ib class 01
TRANSCRIPT
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T.J. Joseph
Globalization &International
Business
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Contents Introduction to International Business
Debate on Globalization
Political Economy of International Business
Cultural Environment of IB
Ethical Issues in IB
International Trade Theory and Applications
Instruments of Trade Policy
International Economic Integration and Institutions
Balance of Payments and Foreign Exchange Market
Foreign Direct Investment and MNEs
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Distribution of Marks
Component MarksGroup Project 10
Case Analysis and Presentations 10
Class participation 05
Attendance 05
Mid-Term Examination 20
End-term Examination 50
TOTAL 100
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What is International Business?
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
Business activities that involves the transfer ofresources, goods, services, knowledge, skills, orinformation across national boundaries/borders
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Participants in International Business
Parties involved 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
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How International Business?
International Business Transactions:Activities
crossing national boundaries
Mainly manifested in two ways:
International trade refers to exports and imports of
goods and services across the borders of a country
Bilateral trade, multilateral trade, pluri-lateral trade
International investments implies cross-border
transfer of resources to carry out business activities
outside home country
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Modes of International Business
International Trade
Merchandise exports and imports
Tangible items (e.g., cars, televisions, etc.) Service exports and imports
Tourism and transportation
Performance of services
Use of intangible assets
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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
Modes of International Business
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International Vs. Domestic Business International business is mostly the outgrowth of
domestic business (eg. Japanese car makers)
International business is more riskierthan domesticbusiness (because countries are different)
Differences in environmental dynamics Diversity between countries with respect to economic
growth, inflation, interest rates, cultures, social customs,business practices, laws, political systems, technology, etc.
Operational nature become more complex Receipts and payments in multiple currencies, different
accounting methods, consumers, employees, regulators,and the competitors
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International versus Domestic BusinessDifferences in environment of their operations
Economic Environment:
Differences in tariff structures and trade promotionschemes
Differences in currencies (exchange rate), inflation, interestrates, accounting practices, etc.
GDP growth and purchasing power (Economic stability)
Socio-Cultural Environment: Cultures, social customs, business practices, etc.
Social and cultural norms and values differ betweencountries
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International Vs. Domestic Business
Political and Legal Environment Political stability and government policies affects
international business
Changes in trade policies, fiscal policies and other policies
are taken in view of the political priorities of the govt.
Foreign exchange regulations and foreign investment
policies
Well-developed sound legal system may provide unbiasedand fair treatment in international business
Uniformity in interpretation of laws and clarity of legal
procedures
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International Vs. Domestic Business Competition
More severe competition in international market than in
domestic market because of various similar products from
different countries
Infrastructure Financial, institutional and physical infrastructure
More important is physical infrastructure in the form of
roads, telecommunication, ports, etc.
Technology
Opportunity for knowing and getting highly cost-effective
technologies, especially for developing countries
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Why do Firms Expand Internationally?
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Why do Firms Expand Internationally?
Market Motives:
To expand their sales
Seize market opportunities in foreign countries through
trade or investment
Economic Motives:
For higher returns (profitability) through higher revenues
and/or lower costs by obtaining cheap resources Achieving economies of scale
Spreading R&D cost
Ref: SL, pp11-12
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Why do Firms Expand Internationally?Strategic Motives:
To capitalize on their distinctive resources or
capabilities already developed at home
Technological leadership, brand image, customer loyalty,
and competitive position
To take first mover advantage
Vertical integration involving different countries
To follow the major customers abroad (proximity to
customers)
Japanese tire maker Bridgestone entering US market
Ref: SL, pp11-12
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What is Globalization?
Globalization is the closer integration of thecountries and peoples of the world, brought about
by the enormous reduction in the costs of
transportation and communication and the
breaking down of artificial barriers to the flow of
goods and services, capital, knowledge, and (to a
lesser extent) people across the borders
Ref: Joshi, p-7
Westernization, Americanization, Walmartization,McDonaldization, Disneyfication, Coca-Colanization, etc.
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What is Globalization?
Globalization of markets (Economies of scale):
National markets are giving way to global markets
(examples)
Globalization of production: To take advantage of
national differences in the cost and quality of
factors of production (examples)Emergence of Global Institutions like WTO, IMF,
World Bank, United Nations
Globalization refers to the shift toward a moreintegrated and interdependent world economy
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What is Globalization?
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 capitalmovements and spurt in cross-border capital flows
Globalization may be defined as the process ofintegration and convergence of economic, financial,
cultural, and political systems across the world
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What is Globalization?
