1 Firms internationalisation decisions can be driven by various motives, taking this into account,

discuss in particular the choice of a firm of how to internationalise its production activities in terms of
a trade off between ownership and market transactions.
After the World War II, there has been rapid growth in international trade in both goods and services,
resulting in various transactions across national borders for the purpose of satisfying the needs of
individuals and organisations. The result of this global competition has forced organisations to
expand their business by finding out new markets at home and foreign countries making them
Transnational firms'. Dicken (2007) defines Transnational Corporations (TNC) as A firm that has
power to co-ordinate and control operations in more than one country, even if it does not own them.
Rugman and Hodgetts, 2003 says Multinational corporations, defined as A company headquarter in
one country but having operations in other countries. The significance of TNC lies mainly in its
ability to co-ordinate and control different transactions within transnational production networks,
ability to take advantage of distribution factors of production and ability to be flexible in locations.
The growing TNCs led to various patterns and trends in international business like rapid growth in
world trade and investment, cross border mergers and acquisitions resulting in the process of
Internationalization. Internationalization is the process of increasing involvement in international
operations across national borders which comprises both changed perspectives and positions.
(Buckley and Ghauri, 1999)
Internationalization is one potential strategy that is being used increasingly by business firms to
maximise size of the firm, increase their profitability, increasing their market share and becoming
industry leader. It is a major attribute of the current strategy process of most business firms which
determines the ongoing development and change in the international firm in terms of values, scope,
principles, business ideas, action orientation, nature of work and converging norms. The
internationalization dimension is related to all these aspects of the strategy process and thus making
the firms become Transnational'. In this global competition, it is important for the firm to become
transnational and internationalization process focuses mainly on the development of the individual
firm on its gradual acquisition, integration, and use of knowledge about foreign markets and
operations. (Dicken, P., 2007)
Firms' internationalization decision is mainly to acquire profits. The origins of the internationalisation
of the industry are described by both macroeconomics approach, regarded as a general-system
approach which is focused on the capitalist system as a whole, and microeconomics approach,
based upon a firm-specific level. In a macroeconomics approach, the expansions of firms' activities
into foreign countries are explained by the circuits of capital and the theory of new international
division of labour. A microeconomics approach entails the Dunning's eclectic paradigm and the
theory of product life cycle. As most TNC's are capitalist enterprises, they behave according to basic
rules of capitalism, the ways in which firm acquires profits along with various motives like increasing
their market share, becoming industry leader or simply making firm bigger. But above all, the most
important factor for internationalization is the pursuit of profits. In this competitive economy,
competition between firms is becoming increasingly global and much more volatile not just confining
them to national level but with firms across the world. Thus TNCs simply explain the need for
internationalization at macro level in pursuit of profits and performance better in the global
competitive economy. (Dicken, P., 1992)
The new international division of labour, proposed by Stephen Hymer, is used to explain the shift of
industrial production from the core (the industrialised countries) to the periphery (the developing
countries). Firms in developed countries due to increasing wages in their home countries are forced
to seek the alternative locations providing cheap labour, which are the third world countries. Dicken
(1992) points out that even though this concept has some validity in explanation of
internationalisation process, it also contains several drawbacks as it is excessively narrow and one-
dimensional and it overstates the extent to which industrial production has been relocated to the
global periphery.
Micro level approach is an approach to understand the internationalization of economic activity
through the TNC which is much as firm specific. The decision to become global firm is made by
individual firms or more by decision makers in the firm rather than focusing upon the decisions at
capitalist system as a whole like in macro level approach. According to Hymer's pioneering study in
1960, domestic firms will have natural advantage over foreign firms in terms of better understanding
of local market conditions and business environment. But, a foreign firm wishing to produce in any
other market would have to posses some firm specific assets which overcome the natural
advantages of domestic firm. These firm specific assets are like size of the firm and economies of
scale, access to raw materials, marketing skills, technological expertise, reduced transaction costs
or access to cheaper sources of finance, which makes a foreign firm to compete domestic firm in its
home country. Hymer's study expressed that the firm wishing in transnational production would have
its own set of qualifying principles specific to ownership which overcome the advantages of
indigenous firms in the country of production. (Nilsson, J.E, Dicken, P., Peck, J., 1996)
In 1966, Vernon developed the product life cycle to explain the observed pattern of international
trade. The theory suggests that in the earlier stages of product's life cycle all the production activities
of a product is done in the place in which it was invented. Once the product is used in the markets,
production gradually moves away from the point of origin to the places with low production costs and
high market activity, in order to acquire high profits by the firm. There are four stages in product life
cycle: Introduction, growth, maturity and decline. The location of production depends on the stage of
the cycle. In the introduction stage the firm seeks to build product awareness and develop a market
for the product. In the growth stage, the firm tries to increase brand preference and market share. At
maturity stage, the strong growth in sales decreases due to heavy competition between similar
products. At this stage the primary objective of the firm is to defend the market shares by expanding
into new markets or low developing countries (LDCs) to maximize profits. In the final stage, due to
decline in the sales, the firm tries to maintain the product by adding new features and targeting new
markets. (Dicken 2003)
According to Dunning's Eclectic Paradigm, a firm will engage in international production when each
of the following three conditions is present: 1. Owner specific advantages, 2. Location specific
advantages and 3. Internalization advantages. As the three principles are derived from variety of
theoretical approaches such as the theory of the firm, organization theory, trade theory and location
theory, dunning labelled his approach as eclectic' which integrates various strands of explanation of
international production.
Owner specific advantages or Firm specific advantages are assets which are internal to firm. Every
firm must possess certain ownership specific advantages which are unique compared to their
competing firms from other countries. These firm specific advantages are intangible and transferred
within the TNC at low cost (e.g., technology, brand name, and benefits of economies of scale) which
either provides higher revenues or lower costs that can reduce operating costs compared to its
competitors in a foreign country.(Wattanasupachoke, 2002)
A firm must possess location specific advantages to exploit its assets in foreign rather than domestic
country. Therefore the location specific advantages of different countries are important in
determining which will become host countries for the transnational corporations. They constitute
economic, political and socio cultural advantages which are important factors in the context of
transnational production. (Wattanasupachoke 2002)
Transnational corporations choose internalization where the market does not exist or functions
poorly. There must be internalization advantages to the firm from exploiting its advantages itself,
rather than selling them or leasing them. The more uncertain the environment faced by the firm
(which may be due to price, quality and availability of raw materials) the more likely a firm internalize
its operations. Internalization occurs in the case of knowledge and technology, where many firms
spend huge sums of money on various research and development. To ensure satisfactory returns on
the investment without selling or leasing the technology to other foreign firms, the firm itself exploits
its technological advantage directly by setting up its own production facilities. (Whitley, R., 1994)
Under eclectic theory' other theories of internationalization are more concerned with the processes
that a firm must go through. Sequential theory of internationalization is a process in which a firm
enters into the foreign market. It is also called as Uppsala model' and the firm enters other markets
through four discrete stages: Intermittent exports, exports via agents and through licensing,
overseas sales through knowledge agreements with local firms (example franchising) and foreign
direct investment (FDI) in the foreign market.
Initially, the firm is purely a domestic firm in terms of both production and markets. Once the firm
reaches saturation point in its domestic market, it looks into foreign markets in order to maintain
growth and profitability. During early stages, the firm does this through exports using the services of
overseas sales agent, who are independent of the exporting firm. In the second stage, the process
of gaining control over its foreign sales is achieved by setting up its own sales outlets. This can be
done in two ways, either by setting up an entirely new outlet or by acquiring local firm. When the firm
performs better and acquires good profits, it decides on establishment of entire production facilities
with consideration of its favourable factors in a foreign market. Figure1 shows the path of
development of a firm in the evolution of a transnational corporation. (Wall and Rees, 2004)
In a network perspective, the process of internationalization is like creating new relationships or
building on existing relationships in international markets, with the focus shifting from the
organizational to that of social. It is people who make decisions and take the actions. The series of
networks are considered at three levels: Macro, Inter-organizational and Intra-organizational. (Wall
and Rees, 2004)
In network theory, the business environment is seen as a set of diverse interests, powers,
characteristics which advances on national and international business decisions. At macro- level, a
firm has to break old relationships or add new ones to enter new markets. A new entrant finds
difficult to break into a market that already has stable relationship. Such firms are able to reconfigure
the existing networks, thus more successful in internationalization process. At Inter-organizational
level, firms are good in different relationships to one another in different markets. They may be
competitors in one market, collaborators in other and suppliers and customers' to each other in a
third. Thus, if one firm internationalizes it draws other firms into international production. At intra-
organizational level, relations within the organization influence the decision making process. If a
transnational corporation has its subsidiaries in other countries, decisions taken at the subsidiary
level increases the degree of international involvement of the parent TNC, depending on the degree
of decentralization of decision making by the firm. (Wall and Rees, 2004)
The various theories explain the process of internationalization and results in the firm's motivation for
engaging in transnational operations. When a firm decides to establish a production facility in the
foreign market it mainly focuses its interests in terms of size of the market and availability of
requirements which are useful for the production facility. Though firm's motivation in transnational
production is highly individual, still it can be broadly classified into two categories: Market Orientation
and Asset Orientation. (Dicken, 2007)
Most foreign direct investment in the process of transnational production is designed to serve a
specific location market by taking consideration of market size and other conditions. The goods and
services produced in the foreign country are almost identical to that being produced in the firm's
home country but the firm modifies its products slightly in order to gain the tastes and preferences of
the local market. Market oriented investment is a form of horizontal expansion across national
boundaries which concentrates on three factors in making up the decision of the location. The most
important factor is a size of the market measured in terms of per-capita income rather than in terms
of population. For example, countries in Europe and US, though they have less population, their per-
capita income is high. Population in countries with low income levels spend larger portion of their
income on basic necessities while people in countries with high income levels spend higher portion
of their income on higher order manufacture goods and services. The last important factor for market
oriented production is accessibility into the markets (transportation) and other political barriers.
(Dicken, 2007)
The choice of strategy for transnational production will be influenced by the reasons for becoming
transnational. Foreign direct investment is designed to take advantage of the fact that the various
assets that a firm needs to produce are not available in the same quantity and quality everywhere.
So, it is important for a firm to consider about asset orientated production when it becomes
transnational. It is broadly classified into two ways: Technology and labour. Firm benefits from the
production costs if there are low labour costs along with high technology. Variations in wage costs,
labour productivity and knowledge and skills constitute asset based advantages to the firm becoming
transnational.
Once a firm has decided to go international, it takes place in wide variety of ways, most of which can
be classified into three broad categories:
* Export based methods
* Non- equity methods
* Equity methods

