05 Intl Biz Globalisation Session 7 & 8

7/30/2019 05 Intl Biz Globalisation Session 7 & 8

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International Business

Globalisation

Driving & Restraining forces

Prof Bharat Nadkarni


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Globalization : Definitions

Economic Definition

Globalization may be defined as the process of integration ofeconomies across the world through cross-border flow of factors,

products and information.

Corporate Definition

Globalization in its true sense is a way of corporate life

necessitated, facilitated and nourished by the transnationalization

of the world economy and developed by corporate strategies.Globalisation is an attitude of mind which views the entire world

as a single market so that the corporate strategy is based on the

dynamics of the global business environment.


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Globalisation

Globalisation is an attitude which looks at the world as onemarket and corporate strategy is based on the dynamics of

global environment. Globalisation has the following

characteristics features:

1. Operating and planning to expand business globally.

2. Renunciation of distinction between domestic and foreign

markets and developing a global business attitude.

3. Establishing production and distribution facilities in various

parts of the world based on global business dynamics.

4. Product development and production planning are based on

global market environment.


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Driving and Restraining Forces of Globalisation

There are number of forces which induce and propel globalisationand thereby expand the scope and importance of internationalbusiness. On the other hand there are also forces which restrainglobalisation.

Driving ForcesLiberalisation

Universal economic policy of liberalisation fostering a seamlessbusiness world.

GATT/WTO policiesRevolutionary policy changes as in China (turn of the century), RPAcountries(late 80s)

LPGsurge in M&A, FDI resulting in greater global economicintegration


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MNCs

Linking resources and objectives with world market opportunities

taking advantage of liberalisation

TechnologyPowerful driving force

Technological breakthroughs are substantially increasing the scaleeconomies and the market scale required to break-even

Transportation and Communication RevolutionReducing disadvantage of distance and cost

Development in the field of air and sea cargo- containerisation,Referigeration (cryogenic tanks), LNG, LSWR, Perishable goods,Floral, Food stuff, quick changes in fashion and design.

IT & Telecommunication Revolution


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Product Development cost and efforts

Huge R&D and development cost/ investment - huge global market

Fast technological changes- Risk of obsolescence-quick payback

Quality and Cost

The two most important determinants of demand. Can be betterachieved when a firm is global in its operations

Rising Aspirations and Wants

Innovative ideas, breakthrough improvements-3 dimentions- bottom

line, customer satisfaction, reduction in cycle time.Competition

Exploring new markets, risk taking, diversification, new ownerships

World Economic Trends

Difference in growth ratesdeveloped and developing countries


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Domestic rapid economic growth-large number of players-

exploiting opportunities outside the country- ChinaRegional Integration

The proliferation of regional integration schemes

European Union(EU), South Asian Association for Regional

Cooperation(SAARC), North American Free Trade Agreement(NAFTA)

Creates a borderless region between the members

Financial flows

LeveragesA global company can leverage its experience to expand its globaloperations. According to Keegan Leverage is simply some type ofadvantage that a company enjoys by virtue of the fact that itconducts business in more than one country


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Global company posses the following four important types of

leverages.1.Experience transfers

2.Scale economies

3.Resource utilisation

4.Global strategy

Keegan observes that the global companys greatest single advantage can beits global strategy. A global strategy built on an information system that scansthe world business environment to identify opportunities, trends, threats and

resources. When opportuninities are identified, the global company adheres tothe three principles identified earlier. It leverages its skills and focuses itsresources to creates superior perceived value for customers andachievecompetitive advantage. The global strategy is a design to create awinning offering on a global scale. This takes great discipline, much creativity,and constant effort. The reward is not just successit is survival and

sustainance.


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Restraining Forces.

There are two types of factors, which hamper globalisation.

