BBA II SEMESTER BUSINESS ENVIRONMENT

UNIT 5
GLOBAL ENVIRONMENT

GLOBALIZATION BUSINESS
Global business, also called international business, is the production and sale of goods and
services between countries. The term can also encompass the nuances, politics, and dynamics of
doing business in a global economy.
GLOBALIZATION
The term globalisation refers to the integration of the economy of the nation with the world
economy. It is a multifaceted aspect. It is a result of the collection of multiple strategies that are
directed at transforming the world towards a greater interdependence and integration.
It includes the creation of networks and pursuits transforming social, economical, and
geographical barriers. Globalisation tries to build links in such a way that the events in India can
be determined by the events happening distances away.
DIFFERENT DIMENSIONS OF GLOBALIZATION
All the organizations that participated in this study highlighted certain aspects of globalization
that will prove that globalization leads itself to multifaceted interpretations. These dimensions
may be grouped under the following categories: economic, political, social, technology and
cultural. Table 1 below shows the range of understanding and the array of approaches of these
organizations.
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Acknowledgment of the richness and diversity of the perceptions of these organizations on

globalization is vital to a better appreciation of their concerns on the said phenomenon. But
grappling with perceptions is not an easy task as it may at times lead to trivialization or
confusion. To avoid these caveats, a more detailed discussion of each dimension of globalization
is therefore in order. The results of the interviews were summarized and tabulated in detail
according to the five (5) distinct categories that were mentioned above. The order by which these
answers.
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 STAGES OF GLOBALIZATION OF BUSINESS

1. Domestic Company

Market potential is limited to the home country. Production and marketing facilities are located
at home only. Surplus may or may not be exported. There are no overt efforts to develop foreign
markets. It may add new product lines, serve new local markets but whole planning is limited to
national markets only.

Features:

i. Their focus remains with domestic market.

ii. Their productions facilities remain based in home country. Their analysis is focused on the
national market.

iii. They do not think globally and avoid taking risk in going global.

iv. Their top management may have traditional kind of business management competency and
less global expertise.

v. They perceive that there is risk in expanding into global market and thus they try to play safe
and satisfied with whatever gains they are getting in domestic market.

2. International Company
Some ambitious efficient domestic companies after going beyond their domestic marketing
capacities start thinking of expanding their operations in International Markets. The main
strategies for entering international market is:

a) Off-shoring/global outsourcing (seeking cheaper source of raw material or labour)

b) Exporting
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c) Licensing

d) Franchising

e) Joint Ventures/Acquisitions

f) Direct Investments

Even though they think of international markets, still they are of ethnocentric or domestic
oriented. These companies adopt the strategy of locating the branches of their companies in other
countries and practice the same domestic operations in foreign markets, including the same
promotion, price, product etc. policies.

Features:

I. Focus on going beyond, domestic

ii. Their management remains ethnocentric with a vision to expand internationally. They extend
their domestic products, domestic prices and other business practices to foreign countries.

iii. They keep their marketing mix constant and extend their operations to new countries.

iv. Their management style remains centralized for their home nation and extended top down to
the overseas market country.

3. Multinational Company
After sometime, international companies realize that the domestic model and practices adopted
through extension policies do not serve the purpose. The foreign customers may not prefer the
products that are sold in domestic market. Hence, these companies respond to the needs of
different customers in different countries and produce such goods and services that will satisfy
them.

Features:

i. Companies when they spread their wings to more nations become multinational companies.

ii. Sooner or later they realize that they have to change their marketing mix according to the
foreign market.

iii. This can also be termed as multi domestic ,in which different strategies are adopted for
different market.

iv. The management of such companies remains decentralized and even production may be in the
host country.
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v. Performance evaluation is done at different host countries.

4. Global

The global company adopts global strategy for marketing its products. It may produce either in
the home country or in any other single country and market its products throughout the world. It
may also produce the products globally and market them domestically.

