Elements and Drivers of International Business -

A.Globalization of Markets:

It refers to the merging of national markets into one huge global marketplace. Now
selling internationally is easier due to falling barriers to cross-border trade. A company
doesn’t have to be the size of these multinational giants to facilitate and benefit from the
globalization of markets. It is important to offer a standard product to the worldwide. But
very significant differences still exist between national markets like consumer tastes,
preferences, legal regulations, cultural systems.

These differences require that marketing strategies in order to match the conditions in a
country. To illustrate, Wal-Mart may still need to vary their product from country
depending on local tastes and preferences.

B.Globalization of Production:

It refers to the sourcing of goods and services from locations around the world to take
advantage of national differences in the cost and quality of factors of production. The
idea is to compete more effectively offering a product with good quality and low cost.
For example, Nike is considerated one of the leading marketers of athletic shoes and
apparel on the world. The company has some overseas factories where has achieved a
super production with low cost. Unfortunately Nike has been a target of protest and
persistent accusations that its products are made in sweatshops with poor working
conditions. The company has signaled a commitment to improving working conditions,
but in spite of the fact, the attacks continue.

C.Falling Barriers to Trade and Investment:

The falling of barriers to international trade enables firms to view the world as their
market. The lowering of barrier to trade and investments also allows firms to base
production at the optimal location for that activity. Thus, a firm might design a product in
one country, produce a component parts in two other countries, assemble the product in
another country and then export the finished product around the world. The lowering of
trade barriers has facilitated the globalization of production. The evidence also suggests
that foreign direct investment is playing an increasing role in the global economy

D.Technological Innovation:

Technological changes have achieved advances in communication, information

processing, and transportation technology, including the Internet and the World Wide
Web (www). The most important innovation has been development in the
microprocessors after that global communications have been revolutionized by
developments in satellite, optical fiber, and wireless technologies, and now the Internet
and the www. The rapid growth of the internet and the associated www is the latest
expression of this development. Besides, innovations have occurred in the field of the
transportation technology. The development of commercial jet aircraft has reduced the
time needed to get from one location to another. Now New York is closer to Tokyo than
ever.

Recent Development in International Business in India

India is fast becoming one of the most important development centres for software, IT
outsourcing, R&D, biotechnology, customer contact, design, and other knowledge-based
products and services. At the same time, India’s rapidly expanding middle class
represents a promising new market.
One of the fastest growing economies in the world, India’s current economic growth is
approximately 7% annually, an impressive figure. India’s vast pool of talents in
disciplines such as engineering and information technology attracts many developed
countries to outsource their manufacturing and IT services. Also, India is a huge country
with a population of over a billion, highlighting the importance of the region not only
from business process outsourcing and IT perspectives, but also as one of the most
attractive emerging markets for products/services from other countries. Nevertheless,
Indian economy is closely tied to western economies; this can be seen from the recent
acquisitions of overseas companies by some of the major Indian companies. Also, many
multinational companies are keen to take advantage of the talented pool of labour and
vast market opportunities in India.

In the face of a global economic downturn, India has remained one of the few bright
spots in the world, continuing its rapid growth and ascent to join the ranks of the world’s
great economic powerhouses. From pioneering the global adoption of emerging
technologies to developing innovative products and services tailored to rural markets,
Indian companies are having a growing influence on international business. The business
friendly government and fairly stable political environment of India are bound to
contribute to the continued economic growth at an impressive level. The interest of
multinational companies in India, mentioned above, necessitates understanding the
culture as well as political and economic landscape of India. However, India has the
attraction, when doing business with other countries, of a large population that can speak
English.

Given India’s role in the world economy and its contribution to large pool of manpower
in the 21st century global enterprises, it is important to understand the Indian culture and
management in order to be successful in international business.