Export based methods for internationalization

It is the most common way in which a firm becomes international, by producing its products in the
domestic markets but exports a proportion of its products to foreign markets. Exporting is an oldest
and straight forward way of carrying international business. Its growth can be reduced to the
liberalisation of trade that has taken place globally and within regional trading blocs due to concept
of free trade like European Union (EU), NAFTA (North American Free Trade Association), ASEAN
(Association of South East Asian Nations), and APEC (Asia Pacific Economic Corporation). The
export based methods of internationalizing are divided into indirect exporting' and direct exporting'.
(Wall and Rees, 2004)
Indirect exporting: When a firm does not have any international activity by itself then it operates
through intermediaries for physical distribution of goods and services in the foreign market. Initially
an export house buys products from domestic firm and sells them abroad on its own account. A
confirming house acts for foreign buyers where it brings sellers and buyers into direct contact and
guarantee payments on a commission basis. Finally a buying house performs functions in seeking
out sellers to match buyer's particular needs.
Direct exporting: In this form a firm is directly involved in distributing and selling its own products to
the foreign markets. It is long term commitment to a particular foreign market with the firm choosing
local agents and distributors specific to that market. It allows the exporter to monitor developments
and competitions in the host market. It promotes interaction between producer and end user with
long term commitments such as providing after sales services to encourage repeat purchases.

Non- Equity based methods for internationalization

In this form of internationalization, the firm either sells technology or do business in the form of
contract, involving patents, trademarks and copyrights. It is often referred to as intellectual property
rights and form major part of international transactions. This non-equity method of
internationalization takes into forms of licensing, franchising or other types of contractual agreement.
(Wall and Rees, 2004)
Licensing: It is a permission granted by the licensor (proprietary owner) to a licensee (foreign party)
in the form of a contract to engage in an activity which is otherwise legally forbidden. The licensee
buys the right to exploit technology and products from the licensor, which is protected by the
intellectual property rights like patent, trademark or copyright. The licensor benefits from the
licensee's local knowledge and distribution channels; also it is a low cost strategy for
internationalization since the foreign entrant makes little or no resource commitment. This type of
agreement is mostly found in industries like R&D and other industries where fixed costs are high.
(Rugman and Hodgetts, 2003)
Franchising: In this form, the franchisee purchases the right to undertake business activity using the
franchisor's name or trademark rather than any patented technology. Many firms choose franchising
as a means of internationalizing as it establishes firm's business in short time with relatively little
direct investment and creates global image through standard marketing approach. It allows
franchiser a high degree of control and enables to understand the local taste and preferences in the
foreign country. For example, Coca-Cola's franchising arrangements with various partners in
different countries has given an advantage over its arch rival PepsiCo. Franchising also helps in
building up global brand which can be cultivated and standardised overtime. (Wall and Rees, 2004)
Other contractual modes of internationalization: Besides licensing and franchising, Management
contracting is another form of internationalization where a supplier in one country provides certain
ongoing management functions to a client in another country. Examples include technical service
agreements are provided across borders, as when a company outsources its operations to a foreign
firm. Contract-based partnerships are also formed between different nationalities in order to share
the cost of an investment. For example, pharmaceutical companies, automobile companies make
agreements between themselves to include cooperation, co-research and co-development activities.
(Wall and Rees, 2004)

Equity based methods for internationalization

When a firm physically invests in any another country, it is referred as Foreign Direct Investment
(FDI). The major advantage of this method is that the firm has greatest level of control over its
proprietary information and technology. A firm can use different ways to FDI by acquiring an existing
firm, creating equity joint ventures, merging or establishing a foreign operation by its own (green-field
investment). (De Propris, L., 2009)
Acquisition and Establishment of a firm by its own (green-field investment): Acquisition of an existing
foreign company has a number of advantages compared to green-field investment. For example, it
allows an immediate presence in the market which results in a fast returns on capital and ready
access to knowledge of the local market. Also, problems associated with green-field investments
such as cultural, legal and management issues are avoided.
Joint Ventures: It involves creating a new identity in which both the initiating partners take active
roles in formulating strategy and making decisions. It helps to share technologies and lower the
costs of high risks in various development projects. Joint Ventures make firm to gain economics of
scale and scope in value adding activities on a global basis. It creates a firm to secure access to
partner's technology and accumulate learning process which is used for more effective future
competition in the industry. Joint Ventures are common in high technology industries; it usually takes
one of the two forms: Specialized Joint Ventures and Shared value added Joint Ventures. (Wall and
Rees, 2004)
In Specialized Joint Ventures, each partner brings a specific competency like one firm might indulge
in a function of production and other does with marketing. For example organizations like JVC
(Japan) and Thomson (France) have been into specialized Joint Venture where JVC contributed the
specialized skills involved the manufacturing technologies needed to produce optical and compact
discs, semiconductors while Thomson contributed the specific marketing skills needed to compete in
European markets. In Shared value added Joint Ventures, both partners contributed to same
function or value added activity. For example in the case of Fuji-Xerox, it is a shared value added
Joint Venture with the design, production and marketing function all shared between two firms.
Merging with a firm: In this equity based method for internationalization, a firm uses FDI by merging
with a firm in the foreign country by buying its stake and holding appropriate ownership in the form of
equities. It helps to extend its business rapidly and can use its infrastructure and knowledge about
local market to improve its market share compared to its competitors.
In equity based methods for internationalization, creation of consortium is one of the oldest forms of
foreign direct investment. East Asian business models like Japanese Keiretsu and South Korean
chaebols are more successful in building cross industry consortia when compared to western
countries. Consortium of these types are sophisticated forms of strategic alliances designed to
maximise the benefits like risk sharing, cost reductions, economies of scale etc .They tend to have
long term and stable inter firm relationships based on mutual obligations in order to be forerunner of
technology based industries. The Japanese Keiretsu is a combination of 20-25 different industrial
companies centred on a large traditional company where transactions conducted through alliances
of affiliated companies. It is divided into two forms, horizontal keiretsu which consists of highly
diversified groups which are organized around core bank and general trading company (For
example, Mitsubishi, Mitsui and Sanwa). Vertical Keiretsu is organized around a large parent
company in a specific industry like Toshiba, Toyota and Sony etc. There are strong linkages
between these two forms and the organization is extremely complex and wide reaching. (De Propris,
L., 2009 and Wall and Rees, 2004)
The South Korean chaebols, usually dominated by the founding families are similar consortia which
are centred on a holding company. While a Keiretsu is financed by group banks and run by
professional managers, chaebols get their funding from governments and are managed by family
members. Examples include Samsung, Daewoo etc are industrialist families and the company keeps
the stock in family hands. (Wall and Rees, 2004)
When a firm becomes transnational, it has specific impacts on both host economies and home
economies. The impacts like transfer of resources, capital, technology, an increase of employment,
concerns about sovereignty and trade and balance of payments occur on the host economy. The
specific impacts on home economies will be like loss of technology, sovereignty, loss of employment
and tax avoidance.

