globalization - international business

GlobalizationInternational Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – [email protected]

Kindly restrict the use of slides for personal purpose.Please seek permission to reproduce the same in public forms and presentations.

Global World• Each day, an average person

makes use of goods andservices of multiple origins—for instance, the Finnishmobile Nokia and the US toy-maker’s Barbie doll made inChina but used across theworld; a software from theUS-based Microsoft,developed by an Indiansoftware engineer based inSingapore, used in Japan; theThailand-manufactured USsports shoe Nike used by aSaudi consumer.

Definition

The IMF defines globalizationas “ the growing economicand interdependence ofcountries worldwide throughincreasing volume andvariety of cross bordertransactions in goods andservices and of internationalcapital flow and also throughthe more rapid andwidespread diffusion oftechnology”.

Factors affecting Globalization

Mover and restraining factors of globalization

Movers of Globalization

Movers of Globalization

1. Economic liberalization.

2. Technological breakthroughs .

3. Multilateral institutions.

4. International Economic Integrations.

5. Move towards free marketing system .

6. Rising R&D cost.

7. Advents in Logistics Management.

8. Emergence of global customer segment.

Economic Liberalization

• Economic liberalization, bothin terms of regulations andtariff structure, has greatlycontributed to theglobalization of trade andinvestment. The emergence ofthe multilateral trade regimeunder the WTO has facilitatedthe reduction of tariffs andnon-tariff trade barriers. In thecoming years, the tariffs areexpected to declineconsiderably further.

Technological breakthroughs

• The breakthroughs in scienceand technology havetransformed the world virtuallyinto a global village, especiallymanufacturing, transportation,and information andcommunication technologies.

Multilateral institutions• A number of multilateral

institutions under the UNframework, set up during thepost-World War II era, havefacilitated exchanges amongcountries and became prominentforces in present-dayglobalization. Multilateralorganizations such as the GATTand WTO contributed to theprocess of globalization and theopening up of markets byconsistently reducing tariffs andincreasing market access throughvarious rounds of multilateraltrade negotiations.

International Economic Integrations• Consequent to World War II, a

number of countries across theworld collaborated to formeconomic groupings so as topromote trade and investmentamong the members. The Treatyof Rome in 1957 led to thecreation of the EuropeanEconomic Community (EEC) thatgraduated to the European Union(EU) so as to form a strongerEconomic Union. The US, Canada,and Mexico collaborated to formthe North American Free TradeAgreement (NAFTA) in 1994.

Move towards free marketing system • The demise of centrally

planned economies in EasternEurope, the former USSR, andChina has also contributed tothe process of globalization asthese countries graduallyintegrated themselves with theworld economy. TheCommonwealth ofIndependent States (CIS)countries—all former SovietRepublics—and China haveopened up and are movingtowards market-driveneconomic systems at fastpace.

Rising R&D cost • The rapid growth in market

competition and the ever-increasing insatiable consumerdemand for newer andincreasingly sophisticatedgoods and services compelbusinesses to invest hugeamounts on research anddevelopment (R&D). In orderto recover the costs of massiveinvestments in R&D andachieve economic viability, itbecomes necessary toglobalize the businessoperations.

Example• For instance, software

companies such asMicrosoft, Novel, andOracle, commercial aircraftmanufacturers like Boeingand Airbus, pharmaceuticalgiants such as Pfizer, GlaxoSmithKline, Johnson &Johnson, Merck, andNovartis, etc., can hardly becommercially viable unlessglobal scale of operationsare adopted.

Advents in Logistics Management• Besides these, the greater

availability of speedier andincreasingly cost-effectivemeans of transport,breakthroughs in logisticsmanagement such asmultimodal transporttechnology, and third-partylogistics managementcontributed to the fasterand efficient movement ofgoods internationally.

Emergence of global customer segment

• Customers around the worldare fast exhibiting convergenceof tastes and preferences interms of their product likingsand buying habits.Automobiles, fast-food outlets,music systems, and evenfashion goods are becomingamazingly similar acrosscountries. The proliferation oftransnational satellitetelevision andtelecommunication hasaccelerated the process ofcultural convergence.

Factors restraining of globalization

Factors restraining of globalization

1. Regulatory controls .

2. Emerging trade barriers.

3. Cultural Factors.

4. Nationalism.

5. War and civil disturbances.

6. Management Myopia .

Regulatory controls

• The restrictions imposed bynational governments by wayof regulatory measures in theirtrade, industrial, monetary,and fiscal policies restraincompanies from globalexpansion. Restrictions onportfolio and foreign directinvestment considerablyinfluence monetary and capitalflows across borders. The highincidence of import dutiesmakes imported goodsuncompetitive and detersthem from entering domesticmarkets.

Emerging trade barriers • The integration of national economies

under the WTO framework hasrestrained countries from increasingtariffs and imposing explicit non-tarifftrade barriers. However, countries areconsistently evolving innovativemarketing barriers that are WTOcompatible. Such barriers includequality and technical specifications,environmental issues, regulationsrelated to human exploitation, such aschild labour, etc. Innovative technicaljargons and justifications are oftenevolved by developed countries toimpose such restrictions over goodsfrom developing countries, who find itvery hard to defend against suchmeasures.

Cultural Factors

• Cultural factors can restrainthe benefits of globalization.For instance, France’scollective nationalism favourshome-grown agriculture andthe US fear of terrorism hasmade foreign management ofits ports difficult andrestrained the entry of theDubai Port World.

