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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International Business
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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International Business
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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7/30/2019 05 Intl Biz Globalisation Session 7 & 8
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International Business
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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International Business
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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International Business
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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International Business
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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International Business
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.
7/30/2019 05 Intl Biz Globalisation Session 7 & 8
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International Business
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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International Business
Mike Porters Diomond Theory
also called
Porters National Competitive
Advantage Theory
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International Business
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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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International Business
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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International Business
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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International Business
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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International Business
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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International Business
Thank You
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International Business
International Business
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