INTERNATIONAL BUSINESS MANAGEMENT

P13MBA25

MODULE 1:
GLOBALIZATION
1

M1- Globalization
 SYLLABUS
• Globalisation – Meaning and implications
• Globalisation of markets
• Globalization of production
• The emerging global economy - Drivers of
Globalisation
• The globalisational debate: arguments for and
against
• Trends in international trade
• Differences between domestic and international
business.

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GLOBALIZATION-MEANING

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 GLOBALIZATION OF MARKETS
• globalization of markets refers to Merging of distinct and
separate national markets into one huge global market
place
• Reduced cross-border trade barriers have made it easier
to sell or buy internationally.
• some argued that tastes and preferences of consumers
in different nations are beginning to unite on some
global norm, which helps to create a global market
• Coca-Cola soft drinks, McD, Pizza Hut are some typical
examples who standardized their products world wide
which created a single global market
• By offering standardized product world wide, MNCs can
create a global market. The

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• Even a small sized company can be benefitted from
globalization of markets
• EX 1. In Germany, companies with less than 500
employees account for 30 % to 40 % of that nation’s
exports.
• EX 2. In U.S nearly 90 % of firms who export goods are
small businesses that employs less than 100 people.
• Global market does not mean that tastes and
preferences of customers in different nations will remain
same once we move to globalization of markets
• Companies have to serve based on that particular
nation’s customers tastes and preferences.
• Very significant differences still exist between national
markets such as distribution channels, culture, business
systems, legal regulations, including customers tastes
and preferences.

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• Marketing strategies, product features, and operating
practices must be customized to best match the
conditions existing in that national market.
• EX: automobile companies will promote different car
models depending on factors such as local fuel costs,
income levels, traffic congestion, and cultural values.
• EX: Global retailer Wal- Mart varies its product mix from
country to country depending on local tastes and
preferences.
• Most global markets are not markets for consumer
products [as customer tastes and preferences differs
hugely]
• Global markets are for industrial products like oil,
computer products, commercial air crafts etc.

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• In many global markets, same firms frequently confronts
each other as competitors in nation after nation
• EX: Coca-Cola VS Pepsi, Boeing VS Airbus, etc.
• If one firm moves to a country that is not currently served
by its rivals, those rivals are sure to follow to prevent their
competitor from gaining an advantage.
• Firms follow each other around the world and also bring
assets with them- brand names, products, marketing
strategies, operating strategies- thus creating some
homogeneity across the markets.
• Greater uniformity replaces diversity
• Due to such developments in many industries it is not
meaningful to talk about “the German market”, “the
American Market”, “the Japanese Market”; it is now
“GLOBAL MARKET”.

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GLOBALIZATION OF PRODUCTION
• The globalization of production refers to Sourcing of
goods and services from locations around the globe, to
take advantage of national differences in cost & quality
of factors of production [land, labour, energy, capital]
Benefits
Companies can lower their overall cost structure
Improve product quality
Improve functionality of product offering
Compete more effectively

Companies tend to produce in different locations of the

world in order to
To enhance quality
To reduce cost of production/transportation
Reduce delivery time to the various markets
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• Ex 1. Jet Airlines- Boeing 777 has 1,32,500 major
components. These components are produced in 545
different locations of the globe. 8 Japanese suppliers
make parts for doors and swings. A Singapore supplier
makes doors for nose landing gear, 3 Italian suppliers
make wing flaps and so on.

• Ex 2. A small optical company in USA, SWAN OPTICAL,

manufactures its eyewear in low cost factories in Hong
Kong, China, Japan, France and Italy.

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• Such outsourcing of production activities to different
suppliers results in the creation of products that are
‘global in nature’, that is “global products”.

• As with globalization of markets, globalization of

production should not be pushed too far.

• Because barriers still exist and they make it difficult for

firms to achieve optimal outsourcing of their productive
activities to locations around the globe.

• Barriers are : Formal and informal barriers between

countries, Barriers to Foreign Direct Investment,
transportation costs, economic and political risks.

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 EMERGING GLOBAL ECONOMY
• World economy is in the process of rapid growth
and industrialization
Features
Trade barriers are coming down
Allowing free flow of goods, services and capital
Volume of cross country transaction is increasing
Making economies more interdependent
More countries are joining the ranks of developed
world
These features indicates favorable world for the
practice of International Business.

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• All nations are truly interdependent on each other
in this global economy

• Process of technological change and innovation is

bringing the world closer and closer together
everyday

• Global economy emerged in the post World War II

period, from 1944 to mid 1970. It has undergone a
fundamental transformation since then.

