GLOBALIZATION
AND
INTERNATIONAL BUSINESS
Presented by:
Group 4
Objectives
To define globalization and international business and show how they affect each other.
To understand why companies engage in international business and why international
business growth has accelerated.
To discuss globalization’s future and the major criticisms of globalization.
To become familiar with different ways in which a company can accomplish its global
objectives.
To apply social science disciplines to understanding the differences between international
and domestic business.
To define globalization and international business and show how they affect each other.
Introduction
Globalization is the ongoing process that deepens and broadens the
relationships and interdependence among countries.
International business is a mechanism to bring about globalization.
International business consists of all commercial transactions—including
sales, investments, and transportation—that take place between two or
more countries.
Increasingly foreign countries are a source of both production and sales
for domestic companies
Cont.
It is important to study international business because:
Most companies are either international or compete with international
companies.
Modes of operations may differ from those used domestically The best way
of conducting business may differ by country.
An understanding helps you make better career decisions.
An understanding helps you decide what government policies to support.
Globalization
Globalization may be defined as the process of integration and
convergence of economic, financial, cultural, and political systems
across the world.
Economic Globalization: The internationalization of production and
markets for goods and services, integration of financial systems,
corporations and industries, technology, and competition.
Financial Globalization: Liberalization of capital movements and spurt
in cross-border capital flows
Factors in different International business operations
Forces Driving Globalization
1. Increase in and application of technology.
2. Liberalization of cross-border trade and resource movements.
3. Development of services that support international business .
4. Growing consumer pressures.
5. Increased global competition.
6. Changing political situations.
7. Expanded cross-national cooperation.
Costs of Globalization
Threats to national sovereignty.
lose freedom to “act locally”.
Economic growth and environmental stress.
growth consumes non-renewable natural resources and increases environmental
damage.
Growing income inequality and personal stress.
promotes global superstars at the expense of others.
Offshoring involves the transferring of production abroad.
it can be beneficial because it reduces costs but, it also means that jobs move abroad.
Yet, offshoring may also create new, better jobs at home.
International Business
Business activities that involves the transfer of resources,
goods, services, knowledge, skills, or information across
national boundaries/borders.
Resources: Raw materials, capital, and people
Goods: Semi-finished or finished
Services: Accounting, legal, banking, insurance, healthcare,
education, tourism, consultancy, etc..
Knowledge and skills: Technology, innovations, various skills,
IPRs, brand names, etc.
Information flows: Databases and networks
Participants in International Business
Individuals (individual investors, tourists, employees,
students, etc.)
Companies (private or public)
Government (central bank, government institutions, etc.)
International institutions (World Bank, IMF, WTO, etc.)
Among these companies are the dominant players in
International Business
Modes of Operations in International Business
Merchandise exports
-goods that are sent out of a country
Merchandise imports
- goods that are brought into a country, sometimes referred to as visible
exports and imports.
Service import and exports
-international non-products sales and services
-provider and receiver of payments makes a service export
-the recipient and payer makes a service import
Modes of International Business(Cont.)
Foreign Investments
Direct investment : Key features
–Control and ownership
–Access to foreign markets
–Access to foreign resources
–Higher foreign sales than exporting (often)
Portfolio investment: Key features
–Non-control of foreign operations
–Financial benefit
International vs. Domestic Business
BASIS FOR DOMESTIC BUSINESS INTERNATIONAL BUSINESS
COMPARISION
Meaning A business is said to be domestic, when its International business is one which is
economic transactions are conducted within engaged in economic transaction with several
the geographical boundaries of the country. countries in the world.
Area of operation Within the country Whole world
Deals in Single currency Multiple currencies
Capital investment Less Huge
Restrictions Few Many
Nature of customers Homogeneous Heterogeneous
Mobility of factors of Free Restricted
production
Why do Firms Expand Internationally?
Why do Firms Expand Internationally?
To expand sales
pursuing international sales increases the potential market and potential
profits.
To acquire resources
may give companies lower costs, new and better products, and additional
operating knowledge.
To diversify or reduce risks
international operations may reduce operating risk by smoothing sales and
profits, preventing competitors from gaining advantage
Why do Firms Expand Internationally?
These three reasons,
I. sales expansion
II. resource acquisition
III.risk minimization, guide all decisions about whether, where,
and how to engage in international business.
Statista 2019
KOF Globalization Index - 100 most globalized countries 2018
Source: Statista 2019
Why International Business Is Different?
The external environment affects a company’s international
operations.
Managers must understand social science disciplines and how
they affect functional business fields.
Consider
i. physical factors
ii. social factors
iii.competitive factors
Physical and Social Factors
Geographic influences
-natural conditions influence production locations
Political policies
-determines where and how business occurs
Legal policies
-influence how a company operates
Behavioral factors
-may require changes in operations
Economic forces
-explain differences in costs, currency values, market size
The Competitive Environment
Competitive strategy for products
Cost strategy
Differentiation strategy
Focus strategy
Company resources and experience
Market leaders have more resources for international
operations
Competitors faced in each market
Local or international