Conclusion
In the process of globalisation, a firm operates their activities globally and the internationalisation
process is one of the primary sites of attention. The changes in the technology in the fields of
telecommunications and computer lessen the costs of cross border operations and encourage firms
to engage in transnational production activities. Internationalisation is a sequential process where
firms internalise their economic activities characterised in terms of aggressiveness and motivated by
either internal or external triggers or a combination of both. It is one of the key strategic decisions for
firms to maximise or at least sustain profits to survive in the world of uncertainty and complexity. The
global economic expansion has been largely facilitated by the growth of TNCs. They dominate world
trade and capital movement with turnover exceeding the GNP of some countries. These
corporations continue to grow and influence the landscape of the world economy.
The various motives for the firms internationalization process has been discussed and the ways in
which firm use FDI to engage in the transnational production makes it to compete globally. It seems
clear that theories of internationalization make the firm to take up decision to become transnational
with each specifying its implications and benefits. Dunning's eclectic paradigm emphasis on OLI
advantages, stating a firm will engage in international production when each of the following three
conditions is present.
The various theories explain the process of internationalization and when a firm decides to establish
a production facility in the foreign market it focuses mainly on the market size. Though firm's
motivation in transnational production is highly individual, still it is classified into Market Orientation
and Asset Orientation which states the conditions for the firm to become transnational corporation.
When firm decides to go international the various methods of internationalization like equity based,
non equity based, export based are used to engage its production activities in terms of a trade off
between ownership and market transactions.

2 The increasing needs for new customers globally together with limited resources in certain areas
necessitated some people's outsourcing of the deficit from other countries (Morgan &Katsikeas,
1998). Goods and services were imported for the purpose of covering the gap, those who supplies
goods and services were then regarded as exporters. Anciently it started as a barter trade through
exchange of goods until when the exchange medium emerged. Since then export transactions has
been increased tremendously due to increased level of technology. Before firms enter export
business they should have a better understanding of the objectives of participating in export
business as well as laying down strategies of export. This will mitigate risks associated with export
business.
The essay will describe the meaning of business internationalisation and gives the possible reasons
for a firm to decide to go international. Different types of internationalization will be discussed as well
as different modes of entry into foreign market. The essay will discuss different export strategies that
are available to a firm internationalising for the first time. The essay will also analyse advantages
and disadvantages as well as giving specific examples. The literature for the essay was obtained
from journals, papers, articles and various books on International business and international
marketing.

The Internationalisation Process

In order to better define the Internationalisation process, reference must be made to the Nordic
model (Johanson and Wiedershein-Paul, 1975; Johanson and Vahlme, 1977) which views
internatinalisation process as a linear, gradual sequential build up of events over time. Johanson and
Matttsson (1988) refined the model by identifying the following three processes of
internationalization. First, the internationalisation theory presumes that the Firm has built up a source
of competitive advantage in its local market. Failure to exploit efficiently this advantage within the
local market with no unnecessary transaction costs, the Firm will then seek out to exploit its sources
of advantage elsewhere outside that market. Second, the Uppsala internationalization model which
defines as a process of increased commitment to international sales and production. It perceives the
internationalization process as a sequential learning as the Firm passes through number of stages.
Finally, the network approach, the relationship between Firms is major focus of this approach. In
order to facilitate its operations, a Firm builds a number of relationships and networks. The quality of
established networks plays a vital role in the whole internationalization process.
Generally when the firm moves its operations beyond the domestic country's borders, it is performing
an internationalization process. There are theories that analyse factors that will enable the firm to be
successfully in the international market and stages the firm will pass through during the
internationalization process. DeoSharma and Blomstermo (2003) developed a model for firm
internationalisation called the Uppsala model. In this model the internationalization process is
considered to be progressively and sequentially developing. As the firm becomes more involved on
international markets, the internationalisation process develops. The Uppsala model assumes that
the firm's participation in international markets starts by the approach of using traditional export
methods to the markets closer to the domestic market. This is by considering the perspective of
cultural and geographical closeness. After developing intricate ways of operations, the firm can then
export to the more distant countries. Different kinds of methods can be used for penetrating the
foreign market. The main obstacle for a firm to be successful in the internationalization process is
the lack of knowledge as well as information about the foreign markets. Researching the
abnormalities of the targeted markets is the solution to this obstacle (Porter, 1990). The risk
associated with going to the foreign market is lowered as the firm gets more information about that
particular market.

Why firms internationalise

The main reason for firms to go international is obvious as it is for the decision to do any business
that is determination as well as commitment to succeed (Johnson & Turner, 2003). There are
several motivations that drive firms to go international; the motivations are of two types which are
proactive and reactive one.
Proactive type of motives normally originates from firm's planned vision. It represents stimulus to
attempt strategic transformation. In this type of motives firm's decision to go into international
business relies on firm's wishes, firms may decide not to go into foreign market. The following are
proactive reasons for a firm to decide to go international: the emergency of unique opportunity in a
foreign market; exploitation of firm's unique competence due to newly observed opportunity in a
foreign market; increasing firm's profitability in foreign market after observing opportunity to increase
firm's sales by selling in foreign market; enhancing the competitive advantage of the firm (Daniels et
al, 2009).
Reactive types of motives are those beyond firm's direct control. Firms that are influenced by
reactive motives are those responsive to environmental changes. In this type of motives firms have
to go international whether they want or not due to reactive reasons. The following reactive
motivations could force the firm to go international: firm receives unsolicited inquiries from customers
in foreign country; there is demand saturation in domestic market; your competitors are selling
abroad and you are aiming at coping with them; you want to spread the risk associated with your
business (Daniels et al, 2009); extending the life cycle of firm's product.
Generally proactive motives are initiated by the management of the firm based on perceived firm's
advantages on profit, technology, product and exclusive information about the market. Reactive
motives are the reaction of firm's management to environmental transformations. More often reactive
motives are over-production, decreasing of local sales and pressures from competitors. Firms that
enter into foreign markets by being mainly stimulated by proactive motivations are more likely to be
successfully in foreign market.

Modes of entry into international market

According to Anderson and Gatignon (1986) after the decision to enter into international market has
been made by the firm, choosing the modes of entry will follow at some stage. Wind and Perlmutter
(1977) suggested that choosing a perfect mode of entry plays a big role on firm's performance in
foreign market. There are varieties of ways firms can enter into the foreign markets. Three major
ways of entry are exporting directly, exporting indirectly and producing firm's products in foreign
country via contractual modes for example franchising and licensing or via direct investments in
foreign country for example joint ventures (Root, 1987).

Approaches to Exporting (Export Strategies)

Choice on how to export products has significant effect on firm's exporting plan as well as its
marketing strategies. According to Anderson and Coughlan (1987) export strategies can be grouped
into two categories which are Direct versus Indirect strategies and Going alone versus Co-operation
strategies

Going alone strategies (Direct Strategies)

Going alone strategies are strategies firms use when they decide to export products on its own.
Under this category all activities associated with exporting is done by the exporter. Going alone
strategies includes Foreign retailers, direct selling, selling using distributors, selling using agents,
selling using subsidiary and selling using Government agencies.
Using foreign retailers is a kind of strategy where a firm sells directly to retailers in the foreign
country. Firm's representatives will be travelling to make directly contact with retailers in that country,
though direct mailing, use of brochures and others might give better results.
Under direct selling strategy an exporting firm sells its products straightforwardly to end users
residing in the foreign country. In direct selling the export firm is responsible for collecting payment
and shipping of products.
Selling using a foreign distributor is a situation when a merchant in a foreign country purchases
products from the exporting firm at a considerable discount for the purpose of reselling them in order
to get profit. The distributor will be responsible for providing product's services and other supports
hence relieving the export firm from this kind of responsibilities. Foreign distributors resell the
products to retailers who sell them to end users. The contract between an exporting firm and a
distributor will be established whereby terms of association between them will be clearly stated.
Selling using sales representatives is a kind of strategy where sales representatives present the
product to prospective buyers. They normally work on commission basis; they presume no risk in
selling the products. Under this strategy there will be a contract between the two parties which will
define terms of engagement

.
Selling using Government agencies is observed in Zimbabwe where only the Grain Marketing Board
which is the Government agency has permission to export maize. Another example can be observed
in Tanzania where only the Tanzania Pyrethrum Board has permission to export Pyrethrum
products.

