THE IMPACT OF GLOBALIZATION ON

INTERNATIONAL BUSINESS

FMG3231 INTERNATIONAL BUSINESS ECONOMICS

FACULTY OF MANAGEMENT

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CONTENTS PAGE NO

An introduction to international business 3

What is globalization? 6

The impact of globalization on international business 6

Future of international business and globalization 12

Summary 12

Reference 13

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 1. AN INTRODUCTION TO INTERNATIONAL BUSINESS

International business involves all commercial transactions—private and governmental—

between parties of two or more countries. Global events and competition affect almost all
firms—large or small. However, the international environment is more complex and diverse than
a firm’s domestic environment.

An international business has many options for doing business, it includes,

 Exporting goods and services.

 Giving license to produce goods in the host country.
 Starting a joint venture with a company.
 Opening a branch for producing & distributing goods in the host country.
 Providing managerial services to companies in the host country.

Features of International Business

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Large scale operations: In international business, all the operations are conducted on a very huge scale.
Production and marketing activities are conducted on a large scale. It first sells its goods in the local
market. Then the surplus goods are exported.

Integration of economies: International business integrates (combines) the economies of many countries.
This is because it uses finance from one country, labour from another country, and infrastructure from
another country. It designs the product in one country, produces its parts in many different countries and
assembles the product in another country.

Dominated by developed countries and MNCs: International business is dominated by developed

countries and their multinational corporations (MNCs). At present, MNCs from USA, Europe and Japan
dominate (fully control) foreign trade. This is because they have large financial and other resources. They
also have the best technology and research and development (R & D). They have highly skilled
employees and managers because they give very high salaries and other benefits. Therefore, they produce
good quality goods and services at low prices. This helps them to capture and dominate the world market.

Benefits to participating countries: International business gives benefits to all participating countries.
However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also
get benefits. They get foreign capital and technology. They get rapid industrial development. They get
more employment opportunities. All this results in economic development of the developing countries.
Therefore, developing countries open up their economies through liberal economic policies.

Keen competition: International business has to face keen (too much) competition in the world market.
The competition is between unequal partners i.e. developed and developing countries. In this keen

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competition, developed countries and their MNCs are in a favorable position because they produce
superior quality goods and services at very low prices. Developed countries also have many contacts in
the world market. So, developing countries find it very difficult to face competition from developed
countries.

Special role of science and technology: International business gives a lot of importance to science and
technology. Science and Technology (S & T) help the business to have large-scale production. Developed
countries use high technologies. Therefore, they dominate global business. International business helps
them to transfer such top high-end technologies to the developing countries.

International restrictions: International business faces many restrictions on the inflow and outflow of
capital, technology and goods. Many governments do not allow international businesses to enter their
countries. They have many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is
harmful to international business.

Sensitive nature: The international business is very sensitive in nature. Any changes in the economic
policies, technology, political environment, etc. has a huge impact on it. Therefore, international business
must conduct marketing research to find out and study these changes. They must adjust their business
activities and adapt accordingly to survive changes.

2. WHAT IS GLOBALIZATION

Fundamentally, globalization is the closer integration of countries and peoples of the world
which has been brought about by the enormous reductions of costs of transport and
communications and the breaking down of artificial barriers to the flow of goods, services,
capital, knowledge and to a lesser extent, people across borders (Joseph Stiglitz, former chief
economist at the World Bank)

Globalization is an umbrella term for a complex series of economic, social, technological,

cultural and political changes seen as increasing interdependence, integration and interaction
between people and companies in disparate locations.

The concept has been referred to as 'the shrinking of time and space'.

3. THE IMPACT OF GLOBALIZATION ON INTERNATIONAL

BUSINESS
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International business refers to a wide range of business activities undertaken across national
borders. Along with rapidly increasing globalization, international business has become a
popular topic and has drawn the attention of business executives, government officials and
academics. International business is different from domestic business. At the international level,
the globalization of the world economy and the differences between countries present both
opportunities and challenges to international businesses. Business managers need to take account
of the globalisedbusiness environment when making international strategic decisions and in
managing ongoing international operations.

Globalization in the economic, social and political fields has been on the rise since the 1970s,
receiving a particular boost after the end of the Cold War. Many economists believe
globalization may be the explanation for key trends in the world economy such as:

 Lower wages for workers, and higher profits, in Western economies

 The flood of migrants to cities in poor countries
 Low inflation and low interest rates despite strong growth

Globalization has accelerated in the last 20 years. During a period of relatively strong economic
growth, world exports as a share of GDP increased from under 20% in 1994 to over 32% in
2008, and whilst global trade fell back in 2009, as a result of the global slowdown, but bounced
back in 2010.

