1.

1 Global Business and

Environment
Importance of Global Business
Environment
 IMPORTANCE:
 Earn foreign exchange: By global business exports its goods and services all
over the world. This helps to earn valuable foreign exchange. These foreign
exchanges are useful to pay imports. Foreign exchange helps to make the
business more profitable and to strengthen the economy of its country.

 Optimum utilization of resources: Global business makes optimum

utilization of resources. IB utilities resources from all over the world it uses
the finance and technology of rich countries and the raw material and labor of
the poor countries.

 Achieve its objectives: Global business achieves its objectives easily and
quickly. The main objective of an international business is to earn high
profits. It has the best employees and managers who are highly skilled and
trained who produce high quality goods which are sold all over the world, it
uses the best technology.

 To spread business risk: This is because it does business all over the world,
so, a loss in one country can be balanced by a profit in another country.
 Conti...
 Improve organizations efficiency: Global business environment has very
high organization efficiency. They hire the most qualified and experienced
employees and managers.
 Get benefits from Government: It brings a lot of foreign exchange for
the country. Therefore, it receives many benefits, facilities and concessions
from the Government. It also get many financial and tax benefits from the
government.
 Expand and diversify: It can expand and diversify its activities. This is
because it earns very high profits. It also get financial help from the
government.
 Increase competitive capacity: Produces high qualified goods at low
cost. It spends a lot of money on advertising all over the world. It uses
superior technology, management techniques, marketing techniques, etc.
So it can fight competition from foreign companies.
 Liberalization and globalization: Most of the countries in the world
liberalized their economies and opened their countries to the rest of the
world. These changed policies attracted the MNC’s to extend their
operations to these countries.
 NATURE OF GLOBAL BUSINESS ENVIRONMENT

 Size of the Business: The size of the Global business should be large in order to
have impact on foreign economics. Most of the MNC’s are significantly large in
size in order to make large scale productions.
 Market Segmentation: Most of the international business houses segment their
market based on the geographic market segmentation.
 Potentiality of Market: Market segmentation of foreign markets helps there in
identification of various consumers taste, preferences and purchasing abilities and
also wider scope hence international market presents more potential information
than the domestic market.
 Benefits to Participating Countries: Provides benefits to all participating
countries. They receive foreign capital and technology resulting in rapid industrial
development leading to more employment opportunities. Therefore developing
countries open their economies through liberal economic policies.
 Keen Competition: Global business has to face keen competition in the world
market. The competition is between unequal partners i.e. developed and
developing countries. In this keen competition, developed countries and their
MNCs are in a favorable position because they produce superior quality goods and
services at very low prices. Developed countries also have many contacts in the
world market. Developing countries find it very difficult to face competition from
developed countries.
Conti...

 Integration of economies: It integrates the economies of many

countries. This is because it uses finance from one country,
labor from another country, and infrastructure from the other
country.
 Special role of science and technology: It gives more
importance to science and technology. Science and technology
helps the business to have large scale production developed
countries use high technologies. IB helps them to transfer such
top high-end technologies to the developing countries.
 International restrictions: It faces much restriction on the
inflow and outflow of capital technology and goods. Many
government have trade blocks, tariffs barriers, foreign
exchange, restrictions etc to entire their countries.
 Sensitive in nature: The global business is very sensitive in
nature. Any changes in the economic policies, technology,
political environment etc, have a huge impact on it.
 Conti...
 Accurate information: Based on feasible information appropriate decisions is
possible in global business context. For instance: Shoe company based on
accurate information enter various foreign countries, which is the most
opportunistic market for such types of goods.
 Timely information: Global business houses need not only accurate but time
decisions as correct decision at right time helps in reading expenditure. e.g. a
cold rink manufacturing companies like Sprite, and coco cola etc enter the
market based on information where as some other cold rink manufacturing
entered later.
 Large scale operations: In global business all the operations are conducted on
a very huge scale, production and marketing activities are conducted on a large
scale. It first sells its goods in the local market. Then the surplus goods are
exported.
 Wider scope: It covers global marketing, international investment management
of foreign exchange, HRM, international production and receiving international
funds from, World Bank, IMF, IBRD, IFC etc.
 Inter-nation comparative study: As global business studies the business
opportunities, threats, consumers preference, behavior, culture of various class
of consumers, business environment factors, the system presents inter country
comparison.
Scope of Global Business:
 Global marketing
 International finance and investments
 Global human resource
 Foreign exchange reserve
Modes of Entry in to Global Business:
 Exporting: Exporting means procuring in the home market
and selling in the foreign market and selling in the foreign
market. Exporting is not an activity just for large
multinational enterprises, small firms can also make money by
exporting. In recent days, exporting has become easier through
it remains a challenge for many firms.
 International licensing: A licensing is an agreement whereby
a licensor grants the rights to intangible property to another
entity for a specified period and in return the licensor receives
a royalty fee from the licensee.
 Conti...

