Global Business Environment

1. inTRODUCTiOn TO GLOBAL
BUSinESS
Course: MBA
Subject: GLOBAL BUSINESS ENVIRONMENT
Unit: I

2. • Globalization is the increasing
interdependence, integration & interaction
among people and corporation in various
locations around the world.

3. • Globalization refers to rapid increase in
the share of economic activity taking
place across national borders.
• It goes beyond the international trade
includes the way in which goods/
services are produced /created, delivered
&sold & movement of capital.

4. Definitions
• A typical - but restrictive - definition can be taken
from the International Monetary Fund which stresses
the growing economic interdependence of countries
worldwide through increasing volume and variety of
cross-border transactions in goods and services, free
international capital flows, and more rapid and
widespread diffusion of technology.

5. • This goes beyond the international trade in
goods and includes the way those goods are
produced, the delivery and sale of services,
and the movement of capital.

6. Origins of IB (i)
• 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.
6

7. Origins of IB (ii)
• Until the 1980s, there has been a tendency towards concentration of
industry, and oligopolistic 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 (M-form) 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.
7

8. Reasons for going international
• Reactive (from reaction - to receive information,
then act)
• the company is responding to demand it discovers
in another location
• it sees it competitors going to a particular place
• regulations - environmental/work safety may be
“easier” overseas
• costs of production at home force it to cheaper
areas
• chance occurrence
additional reasons on page 240 - 241

9. Reactive, continued
• If a companies customers go international,
then it may be required to follow.
eg. if an auto parts supplier to Magna sees Magna
beginning to make some important component in Mexico,
then it may also have to go to Mexico so it can mfg. there
and continue to supply Magna - it would be too expensive
to ship the parts from Canada
page 242

10. Reasons for going international
• Proactive (to actively look for an opportunity)
• strategically seeking out advantages
• launch and offense into a new market before
competitor does
• power and prestige
• incentives
• lower costs of labour, production, energy

11. Proactive, continued
• As costs of labour have increased in North America, many
assemblers and component parts mfg. have had to move
offshore
• Also, another reason to go international is to gain prestige
which can be applied to customers at home - if a company
has overseas offices, it appears to be more impressive at
home ie. law firms, CA firms

12. Globalization Drivers
• Market Drivers
• Cost Drivers
• Government Drivers
• Competitive Drivers
Low
Multidomestic
High
Global

13. Market Globalization Drivers
• Common customer needs
• Global customers
• Global market channels
• Transferable marketing

14. Strength of Market Drivers
Low High
Baked Goods
Book Publishing
Commercial Banking
Toothpaste
Soft Drinks
Automobiles
Computers
Aircraft
Multidomestic Global

15. Cost Globalization Drivers
• Global scale economies
• Sourcing efficiencies
• Factor of production differences
• High product development costs
• Rapidly changing technology

16. Strength of Cost Drivers
Low High
Baked Goods
Commercial Banking
Toothpaste
Soft Drinks
Automobiles
Computers
Aircraft
Pharmaceuticals
Multidomestic Global

17. Government Globalization Drivers
• Trade and investment policies
• Compatible technical standards
• Common marketing regulations
^

18. Strength of Government Drivers
Low High
Baked Goods
Commercial Banking
Toothpaste
Soft Drinks
Automobiles
Computers
Airlines
Pharmaceuticals
^
Multidomestic Global

19. Competitive Globalization Drivers
• High two-way trade
• Global competitors
• Interdependence among countries
– Policy Link
– Trade/Investment Link
– Management Link

20. Strength of Competitive Drivers
Low High
Baked Goods
Commercial Banking
Toothpaste
Soft Drinks
Automobiles
Computers
Aircraft
Pharmaceuticals
Multidomestic Global

21. Restrainers of Globalization
Globalization poses four major challenges that will have to be addressed by
governments, civil society, and other policy actors.
• One is to ensure that the benefits of globalization extend to all countries. That will
certainly not happen automatically.
• The second is to deal with the fear that globalization leads to instability, which is
particularly marked in the developing world.
• The third challenge is to address the very real fear in the industrial world that
increased global competition will lead inexorably to a race to the bottom in wages,
labor rights, employment practices, and the environment.
• And finally, globalization and all of the complicated problems related to it must
not be used as excuses to avoid searching for new ways to cooperate in the overall
interest of countries and people.

