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GLOBALIZATION

The term globalization denotes the globe assingle market, product presence in differentmarkets of the world, production bases acrossthe globe, human resources from all across the

world, investment in international services,transactions involving intellectual propertiesetc.

Globalization helps the consumers to obtainadvanced products available in the world.

Globalization also implies considering wholeglobe as one from the economic and businesspoint of view.

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Features of Globalization

A global organization will operate and plan to

expand all over the world. It engages in buying and selling all across the globe. Establishing manufacturing and production any

where around the world as per scale of economy. It carries out product planning and development

based on market consideration of the differentcountries of the world.

It sources human resources, raw material, finances,machinery etc. all across the world.

It creates a global culture among the minds ofemployees.

Globalization carries both promises and threats atthe national, regional, organizational and individuallevel.

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INTERNATIONAL BUSINESS DEFINITION:

Refers to any form of commercial exchange of materials,goods, services or any other resource that involves transferacross boundaries.

International business has created a network of globallinks that bind countries, institutions and individuals withtrade, financial markets, technology and living standards.

e.g. a reduction in coffee production in brazil would effect

individuals and economies worldwide.

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Why go international?

Profit advantage Growth opportunities

Domestic market constraints/restrictions/saturation

Strategic vision Seeking greater operational efficiency

Seeking new markets

Seeking new resources Efficient use of economies of scale

Taking advantage of product differentiation.

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Need for international business

Causes the flow of ideas, services and capitalacross the world

Offers consumers new choices

Permits the acquisition of a wider variety of

products Facilitates the mobility of labour, capital and

technology

Provides challenging employment

opportunities Reallocates resources, makes preferential

choices and shifts activities to a global level.

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INTERNATIONAL MANAGEMENT

Process of applying management concepts and

techniques in a multinational environment andadapting management practices to differenteconomic, political and cultural environment.

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Linkage between international business and

international management

Corporate strategy- The decision to get into international business

International management deals with

- Managing the foreign operations strategically bycontrolling the various functional imperatives

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Major decisions in international business

1. Deciding whether to go abroad or not2. Deciding which market to enter

3. Deciding how to enter the market

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Mercantilism: mid-16th century

A nations wealth depends onaccumulated treasure

Gold and silver are the mainstays ofnational wealth and are currency of trade.

Theory says you should have a tradesurplus.

Maximize exports through subsidies.

Minimize imports through tariffs andquotas

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Theory of Absolute Advantage

Adam Smith: Wealth of Nations (1776).

Capability of one country to produce more of aproduct with the same amount of input thananother country.

Produce only goods where you are most efficient,trade for those where you are not efficient.

Assumes there is an

absolute advantage balance among nations,

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Product Life-Cycle Theory

(Raymond Vernon, 1966)

As products mature, both location of sales andoptimal production changes.

Affects the direction and flow of imports and exports.

Globalization and integration of the economy makesthis theory less valid.

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The New Trade Theory Began to be recognized in the 1970s.

Deals with the returns on specialization wheresubstantial economies of scale are present.

Specialization increases output, ability to

enhance economies of scale increase. In addition to economies of scale, learning

effects also exist.

Learning effects are cost savings that come

from learning by doing.

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Porters Diamond(Harvard Business School, 1990)

The Competitive Advantage of Nations.

Looked at 100 industries in 10 nations. Thought existing theories didnt go far

enough.

Question: Why does a nation achieve

international success in a particular industry?

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Porters DiamondDeterminants of National Competitive Advantage

Factor Endowments

Firm Strategy,

Structure and

Rivalry

Demand Conditions

Related and

Supporting

Industries

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Factor endowments: Nations position in factors ofproduction such as skilled labor or infrastructurenecessary to compete in a given industry.

Demand conditions: The nature of home demand for theindustrys product or service.

Related and supporting industries: The presence orabsence in a nation of supplier industries or relatedindustries that are nationally competitive.

Firm strategy, structure and rivalry: The conditions inthe nation governing how companies are created,organized, and managed and the nature of domesticrivalry.