• Franchising: Franchising is basically a specialized form of

licensing in which the franchiser not only sells intangible
property to the franchisee but also insists that the franchisee
agrees to abide by strict rules as to how it does business.
• Joint Venture: A joint venture entails establishing a firm that is
jointly owned by two or more independent firms.
• Merger and Acquisition: A merger occurs when two separate
entities combine forces to create a new, joint organization in
which theoretically both are equal partners. Acquisition refers to
purchase of one entity by another. A new company does not
emerge from an acquisition, rather, the acquired company , or
target firm, is often consumed and ceases to exist, and its assets
become part of acquiring company.
• Foreign Direct Investment: A foreign direct investment is an
investment in the form of controlling ownership in a business in
one country. It is thus distinguished from a foreign portfolio
investment by a notion of direct control.
 Conti...
• Management Contract: A firm in one country agrees to operate
facilities or provide other management services to a firm in another
country for an agreed upon fees.
• Turn key Projects: In a turnkey project, the contractor agrees to handle
every details of the project for a foreign client, including the training of
operating personnel. At completing of the contract the foreign client
handle the ‘key’ of plant that is ready for full operation.
• Assembly Operations: An assembly operation is a variation of the
subsidiary. A foreign production plan might be set up simply to assemble
components manufactured in the domestic markets or elsewhere. The
exporting company may try to retain key component manufacture in the
domestic plant, allowing development, production skill and investment to
be concentrated, while maintaining the benefits from economies of scale.
• Wholly Owned Subsidiary: A company whose common stock is 100%
owned by another company, the parent company. Whereas company can
become a wholly owned subsidiary through an acquisition by the parent
company or having been spun off from the parent company, a regular
subsidiary is 51 to 99% owned by the parent company.
Conti...
• Strategic Alliance: It is a business relationship established by
two or more companies to cooperate out of mutual need and to
share risk in achieving a common objective.
• Third Country Location: This is sometimes used as an entry
strategy. When there is no commercial transaction between two
nations because of political reasons, or when direct transactions
between more than two country are difficult and if one nation
wants to enter other nation, then the nation will have to operate
from the third country base.
• Contract Manufacturing: A company doing international
marketing contracts with firms in foreign countries to
manufacture or assemble the products while retaining the
responsibility of marketing the product.
 Globalization Process and its Implication:
 Globalization has become the most big and dynamic process in modern
conditions because of which the global economy acquires common and unified
features.
 Identification of globalized economy characteristics is important since it allows
not only to identify current trends in the development but also to provide
understanding of promising changes that may pose a threat to the development
of individual countries in the near future.
 National intelligence council development of the globalized world by up
coming decades it will be the weak economic growth and thus, the main
economies will face a reduction in labor force and a decrease in productivity
growth, accelerating technological progress that will create new opportunities.
 But will lead to increased discrepancies between leaders and outsiders further
spread of automation and artificial intelligence, which threaten to swiftly
change the industry, potentially pushing workers.
 With traditional skills and limiting the usual development path for poor
countries climate change, environmental and health problems that will require
more attention,
 The change in the nature of conflicts, the number of which will increase
because of differing interests among the great powers.
The Essential Features of the Concept of Globalization.
• The versatility and dynamics of the world economy development
point to the need for a systematic study of the globalization
processes.
• In order to identify those challenges to which countries have to
react already at the current time, because their neglect will only
lead to further deviations from the trends.
• Globalization as a phenomenon means that there is an increase in
the interaction and interdependence between different countries.
• And regions of the world in the field of economy, politics, and
culture. Considering globalization symbolically, it can be argued
that this is the process of forming an infinite world,
• When state borders turn into formalities on the path of displaced
both factors and results of processes of human management of the
mankind.
 Conti....

