CHAPTER ONE

GLOBALIZATION
Introduction
• Over the past three decades a fundamental shift has been occurring
in the world economy.

• In the past, national economies were relatively self- contained

entities, isolated from each other by barriers to cross- border trade
and investment; by distance, time zones, and language; and by
national differences in government regulation, culture and business
systems.

International Business Management

Introduction
• The international dimension of management and business due mainly
to Globalization has become a major challenge to governments,
institutions and Organizations.
• Worldwide economic integration has intensified as the expansion of
global commerce, finance and production links together the fate of
nations, communities and households across the world’s major
economic regions and beyond within emerging global market
economy.

International Business Management

Introduction
• Globalization has gradually increased exchanges and connections between
countries. For companies, globalization entails enhanced opportunity. They
embrace a broader set of business possibilities, and leverage resources in
foreign countries, by growing their business abroad.
• With an increasing number of rivals, new technologies and fast innovations,
companies are constantly under pressure and need a good strategy to
remain competitive. In order to stay afloat and perform well they must
ensure that they occupy a sustainable market position.
They can use several tools to achieve this ambition and a popular one is
growth by means of entering new markets

International Business Management

 Introduction
Today, the world is characterized by:
• Barriers to cross- border trade and investment are declining
• Perceived distance is shrinking due to advances in transportation and
telecommunication technology
• National culture is starting to look similar allover the world
• National economies are merging into an independent, integrated global
economic system
What Is Globalization?
• Globalization - the shift toward a more integrated and interdependent
world economy
• The world is moving away from self-contained national economies
toward an interdependent, integrated global economic system
• Globalization is the name given to the trend toward greater
economic, cultural, political, and technological interdependence
among national institutions and economies.
What Is Globalization?
• Globalization is characterized by:
Denationalization (national boundaries becoming less
relevant) and is different from Internationalization
(entities cooperating across national boundaries).
Globalisation, Internationalisation and
Regionalisation
Globalisation Internationalisation Regionalisation
• It refers to a process in which the very • It refers to growing • It refers to patterns of
distinction between the domestic and interdependence between interconnectedness or
the external breakdowns. states. integration amongst state
• Distance and time are collapsed , so • It presumes that they remain which share common borders
that events many thousands of miles discrete national units with or are geographically
away can come to have almost clearly demarcated borders. proximate.
immediate local consequence while
the impacts of even more localised
developments may be diffused rapidly
around the globe.
• It refers to a process in which the very
distinction between the domestic and
the external breaks down.
Drivers of Globalization
Two macro factors underlie the trend toward greater
globalization.
• The first is the decline in barriers to the free flow of goods,
services, and capital that has occurred since the end of World
War II.
• The second factor is technological change, particularly the
dramatic developments in recent years in communication,
information processing, and transportation technologies.
Declining Trade and Investment Barriers

In the past, many of the world’s nation-states erected formidable barriers to

international trade and foreign direct investment.
• International trade occurs when a firm exports goods or services to
consumers in another country.
• Foreign direct investment (FDI) occurs when a firm invests resources in
business activities outside its home country.
• Many of the barriers to international trade took the form of high tariffs on
imports of manufactured goods. The typical aim of such tariffs was to
protect domestic industries from foreign competition. One consequence,
however, was “beggar thy neighbor” retaliatory trade policies, with
countries progressively raising trade barriers against each other
Declining Trade and Investment Barriers
• The world then removed barriers to the free flow of goods, services, and capital
between nations.
• In addition to reducing trade barriers, many countries have also been
progressively removing restrictions to foreign direct investment.
• Lowering barriers to international trade enables firms to view the world, rather
than a single country, as their market.
• Lowering trade and investment barriers also allows firms to base production at
the optimal location for that activity. Thus, a firm might design a product in one
country, produce component parts in two other countries, assemble the
product in yet another country, and then export the finished product around
the world.
Technological change
• The world has seen major advances in communication, information processing, and
transportation technology, including the explosive emergence of the Internet and
World Wide Web.
• Telecommunications is creating a global audience. Transportation is creating a
global village.
• The single most important innovation has been development of the
microprocessor, which enabled the explosive growth of high-power, low-cost
computing, vastly increasing the amount of information that can be processed by
individuals and firms.
• Additionally, the Web rolls back some of the constraints of location, scale, and time
zones. The Web makes it much easier for buyers and sellers to find each other,
wherever they may be located and whatever their size. It allows businesses, both
small and large, to expand their global presence at a lower cost than ever before.
Thus; the Factors Contributing to Fast Growth of
International Business
• Increase in and expansion of technology.
• Development of services that support international
business.
• Growing consumer pressures.
• Increased global competition.
• Changing political situations.
• Expanded cross-national cooperation.

