CHAP NO 1: GLOBALIZATION AND INTERNATIONAL BUSINESS

What is international business? Why we study I.B. or importance of I.B. Ans : international business consists of all commercial transaction between two or more countries. The goal of private business is to make profits while government business may or may not be motivated by profit. 1) I.B. comprises a large and growing portion of he worlds total business. 2) Market expansion 3) Low cost labor 4) New markets 5) More profit 6) Technology transfer 7) Availability of scare recourse 8) Economic development 9) Benefit of international premium. 10) Employment 11) Quality improvement 12) Production methods improve. 13) Strong relation develop between two countries. Describe the factors that forces globalization? Ans : Economic International trade and investment Technological- Internet connectivity Personal contacts- international travels and tourism, international telephonic traffics and personal transfer of funds internationally. This are the dimension on which most of the nations does business globally. 1) 2) 3) 4) 5) 6) 7) Factors that affects I.B. or FACTORS THAT INCREASE GLOBALIZAION Expansion of technology Liberalization of cross border trade and resource movements Development of services that support international business Growing consumer pressures Increased global competition Changing political situations Expanded cross national cooperation.

WHATS WRONG WITH GLOBALIZATION? 1) Threats of local sovereignty A) The question of local objective and policies. B) The question of local Overdependence C) The question of cultural homogeneity 2) Economic Growth and Environmental Stress 3) Growing income inequality

WHY COMPANIES ENGAGE IN INTERNATIONAL BUSINESS 1) Expanding sales 2) Acquiring recourses 3) Minimizing risks (You can add more factors as you think that suits your ans.) 4) COST OF PRODUCTION 5) KNOWLEDGE MANAGEMENT 6) SABILITY IN PRICE 7) LARGE SCALE OF PRODUCTION FACILITY MODES OF OPERATION IN INTERNATIONAL BUSINESS 1) Merchandize export and import 2) Service export and import A) Tourism and transportation B) Service performance C) Asset use. Service performance : Some service including banking, insurance, rental, engineering and management services net companies earnings in the form of fees. Companies may pay fees for engineering services rendered as so called as turnkey operation, which are often construction projects performed under the contract and transferred to owners when they are operational. Asset Use : When one company allows another to use its assets, such as trademarks, patents, copyrights or expertise, under the contract known as licensing agreements, they receiving earning called royalties. Franchising is mode of business in which one party(the franchisor) allows other (the franchisee) to use a trademark AS AN essential assets of the franchisees business. 4) Investment A) Direct investment B) Portfolio investment 5) Licensing and franchising 6) Joint venture 7) Merger and acquisition 8) Wholly owned subsidiaries TYPES OF INTERNATIONAL ORGANIZATION 1) multinational enterprise: takes a worldwide view of markets and productions; in other word, its willing to consider market and production location anywhere in the world. 2) MNCs: is often used as synonyms for MNE, but, again, we prefer the MNE designation because many internationally involved companies arent organized as corporation. 3)TNCs: At the United Nations, the term transnational company Is sometimes used interchangeably with MNE WHY I.B.DIFFER FROM DOMESTIC BUSINESS 1) Physical factors A) Geographic influence B) Political Policies

C) Legal policies 2) Cultural factors A) Behavioral factors: write about values,psychology,attitude etc B) Economic forces: write about gdp,gnp, percapita income etc 3) Competitive factors A) Strength of Supplier B) Strength of rivals C) Strength of Customer D) Brand image E) Unique Characteristics. DRIVERS OF GLOBALIZATION 1) Declining trade and investment barriers 2) Role of technological change A) Microprocessor and telecommunication B) The internet and world wide web C) Transportation technology 3) Economic Development 4) New markets 5) political support 6) Availability of global work force 7) Globalization of production 8) Globalization of production. CRITICISM OF GLOBALIZATION 1) Threats of national sovereignty 2) Economic growth 3) Growing income inequality 4) Reduced jobs and income 5) Poor labor practice and environmental polices 6) Short term gains 7) Social security 8) Infrastructures 9) Risk and uncertainty 10) Dumping OBSTACLES OF GLOBALIZATION (INDIA) 1) Government policies and procedure 2) High cost 3) Poor Infrastructure 4) Obsolescence 5) Resistance to change 6) Poor quality image 7) Supply problems 8) Small size 9) Lack of experience 10) Limited R&D and marketing research