Increasing foreign investment can be used as one measure of growing economic globalization.
Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as
factories, mines and land. The largest flows of foreign investment occur between the
industrialized countries. However, in recent years the flows into and out of emerging countries
has grown significantly.

Following the worldwide recession, world GDP fell more than1% in 2009. Some of the world's
key emerging economies suffered sharp recessions during 2009, whilst others notably India and
China, were able to maintain strong growth.

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Organizations are exposed to global forces of demand, supply, international market competition, their
relevance to global issues global concerns, demographic changes and political developments instead of
remaining protected by local environment. Stakeholders' interests are accordingly affected also by the net
impact of the same set of factors instead of being mere subject to local situations and trends. This applies
to all stakeholders - investors, business managers, labour, suppliers, farmers, consumers, politicians and
administrative bureaucrats, govt. servants, the young, and the old, men and women as also all types of
organizations - business firms, trade associations, govt.s, civic authorities, NGOs, civil societies, social
and cultural organizations, religious establishments, scientific bodies, education and research institutions,
political parties, the military organizations, multi-lateral organizations and the terrorist outfits. Those who
cannot adapt to the global forces sooner or later lose their relevance and struggle to survive. Those who
adjust and change as the globalization proceeds convert global opportunities into strategies that strengthen
them and make them continuously relevant and deal with the threats from the environment more
effectively.

Sculpture by Robert Indiana at Taipei 101 (Taiwan) Globalization has various aspects which affect the
worldin several different ways such as:

 Industrial (alias trans nationalization) - emergence of worldwide production markets and broader
access to a range of foreign products for consumers and companies
 Financial - emergence of worldwide financial markets and better access to external financing for
corporate, national and sub national borrowers .
 Economic - realization of a global common market, based on the freedom of exchange of goods
and capital.
 Political - political globalization is the creation of a world government which regulates the
relationships among nations and guarantees the rights arising from social and economic
globalization.
 Informational - increase in information flows between geographically remote locations .
 Cultural - growth of cross-cultural contacts; advent of new categories of consciousness and
identities such as Globalism - which embodies cultural diffusion, the desire to consume and enjoy
foreign products and ideas, adopt new technology and practices, and participate in a "world
culture"
 Ecological- the advent of global environmental challenges that can not be solved without
international cooperation, such as climate change, cross-boundary water and air pollution, over-

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 fishing of the ocean, and the spread of invasive species. Many factories are built in developing
countries where they can pollute freely.
 Social - the achievement of free circulation by people of all nations
 Transportation - fewer and fewer European cars on European roads each year (the same can also
be said about American cars on American roads) and the death of distance through the
incorporation of technology to decrease travel time.

Globalization is a leading concept which has become the main factor in international business
life during the last few decades. This phenomenon affects the international business in following
ways.

1. Rise in Competition

Globalization leads to increased competition. This competition can be related to product and
service cost and price, target market, technological adaptation, quick response, quick production
by companies etc. When a company produces with less cost and sells cheaper, it is able to
increase its market share.

With enhanced competition from foreign brands and companies, industries of every nation are
compelled to improve their standards and quality and customer satisfaction services. This
benefits the customers and the economy as a whole, and raises the standard of living of
everybody. This could be viewed as a negative impact by many, but no-one can deny the impact
it has had.

2. Rise in Technology and Know How

The rise in knowledge levels of countries as newer cultures and technologies are opened to a
particular area are clear, their knowledge base also grows and expands simultaneously. As a
result, they are better able to handle their primary and secondary industries, and this ultimately
affects their tertiary sectors in a positive manner as well.

3. Rise in Opportunities

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With a larger number of industries and resources available, the opportunities for people grow
exponentially too. There are many more jobs available to people, and more and more people are
also exposed to the lucrative benefits of moving abroad. This increases immigration rates as well,
thus giving people the chance to grow economically and socially. Whatever your viewpoint of
immigration, there is no doubt it has opened up masses of opportunities to millions of people
who would otherwise have not seen any improvements

4. Rise in Investment Levels

The rise in foreign investment in countries helps industries and native cities grow at a rapid pace,
and this is something that every nation should be open to since it is a highly beneficial venture
for them. There is so much that they can gain in the process as well. Every country now imports
more than ever before, so that global growth has shared resources and abilities in a way that we
could never have imagined even 50 years ago

5. Meeting consumer expectations and tastes

Generally, consumers all over the world are better informed, have higher incomes and therefore
higher and more exacting expectations. This forces businesses to meet higher standards.