The co-operation strategies/ indirect export

strategies
With indirect export strategies, a firm uses an intermediary firm to find markets in foreign country.
The indirect export strategies include the use of Export Management Companies (EMCs), the use of
Export Trading Companies (ETCs) and the use of international trading consultants. These
intermediaries give exporters good access to entrenched knowledge and contacts. The co-operation
strategy is when two or more exporters join their power in conducting foreign business. Terpstra
(1987) suggested that when firms join their power they are most likely to be successfully in the world
market. The co-operation strategies include strategic alliance, joint venture, contract manufacturing,
licensing and franchising.
Strategic alliance co-operation strategy occurs when two or more firms join together their efforts in
weakening customers' bargaining power which results into improved profitability. In this strategy the
important feature is that each firm has to maintain the competitive advantage it posses. The
disadvantages associated with strategic alliance are conflict among partners which may cause
difficulties in managing the business and lack of synergy because of partners' maintenance of its
competitive advantage. Consequently, many strategic alliances are very successfully at the
beginning but ends up in collapsing for example British Petroleum and American Oil Company
(BPAMOCO); Honda and Rover. Another good example of strategic alliance strategy is Sony-
Ericsson who joined with the aim of maximizing their strategic advantages utilization in a foreign
market.
Joint venture is the situation when a foreign firm has a co-operation with a firm residing in the target
market country. In this strategy the foreign firm has sufficient equity to enable them to have a say in
managing the business though not absolutely. An example of a joint venture strategy was observed
in 1980 when TRW, a firm residing in United States of America based in data process maintenance
and Fujitsu Ltd., which was Japanese largest computer manufacturer, formed a joint venture. After
Fujitsu found that it was difficult to enter into competitive market in United States of America by itself,
it therefore formed a joint venture with TRW to acquire the marketing knowledge and assistance in
distribution of its products. Another successful joint venture example is the one between General
Motors and Toyota. They formed joint venture with the name NUMMI (New United Motor
Manufacturing, Inc.) which emerged as one of the successful business. The joint venture benefited
the partners in the way that it reduced substantially resources that each partner should provide, the
business benefited GM to replace its outdated model Chevette with cars manufactured by the joint
venture like Nova, Pontiac Vibe, Toyota Tacoma and Toyota Voltz, in this joint venture GM obtained
advantages by cutting the time requirements to half and by cutting the cost to 10% of the cost it
would have incurred if it did run the business alone. Since Toyota has high quality reputation, GM
uses it as an advantage together with low prices to attract new buyers. The joint venture benefited
Toyota in number of ways. Toyota had a vision of manufacturing cars in United States basing on
desirable economic consideration; therefore it took this joint venture advantageous for assessing its
vision and took it as a low risk to start a business in United States and use GM's well established
name to market its cars in United States. Apart from advantages, there are disadvantages
associated with the joint venture between GM and Toyota. It is the culture of Japanese companies to
re-invest the profits while United States firms prefers in paying dividends quarterly. Generally other
advantages firms can get when joint venture strategy is applied includes better market information
due to good feedback from the market, firms can have better management of production as well as
marketing functions and the expropriation danger will be reduced. The disadvantages associated
with joint venture strategy include the conflict of interest which might occur among partners,
proportionate sharing of profits.
Contract manufacturing is another co-operation strategy whereby a contract is made between a firm
residing in domestic targeted market and the firm which aims to export. The contract covers only the
manufacturing process of the products. The firm residing in the target market does all the
manufacturing activities while the whole marketing of the products is done by the firm that intended
to export. Advantages when contract manufacturing strategy is used include the protection of the
business from political uncertainties, the manufacturing risks will be reduced, and manufactured
products will be advertised similar to those locally manufactured. The disadvantages of applying this
strategy include difficulties in spotting appropriate manufacturer in the foreign market, the firm doing
manufacturing will receive all the manufacturing profits not the firm that do the exports and there
might be a problem on quality control because the exporting firm is not participating in the
manufacturing process.
Under licensing strategy, the firm intending to export (licensor) granted the patent rights, copyrights
and trade marks to another firm residing in the targeted market (licensee) (Daniels et al, 2009). The
licensee is responsible on manufacturing, marketing and selling the products in the domestic area.
The Licensee will be liable to pay the licensor a proportionate amount of sales volume as agreed.
Advantages of using this type of strategy include accessing the target market will be done easily
using the licensee, reduced costs of investment due to absence of variable costs, reduced risks of
investments and there will be low costs of administration. The disadvantages of using licensing are
the firm might be creating its own competitor; taxation of manufactured products on the basis of
loyalties leads to reduced profit and confidentiality of information is reduced. An example of licensing
strategy is when the Japanese car manufacturer Toyota granted a South African based company
South Africa Motors the rights to manufacture and sell Saloon cars with a Toyota brand name in
African market.
In franchising strategy, the exporter agreed with a firm in the target market that the exporter also
known as franchiser to be providing ingredients to the local firm also known as franchisee which will
be manufacturer or producer in the targeted local market. In this strategy the franchiser will also be
responsible for controlling standard packaging, marketing structure and management operations.
The franchiser will also allow its trademarks to be used in the business (Daniels et al, 2009). The
franchisee will be responsible for providing information about the target market, some capital for
business establishment and participation in management activities. Advantages associated with
using this type of strategy include the low cost of investment, the risk associated with the business is
low and the franchisor can easily get the information about the foreign market easily through the
franchisee. The disadvantages include the difficulties in controlling business confidentiality. A good
example of franchising is observed when Coca Cola Company provides the concentrates to a lot of
franchisee in many countries for producing soft drinks. The franchisee has no knowledge of
manufacturing the Coca cola concentrates. The chemical formula of manufacturing Coca cola
concentrates is a company's competitive advantage which is well patented.

Conclusion
Choosing an export strategy is inevitable for a firm with a desire of expanding its business abroad.
Depth understanding of business environment and market information are the key factors of success
in export business. For a firm to survive in export business, it must cope with the dynamism of that
business. Before the exporter chooses suitable export strategy, the objectives of the business must
be well known. Selecting a proper export strategy is very important for a better performance of the
business. Flip-flop type of strategy might cause the business to be unsuccessful (Porter, 1990). After
strategy selection it is important to review it constantly to make sure that it fits the business
environment.

What are the disadvantages of foreign direct investment to

host countries?
Despite the many advantages that foreign direct investment portends for the host countries,
many economists have criticized it as a measurement of economic growth. This is because
the foreign direct investment is only beneficial in the short term. After firms obtain their
initial investments and begin making profits, their original countries benefit more than the
host countries. The following are some of the disadvantageous effects that foreign direct
investment may have on the host countries:

Loss of taxes and revenues. Most host countries especially the developing ones tend to
implement policies that favor foreign investors including tax holidays. This is usually done
to incentivize the foreign investors and can result in loss of revenue for the host
countries. Additionally, in the long run the multinational corporations also benefit more
from their ventures in the host countries as opposed to the governments and economies.
Employment issues. Most multinational corporations tend to change the dynamics of the
labor sector in order to lower costs of production. This is often evident in measures such
automation which lead to loss of employment.
Kills local manufacturing industry. Since multinational corporations often have more
muscle and experience as compared to the local manufacturers, they often end up
edging out the nascent local companies. This hinders development of local
manufacturers.
Exploitation of local raw materials and laborers. Local raw materials are usually over
exploited by the foreign direct investors. This can lead to disadvantages for the host
countries as their resources can be fast depleted. Many multinational corporations have
also been accused of being exploitative towards local laborers. This reduces benefits for
the domestic workers.

Advantages

The possible benefits of a multinational investing in a country may include:

Improving the balance of payments - inward investment will usually help a country's
balance of payments situation. The investment itself will be a direct flow of capital into
the country and the investment is also likely to result in import substitution and export
promotion. Export promotion comes due to the multinational using their production
facility as a basis for exporting, while import substitution means that products previously
imported may now be bought domestically.
Providing employment - FDI will usually result in employment benefits for the host
country as most employees will be locally recruited. These benefits may be relatively
greater given that governments will usually try to attract firms to areas where there is
relatively high unemployment or a good labour supply.
 Source of tax revenue - profits of multinationals will be subject to local taxes in most
cases, which will provide a valuable source of revenue for the domestic government.
Technology transfer - multinationals will bring with them technology and production
methods that are probably new to the host country and a lot can therefore be learnt from
these techniques. Workers will be trained to use the new technology and production
techniques and domestic firms will see the benefits of the new technology. This process is
known as technology transfer.
Increasing choice - if the multinational manufactures for domestic markets as well as
for export, then the local population will gain form a wider choice of goods and services
and at a price possibly lower than imported substitutes.
National reputation - the presence of one multinational may improve the reputation of
the host country and other large corporations may follow suite and locate as well.

