Mid-Term Revision Notes for

Global Business
Units I, II and III

Sree Aditya Manoj Yallapragada (2123248)

UNIT I - INTRODUCTION TO GLOBAL BUSINESS:

Evolution of International Business, Nature of International Business, Need and Importance

of International Business, Stages of Internationalisation, MNC s and India, OECD Guidelines
for Multinational Enterprises. a) Concepts and Principles b) General Policies c) Disclosure, d)
Employment and Industrial Relations, e) Environment, f) Combating Bribery, g) Consumer
Interests h) Science and Technology, i) Competition, j) Taxation, (EPRG) Approaches to
International Business, Theories of International Business – Mercantilism , Absolute
Advantage, Comparative Advantage, Factor Endowment, Competitive Advantage, Tariff and
Non-Tariff Barriers, Introduction to Political, Economic, Social-Cultural and Technological
Environment of International Business.

1. Evolution of International Business:

● International business has a long history, dating back to ancient civilizations like the
Silk Road and Phoenician trade routes.
● It has evolved with advancements in transportation, communication, and
globalisation.
● Contemporary international business involves the exchange of goods, services, and
ideas across borders.

2. Nature of International Business:

● International business deals with cross-border transactions involving goods, services,
and information.
● It faces challenges such as currency exchange rates, cultural differences, legal
frameworks, and political instability.
● Companies engage in international business to access new markets, reduce costs, and
diversify risks.

3. Need and Importance of International Business:

● International business fosters economic growth, job creation, and technological
advancements.
● It allows firms to tap into larger customer bases and benefit from global resources.
● It promotes cultural exchange and understanding among nations.

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4. Stages of Internationalisation:
● Initial stage: Domestic operations.
● Export stage: Selling products abroad.
● Licensing and franchising: Granting rights to foreign entities.
● Joint ventures and strategic alliances: Collaborating with foreign partners.
● Full globalisation: Establishing subsidiaries and operations abroad.

5. MNCs and India:

● Multinational Corporations (MNCs) operate in multiple countries, including India.
● They bring investment, technology, and employment opportunities to India.
● However, concerns about their impact on local industries and culture exist.

6. OECD Guidelines for Multinational Enterprises:

● OECD (Organization for Economic Co-operation and Development) provides
guidelines for responsible business conduct.
● These guidelines cover various aspects, including disclosure, employment,
environment, anti-bribery, consumer interests, science and technology, competition,
and taxation.

7. EPRG Approaches to International Business:

● Ethnocentric: Home country's values and practices are applied globally.
● Polycentric: Tailoring strategies to host country's norms and practices.
● Regiocentric: Adapting strategies to a specific region.
● Geocentric: Seeking global integration while acknowledging local differences.

8. Theories of International Business:

● Mercantilism: A country's wealth is determined by the accumulation of precious
metals through exports and trade restrictions.
● Absolute Advantage (Adam Smith): A country should specialise in producing goods it
can produce more efficiently than others.
● Comparative Advantage (David Ricardo): Countries benefit by specialising in
producing goods with lower opportunity costs.
● Factor Endowment (Heckscher-Ohlin): Trade is driven by differences in factor
endowments like labour and capital.

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 ● Competitive Advantage (Michael Porter): Nations and firms achieve success by
fostering unique advantages in specific industries.

9. Tariff and Non-Tariff Barriers:

● Tariffs are taxes on imported goods, while non-tariff barriers include quotas, licensing
requirements, and quality standards.
● They can protect domestic industries but may lead to trade disputes.

10. Political, Economic, Social-Cultural, and Technological Environment of

International Business:
● The political environment includes government policies, stability, and regulations.
● The economic environment involves factors like exchange rates, inflation, and
economic growth.
● The social-cultural environment considers cultural norms, consumer preferences, and
demographics.
● The technological environment relates to innovation, infrastructure, and the adoption
of new technologies.

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UNIT II - MODES OF ENTERING GLOBAL BUSINESS:

International Business Analysis - Modes of Entry- Exporting (Direct and Indirect) Licensing,
Franchising, Contract Manufacturing, Management Contracts, Turnkey Projects, Joint
Ventures- Mergers and Acquisitions - Foreign Direct Investment - Comparison of different
modes of entry.

1. International Business Analysis:

● Before entering global business, companies conduct thorough analyses of the
international market.
● This analysis involves assessing market potential, competition, legal and regulatory
frameworks, cultural factors, and economic conditions.
● It helps companies determine the most suitable mode of entry into foreign markets.

2. Modes of Entry into Global Business:

- Exporting (Direct and Indirect):
● Direct Exporting: Selling products directly to foreign customers or
intermediaries. It requires establishing overseas sales channels and managing
export logistics.
● Indirect Exporting: Involves using intermediaries like export agents, trading
companies, or distributors to sell products in foreign markets.

- Licensing:
● A legal agreement where a company (licensor) grants another company
(licensee) the right to use its intellectual property (e.g., patents, trademarks) or
technology in exchange for fees or royalties.
● Low-risk mode, but limited control over the licensee's operations.

- Franchising:
● A form of licensing that extends to entire business concepts, including
branding, operations, and marketing.
● Franchisor provides support and guidelines to franchisees, who operate under
the parent brand.

