4. 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 labour, capital, and
technology
Provides challenging employment opportunities
Reallocates resources, makes preferential choices,
and shifts activities to a global level
7. GLOBALIZATION
• The barriers today are declining. The process that is responsible for the decline is
generally referred to as globalization.
• Martin and Sunley (1997) identified Globalization as a
“notion of economic activity that enables a free flow of capital, trade and information
not constrained by national boundaries”.
• Globalization refers to the shift toward a more integrated and interdependent
world economy. This integration is possible by exchange of trade, culture across
different countries.
8. GLOBALIZATION
• Globalisation has resulted in:
o increased international trade
o a company operating in more than one country
o greater dependence on the global economy
o freer movement of capital, goods, and services
o recognition of companies such as McDonalds and Starbucks in less economically
developed countries
• Now firms could operate across countries in order to get access to the cheaper factors of
production as well as to achieve the economies of scale (EOS).
9. ECONOMIES OF SCALE
• Economies of scale arise when the cost per unit falls as output increases.
Economies of scale are the main advantage of increasing the scale of production
and becoming ‘big’.
• Why are economies of scale important?
o Firstly, because a large business can pass on lower costs to customers through
lower prices and increase its share of a market. This poses a threat to smaller
businesses that can be “undercut” by the competition.
10. ECONOMIES OF SCALE
o Secondly, a business could choose to maintain its current price for its product
and accept higher profit margins.
o For example, a furniture-maker which could produce 1,000 cabinets at £250 each
and sells for £350. Now they have expanded and be able to produce 2,000
cabinets at £200 each. The total production cost will have risen to £400,000 from
£250,000, but the cost per unit has fallen from £250 to £200. Assuming the
business sells the cabinets for £350 each, the profit margin per cabinet rises from
£100 to £150.
13. GLOBALIZATION OF MARKETS
• The globalization of market refers to the merging of historically distinct and separate
national markets into one huge marketplace.
• The reasons for globalization of markets are:
• Falling barriers to cross-border trade have made it easier to sell internationally.
• Tastes and preferences of consumers in different nations are beginning to converge
on some global norms, thereby helping to create a global market.
• E.g. Coca-cola, McDonalds and Nokia
14. GLOBALIZATION OF MARKETS
• However, there are differences in:
o Consumers’ tastes and preferences. E.g. McDonalds and beef patty in India
o Distribution channels. E.g. Japanese distribution system
o Culturally embedded value systems, business systems and legal regulations. E.g. Uber’s
entry strategy.
o Hence, the most global of markets are not typically markets for consumer products but
markets for industrial goods and materials that serve universal needs the world over.
These include the markets for commodities such as aluminum, oil, and wheat; for
industrial products such as microprocessors, DRAMs (computer memory chips), and
commercial jet aircraft; for computer software and such.
o That being said, it is increasingly evident that many newer high-technology consumer
products, such as Apple’s iPhone, are being successfully sold the same way the world over.
15. GLOBALIZATION OF PRODUCTION
• Globalization of production refers to the sourcing of goods and services from different
locations around the globe to take advantage of national differences in the cost and
quality of factors of production (such as labour, energy, land, and capital). This helps to -
o Gain cost advantage by producing in locations where cost of production is low.
o Gain quality factors of production and thus differentiate products.
• For example, Boeing has made extensive use of outsourcing to foreign suppliers. Consider
Boeing’s 777: eight Japanese suppliers make parts for the fuselage, doors, and wings; a
supplier in Singapore makes the doors for the nose landing gear; three suppliers in Italy
manufacture wing flaps; and so on.
• This doesn’t stop in manufacturing only.
• Outsourcing facilitates efficiency in services supply chain as well. The outsourcing of
productive activities to different suppliers results in the creation of products that are
global in nature, that is, “global products.
16. EXAMPLES
• IKEA the worlds leading retailer in home furnishing has over 2500 suppliers and
usually they are located in low cost nations.
• Kia Sorento- the Korean car company sources its CD player from Japanese firm
Matsushita. The company makes the optical pickup units in china, sends them to
Thailand to add electronics component, transport the semi finished product to
Mexico for final assembly and trucks completed CD player to a US port. Finallly,
they are shipped in Korea installed in KIA vehicle the marketed around the world.
• It shows that by dispersing different activities around the world to where they can
be performed more efficiently, and then coordinating the whole production
process, companies can deliver products to their customers at much lower prices
than would otherwise be possible.
17. THE EMERGENCE OF GLOBAL
INSTITUTIONS
• General Agreement on Tariffs and Trade (GATT)
• World Trade Organization (WTO)
• International Monetary Fund (IMF)
• World Bank ; United Nations (UN);
• Global institutions : purposes
o manage, regulate, and police the global marketplace
o promote the establishment of multinational treaties to govern the global business
system
18. WORLD TRADE
ORGANIZATION
The World Trade
Organization (like its
predecessor GATT)
• polices the world trading system
makes sure that nation-states
adhere to the rules laid down in
trade treaties
• promotes lower barriers to trade
and investment
• 164 members since 2016
• Head office: Geneva, Switzerland
19. IMF & THE
WORLD BANK
The International Monetary Fund
(1944)
• maintains order in the international
monetary system
• lender of last resort for countries in crisis
• Argentina, Indonesia, Mexico, Russia,
South Korea, Thailand, Turkey, Ireland, and
Greece
The World Bank (1944)
• promotes economic development via low
interest loans for infrastructure projects
20. UNITED NATIONS
• The United Nations (1945)
maintains international peace and security
develops friendly relations among nations
cooperates in solving international problems
and in promoting respect for human rights
is a centre for harmonizing the actions of
nations
21. DRIVERS OF GLOBALIZATION
• Increase in and expansion of technology
• Declining trade and investment barrier
• Development of services/global institution that support International Business
• Growing consumer pressures
• Increased global competition
• Changing political situations
22. DRIVERS OF GLOBALIZATION
• Role of technological change
Communications - development of the microprocessor. Low cost and high power
relationship.