Introduction To World Economy

After the recession of 2008, the world economy is seen on a revival path since the second
quarter of 2009. It is seen as an outcome of revised policies introduced in after the
recession stepped in. Yet, the recovery is not uniform across the globe and is not robust
enough to provide positive stimulus.
International Finance and Investment, Unemployment and Other factors influence on
World Economy
The recession of 2008-09 was created by financial institutions and they were the worst
hit. However, the cascading impact can be seen in all the economies. The foreign direct
investments have gone down drastically because of funds crunch. Lack of foreign
investments has dried the resource pool and many projects had to be scrapped. It had
direct impact on trade and productivity declined in the absence of financial resources and
led to massive lay offs adding to the unemployment rate. The number of unemployment
has doubled in United States since 2007. However, the job losses are mostly in the
manufacturing and export oriented sector. Labour markets are expected to remain weak
in 2010.
World Economy Growth Prospects
An increasing number of economies have shown positive recovery though the collective
GDP is estimated to fall by 2.2 per cent for 2009. If recent growth rate is sustained, then a
mild growth of 2.4 per cent is an optimistic forecast for 2010 for the global economy.
Many manufacturing economies have seen a fall in exports following the change in
inventory cycle. Domestic demand was constrained by credit crunch and stringent
economic policies. Oil and essential commodities will be playing major role in deciding
the recovery model of many economies. The unemployment rate is expected to go down
with reopening of the international trade and boost to production once the economies
align back to the revised inventory cycle. A strong recovery is expected in the developing
countries as compared to the developed nations. It is expected that conditions for
international trade will be challenging keeping in view that most of the exports are driven
by developed nations. International policy responses were largely successful but needed
an international coordination to bring the recovery on full swing.

economic interdependence -Characteristic of a society (and increasingly that

of the world) with a high degree of division-of-labor, where people depend on other
people to produce most of the goods and services required to sustain life and living.

"But in reality the economic system is a whole of which the parts are connected and react
on each other. An increase in the incomes of the producers of commodity A will affect
the demand for commodities B, C, etc., and the incomes of their producers, and, by its
reaction will change the demand for commodity A."
The economic interdependence of nations and groups of nations is of special importance.
It describes countries/nation-states and/or supranational states such as the European
Union (EU) or North American Free Trade Agreement (NAFTA) that are specialized
because of climate, the availability of labor and capital, and a variety of historical and
cultural factors. Such nations or groups may be dependent on one another for any (or all)
of the following:
food
energy
minerals
manufactured goods
multinational/transnational corporations
financial institutions
foreign debt
Foreign Direct Investment
Consistent economic growth, de-regulation, liberal investment rulse, and operational
flexibility are all the factors that help increase the inflow of Foreign Direct Investment or
FDI.
FDI or Foreign Direct Investment is any form of investment that earns interest in
enterprises which function outside of the domestic territory of the investor.
FDIs require a business relationship between a parent company and its foreign subsidiary.
Foreign direct business relationships give rise to multinational corporations. For an
investment to be regarded as an FDI, the parent firm needs to have at least 10% of the
ordinary shares of its foreign affiliates. The investing firm may also qualify for an FDI if
it owns voting power in a business enterprise operating in a foreign country.
Types of Foreign Direct Investment: An Overview
FDIs can be broadly classified into two types: outward FDIs and inward FDIs. This
classification is based on the types of restrictions imposed, and the various prerequisites
required for these investments.
An outward-bound FDI is backed by the government against all types of associated risks.
This form of FDI is subject to tax incentives as well as disincentives of various forms.
Risk coverage provided to the domestic industries and subsidies granted to the local firms
stand in the way of outward FDIs, which are also known as 'direct investments abroad.'
Different economic factors encourage inward FDIs. These include interest loans, tax
breaks, grants, subsidies, and the removal of restrictions and limitations. Factors
detrimental to the growth of FDIs include necessities of differential performance and
limitations related with ownership patterns.
Other categorizations of FDI exist as well. Vertical Foreign Direct Investment takes place
when a multinational corporation owns some shares of a foreign enterprise, which
supplies input for it or uses the output produced by the MNC.
Horizontal foreign direct investments happen when a multinational company carries out a
similar business operation in different nations.
Foreign Direct Investment is guided by different motives. FDIs that are undertaken to
strengthen the existing market structure or explore the opportunities of new markets can
be called 'market-seeking FDIs.' 'Resource-seeking FDIs' are aimed at factors of
production which have more operational efficiency than those available in the home
country of the investor.
Some foreign direct investments involve the transfer of strategic assets. FDI activities
may also be carried out to ensure optimization of available opportunities and economies
of scale. In this case, the foreign direct investment is termed as 'efficiency-seeking.'