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● Common in industries like fast food and hospitality.

- Contract Manufacturing:
● A company contracts with a manufacturer in a foreign country to produce its
products.
● Allows the company to reduce production costs and leverage local expertise.

- Management Contracts:
● Involves hiring a foreign firm to manage certain aspects of a business, such as
hotels or resorts.
● Useful when the parent company lacks local knowledge.

- Turnkey Projects:
● The parent company designs, constructs, and delivers a fully operational
facility or project to the client in a foreign country.
● Often used in construction and infrastructure projects.

- Joint Ventures:
● Two or more companies, often from different countries, collaborate to form a
new entity for a specific business purpose.
● Share risks, resources, and expertise.
● Helps navigate regulatory barriers and cultural differences.

- Mergers and Acquisitions (M&A):

● Involves purchasing or merging with an existing foreign company.
● Allows rapid market entry and access to established customer bases.
● Requires a significant investment and thorough due diligence.

- Foreign Direct Investment (FDI):

● The most comprehensive form of international business involvement.
● Involves establishing a physical presence, such as subsidiaries or branches, in
a foreign country.
● Provides greater control but involves higher risk and investment.

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3. Comparison of Different Modes of Entry:
● The choice of entry mode depends on factors like market size, risk tolerance,
available resources, and the nature of the industry.
● Exporting and licensing are low-risk, low-control options.
● Joint ventures and mergers/acquisitions provide more control but can be complex.
● FDI offers the highest control and integration but involves significant investment and
risk.

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UNIT III - GLOBALIZATION:

Meaning- Definition and Features, Globalization - Advantages and Disadvantages, Socio–

Cultural, Political and Legal and Economic Implications, Globalization and India, GATT and
WTO.

1. Meaning and Definition of Globalization:

● Meaning: Globalisation refers to the increasing interconnectedness, interdependence,
and integration of economies, cultures, societies, and political systems across the
world.
● Definition: Globalisation is the process of the world becoming more interconnected
through trade, communication, technology, and the movement of people, goods, and
ideas across national borders.

2. Features of Globalization:
● Increased Trade: Globalization leads to a surge in international trade, facilitated by
reduced trade barriers and improved transportation and communication.
● Information Flow: The rapid exchange of information and ideas through the internet
and digital technologies.
● Cultural Exchange: The blending of cultures as people from different backgrounds
interact and share their traditions and values.
● Technological Advancements: Innovations in technology drive globalisation, enabling
global communication and efficient production.
● Multinational Corporations: Globalisation is marked by the expansion of
multinational companies, which operate in multiple countries.
● Global Markets: Products and services are marketed and accessible on a global scale.
● Migration: Increased movement of people across borders for work, education, and
other opportunities.

3. Advantages of Globalization:
● Economic Growth: It stimulates economic growth by promoting trade, investment,
and access to larger markets.

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 ● Efficiency: Globalisation encourages competition, leading to increased efficiency in
production and distribution.
● Consumer Choice: Consumers benefit from a wider variety of goods and services
from around the world.
● Technological Progress: It fuels technological innovation and diffusion, driving
progress in various industries.
● Reduced Poverty: Globalisation can lift people out of poverty by creating jobs and
opportunities in developing countries.

4. Disadvantages of Globalization:
● Income Inequality: It can exacerbate income inequality, as benefits may not be
distributed evenly.
● Cultural Homogenization: Some fear that globalisation leads to the loss of cultural
diversity as Western culture influences others.
● Environmental Concerns: Rapid industrialization and globalisation can contribute to
environmental degradation and resource depletion.
● Job Displacement: Jobs can be outsourced to countries with lower labour costs,
leading to job displacement in developed countries.
● Dependency: Developing countries may become overly dependent on global markets,
making them vulnerable to economic fluctuations.

5. Socio-Cultural Implications of Globalization:

● Cultural Exchange: Globalisation allows for the exchange of cultural ideas, practices,
and products.
● Cultural Homogenization: There is concern that Western culture may dominate and
lead to the loss of local traditions.
● Cultural Hybridization: Some cultures blend with others, resulting in unique and
dynamic cultural expressions.

6. Political and Legal Implications of Globalization:

● Interdependence: Nations become more politically and economically interdependent.
● Global Governance: The need for international cooperation and governance increases
in areas like trade, security, and environmental protection.

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 ● Legal Frameworks: International agreements and organisations (e.g., WTO) play a
crucial role in shaping global trade rules and resolving disputes.

7. Economic Implications of Globalization:

● Trade Liberalisation: Reduction of trade barriers (tariffs, quotas) promotes global
trade.
● Foreign Direct Investment (FDI): Globalisation attracts FDI, which can boost a
country's economy.
● Economic Integration: Regional economic blocs like the European Union facilitate
economic cooperation.

8. Globalization and India:

● India has experienced significant economic growth and development due to
globalisation.
● It has become a major player in the IT and services industries.
● Challenges include income inequality and the need for sustainable development.

9. GATT and WTO:

● GATT (General Agreement on Tariffs and Trade): Established in 1947, it aimed to
promote international trade by reducing tariffs and trade barriers.
● WTO (World Trade Organization): Formed in 1995, it replaced GATT and expanded
its scope to cover trade in services, intellectual property, and dispute resolution.