22. • Several implications for civil society, for governments and for
multinational institutions stem from the challenges of globalization.
• Civil society organizations concerned with development have traditionally
focused on aid and resource transfers; they now are going to have to
broaden their agenda to deal with the much more complex issues of trade
and investment, international financial flows, environment, and
migration, among others. Civil society organizations in the old industrial
countries also will have to deal with the backlash against global ization,
which is producing a growing unwillingness to support multilateral
cooperation.

23. Governments are going to have to decide what they mean by
“civil society” and to identify new ways of dealing with its
organizations. At the Overseas Development Council, we define
civil society broadly to encompass not only development and
advocacy groups, but also corporations, financial institutions,
think tanks, foundations, and a range of other groups that are
not part of government. But governments and other actors need
to decide whether civil society is simply an effective—and even
cheap—way of delivering social programs, or whether it is good
in and of itself, an essential component of a democratic society.
In other words, they are going to have to be much more precise
about the purposes of working with civil society groups and
about how they fund them.

24. Then, there is a whole set of critical questions for the
multilateral institutions, particularly concerning participation
and transparency. These issues are extremely difficult because
these remain governmental institutions, and governments often
do not welcome the participation of civil society in decisions.
Finally, there is a need for high-level political discussions among
leaders from the old industrial countries, the emerging
economies, and the countries that risk marginalization by
globalization. We are urging the Group of Eight this year in
London to call for a new summit on globalization in order to
begin a discussion of maximizing its benefits and minimizing its
costs

25. International Orientation
International orientation of an enterprise is defined as the
intensity of international connectedness of an enterprise in
terms of the presence of trade (imports, exports both goods and
services) investments (inward and outward) and the
degree of influence and control across borders.

26. ETHNOCENTRIC
• The word ethnocentrism derives from the Greek word "ethnos", meaning “nation”
or “people,” and the English word center or centrism.
• ” In this context, ethnocentrism is the view that a particular ethnic group’s system
of beliefs and values is morally superior to all others. Ethnocentrism is
characterized by or based on the attitude that one’s own group is superior to
others.
• The ethnocentric attitude is found in many companies that have many
nationalities and culture groups working together.
• It is a natural tendency for people to act ethnocentrically because it is what they
feel comfortable with.
• It is based on past experiences and learned behaviors and norms.

27. Ethnocentric Orientation
Overseas operations are viewed as secondary to
domesticoperations.
A means of disposing of surplus domestic production.
Overseas operations are conducted from home- countrybase-
strong reliance on export agents.
Domestic product-mix without major modifications for the overseas
markets.
International marketing characterized by Extensionstrategy.
Cultural factors in overseas markets are overlooked for instance
most Indian handicrafts exporters hardlyappreciated the market
difference and need for adaptationof marketing strategy
A number of Indian products sold abroad such as dresseslike
salwar ± kurta, Saries and food items such
as dosa mix, idli mix vada mix,
 sambhar mix, gulab jamoon mix, papad and Indian sweets are
primarily targeted at Indian population abroad

28. POLYCENTRIC
• Polycentrism can be defined as a host country
orientation; which reflects host countries goals and
objectives with respect “to different management
strategies and planning procedures with regard to
international operations.
• ”Under a polycentric perspective, a company’s
management team believes that in international
business practices local preferences and techniques
are usually found most appropriate to deal with the
local market conditions.