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EPRG APPROACH

Organizations orientation towards

internationalization:

E : ethnocentric

P : polycentric

R : Regiocentric

G : Geocentric

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Ethnocentric approachA nationalistic philosophy of management whereby

the values and interests of the parent company guidestrategic decisions. Stresses nationalism and putshome office people in charge of key internationalmanagement positions. The MNC headquarters andthe subsidiarys managers all have the same basicexperience, attitudes and beliefs about how to manage

operations. Many Japanese firms follow thesepractices.

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Polycentric

A philosophy of management whereby strategicdecisions are tailored to suit the cultures of thecountries where the MNC operates. Places localnationals in key positions and allows thesemanagers to appoint and develop their ownpeople. MNC headquarters gives the subsidiarymanagers authority to manage their operationsjust as long as these operations are sufficientlyprofitable . Some MNCs use this approach in EastAsia and other markets that are deemed tooexpensive to staff with expatriates

Expatriates- refers to those who live and workoutside their home country. They are citizens of thecountry where the MNC is headquartered.

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Regiocentric

The philosophy of management whereby the firmtries to blend its own interests with those of itssubsidiaries on a regional basis. Relies on localmanagers from a particular geographic region tohandle operations in and around that area.

Example : advertising managers from subsidiariesin Italy , Germany, France, and Spain would cometogether and formulate an European advertisingcampaign for the companys product . ARegiocentric approach often relies on regionalgroup cooperation of local managers.

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Geocentric

a philosophy of management whereby thecompany tries to integrate a global systemsapproach to decision making. Seeks to integratediverse regions of the world through a globalapproach to decision making, assignments arebased on qualifications, and all subsidiarymanagers throughout the structure are regarded asequal to those at headquarters.

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International environment

International business environment theexternal context in which organizations operateacross the world. It is characterised by

increased complexity and by expanding anddeepening ties between the differentstakeholder groups within it. To gain anunderstanding of the contemporary

international business environment, someknowledge of global political economy isnecessary.

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Environmental Challenges of International

Management

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Major Environmental factors

Economic Factors

Social Factors

Political Factors Technological Factors

Ecological Factors

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Economic Factors

1. Prime interest rates

2. Inflation rates

3. Trends in the growth of the gross national product

4. Unemployment rates

5. Globalization of the economy

6. Outsourcing

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Social Factors

Present in the external environment: Beliefs & Values Attitudes & Opinions Lifestyles

Developed from: Cultural conditioning Ecological conditioning Demographic makeup Religion

Education Ethnic conditioning.

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Political Factors

Political constraints on firms: Fair-trade Decisions Antitrust Laws

Tax Programs Minimum Wage Legislation Pollution and Pricing Policies

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Technological Factors

Technological forecasting helps protect andimprove the profitability of firms in growingindustries.

It alerts strategic managers to impending

challenges and promising opportunities. The key to beneficial forecasting of technological

advancement lies in accurately predicting futuretechnological capabilities and their probable

impacts.

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Ecological Factors

Ecologyrefers to the relationships among humanbeings and other living things and the air, soil,and water that supports them.

Threats to our life-supporting ecology caused

principally by human activities in an industrialsociety are commonly referred to as pollution

Loss of habitat and biodiversity

Environmental legislation Eco-efficiency

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International Environment analysis

Monitoring the international environment

involves assessing each non-domestic market on thesame factors that are used in a domestic assessment.

While the importance of factors will differ, the sameset of considerations can be used for each country.

Economic, political, legal, and social factors are usedto assess international environments.

One complication to this process is that the interplayamong international markets must be considered.

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Industry Environment

Harvard professor Michael E. Porter propelled theconcept of industry environment into the foregroundof strategic thought and business planning.

The cornerstone of Porters work first appeared in theHarvard Business Review, in which he explains the fiveforces that shape competition in an industry.

Porters well-defined analytic framework helpsstrategic managers to link remote factors to theireffects on a firms operating environment.

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Competitive Forces Shape Strategy

The essence of strategy formulation is coping withcompetition. Intense competition in an industry is neither

coincidence nor bad luck. Competition in an industry is rooted in its underlying

economics, and competitive forces exist that go wellbeyond the established combatants in a particularindustry.

The corporate strategists goal is to find a position in the

industry where his or her company can best defend itselfagainst these forces or can inf luence them in its favor.

Ex 4 8 Forces Driving Industry Competition

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Ex. 4.8 Forces Driving Industry Competition