Features:

i. Such companies have a global marketing strategy.

ii. They either produce in home country or in a single country and focus marketing globally.

iii. They adapt to the market conditions according to the foreign market.

iv. Their performance evaluation is done worldwide.

5. Transactional Company

Transactional Company operates at the global level by way of utilizing global resources to serve
the global markets. It has geocentric orientation and has integrated network .Its key assets are
dispersed and every sub-unit of the company contributes towards achievement of the company
objectives. It produces best quality raw materials from the cheapest source in the world, process
them in the country wherever it is economical and sells the finished products in those markets
where prices are favourable.

Feature:

i. Transnational companies have a geocentric approach, which means they think globally and act
locally.

ii. Transnational companies collect information worldwide and scan it for use beyond
geographical boundaries.

iii. The vision of such to grow more in a global way.

iv. The R&D, management, product development are shared worldwide.

v. Their human resources procurement and development remains globally.

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ESSENTIAL CONDITIONS FOR GLOBALIZATION

1. Business Freedom: There should not be unnecessary government restrictions which come in
the way globalization like import restriction, restrictions on sourcing finance or other factors
from abroad, foreign investments etc.
2. Facilities: The extent to which an enterprise can develop globally from its home country base
depends on the facilities available like the infrastructural facilities.
3. Government Support: Unnecessary government interference is a hindrance to globalization,
government support can encourage globalization.
4. Resources: Resources is one of the important factors which often decide the ability of a firm
to globalize. Resourceful companies may find it easier to thrust ahead in the global market.
5. Competitiveness: The competitive advantage of the company is a very important determinant
of success in global business. A firm may derive competitive advantage from any one or more of
the factors such as low costs and price, product quality, product differentiation, technological
superiority, after-sales services, marketing strength etc.
6. Orientation: A global orientation on the part of the business firms and suitable globalization
strategies are essential for globalization.

 FOREIGN MARKET
Foreign markets are any markets outside of a company's own country. Selling in foreign markets
involves dealing with different languages, cultures, laws, rules, regulations and requirements
Companies looking to enter a new market need to carefully research the potential opportunity
and create a market entry strategy.
FOREIGN MARKET ENTRY STRATEGY AND RULES
A market entry strategy is the intended process of delivering goods or services to an intention
market and distributing them there. There are multiplicities of ways in which a business or
organization can come into a foreign market. No one market entry strategy moving parts for all
international markets. Direct exporting may be the majority suitable plan in one market while in
another you may require setting up a joint venture and in another you may well license your
manufacturing. There will be a number of factors that will manipulate your selection of strategy,
including, but not limited to, tariff rates, the degree of adjustment of your manufactured goods
required, marketing and transportation costs. The following strategies are the main entry options
open to you.
1. Licensing: Licensing is a comparatively complicated agreement where a firm transfers the
privileges to the use of a product or service to another firm. It is a principally helpful approach if
the buyer of the license has a moderately big market share in the market you want to enter.
Licenses can be for marketing or production.
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2. Franchising: Franchising works well for firms that have a repeatable business model (eg food
outlets) that can be simply transferred into other markets. Two caveats are required when
considering using the franchise model. The first is that your business model should either be very
unique or have strong brand recognition that can be utilized internationally and secondly you
may be creating potential competition in your franchisee.
3. Direct Exporting: Direct exporting is selling openly into the market you have selected using
in the first occurrence you own resources. Many companies, once they have established a sales
program turn to agents and/or distributors to represent them further in that market. Agents and
distributors work closely with you in representing your interests.
4. Partnering: Partnering is nearly an obligation when entering foreign markets and in some
parts of the world (e.g. Asia) it may be required. Partnering can take a diversity of forms from an
easy co-marketing arrangement to a sophisticated strategic alliance for manufacturing Partnering
is an above all helpful policy in those markets where the culture, both business and social, is
substantively different than your own as local partners bring restricted market knowledge,
contacts and if selected cleverly consumers
5. Joint Ventures: Joint ventures are an exacting form of partnership that involves the formation
of a third independently managed company. It is the 1+1-3 process. Two companies agree to
work together in a particular market, either geographic or product, and create a third company to
undertake this Risks and profits are usually shared equally. The best example of a joint venture is
Sony/Ericsson Cell Phone.
6. Buying a Company: In some markets buying an existing local company may be the majority
suitable entry strategy. This may be because the company has considerable market share, is a
direct competitor to you or due to government regulations this is the only option for your firm to
enter the market. It is certainly the most costly and determining the true value of a firm in a
foreign market will require substantial due diligence.
7. Turnkey Projects: Turnkey projects are exacting to companies that offer services such as
environmental consulting, architecture, construction and engineering. This is an exceptionally
fine way to enter foreign markets as the client is usually a government and often the project is
being financed by an international financial agency such as the World Bank so the risk of not
being paid is eliminated.
8. Greenfield Investments: Greenfield investments necessitate the greatest involvement in
international business. A greenfield investment is where you buy the land, build the facility and
operate the business on an ongoing basis in a foreign market. It is positively the most costly and
holds the highest risk but some markets may require you to undertake the cost and risk due to
government regulations, transportation costs, and the aptitude to admit knowledge or expert
labor.
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 ADVANTAGES OF GLOBALIZATION | BENEFITS OF GLOBALIZATION

