Overview Of International Business Functions

Arvind V. PhatakCarnell Professor of Management and

International Business;Ex. Director, IGMS/CIBER

Drivers of Globalization

Effects of Globalization

Globalization’sChallenges to Business

Firms

Impacts on Curriculum

Presentation Format

Major Skills and Characteristics of New Employees

(On a 5-point scale)Knowledge of Other Cultures: 4.2

Cross-Cultural Communications skills: 4.2

Experience in IB: 4.2

College Degree: 4.2

Experience in related functional area: 4.1

Fluency in Foreign Language: 4.1

General knowledge of other countries: 4.0

Globalization

• The international Monetary Fund defines it as “the

growing economic interdependence of countries

worldwide through the increasing volume and variety of

cross-border transactions in goods and services and of

international capital flows, and also through the more rapid

and widespread diffusion of technology

Drivers Of Globalization

Death Of Distance

• Countries inter-connected by rapid flows of knowledge and information

• E-mail and chat rooms

• Vide Conferencing

• Cell phones

• Satellite Transmission

• BBC, CNN, Star, Al Jazeera

Death Of Time

• London – New York

• 1930: Steam ships, 10 days• 1950s: Propeller Aircraft 200-300 mph, 2 days• 1960s: Jet Aircraft 500-700mph, 8 hours• 1990s: Supersonic Jets, 3 hours• Distance measured in time to get there

The Push Towards Free Trade

• International Trade measured by volumes of imports and exports

• International trade growing at a sky rocketing pace

• Increasing economic interdependence among countries

The Push Towards Free Trade

• World exports of goods $ 2 Trillion in 1991, $ 6 Trillion in 2001

• World economy growth – 3 %

• World trade growth – 6 %

• Significant increase in cross border investments in portfolio and Foreign Direct Investment

Creation of a Global Labor Force• Jobs come to where people are

• Indian Software industry serves the needs of Europe and American markets

• China dictating price of consumer goods

• Fast approaching global wage rate for skilled and unskilled workers

• Global workforce determines global prices of goods and services

• People > Jobs

• Jobs > People

Porous Borders Between countries

• Lowering of barriers to immigration

• Increase in transfer of wealth, knowledge and technology among countries

• Economic linkages between adopted and mother countries

– Indian and Chinese Diaspora has its footprints in every country in world

Porous Borders Between countries

• Pre-1964: Immigration restrictions against Asia Pacific triangle

• Post 1964: Non-European Immigration world wide

• Ease of visa restrictions: H1B

Globalization of Financial Markets

• What happens in US impacts rest of the world

• Interest rates, stock markets, currency values are all interconnected

• A country’s ability to compete is often dictated by events in distant parts of the world

Global Thrust for a Market Economy

• Centralized planning replaced by free markets and economic liberalization

• Deregulation of airline, financial services and telecommunications in developed and developing countries

• Welcome mat for foreign companies in consumer products

• Opportunities in infrastructure projects

Global Thrust for a Market Economy

• The fall of the Soviet Union has given a boost to free enterprise and market based economies.

Current trends in International economy

• Privatization

– Huge public sector debts

– Poor performance of SOEs

– Raise revenue for state

– Attract foreign investment and technology

Deregulation and Privatization of Commerce and Industry Globally

• Money is flowing across national boundaries

• Number of international airlines has grown

• Number of passenger miles flown has shot up

• The tourism and hospitality industry has flourished

Rapidly Falling Freight costsThree notable economic trends:

• World economy has become far less transport-intensive

• “Containerization” and “intermodal transportation” has led to steep drops in the cost of cargo handling

• Deregulation of the airlines and telecommunications has brought about huge drop in the data transfer and air transport

Effects Of Globalization

Movement Toward Free Trade and Trade Blocs

Types of Trade BlocsFree Trade Area: member countries eliminate trade

barriers among themselves, but retain right to impose barriers on non-members.