11) Trade barriers APPROCHES OF I.B. 1) Ethnocentric approaches 2) Polycentric approaches 3) Regiocentric approaches 4) Geocentric approaches Explain the correlation between the success and failure of global firms and the institutionand resource-based views. Answer: Global firms can gain success in today's competitive global market by focusing on the institution- and resource-based perspectives. The first factor from an institutional perspective focuses on how companies can earn greater success by understanding the external business environments in international business. MNEs quick to acquaint and internationalize themselves with an understanding of the external environment, such as host country market rules, cultural norms, and policies, will increase their success The resource-based view focuses on an MNEs' internal resources, which are firm specific resources and capabilities. Competitors in the same environment do not share these internal capabilities; therefore, a company possessing unique firm-specific capabilities develops a competitive advantage in marketing their products or in the value creation process. Global companies that best utilize their internal strengths will increase their opportunities for business success. The global economy may be viewed as a pyramid. The growing number of opportunities at the base of the pyramid highlights the role this bottom tier will play in the years to come. How would you take advantage of this often-ignored level if you were occupying a top management position at a prominent MNE? Answer: The global economy can be viewed as a pyramid. The top of the pyramid consists of one billion people with per capita income of $20,000 or higher. The second tier consists of another billion people making $2,000 to $20,000 a year. The vast majority of the world's populations, representing approximately 4 billion people, live at the base of this pyramid, making less than $2,000 a year. Marketers have focused on the top two levels and end up ignoring the bottom tier. An increasing number of countries located in this bottom tier are demonstrating economic and marketing opportunities as they move from low- to middle-income levels. It is much easier to market to consumers with higher incomes. In the emerging markets, products are standardized and media can follow a variety of tracks. In the emerging world, marketing is different. There is no guarantee media choices will be available or that your product will be a success. The challenges in the bottom of the pyramid require innovation, such as identifying special price points, as well as long-term commitment. Many consumers at the base of the pyramid may be illiterate, but they are brand conscious. Companies need to think outside the box and identify winwin strategies for this emerging consumer market. Although individuals living in developing economies have less purchasing power than their counterparts living in the developed countries, they still have needs and wants. Global firms capable of fulfilling these needs will make a profit and emerge as global marketers.

Explain the benefits of gaining international business experience and working as an expat. Answer: People skills and greater understanding of the complexity of the global business environment are valuable assets for current and future top MNE executives. Expatriates have a unique opportunity to be hands-on managers exposed to the corporations global organizational dynamics. Top-level jobs, especially those held by expats, are both financially rewarding and secure. Expats often command a significant premium in compensation, which usually includes a premium pay raise when accepting overseas assignments. Other benefits include more favorable job security in times of downsizing. Managers who have positioned themselves strategically with international business experience have a better chance at continued employment. When the expat returns from a global assignment, if the current company does not provide attractive career return opportunities, the expat has the skills and expertise to consider other global firms. In most cases, the expat will not have a difficult time identifying other employment opportunities and commanding a higher premium. Expats gain a competitive advantage by accepting global business assignments as it increases their opportunities for upward mobility. Discuss challenges that must be met to successfully develop the world economy into a single market. Provide examples of countries that are in conflict and how government restricts economic progress and movement to a single market. Answer: Trade barriers have been significantly reduced in the recent years. The world markets are more open to trade and investment, yet barriers are still present. Tariffs, quotas, agricultural subsidies, and labor immobility contribute to an imperfect global market. In order to develop the world economy into a single market, two main conditions need to be met. The first challenge is the spread of democratization. It is difficult to believe, but in reality, there exist today totalitarian government regimes. In such environments, governments are ruling their constituencies, not vice versa. Citizens are held captive by their own governments throughout the Middle East (Iran, Saudi Arabia, and many more), Asia (still communist China), and even Latin America (Cuba, Venezuela). Once governments in these countries start serving their constituencies, the second challenge standardizationwill emerge. World economies rely on market competition. For successful market competition, the playing field must be leveled. The same set of rules must become valid and enforceable for all players in the global economy. Explain how the pendulum view attempts to describe globalization as a cyclical phenomenon with many difficulties. Answer: The Pendulum View presents the events in the present timeframe as a long-term model to help us gain a greater understanding and perspective of globalizations challenges. The current era of globalization originated after World War II with the major Western nations committing to globalization. From the 1950s through the 1970s, political unrest in the Communist countries formed a different view of globalization. Noncommunist countries, such as Argentina and Brazil, focused on protecting their domestic industries. In contrast, the Four Tigers

specifically, the developing economies of Hong Kong, Singapore, South Korea and Taiwan participated in the global economy. Both the emerging and developed markets benefit greatly from globalization. However, seen in a historical context, globalization never continues in one upward or positive direction, hence the view of globalization as a pendulum. In the 1990s, globalization was on the fast track. However, globalization proponents witnessed significant backlashes and setbacks. This rapid growth in globalization led to an inaccurate view that globalization was new, which created many negative perceptions. This new globalization created fear, and competition posed a direct threat to countries culture and values. More recently, globalization has once again come to be considered a positive, offering contributions to worldwide economic growth. Globalization can be compared to a two-faced Janus with both a rosy and dark side. In some areas, it has resulted in job creation with tremendous outcomes, while in other areas it has resulted in job losses and hardship. How globalization has affected you or your family will influence your perceptions and viewpoints. ExpatriateManager (expat)a manager who works abroad, or expat in short. International premium: managers who work abroad (expats) often command a significant pay raise when working overseas. Why do some people protest against globalization? What point do they make that all people, whether for or against globalization, should consider? They do raise a valid point on the necessity of firms, especially MNEs, to have a broader concern for various stakeholders affected by their actions around the world. At present, this view is increasingly moving from the periphery to the mainstream.

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