GLOBALISATION

Dr Monika Jain

WHAT

IS INTERNATIONAL

BUSINESS

Any firm that engages in International trade or Investment.

A business that is primarily based in a single country but acquires some meaningful share of its resources or revenues (or both) from other countries International business refers to business activities that involve the transfer of resources, goods, services, knowledge, skills, or information across national boundaries. When business can do this, it can achieve a very good return on investment and useful global operations.

WHAT IS INTERNATIONAL BUSINESS?

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

that are devised and carried out across national borders to satisfy the objectives of individuals, companies , and organizations.
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DIFFERENCE BETWEEN DOMESTIC

AND INTERNATIONAL TRADE
The differences and the complications arise therein are as follows: Distance The distance involved in export of goods in external trade is generally greater than on the domestic trade.

Language differences There are differences in the languages of the nations of the world. The overseas traders should be very careful in preparing the publicity material in the languages of the trading country Cultural difference A producer should have full knowledge about the market of his products. For exporting goods particularly a thorough research is undertaken.

DIFFERENCES BETWEEN DOMESTIC

AND INTERNATIONAL TRADE

Documentations In the home trade there are few documents involved in the exchange of goods. Payments In the internal trade, the goods are exchanged in the currency unit of the country. In case of foreign trade currencies differ widely throughout the world and those also vary in value. Transport and insurance cost The transport and insurance costs are less in case of domestic trade. For the exports, on the other hand the cost of transport is high and the insurance is complicated. Technical difference In the national market the difference in the technical specification for goods and their requirements is not wide. Tariff barriers In the national trade, there are no custom duties, exchange restrictions, fixed quotas or other tariff barriers.

ESSENTIAL CONDITIONS FOR GLOBALISATION

Business Facilities Government Resources Competitiveness Orientation-

Freedom Support

FACTORS FAVOURING GLOBALISATION

Human Resources Wide Base Growing Entrepreneurship Growing Domestic Market Niche Markets Expanding Markets Transnationalisation of World Economy NRIs Economic Liberalisation Competition

REASONS FOR RECENT INTERNATIONAL BUSINESS GROWTH

Expansion of Technology: transportation, telecommunications; Transportation and telecommunications costs are more conducive for international operations. Liberalization of Cross-Border Movements: goods, services, labour, Capital Development of Supporting Institutional Arrangements: development by business and governments of institutions that enable us to effectively apply that technology. Increase in Global Competition: new products become global; Globalization of production

DRIVERS OF GLOBALISATION
In general, globalization represents the increasing integration of the world economy, based on five interrelated drivers of change: International trade (lower trade barriers and more competition) Financial flows (foreign direct investment, technology transfers/licensing, portfolio investment, and debt) Communications (traditional media and the Internet) Technological advances in transportation, electronics, bioengineering and related fields Population mobility, especially of labor Each of these drivers of change has accelerated in recent years and each reinforces the other

The drivers of globalisation

Market drivers Per capita income converging among industrialised nations Convergence of lifestyles and tastes Organisations beginning to behave as global customers Increasing travel creating global consumers Growth of global and regional channels Establishment of world brands Push to develop global advertising Government drivers Reduction of tariff barriers Reduction of non-tariff barriers Creation of blocs Decline in role of governments as producers and customers Privatisation in previously state-dominated economies Shift to open market economies from closed communist systems in eastern Europe Increasing participation of China and India in the global economy Other drivers Revolution in information and communication Competitive drivers Continuing increases in the level of world trade Increased ownership of corporations by foreign acquirors Rise of new competitors intent upon becoming global competitors Growth of global networks making countries interdependent in particular industries More companies becoming globally centred rather than nationally centred Increased formation of global strategic alliances Globalisation of financial markets Improvements in business travel Cost drivers Continuing push for economies of scale Accelerating technological innovation Advances in transportation Emergence of newly industrialised countries with productive capability and low labour costs. Increasing cost of product development relative to market life

WHY COMPANIES ENGAGE IN INTERNATIONAL BUSINESS

dependent on two factors: the consumers interest in their product or services and the consumers ability and willingness to buy them. B) Acquire Resources: products, services, technology, and information C) Diversify Sources of Sales and Supplies D) Minimize Competitive Risk: companies move internationally for defensive reasons. Profits from one market can be used to expand operations in other markets

A) To Expand Sales: companies sales are

NEED FOR INTERNATIONAL BUSINESS

International
y y y y y y

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

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REASONS FOR TRADE

Non availability of goods permanent non-availability Temporary non-availability product differentiation Differences in technology Differences in consumer demand Transport costs Economies of scale in production Government policies

TYPES OF INTERNATIONAL BUSINESS

Export-import trade Foreign direct investment

Licensing

Franchising Management contracts

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MODES OF INVESTMENT
Foreign Direct Investment: gives the investor a controlling Interest in a foreign company. It gives access to: - foreign markets - foreign resources - higher profits than exporting - partial ownership

1)

2)

Portfolio Investment: stock in a company or loans to a company or country in the form of bonds, bills, or notes that the investor purchases.

OBSTACLES TO GLOBALISATION
Government Policy and Procedures High Cost Poor Infrastructure Obsolescence Resistance to Change Poor Quality Image Supply Problems Small Size Lack of Experience Limited R & D and Marketing Research Growing Competition Trade Barriers

WHILE GLOBALISATION HAS SEVERAL BENEFITS, IT HAS A NUMBER OF PROBLEMS.

Global competition and imports keep a lid on prices, so inflation is less likely to derail economic growth. An open economy spurs innovation with fresh ideas from abroad. Export jobs often pay more than other jobs. Unfettered capital flows give the US access to foreign investment and keep interest rates low. The adverse effects of globalisation according to the survey are: Millions of Americans have lost jobs due to imports or production shifts abroad. Most find new jobs that pay less. Millions of others fear losing their jobs, especially at those companies operating under competitive pressure. Workers face pay cut demands from employers, which often threaten to export jobs. Service and white collar jobs are increasingly vulnerable to operations moving offshore. U S employees can lose their comparative advantage when companies build advanced factories in low-wage countries, making them as productive as those at home.

TRADE VERSUS AID..?

Benefits of trade:
Increased choice. Great potential for growth. Increase international economies of sale. Greater employement opportunities.
Trade has led to massive increases in wealth for many countries.

TRADE VERSUS AID..?

Disadvantages of trade: Increase in gap between the rich and the poor. Dominance of global trade by the rich, northern hemisphere countries. Lack of opportunities for the poor to be able to have access to markets. Exploitation of workers and growers.

How far does trade help children like these?

CORPORATE EXPANSION

Multi-national or trans-national corporations (MNCs or TNCs) businesses with a headquarters in one country but with business operations in a number of others.
No matter where you go in the world, certain businesses will always have a presence.

CORPORATE EXPANSION
Characteristics: Expanding revenue Lowering costs Sourcing raw materials Controlling key supplies Control of processing Global economies of scale
Controlling supplies may be one reason for global expansion.

CORPORATE DOMINATION

Key Issues: Damage to the environment? Exploitation of labour? Monopoly power Economic degradation Non-renewable resources Damage to cultures Shell and Nikes activities have come under severe criticism in some quarters.

OTHER ISSUES



There are plenty of people who believe that globalisation is a negative development, protests at the G8 summits, pollution, poverty and concern over GM crops are just some of the issues.

Accountability of Global businesses? Increased gap between rich and poor fuels potential terrorist reaction Ethical responsibility of business? Efforts to remove trade barriers