• Technological advances have altered industries

and careers, generated jobs

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• Globalization has made a big world smaller.

• It affects trade, finance, production,

communications and technological change.

• Since 1980, world exports have increased 194%.

• Global economy is emerging in a rapid rate as

nations have found it cheaper and more efficient to
trade with each other than to produce all their
products at home.

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• Average annual GDP growth rates of several countries
with lower per capita GDP and large number of very
poor people increased in an impressive manner.

• Between 1995 to 2005 the average annual GDP Growth

rates:
China- 8.7%
India- 6.5%
Taiwan – 5.8%
Malaysia- 5.7%
Both Chile and South Korea averaged- 5.5%
Because of these trends World Bank estimated that by
2020 Chinese economy will be the largest in the world.

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 DRIVERS OF GLOBALIZATION
I. Declining Trade and Investment Barriers
 International Trade occurs when a firm exports goods and
services to consumers in another country
 Foreign Direct Investment [FDI] occurs when a firm invests
resources in business activities outside its home country.
 After the Great Depression of 1930 many advanced industrial
nations removed barriers to free flow of goods, services and
capital between nations
 Under the umbrella of GATT [General Agreement on Tariffs
and Trade], 8 rounds of negotiations among 148 member
countries further reduced barriers
 Last round known as Uruguay Round in 1993 extended GATT to
cover services as well as manufactured goods, protection of
intellectual properties-patents, trademarks, copyrights and
also led to establishment of WTO
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• Now the average tariff rates on manufactured goods is 4 to 5 %
• In addition to reducing trade barriers, many countries are
reducing restrictions on FDI. All are trying to create a favourable
environment for FDI
• Such trends have been driving both globalization of markets
and production.
• Declining trade and investment barriers helps firms:
 To view the world as their market
 To base production at the optimal location for that activity [to
source resources/ to outsource productive activity]
[ Thus a firm might design a product in a country, produce
component parts in 2 other countries, assemble in yet another
country, and then export finished good to whole world.]
 As trade expands, countries are becoming more
interdependent
 International trade in services also increasing [ex: outsourcing
customer services, software maintenance activities to
developing countries]

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II. Role of Technological Change
-Advances in communication, information procession and
transportation technology
1. Microprocessors and telecommunications
High power, low cost computing micro processors are
vastly increasing the amount of information that can be
processed by firms/ individuals
Cost of microprocessors continues to fall, while their
power increases [ According to Moore’s Law, power of
micro processor technology doubles and its cost of
production falls in half every 18 months]
Such advances in micro processors and
telecommunications lowers the cost of coordinating and
controlling a global organization.
2. Internet and World Wide Web is creating global
audience, & electronic global market places
3. Transportation technology is creating global village

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 GLOBALISATIONAL DEBATE

• For globalization:
Lowers prices for goods and services
Stimulates economic growth
Raises income level of people
Creates jobs
Criticism
Foreign competition
Threat to domestic business
Job losses
Environment and cultural issues

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TRENDS IN INTERNATIONAL TRADE
• World is recognizing the importance free trade
• A marked acceleration in the process of trade
liberalization and globalization since 1990
• Many items under Special Import License were shifted to
Open General License [OGL]
• Economy has become fully integrated to the world
economy, with the removal of Quantitative Restrictions
[QR]
• Tariff reforms and reduction are an ongoing process
• India removed QR on imports in April 2001
• Similarly other countries are also liberalizing FDI rules

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• Production in Food manufacturing sector has grown
rapidly following increased foreign investment
• In automobiles 51 % of foreign equity participation is
granted
• After 1990, economies like India, China, Japan have
become open economies
• Growth rate of India in Industrial Production, Exports
& imports is: in 2004-05 Export [US $ Million]- 25.6%,
Import [US $ Million]- 34.7%. In 2010 Exports –$225.6
billion, Imports- $ 357.7 billion
• US is the largest and UK is the second largest FDI
providers and recipients in the world.

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DIFFERENCES IN INTERNATIONAL AND DOMESTIC
TRADE
Domestic Business International Business

Scope: is limited to Scope is unlimited, need

domestic market, need to consider whole world
to operate considering as their customers
nations markets,
customers & competition
Environment: nations’ World’s political, legal &
political, legal & economical factors,
economical culture influences
environment, culture
influences
Tariffs, quotas, Foreign Tariff rates, Foreign
Exchange rates won’t Exchange rates of
affect much different countries
influences International
Business
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