Disadvantages

The possible disadvantages of a multinational investing in a country may include:

Environmental impact - multinationals will want to produce in ways that are as efficient
and as cheap as possible and this may not always be the best environmental practice.
They will often lobby governments hard to try to ensure that they can benefit from
regulations being as lax as possible and given their economic importance to the host
country, this lobbying will often be quite effective.
Uncertainty - multinational firms are increasingly 'footloose'. This means that they can
move and change at very short notice and often will. This creates uncertainty for the host
country.
Increased competition - the impact the local industries can be severe, because the
presence of newly arrived multinationals increases the competition in the economy and
because multinationals should be able to produce at a lower cost.
Influence and political pressure - multinational investment can be very important to a
country and this will often give them a disproportionate influence over government and
other organisations in the host country. Given their economic importance, governments
will often agree to changes that may not be beneficial for the long-term welfare of their
people.
Transfer pricing - multinationals will always aim to reduce their tax liability to a
minimum. One way of doing this is through transfer pricing. The aim of this is to reduce
their tax liability in countries with high tax rates and increase them in the countries with
low tax rates. They can do this by transferring components and part-finished goods
between their operations in different countries at differing prices. Where the tax liability
is high, they transfer the goods at a relatively high price to make the costs appear
 higher. This is then recouped in the lower tax country by transferring the goods at a
relatively lower price. This will reduce their overall tax bill.
Low-skilled employment - the jobs created in the local environment may be low-skilled
with the multinational employing expatriate workers for the more senior and skilled roles.
Health and safety - multinationals have been accused of cutting corners on health and
safety in countries where regulation and laws are not as rigorous.
Export of Profits - large multinational are likely to repatriate profits back to their 'home
country', leaving little financial benefits for the host country.
Cultural and social impact - large numbers of foreign businesses can dilute local
customs and traditional cultures. For example, the sociologist George Ritzer coined the
term McDonaldization to describe the process by which more and more sectors of
American society as well as of the rest of the world take on the characteristics of a fast-
food restaurant, such as increasing standardisation and the movement away from
traditional business approaches.
Globalisation refers to the process of interconnection among firms, people and governments
of different countries (Lechner, 2009); economies from every country will become closer and
interrelated through globalisation as foreign countries are a source of both production and
sales for domestic companies. It is obvious that the globalisation has linked with international
business as international business consists of all commercial transactions that take place
between two or more countries such as sales, investments and transportation.
Globalisation is very common in todays world. It enables people to travel around the world
by improving the transportation and it also helps people to do business in terms of purchase
or sell products and services as well as pursuit of business leads. Moreover, globalisation
also allows the international communication by improving the technology and it helps
businessman to communicate easier with their business partner from other countries.
Globalisation brings both positive and negative impacts on international business. There are
rise in competition and rise in investment levels; whereas, the negative impacts on
international business are the culture effect and also create more social problems - child
labour and slavery as well as environmental issues.
Firstly, globalisation leads to rise in competition. This is because when companies expand
their business to different countries this creates competition for domestic businesses in terms
of the price, cost and quality of goods and services. This type of competition act as an
opportunity for domestic companies to manufacture good quality of products and services
and work effectively and efficiently in order to conduct business on a global scale.
This will not only benefit the international business by increasing its market share but will
also benefit the host country (foreign country where the company invests) as now people will
have variety of products and services of good quality and affordable price due to rising
competition. The domestic market of the country will become strong due to foreign company
establishing in the country and contribute to economies GDP rate and growth.
One of the examples of company that establishes and contributes to economies GDP rate
and growth is General Motors (GM). GM is a multinational company which produces vehicles
in United States. They had expanded their business in more than 120 countries including
China (General Motors, 2015). When GM expanded its business to China in 2010 and its
sales had grown approximately 50 percent in China and 15 percent in United States
(Ketchen & Short, 2012).
Secondly, globalisation also affects the investment level in both host countries and home
countries. Foreign Direct Investment which is also known as FDI refers to the long term
investment owned by investors which can show the flow of capital between countries
 (Economic Online Ltd, 2015). According to Graham & Spaulding (2005), the definition of FDI
refers to physical investment that made by a firm to another country for building factory
purpose. FDI of both host countries and home countries will increase by expanding
businesses to other country through globalisation.
FDI gives positive effects to host countries in several ways such as technological effect,
employment effect and income effect. With FDI, people able to conduct business with new
technologies and management skills; this is because FDI enables technology to transfer from
developed countries to developing countries. Besides, training will be provided to the
domestic workers for operating business with the new technology which will improve their
management skills. Moreover, FDI also contribute in the income of host country as earning of
FDI will be counted in the corporate tax (Loungani & Razin, 2001).
On the other hand, FDI will benefit the home countries by increasing capital in the balance of
payment account. Expanding business from one country to other countries, the revenue from
the foreign direct investment of the firm will increase the capital of the home country (Hill,
2001). For example, Toyota expands their business to Malaysia and the profit that Toyota
gains from the foreign direct investment in Malaysia will send back to Japan as a capital in
balance of payment.
However, globalisation also views as threats for international business. One of the reasons is
because globalisation enables people to share their culture. It is crucial for international
business to understand the culture of other countries so that they can increase the
productivity of their business. However, it is very difficult for international business to
understand every culture of different countries as it is too broad; for instance, in Malaysia,
besides of Malaysian culture, there are also other subcultures as Malaysia have many
ethics.
Usually, people are used to their own cultures yet some of them not able to accept others
culture. One of the examples is when a Swedish company dealing with suppliers in Brazil,
the Swedish company is unsatisfied with the attitude of suppliers in Brazil as they always
delay the delivery which is urgent for the company; at the end, the Swedish company had no
choice, they have to give penalty to the supplier in Brazil so that they can be more punctual
(Daeri, et al., 2008).
Another difficulty that faced by global business is the communication style. Every country has
different style of communication either direct or indirect (Salacuse, 2005). Scandinavia and
United Kingdom is one of the examples that show different communication style. The
communication style in Scandinavia is direct which means they talk openly and straight to
the point in the business whereas the communication style in United Kingdom is indirect
where they respect their business partners and they dont reject obviously. Therefore, it is
difficult for businessman to identify the disagreement among British partners.
Moreover, globalisation also causes an increase in social problems such as child labour and
environment issues. The main purpose of doing business is to gain high profit, some of the
businessman doesnt care whether it is ethical or not. In order to save costs, some of the
international businesses will recruit young children as labour and slaves (Pillai, 2011). Child
labour often occurs in countries with high poverty rates due to the bad implementation of
child labour laws (Hunt, 2013).
For example, there are many cases of children trafficking to work in the cocoa farms in order
to help support family in the chocolate industry of Western Africa. Some of them even sell to
the farm owners or traffickers to work in a bad environment which may causes disease
among the children (Mills, 2014).
Furthermore, international businesses also cause the environmental issues in the globe such
as air pollution and water pollution. International businesses increase the world carbon
dioxide emission. The demand for car industry around the globe increased as people want
vehicles for transportation purposes (Lacey, 2011). When demand for car industry is high,
international business will manufacture vehicles in order to fulfill the customer needs; the
 more vehicles being used in the road, the higher the level of carbon dioxide emission. Rise of
the world carbon dioxide emissions will lead to the air pollution.
Other than that, extracting the rare-earth by international business also causes serious
environmental issue. The process of extracting the rare-earth will cause water pollution and
also radioactive in that area as the water will contain all types of toxic chemicals which may
cause cancers. For example, the town in Inner Mongolia named Baotou, used to have crops
and plantation but when the producer of rare-earth Baotou Iron and Steel Company starts to
produce rare-earth at that place, plants unable to grow due to the radioactive and water
pollution (Guardian News and Media Limited, 2012).
In conclusion, globalisation can be seen as opportunities as well as threats for the
international business. International business able to expand their business in other
countries around the world meantime they are helping foreign countries to improve their
living standard by providing variety choices and enhancing the quality of goods and services.
Moreover, international business also able contributes to home country by increasing the
profit of inflow of foreign direct investment through globalisation. On the other hand,
globalisation also causes the international business to face cultures issues in term of
attitudes, personal styles and communications. Besides that, social problems are also one of
the threats for international business. In order to gain higher profit, some of the international
businesses will conduct illegal activities such as recruiting child labour or slavery to minimize
costs. Not only that, international business also pollute the environment badly especially
rare-earth company.

The Benefits And Consequences Of

Globalization
Globalization gain momentum in the 1980s because of technological adavancement,human
innovation and rapid growthacross global markets.Growth in global markets creates an opportunity
towards more diversified,larger markets around the world ,which provides an access to more
capital,fileds of economics, cheaper imports and technology. It refers to economic integration of
national economies around the globe. It deeply connected with world economic post-World war 2
era, in the areas of International business (IB) it deserves more attention on Multinational
corporations (MNC).Companies started think more differently about purpose and social impact of
their activities on poor countries.
People can't see Globalization as positive development, we have witnessed anti-globalization
campaigns. It have significant impact on developed countries and less developed countries ,some
people saw its power with high end technology, where as others opposed it for social miseries
,economic unjust prevailing society .From an optimistic view globalization brings wealth,oppurtunities
across the world where as global markets can't give an assurance of distribution of market efficiency
across all.
Source :IMF

2 DEFINITION
Scholte (2000:46-61) defined Globalization as :
"Globalization is the progressive eroding of the relevance of territorial bases for social, economic,
and political activities, processes, and relations"
In order to define globalization, Scholate (2000) suggests analysis of social connections existence,
these social connection personal, family or economic relations which took place within certain
geographic/nation location. This Social interaction between nations weakened continuously mainly
due to developments in technological and political persepectives.Modern communication technology
created an opportunity to interact with people irrespective of geographical location between them, it
allows people to easily interact with others on other side of globe ,we do business with our clients
across the globe ,not necessarily same place where we are from due to this territorial distance plays
less role today. Liberalization eroded national borders and integrated all nations based on culture,
technology, ideas, standards etc.With this social connections no longer required geographical
territory to take place and not restricted by territorial borders.