• The international monetary fund experts by focusing on the

economic nature of the phenomenon under investigation.
• Characterize globalization as a growing economic interdependence
of countries around the world through an increase in the
international exchange
• Of goods, services, capital, technologies, knowledge, ideas and
labor force.
• Globalized markets are world markets for standardized consumer
products.
• In the process of global homogenization, modern markets are
expanding to achieve cost savings on a global scale.
 Conti...
• Globalization is a process that covers the causes, course and
effects of transnational and trans cultural integration within human
activities
• Globalization is a never ending and continuous process of growing
interdependence between countries and their citizens.
• It is an uncertain uncontrollable and independent character of
occurrence in the world absence of a remote control management,
board of directors. It is just another name for the world chaos.
• Globalization is a process of promoting a new ideal of economic
openness, political transparency and global culture.
• Globalization is an interconnected set of economic phenomena.
These include liberalization and deregulation of markets, asset
privatization, waivers of state functions, technology spread,
international distribution of production, and the integration of
capital markets.
Multinational Corporations and their involvement in Global Business
 The process of integration of the world into huge market even
political and geographical barrier becomes irrelevant. Company
commits itself heavily with several manufacturing locations around
the world and offers products in several diversified industries.
Philips, P&G, Birla Toyota, GE, Godrej Group, Mc Donald,
Sony, Ford, IBM, Wipro, Microsoft, Intel, Ranbaxy, Infosys,
TATA, Mahindra and Mahindra etc.
 Globalization refers to the process of integration of the world into
one huge market through cross border flow of products, factors and
information.
Nature of Globalization:
• Geographical market segmentation.
• Large size business operation.
• Inter-country comparative study.
• Achieve high rate of profit.
• Expanding the production capacity.
Globalization:
• International Trade
• Export
• Import
• Foreign Direct Investment (FDI)
• International company
• MNC
• Global company
• Transnational company
• Licensing
• Franchising
• Joint venture
• Wholly owned subsidiaries
• Mergers and acquisitions
Why Firms go Global:

• Achievement high rate of profit

• Expanding of production capacity
• Severe competition
• Limited home market
• Political stability v/s political instability
• Availability of technology and managerial competency
• High cost of transformation
• Nearness to raw materials
• Availability of human resources
• Liberalization
• Increase market share
• Avoid tariffs and import quotas
 PLAYERS IN GLOBAL MARKET:
• Global players are represented all over the world and are connected in
any market with a very huge status.
And many more, among themselves global players are in Microsoft,
Wipro, Honda, Bajaj, Toyota, TATA, Reliance industries, Samsung,
Sony, global business must respond to global competition.
As the main feature of global players, same efforts on the global control
and coordination of all corporate activities, as well as includes the
operation and update the relevant markets worldwide.
• EVOLUTION OF GLOBAL BUSINESS
The business across the borders of the countries has been carried on
since times immemorial. But the business has been limited to the
international trade until recent past.
The post world war two period witnessed an unexpected expansion of
national companies into international or multinational companies. The
post 1990’s period has given greater fillip to business WORLD WIDE.
 Conti...
 Declining Trade Barriers:
• International trade occurs when the goods flow across the countries.
• Government used to impose trade barriers quotas and tariffs to
protect domestic business from competition of globalization.
• Advanced countries agreed to reduce trade barriers after world war II
to encourage free flow of goods. The member countries of GATT in
various rounds of negotiation agreed to reduce the tariff rate.
• This reduction in tariff and other trade barriers contributed for the
growth of global trade.
 Declining Investment Barriers:
• Foreign Governments impose barriers on foreign investment in order
to protect domestic country.
• Various countries have been removing these barriers on FDI, to
encourage the growth of global business.
• These treaties are enabling the fast growth of globalization of trade
and production. The global production increased by 9.5 fold.
 Conti...
 Growth in Foreign Direct Investment:
Investment made by a company in new manufacturing and or marketing
facilities in a foreign country is FDI.
The reason for the growth of FDI are increase in sales, profits, enter into
rapidly growing markets, reduce cost, consolidate trade blocs, protect
domestic markets, foreign market, acquires technological and managerial
know- how. Specifically some nations i.e. India, China, HONG KONG,
Brazil, Mexico, and Singapore are receiving over seventy years
percentage of FDI among developing countries.
 Strides in Technology:
The latest development in information technology, enabled the global
company to develop into a virtual global company.
 Micro Processor and Telecommunication:
The development of microprocessor and telecommunication paired
the way for the growth of high power, superior speed low cost
computing and handling varies amount of information and efficiency
of coordinating the operations of global business firms.
 Conti...
 Internet and world wide web:
Facilities of internet and worldwide web like email, voice mail,
data, real time, video, communication such as video conferencing
enable the global companies to operate efficiently.
 On-line Globalization:
The global companies can send information about changes in
Product design, Raw material, Customers preference etc, through
the internet all over the globe, and customer enquire and complaints
can be received and redressed through internet.
 Transportation Technology:
Development in transportation technology has reduced the distance
among countries. The important development are;
• Commercial jet aircraft
• Super fighters Containers etc.
These development made easy transportation and reduction of time
and cost.
 Conti...
 Liberalization:
• One of the most important factor which have given a great
impetus to globalization since the 1980s is the almost universal
economic policy of globalization which are fostering borderless
business world.
• One of the impacts of liberalization and privatization is surge in
cross borders economic integration and other FDI resulting in
greater global economic integration.
 Product Development Costs and Efforts:
• The cost of new product development is very huge in several
industries such as pharmaceuticals. To recoup such high costs, a
global market is required.
• Further because of the huge investment and diverse skill
requirements associated with new product developments, cross
border alliances in research and development are becoming more
 Conti...
 Quality and Cost:
The two most important determinants of demand are the quality and
the price of the offering. These can be better achieved when a firm is
global in its operations.
 Raising aspirations and wants:
Because of the increasing level of exposure to the media, particularly
the electronic media, the aspirations of people all around the world
are rising.
The customer of today is by and large, global , he wants a world class
products , a product of desired attributes at international price.
 Growth of Multinational Companies:
MNC’s is an organization doing business in more than one country.
Transnational company produces, markets, invests, and operates
across the world. MNC’s growing and scattering their operations use
to market, financial and other superiorities and the expansions of
international markets.
Issues in foreign investment, Technology transfer, pricing & regulation

