Globalization and international business

•MADE BY:

•ASHNA MALIK 22/006

•KARAN KUKREJA

22/014

•POORVA

KHEMCHANDANI 22/020

•V.SRINIWAS 22/029

What is Globalization?The broadening set of interdependent relationshipsamong people from different parts of a world thathappens to be divided into nations.

Examples :

•A restaurant calculation on the ingredients in justone main course.

• Different parts installed in the vehicles.

What is International Business?

It consists of all commercial transactions between two or more countries.

• The Goal of private business is to make profits.

• Government business may or may not be motivated by profit.

Understanding the environment / Operations Relationships

• First, when your company operates internationally, it will engage in modes of business.

• Second, the physical, social , and competitive conditions which affects business in a country.

Factors in International Business Operations

• Operating environment(Physical and social Factors).

• Operations(Objectives/strategy).

• Competitive factors.

Why International Business is Important?

• Most companies are international.

• 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 to decide what government policies to support.

Forces driving Globalization• Degree of two countries interdependence must

be measured indirectly.

• When national boundaries shift domestic business transactions can become international transactions and vice-versa.

• One of the most comprehensive is the A.T. Kearney / Foreign Policy Globalization Index.

This Index Ranks 62 countries across 4 dimensions :

1. Economic : International trade and investment.

2. Technological : Internet connectivity.

3. Personal contact : International travel and tourism.

4. Political : Participation in international government.

Factors in Increased globalization• Increase in and expansion of technology.

• Liberalization of cross border trade and resource movements.

• Development of service that support international business.

• Growing consumer pressures.

• Increased global competition.

• Changing political situations.

• Expanded cross-national cooperation.

1.INCREASE IN AND EXPANSION OF TECHNOLOGY

• One of the reason is the population growth and the other is economic growth.

• Today, total population are more involved in developing product rather than producing them.

• The advancement in communication and transportation is also a major factor in increase in and expansion in technology.

2.LIBERALIZATION OF CROSS BORDER TRADE AND RESOURCE MOVEMENTS

• To protect it’s own industries there is restriction across borders for goods and services.

• There is an restriction that set limits on IB activities because regulations can change at any time and also contribute to a climate of uncertainty.

RESTRICTIONS IS FOR THREE MAIN REASONS:

• Citizens need greater variety if Goods and services at lower rates.

• Competition spurs domestic producers to become more efficient.

• They hope to induce other countries to lower their barriers in turn.

3.DEVELOPMENT OF SERVICE THAT SUPPORT INTERNATIONAL BUSINESS.

• Countries have now developed a variety of services that facilitate conduct of international business. Some are :

• Bank credit agreements.

• Insurance that covers risks such as damages.

• Sending letters and packages using international service companies like UPS or DHL.

4.GROWING CONSUMER PRESSURES

• Consumer now a days are more aware about the products and services that are available within and outside their domestic territory .

• Today consumers want new and better products that are finely differentiated.

• The availability of higher income markets has also spurred companies to spend more heavily on research and development to search.

5.INCREASED GLOBAL COMPETITION

• The pressures both present and potential of increased foreign competition can persuade companies to buy or sell abroad.

• Firms have to become more global to compete in today’s business environment and failure of this can be very harmful. For Instance-Procter & Gamble took over 100 years to go global.

6.CHANGING POLITICAL SITUATIONS

• Now a days Government is supporting programs favorable to international trade.

• They are now providing an array of services to help domestic companies sell abroad and vice versa.

7.EXPANDED CROSS NATIONAL COOPERATION

Increasingly governments have come to realize that their own interests can be addressed through international cooperation by means of treaties, agreements and consultation. The adoption of any such policies are largely used to meet certain needs such as-

• To gain reciprocal advantage.

• To attack problems jointly that one country alone cannot solve.

• To deal with common areas of concern that lie outside the territory of any nation.

LIMITATIONS OF GLOBALIZATION

• THREAT TO NATIONAL SOVEREIGNITY

• ECONOMIC GROWTH AND ENVIRONMENTAL STRESS

• GROWING INCOME INEQUALITY

1. THREATS TO NATIONAL SOVEREIGNITY

• Local objectives and Policies :- Countries seek to fulfill their own economic, political, and social objectives to maintain well-being of citizens.

