Globalization and International Business Essay

Introduction 1. The meaning of globalization * Broadly: the widening set of interdependent relationships among people from different parts of a world that happens to be divided into nations. * Narrowly: the integration of world economies through the elimination of barriers to movements of goods, services, capital, technology, and people. A. How Does International Business Fit In? * International business consists of all commercial transactions between two or more countries. The goal of private business is to make profits; Governments may undertake them either for profit or for other reasons. a. The Study of International Business * Most managers need to approach their operating strategies from an international standpoint. * Managers in almost any industry need to consider (1) where to obtain the inputs they need of the required quality and at the best possible price and (2) where you can best sell the product or service you’ve put together from those inputs. * Studying IB is important because (1) most companies either are international or compete with international companies, (2) the best way of conducting business may differ by country, (3) an understanding helps you make better career decisions, and (4) an understanding helps you decide what governmental policies to support. b. Understanding the Environment/Operations Relationship The Forces Driving Globalization * Globalization (1) has been growing, (2) is less pervasive than generally thought, (3) has economic and non economic dimensions, and (4) is stimulated by several factors. * The A.T. Kearney / Foreign Policy Globalization Index: some countries are more globalized than others, and a given country may be highly globalized on one dimension and not another. This index ranks countries across four dimension; * Economic – international trade and investment * Technological – Internet connectivity * Personal contact- international travel and tourism, international telephone traffic, and personal transfers of funds abroad * Political – participation in international organizations and government monetary transfers A. Factors in Increased Globalization a. Increase in and Application of Technology * Population growth, Economic growth * Innovations in transportation mean that more countries can compete for sales to a given market. b. Liberalization of Cross-Border Trade and Resource Movements c. Development of Services That Support International Business * Converting one currency to another, insurance d. Growing Consumer Pressures e. Greater Global Competition * Born-global companies: start out with a global focus because of their founders’ international experience and because advances in communications give them a good idea of where global markets and supplies are. * Clustering or Agglomeration: the situation in which many new companies locate in areas with numerous competitors and suppliers; they quickly learn of foreign opportunities and gain easier access to the resources needed for international moves. f. Changing Political Situation * A major reason for growth in IB is the end of the schism between Communist countries and the rest of the world. g. Expanded Cross-National Cooperation * To gain reciprocal advantages * To attack problems jointly that one country acting alone cannot solve * The resources needed to solve the problem may be too great for one country to manage; sometimes no single country is willing to pay for a project that will also benefit another country. * One country’s policies may affect those of others. * To deal with areas of concern that lie outside the territory of any nation * Three global areas belong to no single country: the non-coastal areas of the oceans, outer space, and Antarctica. The Costs of Globalization * Critics of globalization claim (1) countries lose sovereignty, (2) the resultant growth hurts the environment, and (3) some people lose both relatively and absolutely. A. Threats to national sovereignty * Sovereignty: its freedom to â€Å"act locally† and without externally imposed restrictions. a. The Question of Local Objectives and Policies b. The Question of Small Economies’ Overdependence c. The Question of Cultural Homogeneity B. Economic Growth and Environmental Stress a. The Argument for Global Growth and Global cooperation C. Growing Income Inequality and Personal Stress a. Income Inequality(disparity) * Challenge: to maximize the gains from globalization while simultaneously minimizing the costs borne by the losers. b. Personal Stress * The growth of globalization goes hand in hand not only with increased insecurity about job and social status but also with costly social unrest. Why Companies Engage in International Business A. Expanding Sales B. Acquiring Resources (R&D, Design) * Foreign sources may give companies (1) lower costs, (2) new or better products, (3) additional operating knowledge. C. Reducing Risk (Sales, Price swings) * International operations may reduce operating risk by (1) smoothing sales and profits, (2) preventing competitors from gaining advantages. Modes of Operations in International Business A. Merchandise Exports and Imports * The export and import of goods are the major sources of international revenues and expenditures. B. Service Exports and Imports * For non-merchandise international earnings, we call it service exports & imports. a. Tourism and Transportation b. Service Performance * Turnkey operations: construction projects performed under contract and transferred to owners when they’re operational. * Management contracts: arrangements in which one company provides personnel to perform general or specialized management functions for another. c. Asset Use * Licensing agreements: when one company allows another to use its asset such as trademarks, patents, copyrights, or expertise under contracts known as licensing agreements, they receive earnings called royalties. * Franchising: a mode of business in which one party (the franchisor) allows another (the franchisee) to use a trademark as an essential asset of the franchisee’s business. Royalties also come from franchise contracts. C. Investments * Dividends and interest paid on foreign investments are also considered service exports and imports because they represent the use of assets (capital). * Foreign investment means ownership of foreign property in exchange for a financial return, such as interest and dividends, and it make take two forms: direct and portfolio. a. Direct Investment(foreign direct investment, FDI) * Investor takes a controlling interest in a foreign company * When two or more companies share ownership of an FDI, the operation is a joint venture. b. Portfolio Investment * Non-controlling financial interest in another entity. * It usually takes one of two forms: stock in a company or loans to a company in the form of bonds, bills, or notes purchased by the investor. D. Types of International Organizations * Collaborative arrangements: companies work together in joint ventures, licensing agreements, management contracts, minority ownership, and long-term contractual arrangements. * Strategic Alliance: is sometimes used to mean the same, but it usually refers either to an agreement that is of critical importance to one or more partners or to an agreement that does not involve joint ownership. a. Multinational Enterprise (MNE) * Any company with foreign direct investments. * Multinational corporation or multinational company (MNC), Transnational company (TNC) in US. Why International Business Differs from Domestic Business External environment that may affect international operations. A. Physical and Social Factors * Any of these factors may require a company to alter its operation abroad (compared to domestically) for the sake of efficiency. a. Geographic Influences * Geographic barriers often affect communications and distribution channels. * Population distribution and the impact of human activity on the environment may exert strong future influences on IB. b. Political Policies * A nation’s political policies influence how international business takes place within its borders. * Political disputes particularly military confrontations can disrupt trade and investment. c. Legal Policies * Legal law: includes both home- and host-country regulations on such matters as taxation, employment, and foreign-exchange transactions. * International law: in the form of legal agreements between countries, determines how earnings are taxed by all jurisdictions. It may also determine how companies can operate in certain places. d. Behavioral Factors * The related disciplines of anthropology, psychology, and sociology can help managers better understand different values, attitudes, and beliefs. In turn, such understanding can help mangers make operational decisions abroad. e. Economic Forces * Economics explains why countries exchange goods and services, why capital and people travel among countries in the course of business, and why one country’s currency has a certain value compared to another’s. B. The Competitive Environment a. Competitive Strategy for Products: Products compete by means of cost of differentiation strategies, the latter usually by: * Developing a favorable brand image, usually through advertising or from long-term consumer experience with the brand; or * Developing unique characteristics, such as through R&D efforts or different means of distribution. b. Company Resources and Experience * A company’s size and resources compared to those of its competitors. c. Competitors Faced in Each Market * Success in a market (whether domestic or foreign) often depends on whether the competition is also international or local.