Cultural Globalization: The convergence of
cultures across the world, which is evident by its
impact on people and their lives
Political Globalization: The convergence ofpolitical systems and processes around the world
(the decline of communist systems and the rise of
democratic systems)
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Drivers of Globalization
Macro Factors:(a) Declining Trade and Investment Barriers
Liberalization and privatization, changing world
order, etc.(b) Technological Change
Microprocessors and telecommunications
The Internet and World Wide Web (services trade) Transportation technology (containerization)
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Drivers of Globalization Reasons for Recent International Business Growth
Expansion of technology:
Transportation is quicker
Communications enable control from afar
Internet: drastic decline in the transaction cost of transferring
ideas and information
Transportation and communications costs are more conducive
for international operations
Liberalization of cross-border movements
Lower governmental barriers to the movement of goods,
services, and resources enable companies to take better
advantage of international opportunities
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Development of supporting institutional arrangements
Institutional arrangements
Are made by business and government
Ease flow of goods
Reduce risk
Increase in global competition
More companies operate internationally because
New products quickly become global
Companies can produce in different countries
Domestic companies competitors, suppliers, and
customers become international
Drivers of Globalization
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Initial years of human history, people remained confined
to their communities, villages, or local regions
Hardly any formal barriers such as tariffs or non-tariff
restrictions for the movement of goods or visa
requirements for people
Pre-World War I period (1870-1914): rapid integration of
economies in terms of trade flows and people movement
Two World Wars (1914-1945): brought various
restrictions on the movements of goods and services
After 1945: there was a drive to increased integration
(World Bnak, GATT, IMF, etc.)
Globalization: Historical Perspective
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How to Measure Globalization?
Components ofGlobalization Index:- (A.T.Kearney) Economic Integration: trade, FDI, portfolio capital
flows, income flows (profits, wages, etc.)
Personal Contact: Travel & tourism, telephone traffic
Technology: No. of internet users, technology
collaborations
Political Engagement: memberships in internationalorganizations, foreign embassies, participation in UN
missions
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Who Benefits from Globalization?
Developed countries are high on globalization while
developing countries are not (Why?)
Widening gap between the rich and the poor
Globalization can be a threat to the sovereignty of
nations
It exposes national economies to uncertainties of
global economy
Globalization is a complex phenomenon. It haswinners and losers at various levels
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The Globalization Debate
Job losses at home (1999 Seattle anti-globalizationprotests and protests against outsourcing)
It comes at the expense of the environment
Human right violations (e.g., sweatshops)
Cultural imperialism of global media and MNCs
It enhances the monopoly power of large MNCs
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The Globalization DebateTo a consumer, globalization means more choices at better
quality and lower prices
Forjob seekers, more employment opportunities
For business, wider market for their products and services
(economies of scale)
For producers, expanded availability of resources and
technology and knowledge transfer
For the economy, economic development and growingprosperity
Reduce global divide by advancing to a homogeneous
civilization and a uniform business system
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Success of Globalization-Conditions
Globalization could be more advantageous toparticipating nations ifglobal infrastructure is better
developed
Global infrastructure includes
Institutional framework (multilateral agreements
in trade, investment, and service)
Market efficiency(capital market and foreign
exchange market)
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In the long run, globalization generally leads to:
higher living standards
more efficient resource usage
greater access to technology, products, and
services
In particular, liberalization of markets appears to
enhance income levels
Consequences of Globalization
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Countless new business opportunities for
internationalizing firms
New risks and intense rivalry from foreign
competitors More demanding buyers who source from suppliers
worldwide
Greater emphasis on proactive internationalization
Internationalization of firms value chain
Consequences of Globalization
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Restraining factors
Movers
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The Drivers and Consequences of Market
Globalization - Summary
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Online Resources1. Global Fortune 500 companies in 2010.
http://money.cnn.com/magazines/fortune/global500/2010/full_list/
2. China duties to hit US chicken imports:http://www.bbc.co.uk/news/business-11415036
3. US Congress approves China sanctions bill:http://www.bbc.co.uk/news/business-11407254
4. Car Industry: Around the World - interesting articles:http://www.bbc.co.uk/news/business/global_car_industry/
5. Best Global brands:http://images.businessweek.com/ss/06/07/top_brands/source/1.htm
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References
1. Chapters 1, International BusinessbyCharles W. Hill and Arun K. Jain, Tata McGrawHill publication.
2. Chapter 2, International Business byOdedShenkar and Yadong Luo, Wiley publication.
3. Chapter 1, International Businessby Rakesh
Mohan Joshi, Oxford Publications