6. Economies of scale

Selling into a global market allows for enormous economies of scale, although not all industries
benefit from these.

7. Choice of location

Businesses are now much freer to choose where they operate from, and can move to a cheaper
and more efficient location. In the last decade the world has been seen by many businesses as an
attractive business location, especially in financial services. The increased movement of
businesses and jobs has, to some extent, forced governments to compete with each other in
providing an attractive and low-cost location. businesses now have more freedom of movement
in moving to get hold of those cheaper inputs e.gLabour in developing countries. One limitation
on this is that managers won’t always move to some countries if living conditions are unpleasant
or even dangerous.

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8. Information transfer

Information is a most expensive and valuable production factor in the current environment.
Information can be easily transferred and exchanged from one country to another. If a company
has a chance to use knowledge and information then it means that it can adapt to this global
changing. This issue is similar with the technology transfer issue in global markets. The rapid
changing of the market requires also quick transfer of knowledge and efficient using of that
knowledge and information.

9. Increased mergers and joint ventures

The globalization allows the businesses access to bigger markets and associated cost advantages.

10. Multi-national and multi-cultural management

This is a major challenge to businesses and their managers. A multi-national business

environment is more complex with more variables, and so is more difficult to manage. A multi-
cultural employment policy leads to employees of many different nationalities, languages,
religions and cultures in different offices across the globe. These employees react in quite
different ways to incentives, to motivation and it is very difficult to find managers who are
sensitive to all these different factors. It is very easy to inadvertently give offence and demotivate
workers. For example, the Japanese were initially very disappointed with their Thai employees
who didn’t respond well to Japanese methods of building up corporate loyalty and motivation.
Once they turned production targets into a game, the Thais worked extremely well.

11. Globalization of markets

National borders are becoming less and less important. Markets stretch across borders is well-
placed to take advantage of this. The same issues of language and culture and so on arise.
Consumers are more alike, but by no mean the same. Many businesses have made expensive
mistakes by not taking local variation sufficiently into account. Marketing, in particular, is a
minefield because of its dependence on language. The marketing books are full of stories, often
very amusing, of how businesses got it wrong.

12. Procurement and Outsourcing

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The opening up of global markets and improvements in intercultural communication creates a
wealth of opportunities to source high-quality, low-cost materials and labor. Outsourcing is when
less expensive, foreign labor is used for activities traditionally performed at home. In some
countries, such as the United States, outsourcing is seen as a growing evil. In others, such as
India, outsourcing brings unparalleled economic prosperity to the people. Developed nations
often fail to realize that for every individual that loses a job to outsourcing, another individual --
usually in a more economically depressed situation -- gains a job.

13. Economic Development

Globalization provides new opportunities to underdeveloped nations by allowing them access to

new markets around the world. China and India have ridden the wave of globalization
throughout the twentieth century and into the twenty-first, for example, and are rapidly becoming
economic powerhouses. Even tribal groups in nations, like Brazil and Africa, can ride the wave
of globalization, selling locally-made products around the world via the Internet to raise their
standard of living.

14. A higher level strategizing

As a result of globalization, there are used powerful strategies for marketing and promotion
events in many organizations by using electronic tools and equipments such as computer
networks, iPod and mobiles are used with the help of internet.

4. FUTURE OF INTERNATIONAL BUSINESS AND GLOBALIZATION

• Further globalization is inevitable.

• International business will grow primarily along regional rather than global lines.
• Forces working against further globalization and international business will slow down
both trends.

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 5. SUMMARY

Globalization is the key factor for international business. This new era of globalization brings
with it opportunities and also new considerations and challenges with the dynamics of a free
market. Globalization grant access to benefit from the international division of labor,
technologies, international specialization, inter-cultural exchange and the consumers enjoy a
wider variety of products at lower prices. With globalization, there comes a higher level of
thinking and strategizing. Business evolves in new ways.

6. REFERENCE

http://bookboon.com/blog/2011/10/how-globalization-affects-business/

http://kalyan-city.blogspot.com/2011/09/what-is-international-business-meaning.html

http://www.m-t-d.co.uk/blog/the-effects-of-globalisation-on-business.htm

http://www.gregglee.biz/ftp/student/BusinessOrg/page_139.htm

http://www.gregglee.biz/ftp/student/BusinessOrg/page_141.htm

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