 The advancements in science and technology allowed business to easily cross the
boundaries of the territories. Due to this, various companies have been able to turn into
multinational companies and have increased productivity and raised the standard of living
as well as improved the quality of the goods produced.
 Several companies have been able to spread from national to international spree and have
opened various branches in several foreign countries.
 Globalization has helped the underdeveloped countries to step in the stair of developing
countries and the less developed countries have been able to develop more by measuring
their diversities.
 Due to globalization, a growth in the field of education has taken place worldwide. There
are places where there were no schools or other educational facilities. But today,
globalization has helped these countries to shed their backwardness in terms of literacy.
 Globalization also enabled the increase in employment opportunities and also stressed the
distribution of equal wages among the laborers.

 DISADVANTAGES OF GLOBALIZATION DEMERITS OF GLOBALIZATION

 The multinational companies have been socially unfair. Laborers are made to work for
more hours illegally for more production and paid less.
 Globalization has made the rich richer and the poor poorer. The middle class suffer the
most in the process. Globalization itself is a phenomenon that is developing countries, but
it does not reduce poverty.
 Misuse and mismanagement of natural resources is another drawback of globalization.
 The dominance of powerful nations over the poor ones also exists. Thus the still existing
underdeveloped countries suffer.
 Growth of trade deficit and balance of payment problems takes place due to more imports
than exports. This is a result of globalization.
 Villages are being removed and the poor suffer loss of shelter. The system of
globalization does not promote anything for the betterment of the poor.

 IMPACT OF GLOBALIZATION ON INDIAN DEVELOPMENT

Globalization has been defined as the process of rapid integration of countries and happenings
through greater foreign trade and foreign investment. It is the process of international integration
arising from the interchange of world views, products, ideas and other aspects of culture
The various beneficial effects of globalization in Indian Industry are that it brought in huge
amounts of foreign investments into the industry especially in the BPO, pharmaceutical,
petroleum, and manufacturing industries. As huge amounts of foreign direct investments (FDI)
were coming to the Indian Industry, they boosted the Indian economy quite significantly.
The benefits of the effects of globalization in the Indian Industry are that many foreign
companies set up industries in India, especially in the pharmaceutical, BPO, petroleum,
BBA II SEMESTER BUSINESS ENVIRONMENT

manufacturing, and chemical sectors and this helped to provide employment to many people in
the country.
This helped reduce the level of unemployment and poverty in the country. Also the benefit of the
Effects of Globalization on Indian Industry are that the foreign companies brought in highly
advanced technology with them and this helped to make the Indian Industry more
technologically advanced.
The various negative Effects of Globalization on Indian Industry are that it increased competition
in the Indian market between the foreign companies and domestic companies. With the foreign
goods being better than the Indian goods, the consumer preferred to buy the foreign goods. This
reduced the amount of profit of the Indian Industry companies. This happened mainly in the
pharmaceutical manufacturing, chemical, and steel industries.
The negative Effects of Globalization on Indian Industry are that with the coming of technology
the number of labor required decreased and this resulted in many people being removed from
their jobs. This happened mainly in the pharmaceutical, chemical, manufacturing, and cement
industries. The effects of globalization on Indian Industry have proved to be positive as well as
negative. The government of India must try to make such economic policies with regard to
Indian Industry's Globalization that are beneficial and not harmful.

