UNITIII GLOBALIZATION GLOBALIZATION Meaning Definition Globalization means integration

UNIT-III GLOBALIZATION

GLOBALIZATION Meaning & Definition - Globalization means integration with the world economy - It refers to the process of integration of the world into one huge market. - Such unification calls for removal of all trade barriers among countries. - Even political & Geographical barriers become irrelevant.

Definition of Globalization �According to International Monetary Fund (IMF), “Globalization is the growing economic interdependence of countries worldwide through increasing volume & variety of cross border transactions in goods & services and of international capital flows and also through the more rapid & widespread diffusion of technology”.

Definition of globalization �According to Charles Hill, “Globalization is the shift towards a more integrated & interdependent world economy. Globalization has two main components – the globalization of markets & Globalization of production” and it also includes globalization of technology and globalization of investment.

GLOBALISATION • Impact on the world economy – Foreign direct investment flows – Country’s economic growth rate differences – Multinational corporations’ growth/size • World Economy becoming more integrated and interdependent – Accelerating rate of change of this trend • National economies less isolated due to: – Lower cross-border trade and investment barriers – “Smaller” geographic and time (zones) distance – Fewer national government regulations – Less idiosyncratic business systems – Lower impact of national culture difference

Drivers of Globalization Increase & Expansion of Technology Changing Political Situations Liberalization of Cross-Boarder Trade & Resource Investment Increased Global Competition Expanded Cross. National Cooperation Development of Services that support International Business Growing Consumer Pressures Drivers / forces of Globalization

Stages in Globalization 1. 2. 3. 4. 5. Stage one: Purely Domestic company Stage Two: International Company Stage Three: Multinational Company Stage Four : Global Company Stage Five: Transactional Company

Levels of Globalization �World Level Globalization �Country Level Globalization �Industry Level Globalization �Firm Level Globalization

Components of Globalization of Markets Globalization of Technology Components Globalization Of globalization of Production Globalization of Investment

GLOBALISATION OF MARKETS �Refers to the process of integrating & merging of the distinct world markets into a single market. �It includes the identification of common norms, values, taste, preference, conveniences & slowly enables the cultural shift towards the use of a common product or service. �A number of consumer products have global acceptance. �For eg. , Coca-Cola, Pepsi, Mc. Donald’s burgers, Music of Madonna, MTV, Sony Walkmans, Levis Jeans, Indian masala dosa, Indian Hyderabadi Biriyani, Citicorp credit cards, etc

GLOBALISATION OF MARKETS • Historically distinct and separate markets are merging into a huge global marketplace – Mostly not consumer product markets – Mostly industrial products – Tastes and preferences of consumers converging ? • MNCs creating global marketplace • MNCs’ foreign operations becoming more vulnerable to competition in their home markets

GLOBALISATION OF PRODUCTION �Factors influencing the location of manufacturing facilities vary from country to country. �They may more favorable in foreign countries than in the home country. �For eg. , cheap labour in developing countries, availability of high quality & cheap raw material in other countries etc. , enable the companies to produce the products of high quality & low cost in various foreign countries.

GLOBALISATION OF PRODUCTION • Individual MNCs disperse different parts of their operations to narrow set of locations around the world because of: – National advantages in factors of production key to the “where to produce? ” decision • Labor, land, capital, energy, expertise – Global web of suppliers – Stake of foreign governments in MNC operations – Quid pro quo (help local industries)

GLOBALISATION OF INVESTMENT �Refers to investment of capital by a global company in the world. �Global companies conduct financial feasibility of the new projects in different countries & invest the capital in that country where it is relatively more profitable. �It is also known as Foreign Direct Investment. �FDI occurs when a firm invests directly in new facilities to produce &/or market a product or service in a foreign country. �Eg. , Coca-Cola acquired a number of bottling companies throughout india by investing the captial directly. �It directly invests the capital in a number of countries.

GLOBALISATION OF TECHNNOLOGY �Technological change is amazing & after 1950 s. �Revolution in case of telecommunication, information technology & transportation technology �Companies with latest technology acquire distinctive competencies and gain the advantages of producing high quality products at low cost �With these advantages, these companies enter the foreign markets & introduce their latest technology in foreign countries also.

Technological Change and Globalization • Globalization of markets and production – the result of lowering of trade barriers – enabled by technological change • Telecommunications & microprocessors – High power/low cost computing – Increase in information processing capacity • The internet and the world-wide web • Transportation technology

OBSTACLES TO GLOBALISATION �Govt policies & Procedures �High Cost �Poor Infrastructure �Obsolescene �Resistance to change �Poor quality image �Supply problems �Small size �Lack of Experience �Limited R&D and Marketing Research �Growing Competition �Trade Barriers

Advantages of GLOBALISATION �Goods & Services �Conflict �Free Flow of Capital �Free Flow of Technology �Increase in Industrialization �Spread up of Production Facilities Throughout the Globe �Balanced Development of World Economics �Increase in Production & Consumption �Lower prices with high quality �Higher Standards of living