29. Polycentric Orientation
 Polycentric approach is highly market oriented
 Each market is considered unique in terms of its market environment.
 Local marketing techniques are best suited to deal with local market
conditions.
 Subsidies are established in overseas markets.
 Environment of each market is considered while formulating marketing
strategy.
 Emphasis is put on local laws, custom and culture and great care is taken to
understand the local way of doing business.
 Marketing is characterized by Adaptation strategy

30. Characteristic
features
Ethnocentrism Polycentrism
1) Management
orientation
Home country
orientation
Host country
orientation
2) Perception of the
market
•Domestic market is
superior.
•Focuses on the
similarities between
the home and the
foreign markets
•Foreign markets are
extensions of domestic
market
•Each national market
is distinctive
•Focuses on the
differences between
the home and foreign
markets
3) Marketing
strategy
Extension of domestic
strategy to foreign
markets
Localization

31. Regiocentric or regional orientation is defined as
a functional rationalization on a more than one
country basis.
The marketing firms here segment the markets
on the basis of regional similarities.

32. Thinks of exporting to the neighboring countries of the host
country
Considers regional environment
Regions are consistent with some natural boundaries
Regional autonomy in decision making
Staff move with in the designated region, rather than globally

33. o The entire world is just like a single country
o Select the employees from the entire globe
o Independence to subsidiary companies
o Focus on world oriented approach
o Does not show a bias to either home or host country
o The sole goal is to globally unite both headquarters &
subsidiaries
o Product differentiation, diversifying functions & R & D
o It attempts to balance both global integration & local
responssiveness

34. Forces that push an organization to the
geocentric notion of managing MNC
 Competition
 For effective target
 Growing World markets

35. Selection of suitable orientation depends
on following factor:
• Size of the firm
• Experience in overseas market
• The nature of the product
• Company’s objectives & the specific market
situation
• The size of the potential market

36. DOMESTIC
The stage-one company is domestic in its focus,vision, and operations. Its
orientation is ethnocentric.
This company focuses upon domestic markets, domestic
suppliers, and domestic competitors.
The environmental scanning of the stage-one company is limited to the domestic
familiar, home-country environment.
The unconscious motto of a stage-one company is:
“If it’s not happening in the home country, it’s not happening.”
The world’s graveyard of defunct companies
is littered with stage-one companies that were sunk
by the Titanic syndrome: the belief, often unconscious
but frequently a conscious conviction, that they were
unsinkable and invincible on their own home turf

37. INTERNATIONAL
• The stage-two company extends marketing, manufacturing, and other
activity outside the home country.
• When a company decides to pursue opportunities outside the home
country, it has evolved into the stage-two category.
• In spite of its pursuit of foreign business opportunities, the stage-two
company remains ethnocentric, or home country oriented, in its basic
orientation.
• The hallmark of the stage-two company is the belief that the home-
country ways of doing business, people, practices, values, and products
are superior to those found elsewhere in the world. The focus of the
stage-two company is on the home-country market.

38. MULTINATIONAL
The focus of the stage-three company is multinational or in strategic terms,
multi- domestic.
The orientation of this company shifts from ethnocentric to polycentric. .
A polycentric orientation is the assumption that markets and ways of doing
business around the world are so unique that the only way to succeed
internationally is to adapt to the different aspects of each national market
In stage-three companies, each foreign subsidiary is managed as if it were
an independent city-state
The subsidiaries are part of an area structure in which each country is part
of a regional organization that reports to world headquarters.
The stage-three marketing strategy is an adaptation of the domestic
marketing mix to meet foreign preferences and practices.

39. Global
• strategic departure
• The global company will have either a global
marketing strategy or a global sourcing strategy, but
not both
• Global companies plan activities on a global basis. By
operating in more than one country benefits from
savings or economies on activities such as R&D,
marketing, operations and finance are achieved
which may not be available to domestic companies

40. Transnational
• A Transnational Corporation (TNC) differs from a
traditional MNC in that it does not identify itself with
one national home
• An example of a TNC is Nestlé who employ senior
executives from many countries and try to make
decisions from a global perspective rather than from
one centralised headquarters.

41. International Business Decision:-

42. 1. Economic Factors:
Not all countries will be attractive for all companies. Some
companies may discover that some markets cannot afford
the products that they sell and they should refrain from
entering those markets, whereas there may be some
markets which would readily accept a slightly different
version of their existing product. Companies should be
aware that terms like ‘middle class’ have different meaning
in the developed world and developing countries.