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Facets of Globalization

• Globalization of Markets
• Globalization of Production
What Is The Globalization of Markets?
It refers historically to distinct and separate national markets
merging and creating the “global market”.
• falling trade barriers make it easier to sell globally
• consumers’ tastes and preferences in different nations are
converging on some global norm, thereby helping to create a
global market
• firms promote the trend by offering the same basic products
worldwide
 Benefits of Globalization of Markets

• Reduces marketing costs: Companies that sell global products can

reduce costs by standardizing certain marketing activities.
Companies can achieve further cost savings by keeping an ad’s
visual component the same for all markets but dubbing TV ads
and translating print ads into local languages.
• Creates new market opportunities: A company that sells a global
product can explore opportunities abroad if its home market is
small or becomes saturated.
Benefits of Globalization of Markets

• Levels uneven income streams: A company that sells a product with

universal, but seasonal, appeal can use international sales to level its
income stream.
• Local buyers’ needs: In the pursuit of the potential benefits of global
markets, managers must constantly monitor the match between the
firm’s products and markets in order to not overlook the needs of
buyers. The benefit of serving customers with an adapted product
may outweigh the benefit of a standardized one.
Benefits of Globalization of Markets

• Global sustainability: Another need that multinationals must

consider is the need among all the world’s citizens for sustainability—
development that meets the needs of the present without
compromising the ability of future generations to meet their own
needs.
What Is The Globalization of Production?

• It refers to sourcing of goods and services from locations around the

globe to capitalize on national differences in the cost and quality of
factors of production like land, labor, energy, and capital
• Accordingly, companies can
• lower their overall cost structure
• improve the quality or functionality of their product offering
This allow them to compete more effectively.
Benefits of Globalization of Production

• Access lower-cost workers: Global production activities allow

companies to reduce overall production costs through access to
low-cost labor.
• Access technical expertise: Companies also produce goods and
services abroad to benefit from technical know-how.
• Access production inputs: Globalization of production allows
companies to access resources that are unavailable or more costly
at home. The quest for natural resources draws many companies
into international markets.
Facets of Globalization

Globalization Globalization
of markets of production

Dispersal of
Convergence in buyer production activities
preferences in markets worldwide to minimize
around the world costs or maximize
quality
What is International Business?
• International business consists of all commercial transactions—including
sales, investments, and transportation—that take place between two or more
countries
• increasingly foreign countries are a source of both production and sales for domestic
companies
Multinational enterprise (MNE) : Any business that has productive activities in
two or more countries.
• It is relating to, consisting of, or involving several or many countries or
nationalities.
• MNEs have many of the same activities and functions that ordinary non-
multinational enterprise companies have. However, many factors make these
activities and functions significantly different.
What is International Business?
• International business is either private or governmental
business relationships conducted across political boundaries
of the country .
• It may be for profit or non-profit oriented.
• This combine selling and buying goods/services across
political boundaries of the country, and it generally require
to deal with the maintenance and development of a
multinational operation across national borders.

International Business Management

Factors in International Business Operations
Why Companies Engage in IB?
• To expand sales
• pursuing international sales increases the potential market and potential
profits
• To acquire resources
• may give companies lower costs, new and better products, and additional
operating knowledge
• To diversify or reduce risks
• international operations may reduce operating risk by smoothing sales and
profits, preventing competitors from gaining advantage
Why Companies Engage in IB?
• Therefore, these three reasons
• sales expansion
• resource acquisition
• risk minimization
guide all decisions about whether, where, and how to engage in
international business
• A company does not have to be the size of these multinational giants to
facilitate and benefit from, the globalization of markets.
International Business Managers
• Company managers must be trained in facets of international
business that are not normally the concern of domestic managers.
• On a broad scale, these issues include knowledge of other country
infrastructures, balance of trade (the difference in a country’s
exports and imports) and balance of payments (account of goods
and services, capital loans, gold, and other items entering and
leaving a country).
• International managers must be knowledgeable of exchange rates,
legal–political, and social–cultural elements of other countries.
International Business Managers
• Managing an international business differs from managing a
domestic business because of :
 Countries and cultures are different.
 International business operations are more complex
than domestic operations.
 From one country to another, a company’s relative
competitiveness will vary because of the differences in
the local and foreign competitors that are present.

International Business Management

International Business and Strategic
Management
• A knowledge of both strategic management will enhance your understanding of
international business.
• Strategic management is the body of knowledge that answers questions about
the development and implementation of good strategies and is mainly concerned
with the determinants of firm performance.
• A strategy, in turn, is the central, integrated, and externally oriented concept of
how an organization will achieve its performance objectives.
• Indeed, International business is the process of planning, implementing, and
managing a company's strategies in a global business environment. It involves
analyzing and understanding the various factors that affect the company's
operations and competitiveness in different countries and regions around the
world.
International Business Management
The Globalization Debate
• Supporters believe that increased trade and cross-border investment
mean
• lower prices for goods and services
• greater economic growth
• higher consumer income, and more jobs
• Anti-globalization protesters now regularly show up at most major
meetings of global institutions
The Globalization Debate
• Critics worry that globalization will cause
• job losses
• Eliminates jobs in developed nations
• Lowers wages in developed nations
• Exploits workers in developing nations
• environmental degradation
• The cultural imperialism of global media and MNEs
• lose freedom to “act locally”
• growth consumes nonrenewable natural resources and increases
environmental damage
• promotes global superstars at the expense of others
The Globalization Debate
• Offshoring, a type of outsourcing, involves the transferring of
production abroad
it can be beneficial because it reduces costs
But it also means that jobs move abroad
• Yet, offshoring may also create new, better jobs at home