Customs Union: member countries remove barriers among themselves and have common barriers on non-member countries

Common market: A customs Union that allows free movement of factors of production

Economic Union: A common market where economic policies are also harmonized

European Union

ASEAN

Mercosur

Trade Blocs and Global Free Trade

Trade Bloc 1990 1995 1996 1997 1998 1999NAFTA 226273 394472 437804 496423 521649 581162

EU 981260 1259699 437804 496423 1226988 1376314

ASEAN 28648 81911 86923 88770 71669 81929

MERCOSuR 4127 14199 17075 20772 20352 15313

Evolution & Growth of Global Companies

• Principally companies from Europe, United States, Japan and South Korea

•

• Global Companies and their global network of subsidiaries are connecting countries and companies world-wide.

Table 1-2

Challenges Faced By Businesses in Global

Environment

Environmental Challenges

Political Ideologies

Economic Systems

Technological Sophistication

Legal Challenges

Cultural Distance

Impacts on Business Functions

Marketing: advertisements, packaging

Finance: pricing, balance sheet effects

Production: reward systems, technology

Leadership: styles

Communications: methods and modes

.

The Importance Of Understanding Culture

and Cultural Differences

Iceberg

Major Business languages Globally

• English

• Chinese

• Spanish

• Hindi

• Bengali

• Japanese

• Portuguese

• Russian

Top Languages

35%

14%13%

12%

8%7% 6% 5% Chinese, Mandarin

Hindi

English

Spanish

Bengali

Portuguese

Russian

J apanese

World Religions and Business• Christianity

• Judaism – Holidays, Sabbath, dietary prohibitions

• Islam – banking, holidays

• Buddhism

• Hinduism – dietary prohibitionsTop Religions

34%

22%

15%

14%6% 4% 3%2%

Christian

Islam

Hinduism

Secular/Nonreligious

Buddhism

Chinese Traditionalreligionprimal-indigenous

African Traditional &Diasporic

Corruption rankingsCorruption Rankings

The Americas USA

The Americas Venezuela

Western Europe Finland

Western Europe Greece

Eastern Europe Slovenia

Eastern Europe Ukraine

West Asia Israel

West Asia Kazakhastan

South Asia Sri Lanka

South Asia India

South Asia Pakistan

East Asia Singapore

East Asia China

East Asia Vietnam

Africa Bostwana

Africa Nigeria

0 2 4 6 8 10 12

USA

Venezuela

Finland

Greece

Slovenia

Ukraine

Israel

Kazakhastan

Sri Lanka

India

Pakistan

Singapore

China

Vietnam

Bostwana

Nigeria

The

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Corruption Index

Series1

Cost Of Corruption

Value Orientations In Society

Universalism---------------Particularism

Affect Neutrality---------------Affect

Specificity---------------Diffusion

Achieved Status---------------Ascribed Status

Self Interest---------------Collectivity

Private and Public Self

PrivateSelf

PublicSelf

Private and Public Self

Private and Public Self

Private and public Self

Cultural differences

• Gestures and body language

• Marketing

• Colors– Prussian blue for singer

– Red and Gold are tops in China

– White in India and Japan = Death

The Language of Time

AmericanCulture

Time is Money!

There is a limited amount of time available to each person.

Language of Time

EasternEasternCultureCulture

Time does not begin at birth nor end at death.Time is an inexhaustible resource.

Office Location

Language of SpaceLanguage of Space

Boss is in the Penthouse

Boss is in the Center

Language of Things

Language of Agreements

The end point of the negotiation

CONTRACTU.S. VIEWU.S. VIEW

Language of Agreements

This is the beginning of the

negotiations

CONTRACT

EASTERN VIEWEASTERN VIEW

Language of Friendship

Eastern CulturesEastern Cultures

You take care of a friend’s family!

Friendship is alifetime thing!

Few -- but verygood friends!

Key IB Success Factors

• Technical Ability• Managerial Skills• Cultural Empathy• Adaptability and Flexibility• Diplomatic Skills• Language Aptitude• Personal Motives• Emotional Stability and Maturity• Adaptability of Family

The IB Curricular Tripod

Language Area

Business

BusinessLeadership

Questions