Globalization & interdependence of firms, markets &

countries is the general.
 Globalization of business operations.
 Decline of tariffs and other barriers.
 Growth and expansion of MNC’s.
 Growing international investment and production.
 Rising confidence in foreign investments i.e. FDI
 Growth of organization & administrative structures to manage
global business.
 Technology transfer from one country to another.
 Increasing interdependence of complex technology-
economies on one another throughout the value chain. Etc.
Internal Environmental factors

 Organizational structure
 Production
 Finance
 Marketing
 Human Resource
 Research & Development
External Micro Environment
 Share holders
 Creditors
 Bankers & Financial Institutions
 Competitors
 Suppliers of Raw Materials
 Inputs Market Intermediaries
 Customer
External Macro Environment

 Social and Cultural factors

 Technological factors
 Economic Factors
 Political Factors
 International Factors
 Natural Factors

The success or failure of an MNC is based on its ability to

deal with the dynamic global environment.
POLITICAL ENVIRONMENT:

 Democracy.
 Totalitarianism.

 Political environment is highly complex and differs from

country to country.

 MNC’s have to face Domestic, Foreign and International

Political Environment.

 The Political Climate does not always remain Stationary.

Relationship between countries may change from time to time.

 The New Economic Policy of India (1991) aims at Transforming

India into one of the World’s most Dynamic Economies.
RISKS INVOLVED IN POLITICAL ENVIRONMENT:
• If political conditions deteriorate, favorable investment
climate disappears overnight.

• MNC’s may face the following problems elimination.

• Expropriation - Host country Government may force directly

or indirectly to sell its business.

• After elimination or expropriation, the business can either be

Nationalized or Domesticated.
OTHER POLITICAL RISKS:

 General Instability Risk.

 Ownership Control Risk.

 Function Risk / Operation Risk

 Transfer Risk.
INDICATORS OF POLITICAL INSTABILITY:
 Social Unrest - Domestic or International.
 Attitude of the Local People.
 Host Govt. Policies.

MINIMISATION OF POLITICAL RISKS:

 To Stimulate the Local Economy.