43. 2. Social and Cultural Factors:
Countries are different from one other in terms of
language spoken, religion practiced, food eaten and in
many other ways. These differences are very real and
significant, and marketers should consider how these
differences can hinder or facilitate the marketing efforts
of the company in the new market.

44. 3. Political and Legal Factors:
It is important to know the attitude of the government and
the people of the host country before a company decide to
commit resources. A company’s historical record and its
professed attitude towards foreign investments and
properties should also be considered.

45. 4. Market Attractiveness:
The attractiveness of a market can be assessed by
evaluating the market potential in terms of revenues that
can be generated, access to the market in terms of the host
country being warm to investments by multinational
companies, and potential competition and dynamics of the
industry in the prospective market

46. 5. Capability of the Company:
Before a company decides to go global it should
conduct an audit of its resources and capabilities. The
company should have clear competitive advantages in
terms of market knowledge, technology, portfolio of
products, reliable partners and other relevant
parameters

47. Types of International Business./
Modes of operation in International Business.
• There are a number ways an organization can start to
sell their products in international markets.
1. Direct export.
• The organization produces their product in their home
market and then sells them to customers overseas.
2. Indirect export
• The organizations sell their product to a third party
who then sells it on within the foreign market.

48. 3. Licensing
• Another less risky market entry method is licensing. Here the
Licensor will grant an organization in the foreign market a
license to produce the product, use the brand name etc in
return that they will receive a royalty payment.
4. Franchising
• Franchising is another form of licensing. Here the organization
puts together a package of the ‘successful’ ingredients that
made them a success in their home market and then
franchise this package to oversea investors. The Franchise
holder may help out by providing training and marketing the
services or product. McDonalds is a popular example of a
Franchising option for expanding in international markets.

49. 5.Contracting
• Another of form on market entry in an overseas
market which involves the exchange of ideas is
contracting. The manufacturer of the product will
contract out the production of the product to another
organization to produce the product on their behalf.
Clearly contracting out saves the organization
exporting to the foreign market.
6.Manufacturing abroad
• The ultimate decision to sell abroad is the decision to
establish a manufacturing plant in the host country.
The government of the host country may give the
organization some form of tax advantage because
they wish to attract inward investment to help create
employment for their economy.

50. 7.Joint Venture
• To share the risk of market entry into a foreign
market, two organizations may come together
to form a company to operate in the host
country. The two companies may share
knowledge and expertise to assist them in the
development of company; of course profits
will have to be shared out also

51. Difference between International Business and Domestic Business
S.No International Business Domestic Business
1. It is extension of Domestic Business and
Marketing Principles remain same.
The Domestic Business Follow the
marketing Principles
2. Difference is customs, cultural factors No such difference. In a large countries
languages likeIndia, we have many
languages.
3. Conduct and selling procedure changes Selling Procedures remain unaltered
4. Working environment and management
practices change to suit local conditions.
No such changes are necessary
5. Will have to face restrictions in trade
practices, licenses and government rules.
These have little or no impact on
Domestic trade.
6. Long Distances and hence more
transaction time.
Short Distances, quick business is
possible.

52. Sr.No International Business Domestic Business
7. Currency, interest rates, taxation, inflation and
economy have impact on trade.
Currency, interest rates, taxation, inflation and
economy have little or no impact on Domestic
Trade.
8. MNC’s have perfected principles, procedures
and practices at international level
No such experience or exposure.
9. MNCs take advantage of location economies
wherever cheaper resources available.
No such advantage once plant is built it cannot
be easily shifted.
10. Large companies enjoy benefits of experience
curve
It is possible to get this benefit through
collaborators.
11. High Volume cost advantage. Cost Advantage by automation, new methods
etc.
12. Global Standardization No such advantage
13. Global business seeks to create new values and
global brand image.
No such advantage
14. Can Shift production bases to different
countries whenever there are problems in taxes
or markets
No such advantage and get competition from
some spurious or SSI Unit who get patronage of
Government.

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