External factors

Government policies and controls

Social and political opposition against foreign business etc

Internal factors

Factors within the organisationmyopic approach-nearsightedness

Organisational culturemay hamper or pamper


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Mike Porters Diomond Theory

also called

Porters National Competitive

Advantage Theory


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International BusinessCompetitive Advantages

Competitive superiority is derived from four factors, viz., factor

endowment, demand conditions, related and supporting industries and

firm strategy, structure and rivalry. All the four factors need not

always be favourable for a company to get global supremacy. But the

interactive effect of these four factors need to be favourable if an

industry/ company in a country is to gain a global competitive

advantage.1. Factor conditions

Factor conditions include factors of production, viz., land, labour,

capital and organisation. Porter emphasises other factors like

educational level of labour and the quality of the countrysinfrastructure. Countrys ability to compete globally depends

upon the countrys factor resources, viz., research, innovation and

training. The USA has rich factor endowments and enjoys top

position in world trade and world economy.


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Position of USA in World Trade and World Economy

Its unique position includes:

Large size of the country

Largest GDP with approx. $ 10 trillion

Largest exporter and largest importer in the world

Has worlds largest financial market

Large in having MNCs (around 20) out of top 500 MNCs (2006)

Now, it started losing its position due to rapid development of some

developing and recently emerging countries including South Korea,

China, Malaysia and India.


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2. Demand Conditions

The existence of a large number of sophisticated domestic

consumers who are economically able and willing to consumecreate and improve the demand for various products in the

country. Companies improve the existing products and develop

new products to meet the increasing demand. In addition,

domestic companies compete with each other in developing

existing and new products. As such some of the processing

domestic companies would be ahead of the international

companies and export to other countries. For example, Japanese

companies developed camcorders, big screen TVs and VCRs

better than the international companies and exported them toEuropean and North American countries after meeting the

domestic demand.


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3. Related and Supported Industries

The emergence and growth of an industry provide the scope for

the development of suppliers of raw material, marketintermediaries, financial companies, consulting agencies,

ancillary industries etc. These supporting service agencies

compete among themselves leading to high input quality and

lower prices. Availability of high quality inputs at lower prices in

the domestic country enhances competitive advantage of the firm

internationally.

4. Firm strategy, structure and rivalry

Firms continuously improve the quality, product design, invest in

R&D in order to compete domestically. Firms also invest in

human resource development, technology etc., in the domestic

market. These developments result in high quality and lower

prices in domestic country which are transferable to international

markets. Intense competition for Japanese automobile


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manufacturers and electronics goods manufacturers led to their

success in international markets. The same theory holds good in

case of Indian garment manufacturers and US personal computermanufacturers.

Also discuss :

Concept of Born-Global Firms

Strategies for the Bottom of the Pyramid


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Future of International Business

There are several trends that would make globalisation and

international business more pronounced in future.

1. Globalisation of supply chain and operations management.

2. International Investments.3. Information surge and consumer choice.

4. World growth

5. Domination of the world economy.(decline of the power of nations

like US to pressurise policies and behaviour of other nations)6. Trade cycle decision rule.(The old trade cycle model which implied

that as a product matures the location of production must shift to low wage

countries. For any product in which labour is less than say 15 to 20 % of

total costs, the location of production of mature products may be anywhere

in the world. ex. Automobile industry.)


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7. Pervasiveness of free markets. ( The fall of communism and socialism

and the resultant ubiquitous market economy and globalisation arestupendously expanding the scope of international marketing.)

8. Accelrating growth of Global markets.

9. The rise of the Internet and Information Technology.


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Thank You


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1. Definitionof IB, Domestic vs IntI business, Adv & Disadv2. International trade theories

3. Globalisation, Regional groups, Transnational economy.

4. Market entry strategies

5. International Trade Institutions, Policies

6. International finance & Foreign Direct Investments

7. International issues, G 20 issues, MFN status, Intellectual

property rights, purchase power parity etc

8. Ethical business, CSR, Millineum goals, HR policies etc

9. Generalised topics, Logistics, Information technology,

cultural and social issues,

10. Case studies

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05 Intl Biz Globalisation Session 7 & 8

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