2.1 Examples for globalization based on

this definition
2.1.1 Communications perspective
Due to high end communication technologies ,many of world people witnessed the collapse of World
Trade centre collapse on 11 September,2001 live on TV, Regardless of geographical location billion
of people saw it.(i.e. whether they are in India,Manhattan,Aberdeen).

2.1.2 Products perspective

Certain global products available all the over the world instead of going to certain geographical
locate. Ex: we can buy Rolex watch wherever we are in the world.

2.1.3 Financial systems perspective

We are no longer to look about where our banks stores money, you can withdraw money all over the
world and pay bills at home via internet banking by sits in India.

2.1.4 Cultural perspective

Corporate more engage with overseas markets, which come across with diversified ethical
demands. Corporations may face issues with moral values as soon as they enter into foreign
markets, those values are granted in their home markets.
Example: Sacking employees is unethical in China during downturns than Europe.
There is still close connection with local cultures, moral values and certain geographical region
Example: Europe disapproves of capital punishments where as it is acceptable in America.
Globalization makes regions together and encourages uniform global culture. On the other hand in
eroding geographical distances it reveals economic, political and cultural differences
2.1.5 Social perspective
Change in life style, more usage of Internet increased awareness of consumers across the globe.
Globalization answer this convergence in consumer needs through industrialization of
socities,Becuase of this similar consumer needs products like mobile phones,vcr's,jeas,fast food are
products for which there is no national differences.
Source: Business Ethics by Andrew crane & Drik Matten

3 Benefits of globalization
Globalization benefits assessed from business, competitive and social-economical view.
Benefits of globalization can be assessed from political ,technology, business view
Political factors like Trade liberalization and investments are key for globalization .Free trade among
nations is the main development from political view. Organizations like WTO and EC formed for
reducing tariffs concessions to create liberalization of trade.

3.1 International trade

Expansion of International trade by reducing import tariffs by removing trade barriers,which results
wide ranges of goods at low price in market for consumers. Exports indicate social economic growth
for developing nations which results more job creations and industry growth. Trade enhances
national competitiveness, more foreign investments, which results more employment for local ,new
technology innovations create more productivity.
Restrictions on international trade engage protectionism ex: Increase in tariff rates, effects
consumers, less goods availability, inefficiency by reduction in competition and resource limit to
certain sectors. In 1980's many developing nations follow protectionism which creates poor
economic performance and various economic crisis. By 1990's developing countries in Asia and
eastern countries came out from protectionism and intergared into global trading system.

3.2 Globalized financial markets

Due to globalized world financial markets ,increased and global capital flows .During 1980-95 global
capital flows between 2-6% of world GDP which increased to 14.8% by 2006.more than triple since
1995.Due to more capital flows, more foreign investments and more international risk sharing.
Experts sees it as growth and stability for economy where as others see as dangerous because it
causes volatile of growing middle income economies.

3.3 Technology: Transport, communication

and economies
Technology progress lowered cost of transportation, communication and unit cost of production
through localization of productive capacities and sourcing in low cost economies.Air, rail and road
transport reduces the cost of shipping goods from country to country.
Development of communication has reduced the cost of information exchange between business
units around the globe.
Production in world class factories benefit from huge economies of scale results integration of
production systems. Companies able to produce or services from low cost countries either by
purchasing locally or setting own operations for higher growth and productivity
Technology advancement creates more opportunities like new goods and services ,Increase
productivity,Freezing out competitors, licensing,cost reduction and global organizations.
3.3.1 New goods and services: Companies can improve goods and revive them into penetrate into
global markets
Ex: Danish company Lego in creating new technology produced toy building brick.This brick sold
with electronic technology, allows customers to create robots.
3.3.2 Reducing costs: Companies benefit from technology by reducing office rock space and
expenditure on infrastructure.
Ex: British telecom Outsourcing its operations to India to reduce back end office costs.
3.3.3 Global organizations: technology helps companies to expand global and integrate economic
activity across many locations in globe with many subsidiaries create opportunity for more
employment across globe
Ex: Unilever presence in 150 countries and employed around one million people across 100
countries.
Technology in Information industry creates millions of jobs across globe with IT companies can
compete across globally irrespective of location whether it is Bangalore, Japan or UK.
Ex: GE presence across globe ,work will complete irrespective of location with less costs. As more
profits gain overseas more earning in markets and more wealth to home nation(US).
As per economic policy indutry,Washington even though productivity and profits increases salaries
are not grown But globalization helps income increasse,living standard increase for billions of people
across the world.
Ex: US technology outsourcing to India.
Public perception in USA about outsourcing fears about jobs by exporting jobs to low-cost
economies. As per Mckinsy survey every dollar spend on outsourcing to India, benefits $1.14 to US
economy where as $0.33 for India. Unfortunately large sectors of people have different views
3.4 Business
Due to globalization of consumers, multination corporations expanding over globe with
standardisation of products and practices with high level of integration and coordination.
3.4.1 Cost Benefits
Product standardisation, company can able to set up their own network based on locations and
increased hand over suppliers of raw materials, services due to Economies of scale
Example: By introducing pan -European manufacturing system,Otis able to lower cost of elevators
by 30%
3.4.2 Learning benefits
Sharing of best practices and people, transfer of information eliminates cost of reinvention and
facilitates accumulation of knowledge and previous experiences.
Ex: Unilever implemented an innovation method to produce and market ice creams.
This learning experience used for other regions ,giving to the company a first mover advantages.
3.4.3 Timing benefits
This results with co-ordinated approach in product launching in early stages of product life cycle.
When industry globalised, waiting too much time for product launch inevitable when product has
short life cycle
Ex: Windows 2000 product launch by Microsoft at same time everywhere in the world
3.4.4 Arbitrage benefits
Company operate globally can gain by using resources in one country for benefit of another country
subsidiary .Competitive advantage gain by engage in price war in one country for mobilising
resources of competitors, deprive of cash flow .
Ex: Goodyear price war with Michelin in 1970's
Due to variation in Cultural factors like tastes, behaviour , Commercial factors like distribution,
customisation, technical factors like transportation and social presence, legal factors like national
security and regulation from country to country limit globalization benefits .By adopting right market
strategy mix companies can gain competitive advantage across the globe.
4 Consequences of globalization
Erosion of geographical boundaries for economical purposes results in serious consequences.
Standards-lowering in competition -"race to bottom" results due to cost advantages in emerging
markets, labour wages.
4.1 Standards-lowering competition, income in equalities, low wages
Many national economies gains from trade and specialization advantages, Inorder to reduce
efficiency of global production, most of world production shifts emerging nations with production less
costs. As results, the increase in externalized costs, the positive correlation between Gross domestic
product (GDP) growth and welfare disappears or even become more worse.
Milanovic (2003) present an evidence for increase in inequality, he argued that impact on less
developed countries is more: less developed economies suffering from financial crisis, some of them
facing with due debts, per capita GDP not increased in Africa.
Distribution of income not happen properly in the economic nations ,Capital income will increase and
labour income will decrease in nation that specialize in capital-intensive goods where as labour
income will increase in nation which produce labour-intensive goods.
In terms of labour markets,wood(1998) shows that there is gap between skilled and unskilled labour
in terms of wages and unempolyment.skilled labour in less developed countries will rise but demand
for less skilled workers will fall due to wage inequality. As soon as people earn higher income levels,
social standards will increase and cost of adjusting will increase from industrial nations to others
In Industrialized nations,high-skilled workers gain more profit and strongly represented where as
low-skilled workers are poorly positioned. Due to this lower social standards have resulted and
competition-induced "race to the bottom",but this is less consequence of globalization than catching
up process across the globe.
4.2 Intense National specialization and loss of National Identity
With deregulation in capital markets and flexible exchange rates ,capital flows become more and
more global,this leads to increase in capital mobility across the globe More increases in capital
inflows due to financial liberalization across national boundaries,as per Singh(2003) evidence this
liberalization has made more vulnerable and suspetcbale of financial crisis. free trade and free
capital movements increases pressure on specialization. Which results in narrowing ways to earn
and increases dependency on other nations?
Example: In Uruguay, everyone should be either cowboy or Sheppard or anyone who wants a
musician or pilot should have to emigrate
Narrowing ways to earn is welfare loss which is uncounted by trade theorists. Globalization assumes
narrowing ways of occupational choices with in a nation is costless; both of these assumptions are
false.Due to convergence of many cultures across the globe posses, national identity will be lost.
4.3 Intellectual property rights
Knowledge should be freely moved and shared ,With sharing of knowledge it will be multiplied .But
trade theorists believes in trade related intellectual property rights. This creates private corporations
monopoly ownership.
Once knowledge exists, its proper price is marginal opportunity cost of sharing it because nothing is
lost by sharing knowledge. where as economists argues monopoly is unjust because it creates
artificial scarcity.IWth sharing knowledge increase in productivity of labour,capital,resources.Futrhet
international development happen by freely shared knowledge and far less foreign investments.
Ex: Infringements of intellectual property rights in software industry, 90% piracy in Vietnam( source:
business software alliance)
4.4 Increased tolerance of mergers and monopoly power
Global competitive advantages create an opportunity for corporate mergers and monopoly in the
national markets.
In order to corporations compete globally, government lose strength to regulate corporate capital
and maintain competitiveness in markets because of that corporate become winners and market
principles are loser.
4.5 Environmental damage
The environmentalist concern about globalization, It encourage mass consumption and large-scale
economic activities thus excessive exploitation of renewable and non-renewable
resources(Helleiner,1996) and exploitation of other resources like water,minerals,raw-
materials(Hogvelt,1982,p.130-31).As a result there faster degradation of environment across the
globe. Since developing nations supplying more raw materials, greater degradation takes place in
these regions.

