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GLOBALIZATION - IMF
The growing economic inter-
GLOBALIZATION
Process of international integration of products, technologies, human resources, capital, information and
cultures.
ECONOMIC GLOBALIZATION
4 different flows: Flow of goods/services (free trade)
LEVELS OF GLOBALIZATION
World-level Country-level Industry-level Firm-level
World-level Globalization
Highest level at which perceived Theoretically, no globalization if each county was self-sufficient
Process begins with international economic, social & political relations From business environment point of view, focus is on economic & business relations
Indicators of world-level..
Share of world trade in World GDP
Objectives - GATT
Raising the standard of living
GATT - Principles
NON DISCRIMINATION PROHIBITION OF QUANTITATIVE RESTRICTIONS CONSULTATION
Country-level Globalization
Share of (foreign output of domestic MNCs + domestic output of foreign MNCs) as a % of national income
Globalization level of a country can also be assessed in terms of its sensitivity to changes in economic or social conditions in other regions of the world. Following correlations can be viewed:
World price index & home price index Key stock price indices world & home Mean level of rate of interest World growth rate & home exports World growth rate & home growth rate Exchange rate variations leading world currencies & home currency
Industry-level Globalization
A few industries may be operating at global level while others are home-oriented Such industries have:
high degree of tech advancement & competitive advantages and can compete large presence of MNCs Better access to foreign markets, suppliers, finance & tech expertise
Indicators of Industry-level.
Industry exports+ imports as % of output
Foreign investment in industry + foreign investment by cos in industry as a proportion of total investment in industry
Total forex transactions by firms in industry as % of total transactions
Firm-level Globalization
Individual firms operating globally Foreign collaborations or global operations
Have high tech development, competitive advantages, outsourcing connections & access to foreign markets
Globalization in India
Economic reforms-economy have opened up Various sectors open to foreign competition directly
Impact of Globalization
Designing in global environment Production location selection Rationalised Production
MNC
A Multi-National Company is an
Multi-National Company
BY SIZE BY PERFORMANCE
BY STRUCTURE BY BEHAVIOUR
By Size
Many dimensions: Turnover used most often Profits Market value
By structure
Coca Cola operates in more than 200 countries and has widespread share holdings.
By performance
Earnings
Sales & Assets
By behaviour
It is the behavioral characteristics
of the top management which decides whether a company is an
MNC or not
Multi-National Enterprise
MNE is a company that takes a global approach to foreign markets and production;
Willing to consider locations of market and production anywhere in the world
Not all MNEs are MNCs since not all companies are organized as Corporations
Trans-national Company
A Company that: tries to achieve economies of scale through global integration of its functional area while
Global Company
A Global company is one which basically
Multi-Domestic Company
A company that operates in several countries, but treats each different country as a different domestic market, and each of its country units as a separate
profit centre.
Impact of MNCs
Play a pivotal role in global economy
Impact of MNCs
On Trade balance they influence both imports and exports Promotion of small scale and ancillary industries Knowledge transfer Level of technology of local firms
Employment
Trade balance
OUTFLOWS Intermediate goods for local assy M/cery for local prodn Global products for local sale Equity investment INFLOWS Final goods for global markets Intermediate goods for global markets
Profit remittance
Interest payments
Repayment of loans
Knowledge Transfer
Host countries especially developing economies aim to create an indigenous capability technical, managerial & institutional to improve efficiencies in their own companies Foreign cos a potential source can transfer info, also stimulate new knowledge Knowledge transfer raises productivity level in the host country
Level of Technology FDI importance lies less on transfer of money than transfer of technology
Tech & best practices transfer improves productivity and international competitiveness Because of above, host country govts encourage formation of JVs Above transfer also takes place because of transfer of labour and manpower
Utilization of Resources: For eg: in India, rich mineral resources were not properly utilised till MNEs came and helped utilization Infrastructure: FDI is more long term than portfolio investment
De-merits of MNCs
MNCs become too powerful by themselves + as compared to governments Put Profits before People Exploitation of workers
INTERNATIONAL BUSINESS
International Business Environment refer to the conditions which affect exporters &
International business
Has Costs & Benefits that are very attractive Also adds new challenges like product life-cycle management Intensifies some existing problems such as protecting Intellectual Property Rights
EXIM POLICY
Performance of Exports, and, the
environment of Imports are both
Appreciation of Yen
Japanese FDI
Inflation
Real-estate bubble
Exports suffer
Imports Rise
Panic
Run on Baht
Depreciation of Baht
Foreign Direct Investment occurs when a firm directly invests in facilities to produce and / or market a product in a foreign country
GREEN-FIELD INVESTMENT
M&A
Mergers or Acquisitions involve acquiring or merging with an existing firm in a foreign country
FDI
HORIZONTAL FOREIGN DIRECT INVESTMENT: FDI in the same industry in which a firm operates at home
VERTICAL FOREIGN DIRECT INVESTMENT: FDI in an industry that either provides inputs to the firm at home, or, sells products of domestic operations in a foreign country
II. If foreign subsidiary creates demand for home-countrys exports of Capital equipment, intermediate goods or complimentary products