketplace Conducting business transaction across national borders requires understanding the rules governing the international trading and investment system. Manager in an international business must also deal with government restrictions on international trade investment. He must find ways to work within the limits imposed by specific government interventions. Cross- border transactions also require that the money to be converted from the firm’s home currency into a foreign currency vice-versa. Because currency exchange rates vary in response to changing economics conditions, managers must develop policies for dealing with exchange rates movements.

Managing In The Global Marketplace : 

Managing In The Global Marketplace Differences between managing International business and that of Domestic business; Countries are different. The range of problems confronted by a manager in an international business is wider and the problem themselves more complex than those confronted by a manager in domestics business. International business must find ways to work within the limits imposed by the government intervention in the international trade and investment system, and International transactions involve converting money into different currencies.

Competitive Environment : 

Competitive Environment In addition to the physical and social environment, every globally active company operates within a competitive environment. Thus the variation is the key competitive factors in the external environment of an international business- product strategy, resources base and experience and competitor capability. Thus companies operate more easily in a country with similar physical and social conditions to those in their home country because they have less adjustment to make there.

Cont… : 

Cont… Competitive Strategy for product: most products compete by means cost or differentiation strategies. A successful strategy usually take one or two approaches. Developing favorable brand images, usually through advertising or from long – term consumer experience with the brand, and Developing Unique characteristics, usually through R & D efforts. A company’s situation may differ among countries by. Its competitive ranking The competitors

Cont.. : 

Cont.. Using the either approach, a firm may mass- market a product or sell to a target market. Different strategies can used for different product, but a firm’s choice of strategy plays a big part in determining how and where it will operate. Take Fiat an automobile brand that competes largely on mass- market cost strategy . This strategy has determined the location of engine plants in China, where production cost are low, as well as production activities in India and Argentina, both of which are attractive both cost sensitive market.

Cont… : 

Cont… Company Resource and Experience: Another set of competitive factors is a company’s size and resources compared to those of competitors. A market leader for example say, Coca- Cola has resource for much more ambitious international operations than a smaller competitors like Royal Crown. Royal Crown resources, however may be sufficient to gain national distribution on its own in small countries. In large market companies have to invest many more resources to secure national distribution.

Cont… : 

Cont… A company with a long standing dominant market position uses operating tactics quite different from those employed by a new comer. Remember, too, that being a leader in one country doesn’t guarantee being a leader anywhere else. In most market, Coca – Cola is the leader, with Pepsi – Cola coming in a strong second. Competitors faced In each market: The success in a market often depends on whether your competitors is also international or local. Commercial aircraft makers Boeing and Airbus, for example, compete only with each other in every market they serve. Thus what they learn about each other in one country is useful in predicating the other’s strategies elsewhere.

Four Dimensions of Globalization : 

Four Dimensions of Globalization Economic- international trade and investment. Technological – internet connectivity. Personal contact – international travel and tourism, international telephone traffic, and personal transfers of funds internationally, and Political – Participation in international organization and government monetary transfers

Factors in Increased Globalization : 

Factors in Increased Globalization Increase in and expansion of technology. Liberalization of cross-border trade and resources movements. Development of services that support international business. Growing consumer pressures. Increased global competition. Changing political situation, and Expanded cross- national cooperation. -----

Recent Changes in International Business : 

43 Recent Changes in International Business Total world trade declined dramatically after 2000, but is again on the rise. The rate of globalization is accelerating. Regionalization is taking place, resulting in trading blocs, and The participation of countries in world trade is shifting. -------

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