 IMPACT ON INDIAN INDUSTRY

→India opened up the economy in the early nineties following a major crisis that led by a
foreign exchange crunch that dragged the economy close to defaulting on loans.
→ The response was a number of Domestic and external sector policy measures partly prompted
by the immediate needs and partly by the demand of the multilateral organizations.
→ The new policy regime radically pushed forward in favor of a more open and market oriented
economy.
Major measures initiated as a part of the liberalization and globalization strategy in the early
nineties included: scrapping of the industrial licensing regime reduction in the number of areas
reserved for the public sector amendment of the monopolies and the restrictive trade practices act
start of the privatization program reduction in tariff rates and change over to market determined
exchange rates.
 Impact of Globalization on the Indian Industry

a. MNCs have increased their investments in India over the past 15 years.
b. Large Number of Multinationals Have Moved to India Post Globalization. Beverages
Fast Foods Coffee Sportswear & Goods Apparels & Garments.
c. Some larger Indian companies have emerged as multinationals themselves.
d. Creation of new opportunities for companies providing service, particularly those
involving IT.
e. Reduction in the level of unemployment and poverty in the country
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 Effects of Globalization on Indian Industry started when the government opened the
country's markets to foreign investments in the early 1990s. Globalization of the Indian
Industry took place in its various sectors such as steel, pharmaceutical petroleum, chemical,
textile, cement, retail, and BPO. The various beneficial effects of globalization in Indian
Industry are that it brought in huge amounts of foreign investments into the industry
especially in the BPO, pharmaceutical, petroleum, and manufacturing industries. As huge
amounts of foreign direct investments were coming to the Indian Industry, they boosted the
Indian economy quite significantly.
The benefits of the effects of globalization in the Indian Industry are that many foreign
companies set up industries in India, especially in the pharmaceutical, BPO, petroleum,
manufacturing, and chemical sectors and this helped to provide employment to many people
in the country. This helped reduce the level of unemployment and poverty in the country.
Also the benefit of the Effects of Globalization on Indian Industry are that the foreign
companies brought in highly advanced technology with them and this helped to make the
Indian Industry more technologically advanced.

 Negative Effects of Globalization

 Agriculture on the backburner

 Disparity between rural and urban India
 Unemployment (ILO Report) Growth of Slum Capitals
 Threat of terrorism.
The various negative Effects of Globalization on Indian Industry are that it increased competition
in the Indian market between the foreign companies and domestic companies With the foreign
goods being better than the Indian goods, the consumer preferred to buy the foreign goods. This
reduced the amount of profit of the Indian Industry companies. This happened mainly in the
pharmaceutical, manufacturing, chemical, and steel industries.
The negative Effects of Globalization on Indian Industry are that with the coming of technology
the number of labor required decreased and this resulted in many people being removed from
their jobs.
This happened mainly in the pharmaceutical, chemical, manufacturing, and cement industries.
The effects of globalization on Indian Industry have proved to be positive as well as negative.
The government of India must try to make such economic policies with regard to Indian
Industry's Globalization that are beneficial and not harmful.
 FORMS OF GLOBALIZATION OF BUSINESSES

