GLOBALIZATION

The term globalization denotes the globe as single market, product presence in different markets of the world, production bases across the globe, human resources from all across the world, investment in international services, transactions involving intellectual properties

etc. Globalization helps the consumers to obtain advanced products available in the world. Globalization also implies considering whole globe as one from the economic and business point of view.

Features of Globalization

A global organization will operate and plan to expand all over the world. It engages in buying and selling all across the globe. Establishing manufacturing and production any where around the world as per scale of economy. It carries out product planning and development based on market consideration of the different countries of the world. It sources human resources, raw material, finances, machinery etc. all across the world. It creates a global culture among the minds of employees. Globalization carries both promises and threats at the national, regional, organizational and individual level.

INTERNATIONAL BUSINESS
DEFINITION:

Refers to any form of commercial exchange of materials, goods, services or any other resource that involves transfer across boundaries. International business has created a network of global links that bind countries, institutions and individuals with trade, financial markets, technology and living standards. e.g. a reduction in coffee production in brazil would effect individuals and economies worldwide.

Why go international?
Profit advantage Growth opportunities Domestic market constraints/restrictions/ saturation Strategic vision Seeking greater operational efficiency Seeking new markets Seeking new resources Efficient use of economies of scale Taking advantage of product differentiation.

Need for international business

Causes the flow of ideas, services and capital across the world Offers consumers new choices Permits the acquisition of a wider variety of products Facilitates the mobility of labour, capital and technology Provides challenging employment opportunities Reallocates resources, makes preferential choices and shifts activities to a global level.

INTERNATIONAL MANAGEMENT
Process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political and cultural environment.

Linkage between international business and international management

Corporate strategy - The decision to get into international business

International management deals with - Managing the foreign operations strategically by controlling the various functional imperatives

 Major decisions in international business

Deciding whether to go abroad or not 2. Deciding which market to enter 3. Deciding how to enter the market
1.

Mercantilism: mid-16 century

th

A nations wealth depends on

accumulated treasure Gold and silver are the mainstays of national wealth and are currency of trade. Theory says you should have a trade surplus. Maximize exports through subsidies. Minimize imports through tariffs and quotas

Theory of Absolute Advantage Adam Smith: Wealth of Nations (1776).

Capability of one country to produce more of a

product with the same amount of input than another country. Produce only goods where you are most efficient, trade for those where you are not efficient. Assumes there is an absolute advantage balance among nations,

Product Life-Cycle Theory (Raymond Vernon, 1966)

As products mature, both location of sales and optimal production changes. Affects the direction and flow of imports and exports. Globalization and integration of the economy makes this theory less valid.

The New Trade Theory

Began to be recognized in the 1970s. Deals with the returns on specialization where substantial economies of scale are present.
Specialization increases output, ability to

enhance economies of scale increase. In addition to economies of scale, learning effects also exist. Learning effects are cost savings that come from learning by doing.

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Application of the New Trade Theory

Typically, requires industries with high, fixed costs. World demand will support few competitors. Competitors may emerge because they got there first.

First-mover advantage. Some argue that it generates government intervention and strategic trade policy.

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Porters Diamond
(Harvard Business School, 1990)

The Competitive Advantage of Nations.

Looked at 100 industries in 10 nations.
Thought existing theories didnt go far

enough. Question: Why does a nation achieve international success in a particular industry?

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Porters Diamond
Determinants of National Competitive Advantage

Firm Strategy, Structure and Rivalry

Factor Endowments

Demand Conditions

Related and Supporting Industries

 Factor endowments: Nations position in factors of production such as skilled labor or infrastructure necessary to compete in a given industry. Demand conditions: The nature of home demand for the

industrys product or service. Related and supporting industries: The presence or absence in a nation of supplier industries or related industries that are nationally competitive. Firm strategy, structure and rivalry: The conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry.

EPRG APPROACH
Organizations orientation towards

internationalization:

E : ethnocentric P : polycentric R : Regiocentric G : Geocentric

Ethnocentric approach
A nationalistic philosophy of management whereby

the values and interests of the parent company guide strategic decisions. Stresses nationalism and puts home office people in charge of key international management positions. The MNC headquarters and the subsidiarys managers all have the same basic experience, attitudes and beliefs about how to manage operations. Many Japanese firms follow these practices.

Polycentric
A philosophy of management whereby strategic

decisions are tailored to suit the cultures of the countries where the MNC operates. Places local nationals in key positions and allows these managers to appoint and develop their own people. MNC headquarters gives the subsidiary managers authority to manage their operations just as long as these operations are sufficiently profitable . Some MNCs use this approach in East Asia and other markets that are deemed too expensive to staff with expatriates Expatriates- refers to those who live and work outside their home country. They are citizens of the country where the MNC is headquartered.

Regiocentric
The philosophy of management whereby the firm

tries to blend its own interests with those of its subsidiaries on a regional basis. Relies on local managers from a particular geographic region to handle operations in and around that area. Example : advertising managers from subsidiaries in Italy , Germany, France, and Spain would come together and formulate an European advertising campaign for the companys product . A Regiocentric approach often relies on regional group cooperation of local managers.

Geocentric
a philosophy of management whereby the

company tries to integrate a global systems approach to decision making. Seeks to integrate diverse regions of the world through a global approach to decision making, assignments are based on qualifications, and all subsidiary managers throughout the structure are regarded as equal to those at headquarters.

International environment
International

business environment the external context in which organizations operate across the world. It is characterised by increased complexity and by expanding and deepening ties between the different stakeholder groups within it. To gain an understanding of the contemporary international business environment, some knowledge of global political economy is necessary.

Environmental Challenges of International Management

Major Environmental factors

Economic Factors Social Factors Political Factors

Technological Factors
Ecological Factors

Economic Factors
1. 2. 3. 4. 5. 6.

Prime interest rates Inflation rates Trends in the growth of the gross national product Unemployment rates Globalization of the economy Outsourcing

Social Factors
Present in the external environment:

Beliefs & Values Attitudes & Opinions Lifestyles Cultural conditioning Ecological conditioning Demographic makeup Religion Education Ethnic conditioning.

Developed from:

Political Factors
Political constraints on firms:

Fair-trade Decisions Antitrust Laws Tax Programs Minimum Wage Legislation Pollution and Pricing Policies

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Technological Factors

Technological forecasting helps protect and improve the profitability of firms in growing industries. It alerts strategic managers to impending challenges and promising opportunities. The key to beneficial forecasting of technological advancement lies in accurately predicting future technological capabilities and their probable impacts.

Ecological Factors

Ecology refers to the relationships among human beings and other living things and the air, soil, and water that supports them. Threats to our life-supporting ecology caused principally by human activities in an industrial society are commonly referred to as pollution Loss of habitat and biodiversity Environmental legislation Eco-efficiency

International Environment analysis

Monitoring the international environment involves assessing each non-domestic market on the same factors that are used in a domestic assessment. While the importance of factors will differ, the same set of considerations can be used for each country. Economic, political, legal, and social factors are used to assess international environments. One complication to this process is that the interplay among international markets must be considered.

Industry Environment

Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning. The cornerstone of Porters work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry. Porters well-defined analytic framework helps strategic managers to link remote factors to their effects on a firms operating environment.

Competitive Forces Shape Strategy

The essence of strategy formulation is coping with competition. Intense competition in an industry is neither coincidence nor bad luck. Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. The corporate strategists goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor.

Ex. 4.8

Forces Driving Industry Competition