Globalization in short, points to the whole effort towards making the world global community as a
one village. Goods that were only found in western countries can now be found across the globe.
Now under developed areas can enjoy the benefits of scientific advances and industrial progress
available in developed countries for the improvement and growth of their areas.
Because of globalization the economies of the world are being increasingly integrated, example
mobile phones and internet have brought people closer. The world is becoming a smaller place.
Work can be outsourced to any part of the world that has an internet connection because of
improvements in traffic infrastructure one is able to reach one's destination in a short time.
Globalization can also be defined as an ongoing process by which regional economies, societies
and cultures have become integrated through a globe-spanning network of communication and
trade. The process of globalization includes a number of factors which are rapid technology
developments that make global communications possible, political developments such as the fall of
communism, and transportation developments that make traveling faster and more frequent. These
produce greater development opportunities for companies with the opening up of additional markets,
allow greater customer harmonization as a result of the increase in shared cultural values, and
provide a superior competitive position with lower operating costs in other countries and access to
new raw materials, resources, and investment opportunities.
Globalization through global communications, global markets and global production have promoted
and facilitated by a fourth area of global activity in relation to money. For example, the American
dollar, the Japanese yen, Euro and other major national currencies circulate globally. They are being
used anywhere on earth and moving electronically and via air transport anywhere in effectively no
time. Most bankcards can extract cash in local currency from the thousands of automated teller
machines (ATMs) across the world. Also credit cards like Visa, MasterCard and American Express
can be used for payments in almost every country in the globe (Scholte J.A., 2000).
People can move from one country to another, trade restrictions are reducing, domestic markets are
opening up for foreign investments, telecommunications are better established and the countries that
are leading the innovations are passing on their technologies to other countries in need (Kulkami A.,
2009).

EFFECTS OF GLOBALIZATION ON
BUSINESS MANAGEMENT IN DEVELOPED
COUNTRIES.
Globalization has brought benefits in developed countries as well as negative effects. The positive
effects include a number of factors which are education, trade, technology, competition, investments
and capital flows, employment, culture and organization structure.

POSITIVE EFFECTS
It would be rather difficult to discuss the extent of the positives that globalization has had on the
world at large. But still, here are some of the positive effects of globalization and the positive impacts
they have had on so many demographic segments of society.

Global market.
Most successful emerging markets in developed countries are a result of privatization of state owned
industries. In order for these industries to increase consumer demand many of them are attempting
to expand and extend their value chain to an international level. The impact of globalization on
business management is seen by the sudden increase of number of transactions across the borders.
In protecting yields and maintaining competitiveness, businesses are continuing to develop a wide
range of their footprint as it lowers cost and enjoys economies of scale (Shah A.,2009)
Multinational corporations is a result of globalization. They occupy a central role within the process
of globalization as evidenced through global foreign direct investment inflows. Their concentrations
within Europe in western economies has led to size constraints, therefore there is a need for new
geographical areas to operate whereby they will face a lot of competition in the market. Through this
they will enlarge their market and enjoy economies of scale as globalization facilitates time space
compression, economies compete at all levels including that of attracting investors (Smith V.A and
Omar M.,2005).

Cross-cultural management
Globalization tend to be the realm of elite because in many parts of the world they are the only
people who are affluent enough to buy many of the products available in the global marketplace.
Highly educated and wealthy people from different backgrounds interact within a westernized milieu.
Western styles, since are symbols of affluence and power, the elite often embraces western styles of
products and pattern of behavior in order to impress others. Today Western culture and patterns of
behavior and language are staples of international business (Asgary N. and Walle A.H.,2002).
United states seems to have powerful impact upon many other countries and societies. The world
today has a popular cultural force. The popular consumer culture of the economically dominant West
is relentlessly and inevitably transforming other regions, cultures, nations and societies. In addition,
such perspective imply that technological change, mass media, and consumer oriented marketing
campaigns work in tandem to remake whatever they touch in their own image. Even attitudes and
ideas about society, religion and technology are transformed by cultural diffusion brought by
globalization. Example, in America McDonalds represent fast, cheap and convenient food while it is
not the same worldwide. It's of high price in other countries like China and Russia where it involves
cultural experience (Walle A.H, 2002)

Foreign trade
Globalization has created and expanded foreign trade in the world. Things that were only found in
developed countries can now be found in other countries across the world. People can now get
whatever they want and from any country. Through this developed countries can export their goods
to other countries. Countries do business through international trade, whereby they import and
export goods across the global. These countries which export goods get comparative advantages.
Organizations have been established with a view to control and regulate the trade activities of the
countries in the world so to have fair trade. World trade organizations emerged as a powerful
international organization capable effectively influencing individual governments to follow
international trade rules, copyrights, policies on subsidies, taxes and tariffs. Nations can not break
rules without facing economic consequences (Piaseck R. and Wolnicki M., 2004) .
The number of nations that are dependent on trade, foreign capital, and the world financial markets
increased greatly. Countries engaged in foreign trade enjoy comparative advantage. The post
Recardian trade theories predicted that specialization in labor and capital intensive goods would
bridge enormous wage gaps between the poor and the rich countries, that is the developing and
developed countries, sparing the latter from massive labor immigration (Gerber J., 2002).

Resource Imperative
Developed countries need natural and human resources of the developing countries while
developing countries need capital, technology and brainpower of the wealthier countries. Developed
countries' economies are increasingly dependent on the natural and human resources of the
developing nations. Growing interdependence of nations and their activities on one another fostered
by the depletion of natural resources; as well as overpopulation (Harris P.R.,2002).
Foreign investment
One of the most visible positive effects of globalization in India is the flow of foreign capital. A lot of
companies have directly invested in India, by starting production units in India, but what we also
need to see is the amount of Foreign Investment Inflow that flows into the developing countries.
Indian companies which have been performing well, both in India and off the shores, will attract a lot
of foreign investment, and thus pushes up the reserve of foreign exchange available in India. This is
also one of the positive effects of globalization in US and other developed countries as developing
countries give them a good investment proposition.
Managers' objectives might not be the same with those of stockholders in some situations. The more
complex the corporation the more difficult it is for shareholders to monitor management's actions
whereby it provides the managers more freedom to act in their own self interest at the expense of
shareholders. Multinational firms are more complex than national firms. Managers might favor
international diversification because it reduces firm specific risk or adds to their prestige. These
goals might be of little interest to shareholders. This divergence of interests between shareholders
and managers, might reduce the value of multinationals relative to domestic firms (Saudagaran
S.M.,2002)

Competition
One of the most visible positive effects of globalization is the improved quality of products due to
globe competition. Customer service and the 'customer is the king' approaches to production have
led to improved quality of products and services. As the domestic companies have to fight out
foreign competition, they are compelled to raise their standards and customer satisfaction levels in
order to survive in the market. Besides, when a global brand enters a new country, it comes in riding
on some goodwill, which it has to live up to. This creates competition in the market and a survival of
the fittest situation.

Culture
The positive effects of globalization on culture are many! Not all good practices were born in one
civilization. The world that we live in today is a result of several cultures coming together. People of
one culture, if receptive, tend to see the flaws in their culture and pick up the culture which is more
correct or in tune with the times. Societies have become larger as they have welcomed people of
other civilizations and backgrounds and created a whole new culture of their own. Cooking styles,
languages and customs have spread all due to globalization. The same can be said about movies,
musical styles and other art forms. They too have moved from one country to another, leaving an
impression on a culture which has adopted them.

Legal Effects
Increased media coverage draws the attention of the world to human rights violations. This leads to
improvement in human rights. Global economic growth does not necessarily make people happier,
worldwide free trade, should also benefit humanity as well as protect nature, not just reward
managers and stockholders. Those who would be authentic leaders need to address inequalities.
Globalization should promote openness and information along with exchange with greater
democracy and prosperity (Harris P.R., 2002).
Gone are the days where the limited jurisdiction became a hindrance in the prosecution of criminals.
These days due to international courts of justice, these criminals can no longer seek asylum in a
foreign country, but will be brought forward and there will be justice. Due to globalization, there is
also an understanding between the security agencies and the police of two or more different
countries who will come together to curbglobal terrorism. Hence, it is now possible to catch the
perpetrators of crime irrespective of which country they choose to hide in. This is undoubtedly one of
the greatest positive effects of globalization on society.