1. Political globalization: Political globalization refers to the amount of political cooperation

that exists between different countries.
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This ties in with the belief that "umbrella" global organizations are better placed than
individual states to prevent conflict. The League of Nations established after WWI was
certainly one of the pioneers in this. Since then, global organizations such as the World Trade
Organization (WTO), United Nations (UN). and more regional organizations such as the EU
have helped to increase the degree of political globalization.
2. Social globalization: Social globalization refers to the sharing of ideas and information
between and through different countries. In today's world, the Internet and social media is at
the heart of this. Good examples of social globalization could include internationally popular
films, books and TV series. The Harry Potter/ Twilight films and books have been successful
all over the world, making the characters featured globally recognisable. However, this
cultural flow tends to flow from the center (ie. from developed countries such as the USA to
less developed countries). Social globalization is often criticized for eroding cultural
differences.
3. Economic globalization: Economic globalization refers to the interconnectedness of
economies through trade and the exchange of resources.
Effectively, therefore, no national economy really operates in isolation, which means national
economies influence each other. This is clearly evidenced by the global recession from 2007
onwards. Economic globalization also means that there is a two-way structure for
technologies and resources. For example countries like the USA will sell their technologies
to countries, which lack these, and natural resources from developing countries are sold to
the developed countries that need them.

4. TNC { Transnational companies }:

Transnational companies are decentralized and capable of burgeoning their revenue in
contact with local markets rather than having any specific homeland for themselves.
Originally, the term TNC was introduced during the eighteenth century around the lands in
Western Europe. Back then, East India company was a prevailing Transnational Company.
Their strategic ideas are much appreciated as they target economically developed countries
for commerce in a way to merit cheap labor for better production Over and above, they are
always in economics good books, as they can shift their resources as well as operations to
any location. Their chief intention is to provide their shareholders with the best profit of their
lives.
TNC has been a globally operated corporation whose only jackpot is the dynamic flux of
foreign investments around their headquarters. Since they are able to operate their own
company, it is not a big deal for them to establish their own decisions alongside local
markets. Such companies include Nestle, as most of the profits are contributed by foreign-
based factory floors.
Other examples of TNC are McDonald's, Apple, Starbucks, and you name it, which
companies have a globally engrossing contribution with no official motherland.
5. MNC { Multinational Company }:
MNC is an abbreviated form of Multinational Company. It owns a home company as well as
its subsidiaries, unlike TNC, which only owns many companies around the globe. They are
counted as the best opportunity among the upcoming job seekers, as it creates an
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environment with lots of business with top companies. In the abstract, most of the MNC's
jobs include importing-exporting goods and services, investments with foreign-based
companies, manufacturing operations, and so on.
Due to emerging globalization, they were often criticized for inequality. unemployment, tax
avoidance, and wage stagnation among non-natives. However, they had brought in the best
raw materials from abroad to their homeland. Microsoft is a good example of MNC, as they
lend their trade in foreign lands, such as India, with its headquarters in America. Other
examples are Coca-Cola, Sony Corporation, IBM, etc.

 Comparison Table Between TNC and MNC

Parameters
of TNC MNC
comparison
Meaning Transnational Corporation is a Multinational Corporations is a
decentralized enterprise subsumes centralized company that runs the
its production of goods and production of goods, services,
services, Fx or any investments investment and management in its home
with more than one country. TNC country as well as in other countries.
set its network in developing
countries for cheap cost of
production.
History TNC incipient in the 16th Century In 1601, the East India Company
in Western Europe. Later in the emerged as a Multinational Company
19th Century, TNC emerged trading goods and services globally.
widely in the field of industrial Later in 1603, the Dutch East India
capitalism, with burgeoning Company was a twin MNC to the East
involvement by many companies Indian Company.
mainly in the US and western
European nations.
Headquarters TNC Headquarters isn't located in MNC main Headquarters located in its
its home country but in some other home country where the production of
developing country where goods began initially.
production occurs.
Structure Transactional corporation follow a Multinational corporation is a
decentralized structure - the centralized management structure,
corporation operates in numerous where the home country is considered
countries where goods and services the main headquarters while operating
are produced. other countries for production.
Examples A renowned company Nestle is a Microsoft, Coca-cola, IBM and Apple
transactional company that runs its etc. are the renowned Multinational
operations in more than one companies in the world.
developing countries.