Internet of Things (IoT) - The Internet of things describes the network of physical
objects—“things”—that are embedded with sensors, software, and other
technologies for the purpose of connecting and exchanging data with other
devices and systems over the Internet. Internet emerged as an equalizer removing
constraints in business.
Transportation technology - commercial jet aircraft, superfreighters and the
introduction of containerization, which simplifies transshipment from one mode of
transport to another.
23. DRIVERS OF GLOBALIZATION
• Declining trade and investment barrier
International trade and Foreign Direct Investment (FDI)
A typical barrier is high tariffs on imports of manufactured goods. The typical aim
of such tariffs was to protect domestic industries from foreign competition. This
resulted the Great Depression of 1930s.
Having learned from this, after WWII developing countries started reducing the
barriers to the free flow of goods, services, and capital among nations. GATT and
later on WTO run several round of negotiations resulting lowering tariffs.
24. DRIVERS OF GLOBALIZATION
• Liberalization of cross- border trade and resource movements:
Lower governmental barriers to the movement of goods, services, and resources
enable companies to take better advantage of international opportunities
Consumer demand for more variety of products at a lower price
Higher competition-> efficient domestic producer
Motivate other countries to lower their barriers as well
25. DRIVERS OF GLOBALIZATION
• Development of services that support International Business:
Multinational Global & Financial institutions: WTO,IMF, World Bank
International Postal services
• Growing consumer pressures:
Bargaining power of buyers are increasing
26. DRIVERS OF GLOBALIZATION
• Increased Global Competition
More companies operate internationally because
New products quickly become global
Companies can produce in different countries
Domestic companies’ competitors, suppliers, and customers become
international
Due to the tight interlinks between key world markets and economic
interdependence there is an intensification of global competition.
27. DRIVERS OF GLOBALIZATION
• Changing political situations:
Increase in International Trade
General trend of lowering trade barriers and regulations
Similar technical standards: International Accounting Norm and Standards
• Expanded cross national cooperation:
To gain reciprocal advantage:
Bangladesh agrees to let India use their seaport.
Reduction of import Tax: European Union
28. DRIVERS OF GLOBALIZATION
• Implications for the Globalization of Production
more economical
cost of information processing and communication fell dramatically
made it possible to create a globally dispersed production system
• Implications for the Globalization of Markets
technology and internet helping to create electronic global marketplace
low cost made it more economical to ship products around the world
mass movement across borders are possible
reducing cultural distances
29. THE CHANGING DEMOGRAPHICS OF THE
GLOBAL ECONOMY
• The changing world output and world trade picture
• The changing Foreign Direct Investment picture
30. THE CHANGING DEMOGRAPHICS OF THE
GLOBAL ECONOMY
• The changing world output and
world trade picture
change of leader in world output
emerging economies – BRIC
developing countries will be rising
more
• The changing Foreign Direct
Investment picture
due to lowing of barriers non US
firms became able for FDI
31. THE GLOBALIZATION DEBATE
• Supporters believe that increased trade and cross-border investment mean
lower prices for goods and services
greater economic growth
higher consumer income, and more jobs
• Critics worry that globalization will cause
job losses
environmental degradation
the cultural imperialism of global media and MNEs
• Anti-globalization protesters now regularly show up at most major meetings
of global institutions
32. HOW DOES GLOBALIZATION AFFECT
JOBS AND INCOME?
• Critics argue that falling barriers to trade are destroying manufacturing jobs in
advanced countries
• Supporters contend that the benefits of this trend outweigh the costs
countries will specialize in what they do most efficiently and trade for other
goods—and all countries will benefit
33. HOW DOES GLOBALIZATION AFFECT LABOUR
POLICIES AND THE ENVIRONMENT?
• Critics argue that firms avoid the cost of adhering to labor and
environmental regulations by moving production to countries
where such regulations do not exist, or are not enforced
• Supporters claim that tougher environmental and labor standards
are associated with economic progress
as countries get richer from free trade, they implement tougher
environmental and labor regulations
34. HOW DOES GLOBALIZATION AFFECT
NATIONAL SOVEREIGNTY?
• Is today’s global economy shifting economic power away from
national governments toward supranational organizations like the
WTO, the EU, and the UN?
• Critics argue that unelected bureaucrats have the power to impose
policies on the democratically elected governments of nation-
states
• Supporters claim that the power of these organizations is limited
to what nation-states agree to grant
the power of the organizations lies in their ability to get countries to
agree to follow certain actions
35. HOW IS GLOBALIZATION
AFFECTING THE WORLD’S POOR?
• Is the gap between rich nations and poor nations getting wider?
• Critics believe that if globalization was beneficial there should not
be a divergence between rich and poor nations
• Supporters claim that the best way for the poor nations to improve
their situation is to
reduce barriers to trade and investment
implement economic policies based on free market economies
receive debt forgiveness for debts incurred under totalitarian regimes
36. HOW DOES THE GLOBAL MARKETPLACE
AFFECT MANAGERS?
• Managing an international business differs from managing a
domestic business because
countries are different
the range of problems confronted in an international business is wider
and the problems more complex than those in a domestic business
firms have to find ways to work within the limits imposed by
government intervention in the international trade and investment
system
international transactions involve converting money into different
currencies
