RECENT ISSUES IN MANAGEMENT
• CHAPTER 1 – GLOBALISATION
Dr S. M. Tariq Zafar
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X Learning Outcomes
• What is Globalization?
• What is International business?
• How does Evolution of International Business
took place?
• Why do companies do International Business?
• What are Multinational Companies (MNCs)?
• What are the different Approaches (Orientations)
followed by Multinational Companies (MNCs)?
• How international business differs from domestic
business?
• What are different types of International Business?
• What are the factors which affect International
Business?
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Globalization
• Globalisation can be defined as the free
movement of goods, services and capital
According to Theodore Levitt “as if the entire
world (or major regions of it) were a single
entity; [such an organization] sells the same
things in the same way everywhere”
• Economic Globalization
– International integration of goods,
technology, information, labor, and capital
– Process of making this integration happen
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X Globalization
• Globalisation also involves the transfer of
information, skilled employee mobility, the
exchange of technology, financial funds flow and
geographic arbitrage between developed countries
and developing countries.
• Globalisation affects the economy, business life,
society and environment in different ways:
• •
Increasing competition,
• •
Technological development,
• •
Knowledge/Information transfer,
• •
Portfolio investment (fund transfer between
developed countries and emerging markets),
• •
Market integration,
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International Business
– A business whose activities are carried out
across national boundaries.
– International business comprises all
commercial transactions
(private and governmental, sales, investmen
ts, logistics, and transportation) that take
place between two or
more regions, countries and nations beyond
their political boundaries.
– Transaction of economic resources include
capital, skills, people etc. for international
production of physical goods and services
such as finance, banking, insurance,
construction etc.
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Evolution of International Business
• International Business was carried out from
long back. When there was no currency
people used to exchange Goods to follow
Barter System (Exchange). History reveals
that Sailors like Marco Polo, Columbus,
Magellan, Vasco De gama on their voyage
carry precious objects for exchange with other
countries products. International Business gain
pace after the Industrial Revolution .
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X Evolution of International Business
• Early traders
– Well before the time of Christ, Phoenician
and Greek merchants
– China stimulated the emergence of an
internationally integrated trading system
• “all roads lead to China”
• 17th Century mercantilism/colonialism
– British East India Company
– Dutch East India Company
– Portugal and France
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Why do companies do International
Business
(1)Pull Factors:
(a) Profit Advantage : IB could be more
profitable than the domestic. But if not
profitable than Total Profit would be
increase & thus it become again
profitable.
(b) Growth opportunities:
· To increase sales
· To increase market share of the firms
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Why do companies do International
Business
2) Push Factors: It refers to the
compulsion of the domestic market such
as saturation of the market, which
prompt companies to internationalize.
a) Competition: Increase competition in
domestic market is one of the main
cause & consequences of globalization.
b) Domestic market constraints:
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Why do companies do International
Business
· Surplus production in home market
· Decline the demand of the domestic
product in the home market
· Small domestic market in size or limited
home market
· To take the benefit of economies of scale
by producing mass production
c) Political Stability Vs. Political Instability
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Multi National Company
Multi National Company
- an organization having businesses in two or
more than two countries
– an organization that attempts to standardize
and integrate operations worldwide in most
of all functional areas
– An organization with multi-country affiliates
formulates its own business strategy on
perceived market differences
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X National origin of largest multinational Factors
affecting International Business
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EPRG Orientations
1. Ethnocentric Approach - (home country
orientation) Here home country strategies
are carried forward to other countries.
2. Polycentric Approach – (host country
orientation) Here strategies are adopted
with respect to host country
3. Regiocentric Approach – (region
orientation) Here strategies are for one
specific region. Example GCC
4. Geocentric Approach – (global orientation)
Here companies adopt global strategy.
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Why International is Different from
Domestic Business?
• Domestic Environment
– All the uncontrollable forces in the home
country that surround and influence the firm’s
life and development
• Foreign Environment
– All the uncontrollable forces originating outside
the home country that surround and influence
the firm
• different values
• difficult to assess
• interrelated
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Why Is International Business
Different? cont’d.
• International Environment
– Interaction between domestic and foreign
environmental forces or between sets of
foreign environmental forces
– Increased complexity for decision-making
• Decision making more complex
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Types of International Business
1. Foreign Direct Investment - Direct investment
in equipment, structures, and organizations in
a foreign country. FDI is practiced by
companies in order to benefit from cheaper
labor costs, tax exemptions, and other
privileges in that foreign country.
2. Exporting – transportation of any domestic
good/service to a destination outside a
country or region. Exporting is the practice of
shipping goods from the domestic country to
a foreign country.
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Types of International Business
• 3. Importing - Imports are the inflow of goods
and services into a country's market for
consumption.
• 4. Licensing / Franchising - Licensing gives a
licensee certain rights or resources to
manufacture and/or market a certain product
in a host country. Example - Nike goods
produced in china
• Franchising is the practice of licensing another
firm's business model as an operator. Example
- McDonalds
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Types of International Business
• 5. Joint Venture - In a joint venture
business model, two or more parties
agree to invest time, equity, and effort for
the development of a new shared
project. Example – Sony Ericcson
• 6. Turnkey Projects – A Company takes
a project in a foreign country on BuiltOperate-Transfer (BOT) condition.
Example – Refinery building
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Types of International Business
• 7. Contract Manufacturing - In contract
manufacturing, a hiring firm makes an
agreement with the contract
manufacturer to produce and ship the
hiring firm's goods.
• 8. Outsourcing - business functions to
developing foreign countries has become
a popular way for companies to reduce
cost.
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X Factors affecting International
Business
• Environment
– All the forces influencing the life and
development of the firm
• Forces
– External Forces (Uncontrollable) – Forces
over which management has no direct
control
– Internal Forces (Controllable) – Forces that
management can use to adapt to external
forces
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X Factors affecting International
Business
• Economic
– GNP, unit labor cost, personal consumption
expenditure
– Interest rates, inflation rates, taxation
– For distributing goods and services
- Capital, raw materials, and people
• Cultural
– Attitudes, beliefs, and opinions
– Characteristics of human population
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X Factors affecting International
Business
• Legal
– Laws governing how international firms
must operate
• Physical
– Topography, climate, and natural resources
• Political
– Forms of government, and international
organizations
• Technological
– Equipment and skills that affect how
resources are converted to products
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X Assignment No. 1
• You are to select any two Multinational
Companies (MNC’s) of your choice
belonging to different segments. Prepare
a report under the following heads:
• 1. Introduction
• 2. Products (any 5)
• 3. Countries where they are doing
business (any 10)
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