 To Provide Employment Opportunities.
 Sharing Ownership.
 To be Good Corporate Citizen.
 To be Politically Neutral.
 Political Lobbying.
 To be Sensitive to Changing Political Developments.
 To Shift the Risks.
 COMPONENTS OF SOCIO- CULTURAL ENVIRONEMNT

 The global business firms are expected to make products consistent

with the culture in which changes from culture to change to fit the
products.
 The firms have to decide whether their products or services will be
compatible with a particular culture or needs some modifications.
 Thus the firms should consider the various components of socio-
cultural environment.
• Language.
• Custom.
• Education.
• Religion.
• Attitudes and values.
• Social organization.
• Legal systems etc.
 Conti…

• According to Edward Taylor “Culture is that complex whole which

includes knowledge, belief, art, morals, law, custom and other
capabilities and habits acquired by individuals (as members of society)”.

It includes attitude of the people to:

 Work
 Attitude
 Wealth
 Family
 Marriage
 Religion
 Education
 Ethics
 Human relations and
 Conti…

• Cultures change gradually picking up new ideas and dropping

old ones, but many of the cultures of the past have been very
persistent and self contained that the impact of such sudden
change has torn them apart, uprooting their people
psychologically.
• Thus culture is: Derived mostly from the climatic conditions
of the geographical region & economic conditions of the
country, a set of trade passed from generation to generation
& shared in a given society, a total way of life & norms,
customs, art, values etc.
 ECONOMIC ENVIRONMENT:

 The economic reforms which are carried out in few countries

are so revolutionary and brought large scale changes in the
economic front of these countries.
 Privatization and Globalization progressing at an amazing speed.
 State monopolies of foreign trade and import controls drastically
reduced.
 The Economic Environment of a country influences the Global
business to a large extent.

 Generally economic policy of a country is largely influenced by

the economic agenda of the political party in the power.
 The existing international agreements usually pass through even if
party in the power is changed.
 Conti…
 Global economic environment and global business interact with
each other.

 Global economy has undergone a sea change during the last

60 years and the change is revolutionary after 1990.

The major changes in the Global business are:

 Emergence of global market.
 Establishment of WTO.
 Capital flow rather than trade/product flow across the globe.
 Establishment of production facilities in various countries.
 Technological revolution
 Capitalism succeeded over communism
 Socialism as a model for overall economic
 TECHNOLOGICAL ENVIRONMENT

• J.K. Galbraith defines Technology as “a systematic application of

scientific or other organized knowledge to particular tasks”.
• Technology changes at a faster rate and brings changes in the
Society, Economy and Politics.
• Change and then more change is an important feature of technology.
In the modern society, it has brought so much change that it creates
what is called “future shock”
• Its effects are widespread, reaching far beyond the immediate point
of technological impact.
Conti…

 Alvin Toffler said, “Technology feeds on itself. Technology

makes more technology possible”.
 Thus technology is self-reinforcing. Technology plays a very
important role in the economic development of a country.
 Most of the MNC’s derive their competitive advantage in the
foreign markets from their ability to introduce something new
in the market.
IMPACT OF TECHNOLOGY:
Social implications Economic implications Plant level implications
Technology reaches people Increased productivity Organization structure
through business
High expectations of Need to spend on R & D Resistance to change
consumer.
System complexity Jobs become intellectual Fear of risk
Social changes Problems of techno structure TQM
Social systems Bio professional and multi Flexible manufacturing
system
Professional managers
Increased regulation and stiff
competition

Demand for capital

Rise & decline of product &
organizations

Business boundaries redefined

MANAGEMENT OF TECHNOLOGY:

 Technology is a high risk, costly and uncertain activity.

 India can become a good competitor to western MNC’s with its rich
resources - both natural and human.
 Understanding and making it usable.

FACTORS IMPENDING TECHNOLOGICAL GROWTH:

 Pollution.
 Industrial resource base may exhaust like.
• Mineral
• Water and
• Energy etc.

Traditional social institutions and values.

 TECHNOLOGY AND INDIA:

 Technology must attend to the basic problems of

• Food
• Clothing
• Health
• Education and
• housing of people.
 Technology policy of India.

Status of technology is high among asian countries.

Reference:

 Hill. Charles W.L. International Business Competing in the

Global Market. Mc Graw Hill.
 A.V. Vedipurishwar, the Global CEO, Vision Books.

 P Subba Rao, International Business, Himalaya Publication.

 O.P. Agrwal International Business, Himalaya Publication.

 Ashwathappa K. International Business Tata Mc Hill.

 Darrel Mahoriy, etal, International Business, long man.

 Johan. D. Daneil, etal. International Business pearson

education.