INTERNATIONAL BUSINESS

Concept and Scope of

International Business

Prof Soumitra Mookherjee

Lecture 2
GLOBALIZATION ???? IMPLICATIONS

IBE framework clearly outlines the linkages

between unpredictable changes in global
environment, imperative need to monitor
changes/ competitive conditions and thereby
refine entry and operational strategies
accordingly

The drivers of change have to be identified as

globalization and liberalization initiatives have
integrated world markets resulting in nations
being vulnerable to economic, political, and
social shocks.

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GLOBALIZATION ???? IMPLICATIONS

There is less restriction on movement of Labor.

Capital, and Goods/ Services across nations,
with business cycles becoming more volatile
and unpredictable.

The external and competitive forces driving

changes in business environment have to be
identified.
It is important that environmental changes
covering various dimensions are continuously
monitored and critical success factors
identified prior to formulation of international
level strategies.

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 CROSS CULTURAL
IMPLICATIONS
GLOBALIZATION OF CULTURES

The unification of nations and convergence of

global cultures

Challenges emerge in coping with cultural

mismatches

Distinct changes in behavioral patterns,

consumer tastes &
preferences, attitudes, lifestyle, etc. This is
favorable for
industries expanding operations globally
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 POSITIVE IMPLICATIONS
REDUCED BARRIERS TO TRADE/ CAPITAL FLOWS
Reduced restrictions on inflow/ outflow of
Capital across nations
Less Limitations on movement of goods/
services across nations
FREE TRADE Agreements
REGIONAL TRADE Agreements

Simplifying rules concerning migration of

workers
(e.g. repatriate workers)
Creating avenues for strengthening growth,
investments, trade relations, mobilizing financial
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support from nations, and creating employment
 POSITIVE IMPLICATIONS

PROMOTION OF TRADE/ INVESTMENTS .

Proliferation of growth and development

through the following:

1. Access to foreign capital at reduced costs

2. Access to qualified and skilled manpower as
per industry demands
3. Availability of technology if not found
locally may be transferred
4. Strong Backward and forward linkages
established through capacity creation

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 POSITIVE IMPLICATIONS
CROSS BORDER MERGERS & ACQUISITIONS
Prolific increase in Global mergers and
acquisitions deals to capture large markets

MNCs, international firms setting up business

operations globally through 100% FDI or Joint
Ventures

Examples of Cross Border Merger Deals:

BP AMOCO ARCO
TATA CORUS
ARCELOR MITTAL
P & G Gillette
VODAFONE HUTCH
KRAFT ACQUIRING CADBURY 7
 NEGATIVE IMPLICATIONS

ECONOMIES VULNERABLE TO EXTERNAL SHOCKS

Economies exposed to global economic, political and social

shocks

Rather unpredictable and unstable environmental conditions

Recent Past

Three rounds of Credit/liquidity Crises since 1997 across

various parts of the world

Cases of Bankruptcy and Debt Overhang on the rise calling

for IMF, WORLD
BANK, Government support in the G 20 Summit

HOT firms
Domestic TIPS: unable
Economies cannot
to cope escape
with fierce the spillover
competition
leading to Consolidation
effect of economic collapse or meltdown
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 Trade Cycle Patterns

INTERNATIONAL TRADE CYCLES

Pronounced and prominent Trade cycles are

generated as
global markets unite and integrate but in
recent times the
cycles are short lived

There is evidence of Boom, Slowdown,

Recession and Recovery
Cycles.

The identification of the cyclical ups and

downs critical for
making investment and business9 decisions
 Cyclical Fluctuations -
Unpredictable

ADDING TO VOLATILITY AND TURBULENCE

The integration of world markets has led to

emergence of
volatility and turbulence

The future is unstable and unpredictable and

environment is
complex and challenging

Need to be proactive to anticipate likely

changes in
environment and take either precautionary and
aggressive 10
 Concurrent repercussions

CONCOMITANT IMPACT ON ECONOMIES

The repercussions whether detrimental or

positive are concurrent across nations

Economic and business cycles are

interdependent and cannot be treated in
isolation or insulation

Modern Generation virtually impossible to

have business cycles which are divergent and
different

e.g. Massive Slowdown in developed markets

impacts emerging economies and Recession
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in
 GOVERNMENT
INTERVENTIONS

COORDINATED FISCAL POLICIES.

When markets collapse government s

intervene to rescue troubled nations:

1. Reduction in excise/ customs duties to bring

down inflation
2. Enhanced allocation for public works
spending and infrastructure development for
driving consumption and investment led
demand
3. Liquidity injection through purchase of
sovereign bonds
4. Expansionary policy measures spread
12 across
 GOVERNMENT
INTERVENTIONS
COORDINATED MONETARY POLICIES ..

Reduction in interest rates leading to low

capital cost

Reduction in CRR, SLR ratios for augmenting

lending resources

RBI/ Central Bank Interventions:

1. Open Market Operations to release
liquidity in the system
2.Selling Dollars to prevent any
unexpected devaluation of currency

. Expansionary Stimulus Packages

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 GOVERNMENT
INTERVENTIONS

BAILOUT PACKAGES..

Nations Uniting to assist other nations due

to interdependency across nations

IMF BAILOUT PACKAGE: Prominent in since

1998 during the Asian Economic and
currency Chaos and thereafter offering
support in 2008

Capital Infusion support proposed by Japan,

China, and even India to bail out economies
like Greece, Italy, etc - subject to acceptance
of Austerity measures for repaying14loans
 ORGANIZATIONS SHAKE UP
CORPORATE RESTRUCTURING ..
Firms engage in debt and operational
restructuring through asset liquidation and
customized arrangements with institutions.
Critical decisions taken on portfolio
changes, retrenchment,
and Divestiture
Deferment and postponement of projects,
investments, etc
Cost cutting measures undertaken to prune
down expenses
e.g. NOKIA
PHILIPS
MOTOROLA 15