CH 1, Overview of International Business and Globalization

Overview of International Business and
Globalization
 Jashim Uddin, PhD

Associate Professor, East West University, Bangladesh
Globalization is a process of interaction and integration among
the people, companies, and governments of different nations, a
process driven by international trade and investment and aided by
information technology. This process has effects on the
environment, on culture, on political systems, on economic
development and prosperity, and on human physical well-being in
societies around the world.
Globalization refers to the widening set of interdependent
relationship among people from different parts of a world that
happens to be divided into nations. The term sometimes refers to
the elimination of barriers to international movement of goods,
services, capital, technology, and people that influence the
integration of the world economies.
International Business (IB) defined as all about commercial

transactions-private and governmental-between two or more
countries. These transactions include sales, investments, and
transportation that take place between two or more countries.
Why Companies Engage in IB
To expand sales: A country’s market size always
have a limit and reduction of AFC (average fixed
cost) require increased production volume
To acquire resources: Natural resources and
locations, products, services, components,
technologies, information from another country can
not be usable without IB
To minimize risk: Taking the advantage of
business cycle situations-recessions to expansions-in
different countries. Diversify suppliers across
countries. Counter competitor’s advantage.
Forces behind globalization
 Expansion of technology in transportation and
communication networks
 Liberalization of cross-border trade (average tariff just at 4%) and
resource movements (favorable environment for FDI and global production)
 Development of services and institutions that
support and facilitate international trade (WTO, IMF, WB, UN,OECD)
 Growing consumer demand for foreign products

 Increase in global competition
Changing political situation and government policies
Expanded cross-national cooperation
Changing demographics of global
economy
 In 1960, the U.S. accounted for over 40% of world economic activity, but by
2009, the U.S. accounted for just 24%. It is expected that developing nations
will account for more than 60% of world economic activity by 2020.
 During the 1960s, the United States routinely accounted for 20 percent of
world exports of manufactured goods. But, the U.S. share of world exports of
goods and services had slipped to 9.3 percent by 2008. Despite the fall, the
United States still remained the world’s largest exporter, ahead of Germany,
Japan, France, and the fast-rising economic power, China.
 In the 1960s, U.S. firms accounted for about two-thirds of worldwide FDI
flows. Today, the United States accounts for less than one-fifth of worldwide
FDI flows and other developed countries have followed a similar pattern. In
contrast, the share of FDI accounted for by developing countries has risen.
 In the 1960s, global business activity was dominated by large U.S.
multinational corporations. With U.S. firms accounting for about two-thirds of
foreign direct investment during the 1960s, one would expect most
multinationals to be U.S. enterprises. By 2006, of the world’s 100 largest
nonfinancial multinationals, 24 were now U.S. enterprises; 13 were French;
12, German; 12, British; and 9, Japanese. Most importantly, seven firms from
developing economies had entered the UN’s list of the 100 largest
multinationals by 2006.
The Criticisms of Globalization
 Threats to national sovereignty
 Costs of environmental degradation for
economic growth
 Increasing income inequality and personal
stress
Anti globalization forces may use both

peaceful and violent means to stop or slow
the globalization process. Offshoring (the
transferring of production to foreign sites) is
particularly controversial.
General Influences Operations
Physical and Social Objectives
Factors •Sales Expansion
•Political policies and legal •Resource acquisition
practices
•Risk minimization
•Cultural factors
•Economic factors Strategy
•Geographical Influences Means
Modes Functions Overlaying

Alternatives
Competitive Environment •Importing and Exporting •Marketing
Choice of
•Competitive strategy for •Tourism and •Global
countries
transportation manufacturing
products
and supply-chain Organization
•Company resources and •Licensing and management and control
Franchising mechanisms
experience •Accounting
•Turnkey operations
•Competitors faced in each •Finance
country •Management contracts
•Human resources
•Direct and portfolio
investment
Modes of IB
 Merchandise Imports &
Exports
 Service Imports & Exports
ǿ Tourism & Transportation
ǿ Performance & Services
ǿ Use of assets
 Investments
ǿ Direct investment
ǿ Portfolio investment
Terms to Describe International

Companies
Any business that has foreign direct investment is said as
MNE.
Multinational Enterprise (MNE) and Multinational
Corporation (MNC) are used synonymously to express their
international involvement, all the internationally involved
companies are not organized as corporations. Thus MNE is
more preferred term. Another interchangeable term,
Transnational Company (TNC) is mostly used by UN.
 Companies international operations can be in any point

within a large continuum between globally integrated stance
and multi-domestic/locally responsive stance.
Political and Societal Factors
 Political policies and legal practices: Decisions related to
IB are taken by politicians. Domestic and international laws
are shaping up the do’s and don’ts for businesses.
 Cultural factors: Culture explains people’s social and
mental development, behavior and interpersonal activities.
 Economic forces: Economics explains the need for
exchanging goods & services, economic opportunity and
capital flow, changes in currency value, cost of production etc.
 Geographical influences: Geographical attributes affect on
communication and distribution channels. Probability of
natural disasters and reserves of minerals have international
considerations for trade and investment.
The Competitive Environment
 Competitive strategy for products
 Company resources and experience in host country
 Competitors faced in each market
Countervailing Forces
Globally standardized versus nationally responsive practices
Standardized production and development ensures reduced cost but always one size
does not fit all. In several cases multi-domestic approach can be better than global
approach.
 Country versus company competitiveness
Global operations can generate gain for companies but it may not express the same
for their home country’s competitiveness and home country government also can
limit business activities to increase country competitiveness.
 Sovereign versus cross-national relationship
Cooperation among countries generally arise for reciprocal advantage, jointly
attacking problems, solving problems of the areas that lie outside the territory of all
countries.

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Overview of International Business and

 Jashim Uddin, PhD

International Business (IB) defined as all about commercial

 Growing consumer demand for foreign products

Anti globalization forces may use both

Modes Functions Overlaying

 Companies international operations can be in any point

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