NEGATIVE EFFECTS
Globalization also have its side effects to the developed nations. These include some factors which
are jobs insecurity, fluctuation in prices, terrorism, fluctuation in currency, capital flows and so on.

JOBS INSECURITY.
In developed countries people have jobs insecurity. People are losing their jobs. Developed nations
have outsourced manufacturing and white collar jobs. That means less jobs for their people. This is
because the manufacturing work is outsourced to countries where the costs of manufacturing goods
and wages are lower than in their countries. They have outsourced to developing countries like
China and India. Most people like accountants, programmers, editors and scientists have lost jobs
due to outsourcing to cheaper locations like India.
Globalization has led to exploitation of labor. Safety standards are ignored to produce cheap goods.
"In practice, however, the recent experience in Latin America has been that many such open-handed
multinationals moved their operations to, for example, China or South East Asia because of cost and
market considerations"(Piasecki R. and Wolnicki M., 2004).

FLUCTUATION IN PRICES.
Globalization has led to fluctuation in price. Due to increase in competition, developed countries are
forced to lower down their prices for their products, this is because other countries like China
produce goods at a lower cost that makes goods to be cheaper than the ones produced in
developed countries. So, in order for the developed countries to maintain their customers they are
forced to reduce prices of their goods. This is a disadvantage to them because it reduces the ability
to sustain social welfare in their countries.

EFFECTS OF GLOBALIZATION ON
BUSINESS MANAGEMENT IN DEVELOPING
COUNTRIES.
POSITIVE EFFECTS.
"I know that globalization has also created many negative effects, but I believe it's always better to
look to the future with optimism and hope. Tomorrow, hopefully, we will be able to minimize or even
eradicate the evil forces that give globalization a bad name. Thus we will be able to move forward
with peace and harmony"(Kulkami A., 2009)

Poverty alleviation
As far as poverty reduction is concerned, globalization played a role in poverty reduction in
developing countries. In deed most developed countries experienced reduction in poverty in the
proportion of their living below the poverty line, including fast developing countries like China, India,
Vietnam. While other countries like Sub-Saharan Africa registered an opposite trend (Lee E., 2006).
Employment situation.
Through globalization, people from different countries are provided with jobs opportunities within the
global. It has created the concept of outsourcing. Developed countries prefer to provide work to
developing countries where costs are cheap. Work such as customer support, software
development, accounting, marketing and insurance are given to developing countries like India.
Therefore the country that is given the work enjoys by getting jobs. It has given an opportunity to
invest in the emerging markets and tap up the talent which is available there. In developing
countries, there is often a lack of capital which hinders the growth of domestic companies and
hence, employment. In such cases, due to global nature of the businesses, people of developing
countries too can obtain gainful employment opportunities (Pillai P.,2008).

Technology
This is a powerful force that drives the world toward a converging commonality. It has proletarianized
communication, transport, and travel. People from different places everywhere wants all the things
they have heard about, seen, or experienced through technology. Organizations through its
managements can obtain knowledge from different places in the world that can be used in the
organization.
Television and medias played a big role in influencing the perception of the world, from a relatively
small national unity and reality, into a global market and international concerns. As multinationals
establish subsidiaries in new locations, they transfer know how from the parent to the local
operation. Knowledge flows from one unit to another as a whole organization benefits from
development activity. One of the ways that organizations use in knowledge transfer is the movement
of personnel, which takes place within multinationals. This build up a bank of knowledge about
working in different situations with people from different cultures and this represents a stock of
knowledge that could be developed and used to benefit the organization (Kamoche, 1997).

Education.
Globalization from the point of view has positive effects as well as negative effects. It has increased
the access of higher education example universities and reducing the knowledge gap in developing
countries, it equally has negative aspects which can seriously threaten universities in those
countries. From point of view it has brought more positive effects to developing countries through
increasing access to higher learning institutions. Today you can move in the search of the best
educational facilities in the world including developing countries without any hindrance. This is due to
increased output from secondary schools, greater participation of women in higher education, a
growing private sector demand for graduates, and the exorbitant costs of acquiring education in
foreign countries, especially those in the nort (Mohamedbhai G., 2002).

Foreign trade
Despite having negative effects of globalization, it has a good side too. One of the most significant
effect it has brought to developing countries is Trade. Before people used to exchange goods for
goods or services for services but now people can trade goods for money. This is mostly through
International trade whereby people exports and imports goods within countries. Globalization has led
to reduction of costs in trade within the globe. It has led to reduction of tax of importation of goods.
According to economic theory, foreign trade is in principle, beneficial to any country engaged. The
international division of labor allocates the resources more efficient whereby it increases the
economic welfare of all countries engaged in foreign trade in long run (Kaitilia V and Kotilainen M.,
2002).
Foreign investment
Foreign investment is a direct result of globalization. Foreign investment is always welcomed as it
provides resources, capital and technology to a country that will support economic development of
the host country. This improves employment as in direct and indirectly. Increases exports to a
country and thereby improves the current account and therefore will help to the repayment of foreign
debt. This however has some criticisms for leading to too much foreign control (Kaitilia V and
Kotilainen M., 2002).
Developing countries can use general or specific industrial and trade policies to be more or less
welcoming to foreign direct investments, capital and foreign tourist services. They can directly and
indirectly shape their participation in the economic activities in the globe (Piasecki R. and Wolnicki
M., 2004).

Market sector

Globalization of markets in developing countries is growing so fast. The emergence of global

markets for standardized consumer products on a previously unimagined scale of magnitude. This
brought benefits which are economies of scale in production, reduced world prices, distribution,
marketing and management (Levitt T., 1983)
IKEA is one of the company that is growing fast in developed countries. Its market is increasing
within the global. It has become the world's largest home furnishings retailer. The managers are
facing a lot of challenges in managing them (Nanda A., 1990). IKEA can now be found in so many
places in the world example Malaysia.

NEGATIVE EFFECTS
Globalization is a tool that benefits all sections of mankind. We cannot ignore the negative effects it
has in developing world.

Unemployment
Globalization is a blame to world's unemployment situation though it brought some jobs
opportunities. Despite the fact that it brought jobs opportunities to the global but it is still a blame to
the current situation. "It 's true that global economic integration and increased travel have resulted in
increased competitiveness at the national and enterprise levels, forcing producers to find ways to cut
costs, improve efficiency, and raise productivity"(Kigundu M.N.,2002).
"The most important factor to determine the level of employment during 1980-2000 was national or
regional macroeconomic policies which were implemented and sustained. In addition those countries
with liberal macroeconomic reforms, pursued politics promoting flexible labor markets and
employment practices, decentralized industrial relations systems, and judicious enforcement of
labor. On the other hand, countries with employment laws, regulations, and policies experienced
higher level of employment because they were not able to attract and retain as many new
jobs"(Kiggundu M.N.,2002).
For example ,Indonesia faced unemployment and poverty that grew to levels not experienced in two
decades, health conditions worsened, and the natural environment degraded (Piasecki R and
Wolnicki M.,2004)
Spread of fast foods chain.
Fast foods chain is growing very fast. But some of the most rapid growth is occurring in the
developing countries, where it's real changing the way people eat. "Kentucky Fried Chicken(KFC) is
the largest, fastest growing, and highest potential units" (Bartlett C.,1986).
Most people prefer to buy fast foods because it's cheap and quick. This replaces home cooked fare
enjoyed with family and friends. Traditional diets and recipes are yielding to sodas, burgers, and
other highly processed and standardized items that have a lot of fat, sugar, and salt resulting a
global epidemic of diabetes, obesity, and other chronic diseases. Meanwhile, fast food producers
require farmers to raise uniform fields of crops and herds of livestock for easy processing,
eliminating agricultural diversity.

Western culture.
Globalization has led to the spread of western culture and influence at the expense of local culture in
developing countries like Africa. Most people now in developing countries cop what people in
developed countries do. So, its like they ignore their own culture and practice western culture (
Goyal K.A., 2006). For example dressing styles and eating habits, language. All these can affect
management in one way or another example it can cause misunderstandings because of language
barrier.

Trade
Average tariff rates continue to be high in many developing countries, including some that have
recently implemented trade reforms. Example,India. Trade policy continues to be an important
aspect in globalization at least in some of the lower income developing countries.
widespread use of computers, faxes and mobile phones, introduction of the internet and e-
commerce, and quicker and cheaper means of transportation in some cases offered opportunities to
developing countries, but in many cases deepened the gap between global firms and traditional
industries globalization opened up new opportunities for developing countries to create jobs and
expand exports. In practice, many developing countries competing for foreign investors offered
longer tax holidays, costly subsidies, and various incentives for multinationals. The competi