Nationalism

• The feeling of nationalism oftenaroused by local trade andindustry, trade unions, politicalparties, and other nationalisticinterest groups exertsconsiderable pressure againstglobalization. The increasedavailability of quality goods atcomparatively lower pricesgenerally benefits the massconsumers in the importingcountry but hurts the interestsof the domestic industry.

War and civil disturbances

• The inability to maintainconducive businessenvironment with sufficientfreedom of operations restrictsforeign companies frominvesting. Companies oftenprefer to expand their businessoperations in countries thatoffer peace and security.Countries engaged in prolongedwar and civil disturbances aregenerally avoided forinternational trade andinvestment.

Management Myopia

• A number of well-establishedbusiness enterprisesoperating indigenouslyexhibit little interest inexpanding their businessoverseas. Besides, severalother factors such as resourceavailability, risks, and theattitude of top managementplay a significant role in theinternationalization ofbusiness activities.

World Is flat

World is Flat

• The flat-world view is largely credited toThomas Friedman and his 2005 best seller,The World Is Flat. Many people considerglobalization a modern phenomenon, butaccording to Friedman, this is its third stage.

Globalization 1.0

• The first stage of global development, whatFriedman calls “Globalization 1.0,” startedwith Columbus’s discovery of the New Worldand ran from 1492 to about 1800. Driven bynationalism and religion, this lengthy stagewas characterized by how much industrialpower countries could produce and apply.

Globalization 2.0

• “Globalization 2.0,” from about 1800 to 2000,was disrupted by the Great Depression and bothWorld Wars and was largely shaped by theemerging power of huge, multinationalcorporations. Globalization 2.0 grew with theEuropean mercantile stock companies as theyexpanded in search of new markets, cheap labor,and raw materials. It continued with subsequentadvances in sea and rail transportation. Thisperiod saw the introduction of moderncommunications and cheaper shipping costs.

Globalization 3.0

• “Globalization 3.0” began around 2000, withadvances in global electronic interconnectivitythat allowed individuals to communicate as neverbefore. In Globalization 1.0, nations dominatedglobal expansion. Globalization 2.0 was driven bythe ascension of multinational companies, whichpushed global development. In Globalization 3.0,major software advances have allowed anunprecedented number of people worldwide towork together with unlimited potential.

How the World Got Flat

• Friedman identifies ten major events thathelped reshape the modern world and make itflat:


• 11/9/89: When the walls came down and thewindows went up.The fall of the Berlin Wallended old-style communism and plannedeconomies. Capitalism ascended.

• 8/9/95: When Netscape went public. Internetbrowsing and e-mail helped propel theInternet by making it commercially viable anduser friendly.


• Work-flow software: Let’s do lunch. Have yourapplication talk to my application. With morepowerful, easier-to-use software and improvedconnectivity, more people can share work. Thus,complex projects with more interdependent partscan be worked on collaboratively from anywhere.

• Open-sourcing: Self-organizing, collaborativecommunities. Providing basic software online forfree gives everyone source code, thusaccelerating collaboration and softwaredevelopment.


• Outsourcing: Y2K. The Internet lets firms useemployees worldwide and send specific work tothe most qualified, cheapest labor, wherever it is.Enter India, with educated and talented peoplewho work at a fraction of US or European wages.Indian technicians and software experts built aninternational reputation during the Y2Kmillennium event. The feared computer -systembreakdown never happened, but the Indian ITindustry began handling e-commerce and relatedbusinesses worldwide.


• Offshoring: When it comes to jobs leaving and factoriesbeing built in cheaper places, people think of China,Malaysia, Thailand, Mexico, Ireland, Brazil, andVietnam. But going offshore isn’t just moving part of amanufacturing or service process. It means creating anew business model to make more goods for non-USsale, thus increasing US exports.

• Supply-chaining: Eating sushi in Arkansas. Walmartdemonstrates that improved acquisition anddistribution can lower costs and make suppliers boostquality.


• Insourcing: What the guys in funny brown shortsare really doing. This kind of service collaborationhappens when firms devise new servicecombinations to improve service. Take UnitedParcel Service (UPS). The “brown” companydelivers packages globally, but it also repairsToshiba computers and organizes delivery routesfor Papa John’s pizza. With insourcing, UPS usesits logistics expertise to help clients create newbusinesses.


• Informing: Google, Yahoo!, MSN Web Search. Googlerevolutionized information searching. Its users conductsome one billion searches annually. This searchmethodology and the wide access to knowledge on theInternet transforms information into a commoditypeople can use to spawn entirely new businesses.

• The steroids: Digital, mobile, personal, and virtual.Technological advances range from wirelesscommunication to processing, resulting in extremelypowerful computing capability and transmission. Onenew Intel chip processes some 11 million instructionsper second (MIPS), compared to 60,000 MIPS in 1971.

Now

• These ten factors had powerful roles in makingthe world smaller, but each worked in isolationuntil, Freidman writes, the convergence of threemore powerful forces: (1) new software andincreased public familiarity with the Internet, (2)the incorporation of that knowledge intobusiness and personal communication, and (3)the market influx of billions of people from Asiaand the former Soviet Union who want tobecome more prosperous—fast. Converging,these factors generated their own critical mass.

globalization - international business

Education