International Business

Globalisation

Driving & Restraining forces

Prof Bharat Nadkarni

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Globalization : Definitions
Economic Definition
Globalization may be defined as the process of integration of
economies across the world through cross-border flow of factors,
products and information.

Corporate Definition
Globalization in its true sense is a way of corporate life
necessitated, facilitated and nourished by the transnationalization
of the world economy and developed by corporate strategies.
Globalisation is an attitude of mind which views the entire world
as a single market so that the corporate strategy is based on the
dynamics of the global business environment.
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Globalisation
Globalisation is an attitude which looks at the world as one
market and corporate strategy is based on the dynamics of
global environment. Globalisation has the following
characteristics features:
1. Operating and planning to expand business globally.
2. Renunciation of distinction between domestic and foreign
markets and developing a global business attitude.
3. Establishing production and distribution facilities in various
parts of the world based on global business dynamics.
4. Product development and production planning are based on
global market environment.
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5. Global sourcing of productive factors.
6. Global orientation in organisational structure, culture, strategies
and management techniques.

Approach towards Globalisation

1. Ethenocentric

2. Polycentric

3. Regiocentric

4. Geocentric
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Driving and Restraining Forces of Globalisation
There are number of forces which induce and propel globalisation
and thereby expand the scope and importance of international
business. On the other hand there are also forces which restrain
globalisation.
Driving Forces
1. Liberalisation
Universal economic policy of liberalisation fostering a seamless
business world.
GATT/WTO policies
Revolutionary policy changes as in China (turn of the century), RPA
countries(late 80s)
LPG surge in M&A, FDI resulting in greater global economic
integration
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2. MNCs
Growth and Expansion as strategy. Linking resources and objectives
with world market opportunities taking advantage of liberalisation
3. Technology
Powerful driving force
Technological breakthroughs are substantially increasing the scale
economies and the market scale required to break-even
4. Transportation and Communication Revolution
Reducing disadvantage of distance and cost
Development in the field of air and sea cargo- containerisation,
Refrigeration (cryogenic tanks), LNG, LSWR, Perishable goods,
Floral, Food stuff, quick changes in fashion and design.
IT & Telecommunication Revolution
Digitalisation E Commerce
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5. Product Development cost and efforts
Huge R&D and development cost/ investment - huge global market
Fast technological changes- Risk of obsolescence-quick payback
6. Quality and Cost
The two most important determinants of demand. Can be better
achieved when a firm is global in its operations, Scale economies,
PLC, Learning curve etc
7. Rising Aspirations and Wants
Innovative ideas, breakthrough improvements-3 dimentions- bottom
line, customer satisfaction, reduction in cycle time.
8. Competition
Pull and Push effect. Exploring new markets, risk taking,
diversification, new ownerships
9. World Economic Trends
Difference in growth rates developed and developing countries
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Domestic rapid economic growth-large number of players-
exploiting opportunities outside the country- China
10. Regional Integration
The proliferation of regional integration schemes
European Union(EU), South Asian Association for Regional
Cooperation(SAARC), North American Free Trade Agreement
(NAFTA) ASEAN
Creates a borderless region between the members
Financial flows
11. Leverages
A global company can leverage its experience to expand its global
operations. According to Keegan Leverage is simply some type of
advantage that a company enjoys by virtue of the fact that it
conducts business in more than one country
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Restraining Forces.
There are two types of factors, which hamper globalisation.
1. External factors
a. Government policies and controls Interventionist approach
b. Social and political opposition against foreign business
c. Unethical practices to protect domestic firms
d. Selfish motives of governance

2. Internal factors
Factors within the organisation myopic approach-nearsightedness
Organisational culture may hamper or pamper no vision
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Mike Porters Diamond Theory

also called

Porters National Competitive

Advantage Theory
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Competitive Advantages
Competitive superiority is derived from four factors, viz., factor
endowment, demand conditions, related and supporting industries and
firm strategy, structure and rivalry. All the four factors need not
always be favourable for a company to get global supremacy. But the
interactive effect of these four factors need to be favourable if an
industry/ company in a country is to gain a global competitive
advantage.
1. Factor conditions
Factor conditions include factors of production, viz., land, labour,
capital and organisation. Porter emphasises other factors like
educational level of labour and the quality of the countrys
infrastructure. Countrys ability to compete globally depends
upon the countrys factor resources, viz., research, innovation and
training. The USA has rich factor endowments and enjoys top
position in world trade and world economy.
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2. Demand Conditions
The existence of a large number of sophisticated domestic
consumers who are economically able and willing to consume
create and improve the demand for various products in the
country. Companies improve the existing products and develop
new products to meet the increasing demand. In addition,
domestic companies compete with each other in developing
existing and new products. As such some of the processing
domestic companies would be ahead of the international
companies and export to other countries. For example, Japanese
companies developed camcorders, big screen TVs and VCRs
better than the international companies and exported them to
European and North American countries after meeting the
domestic demand.
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3. Related and Supported Industries
The emergence and growth of an industry provide the scope for
the development of suppliers of raw material, market
intermediaries, financial companies, consulting agencies,
ancillary industries etc. These supporting service agencies
compete among themselves leading to high input quality and
lower prices. Availability of high quality inputs at lower prices in
the domestic country enhances competitive advantage of the firm
internationally.
4. Firm strategy, structure and rivalry
Firms continuously improve the quality, product design, invest in
R&D in order to compete domestically. Firms also invest in
human resource development, technology etc., in the domestic
market. These developments result in high quality and lower
prices in domestic country which are transferable to international
markets. Intense competition for Japanese automobile
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manufacturers and electronics goods manufacturers led to their
success in international markets. The same theory holds good in
case of Indian garment manufacturers and US personal computer
manufacturers.
Position of USA in World Trade and World Economy
Its unique position includes:
Large size of the country

Largest GDP with approx. $ 18 trillion

Largest exporter and largest importer in the world

Has worlds largest financial market

Large in having MNCs (more than 50) out of top 500 MNCs

Now, it started losing its position due to rapid development of some

developing and recently emerging countries including South Korea,
China, Malaysia and India.
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Essential conditions for Globalisation
Governments of various countries should provide the following
conditions for smoothening the process of globalisation.
1. Liberalising the rules and regulations of control.
2. Removal of quotas and tariffs.
3. Providing freedom to the business and industry.
4. Providing infrastructural facilities.
5. Removal of bureaucratic hurdles.
6. Encouraging Research & Development.
7. Encouraging competitiveness based on quality, price, delivery,
customer service, etc.
8. Providing autonomy to the public sector to compete with private
sector companies.
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9. Providing administrative and governmental support.
10. Developing money and capital markets.
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Thank You