Disadvantages of GLOBALISATION �Reduced jobs & incomes �Poor labour practices & Environmental Policies �Reluctance of developing countries �Short term gains �Non-Economic Hurdles �Consumption �Chain Reaction �Social secutity �Infrastructure �Risks & Uncertainties

The Globalization Debate w. Pro w Lower prices for goods and services w Economic growth w Increase in consumer income w Creates jobs (for many) w Countries specialize in production of goods and services that are produced most efficiently �Con �Destroys manufacturing jobs in wealthy nations �Wage rates of unskilled in advanced countries decline �Companies move to countries with fewer labor and environment regulations �Loss of sovereignty �Homogenized cultures

How to Managing the Global Marketplace • An international business is any firm that engages in international trade or investment • An MNE engages in international investment over which it has managerial control • International business involves managing across: – Differences in cultures, political, legal and economic systems and levels of economic development – Such differences endure in spite of globalization trends • International managers confronted with a greater range of complexity

International Business Players Multinational Corporation Business that has direct investments abroad in multiple countries Small Businesses and Entrepreneurs Small companies and individuals becoming increasingly active in international trade and investment Born-Global Firm Takes a global perspective on its market and engages in international business from or near its inception

The Changing Nature of Indian and International Business

The Changing Nature of Indian Business Environment �There have been radical & rapid changes in the Indian Business context since independence in 1947. �Moderate & steady growth occurred in the 1950 s, the economy Sputtered in the next two decades. �To support infrastructure & economic development , the government increasingly had to rely on an infusion of loans from international agencies. � then the international oil crisis triggered the 1991 balance of payment currency crisis in india. �Foreign exchange reserves were depleted due to international borrowing Indian goods & services were of poor quality & not competitive in the global marketplace. �In response the govt committed to economic liberalization.

The Changing Nature of Indian Business Environment… contin… �The early 1990 s were watershed years. �Monetary, fiscal, international trade & exchange rate, & industrial policies were reformed comprehensively. �These policies were created a more competitive environment that improved efficiency & productivity & enabled Indian companies to enter the international market. �Since then, economic growth in India has achieved a turnaround. �In Recent Years, India’s role as a driver of worldwide economic growth(with Brazil, Russia & China or the BRIC Countries) has been recognised. �The present decade is characterized by intense competition in the business world.

The Changing Nature of Indian Business Environment… contin… �India occupies a major chunk of markets ranging from consumer durables & cosmetics to health care products. �Major corporations are also aware of the impending threats of intellectual currency from India. �Benefits of intellectualism - benefit of the world economy. �Cooperative strategies for welfare of the world �Some companies engage in proactive strategies whereas some resort to reactive strategies. �Whatever strategies the companies adopt , they have a tremendous influence on International Strategies. �Indian companies need to understand India’s culture, mgt styles, socio-economic-political system, demographic Characteristics Etc.

The Changing Nature of International Business Environment �International business is all commercial transactions private & governmental between two or more countries. �Private companies undertake such transactions for profits; govts may or may not do the same in their transactions. �These transactions include Sales, Investments & Transportation. �International business deals with business activities (both production & services) that cross the national bountries. �This activity includes movement of goods, services, capital or personnel, transfer of technology, etc.

The Changing Nature of International Business Environment… continu…. International Business – Meaning & Definition: �At one end International Business is defined as, the organisation that buys &/or sells goods & services across two or more national bountries, even if mgt is located in a single country. �At the other end it is defined as, it is equated only with those big enterprises which have operating units outside their own country.

The Global (International) Trade & Investment environment

Introduction to Global Business Environment �International (Global) Business is defined as, the organization that buys &/or sells goods & services across two or more national boundries, even if mgt is located in a single country. �The Global / Internal Business Environment imposes several constraints on an international enterprises & has considerable impact & Influence on the scope & direction of its activities. �International business is different from domestic business because the environment changes when a firm crosses the international borders. �The environment can be classified in terms of domestic, foreign, & international spheres of impact. �Generally factors are the same, but they can have widely differing impacts from the home country situation.

Determinants of Global business Environment The global or international environment is basically determined by Ø The growth of the world economy , Ø distribution of world output (GDP) Ø International economic relations & interdependence between nations & international economic policies Ø Role of Multilateral economic institutions, Ø International economic laws, , agreements, norms, practices & codes. • Eg. , MNCs, Banks & mutilateral institutions like IMF, WTO, World. Bank, International Labour Organisation (ILO)

Framework of Global Business Environment

Managing in the Global Marketplace w managing an international business w i. e. , any business with international w sales, w sourcing, or w Investment

Managing an international business is different w Countries are different w International transactions involve converting money into different currencies w Range of problems in an international business is wider and problems are more complex w International business must cope with different, conflicting government rules and systems w Different strategic approaches required

Globalization could involve all these things! Globalisation

Globalization and the MNE • A multinational enterprise (MNE) is any business that has productive activities in two or more countries • The national heritage of the largest MNCs United States Japan United Kingdom France Germany 1976 45% 9 7. 3 8. 1 1990 31. 5% 12 18. 8 10. 4 8. 9 2000 32. 4% 15. 7 16. 8 9. 8 12. 7 2010 26% 17 6. 6 13 12 8 • “Mini-multinationals” now a factor in the world economy