• Local overdependence

• Cultural homogeneity

2.Economic growth & Environmental Stress

As Globalization brings growth ,it consumes more nonrenewable natural resources and increases environmental damage .

For eg ;- deforestation , vehicle emissions,

Air pollution, despoliation of toxic

chemicals runoff into rivers & oceans

3.Growing Income Inequality

• The shift of job speeds up the process by which India narrows its economic gap with US.

• The process of shifting production to a foreign country is called off shoring.

• For example :- Case of sports industry where globalization enabled European Teams to lure Brazilian sports soccer, Brazilian gain nothing economically .

Why Companies Engage in IB ?

• Expanding Sales

• Acquiring resources

• Minimizing risk

1.Expanding Sales

Company sales depend on 2 factor Consumer interest and consumer willingness.

For example :- Companies like IBM (US), Ericsson ( Sweden), Nestle (Switzerland ), Sony(Japan) derive more than half of their sales outside their home countries.

2.ACQUIRING RESOURCES

• Producers seek out product ,m services, resources, and components from foreign countries .

• Firm gains competitive advantage by improving product quality or by differentiating products from competitors .

3.MINIMIZING RISK

• International operation may reduce operating risk by :-

1. Smoothing sales and profit

2. Preventing competitors from gaining advantages.

Modes of Operations in International Business

• Merchandise Exports and Imports

• Services Exports and Imports

Tourism and transportation

Service performance

Asset use

• Investments

Direct investments

Portfolio investments

Merchandise exports and imports

• Exports and imports are the most popular modes of international business.

• Merchandise exports – tangible products –goods

• Merchandise imports – goods brought into the country.

• Also known as visible exports and imports.

Service exports and imports

• The company or individual that provides the service and receives payment makes a service export

• The company or individual that receives a service and pays for it makes a service import.

• Service export and import take many forms:Tourism and transportationService performance-banking , insurance , rental

etc.Asset use

Investment

• Dividends and interest paid on foreign investments are also – service exports and imports.

• Foreign investment means ownership of foreign property in exchange for a financial return like dividends and interest.

• Foreign investments –

direct investment

Portfolio investment

Direct investment

• In FDI (also known as direct investment) – the investor takes a controlling interest in a foreign company.

• If a foreign investor holds a minority stake and the remaining ownership is widely dispersed , person no other person can counter the decisions of the foreign investor.

• When two or more companies share ownership of an FDI – joint venture.

Portfolio investment

• It’s a non controlling interest in a company or ownership of a loan made to other party.

• Two forms –

Stock in a company

Loans to a company in the form of bonds, bills or notes purchased by the investor.

• Important for companies with extensive international operations – except stock – they are used for short term financial gain.

• Relatively safe means of earning more money on a firm’s investment.

Why International business differs from domestic business

• Factors that differentiate international business from domestic business:-

Physical factors – country’s geography

Social factors – law, culture and economy

Competitive factors – the number and strength of the companies suppliers, customers and rival firms.

Physical and social factors

• Geographic factors:

the uneven distribution of resources in the world.

Geographic barriers – mountains, deserts , jungles – affect the communication and distribution channels.

Natural disasters and adverse climatic conditions make investment riskier.

• Political policies:

political policies influence the way in which international business takes place within the borders.

Political disputes- that result in military confrontation can disrupt trade and investment.

• Legal policies:

Domestic and international laws play a big role.

domestic laws includes both – homes and host country regulations on matters such as taxation, employment and foreign exchange transaction.

International law – in the form of legal agreements between two countries – determine how earnings are taxed.

• Behavioral factors:

Principles of psychology , sociology, anthropology help managers understand the attitudes and values and beliefs in a foreign environment.

Understanding helps managers to make operational decisions in different countries.

• Economic forces:

Economics helps explain why one country can produce goods and services less expensive than another.

The competitive environment

• Competitive strategy for products:

Developing a favorable brand image

Developing unique characteristics through R&D efforts

• Company resources and experience:

Company’s national market share and brand recognition have a bearing on how it can operate in a country.

Company’s long term standing dominant market position uses operating tactics quite different from those employed by a new comer.

• Competitors faced in each market:

Success in a market depends on your competition. Whether its local or international.

THANKYOU