IBM UNIT 2 -Technological Environment

Technological Environment
# J K Galbraith defines technology as a systematic application of scientific or other organised knowledge to practical tasks. Technology is the usage and knowledge of tools, techniques, crafts, systems or methods of organization in order to solve a problem or serve some purpose.

Classification of Technology Technology can be classified according to any of the

following categories : State-of-the-art-technologies : Technologies that equal or surpass the competitors. Proprietary technologies : Technologies protected by patents or secrecy agreements that provide a measurable competitive advantage. Known technologies : Technologies that may be common to many organisations but are used in unique ways. Core technologies : Technologies that are essential to maintain a competitive position. Leveraging technologies : Technologies that support several products, product lines, or classes of products. Supporting technologies : Technologies that support the core technologies. Pacing technologies : Technologies whose rate of development controls the rate of product process development. Emerging(influence) technologies : Technologies that are currently under consideration for future products or processes. Scouting (jasoos) technologies : Formal tracking of potential product & process technologies for future study or application. Idealized unknown basic technologies : Technologies that, if available, would provide a significant benefit in some aspect of life.

The Technology Cycle

Following classification, technology management involves carefully implementing five stages :1. 2. 3. 4. 5. Awareness phase Acquisition Phase Adaptation Phase Advancement Phase Abandonment Phase (See Fig. Below)

Time

en riv ns d ed tio Ne ecta p ex

Technology Awareness of marketable invention 1 External & internal Environment Factors affecting the technology user 6

Technological Abandonment obsolescencing Demolition 5 Technology Advancement Innovation involving major modifications of acquired technology 4

Technology Acquisition by self-generation or transfer 2 Installation

Technology Adaptation Minor modifications of acquired technology Promotion 3 for specific needs

The Technology Cycle, showing the five basic elements of technology management at any given level (product,service, function, work centre, plant/division, corporation, industry, national or international) applicable to deal with an existing or new technology. The dashed lines represent analysis.
1. Awareness phase This is the first phase of the technology cycle in which a company has a formal mechanism to become aware of emerging technologies Some companies from think tank with engineers & scientists, who research from around the world & put in short internal report form for the benefit of corporate strategic planners & technology policy markers. 2. Acquisition Phase To go from the awareness phase from acquisition phase, the companys technology group, in collaboration with the industrial engineering group, would conduct technical feasibility, & economic feasibility studies before justifying & acquiring a new technology. 3. Adaptation Phase Virtually every enterprise ends up adapting an acquired technology for its particular needs If the homework done correctly, the transition from acquisition to adaptation becomes much smoother & less expensive Conversely, this not only frustrates the people acquiring the technology but also slows down the assimilation rate, causes major productivity losses, & results in severe quality problems. 4. Advancement Phase When capital is limited one cannot indiscriminately purchase & abandon technologies with scarce money It becomes imperative to improvise the acquired technologies for ones home needs. 5. Abandonment Phase This last phase of the technology is the most critical Bad timing in prematurely abandoning a product could result in lost revenues, & on the other hand,waiting too long to abandon might also result in lost revenues because a customer may find a better alternative in competition.

Ju fi sti tio ca n

Impact of Technology
We propose to discuss the impact of technology in general, under three heads :a) Technology & social change

b) Economic effects of technology, & c) Technology & plant level changes (See Fig. Below) Impact of Technology Technology
A. Social implications B. Economics implications Increased productivity Need to spend on R&D Jobs become intellectual Problems of technostructure Increased regulation & stiff opposition Rise & decline of products & organisations Boundaries redefined C. Plant level changes

High expectation of consumers Systems complexity

Organisation structure Resistance to change Fear of risk e-Commerce Telecommuting Transportation Markets Technology transfers

Social changes

Social systems

A. Social Implications
Perhaps the most striking influence of technology is found on society as every area of social life & the life of every individual has been, in some sense or the other, changed by the developments in technology. A1. High Expectations of Consumers Technology has contributed to the emergence of affluent societies, who want more of many things than more of same things, like varieties of products, superior in quality, free from pollution, more safe, & more comfortable. This calls for substantial investment in R&D. One important compulsion for investing in technological advances in Japan is its customers high expectations regarding design sophistication, quality, delivery, schedules, & prices Industry owners in Japan swear by the dictum the customer is a god who is always right. High expectations of consumers pose a challenge & an opportunity to the owners of business institutions. A2. System Complexity Technology has resulted in complexity Modern machines work better & faster no doubt But if they fail, they need the services of experts for repairs They fail often because of their complexity A machine or a system is composed of several hundred components All parts must work in tandem to accomplish a desired task Reliable performance of each part, therefore, assumes greater significance because of interdependence of systems. Management is, therefore, under pressure to keep the whole system working all the time. A3. Social Change The role of technology on social change may be observed in more than one way :First, there is the change in social life, which results from a change in a technological process. Thus, an invention may displace thousand of workers, yet the same invention may result in the creation of a new city some- where else & create even more jobs than it originally destroyed. Technological, this way create a turmoil in society.

Secondly, besides uprooting population, technology directly changes the patterns of their social life. An invention may open new employment opportunities to women, radically change hours spent at work & in the family, increase available leisure time, open jobs to youth, & deny them to middle-aged or old workers. Technological advancement tends to smoothen out differences, as it creates a more freer & egalitarian society. Thirdly, though social differences tend to be ironed out, status differences are likely to be created by technological advancement in developing countries as technology flows to less developed countries mainly through multinational companies. In India, the employees in foreign collaborations are paid much more than are paid in other local Indian companies, though they do the same job in the same field. Fourth, the way we cook, communicate, use media & work are affected by technology. Even the language we use is changing, terms that until recently were not even part of our lexicon have become common place. Social changes are also reflected in our vocabularies like, house-husband, surrogate mother, & domestic partner, etc. It is therefore, rightly said that the words are the bugles of social change. When our language changes, behavior will not be far behind. Fifth, technology has its impact on religion in at least two ways, first, religiosity has declined in importance as consumers have come to rely on technology rather than on benevolent deities for their well-being. Secondly, (on the negative side), modernisation pressures against genetically modified foods to wholesale rejection of western technologies by certain religious fundamentalists. Sixth, technology has revolutionalised the education system. The internet makes vast knowledge bases available to a large number of people electronically. It has virtually democratised education by enabling in the very poor & remote countries to access the worlds best libraries, instructors, & courses available through the Internet. A4. Social Systems Of particular interest is the knowledge of technology At this level, technology creates a distinct type of social system, namely, the knowledge society In the knowledge society, use & transfer of knowledge & information, rather than manual skill, dominates work & employs the largest portion of labour force The knowledge-worker will have to show why he should be retained, what benefit he can offer to the organisation, & how he can add value to whatever the organisation does He will have to create new jobs in consultation with his employer A job will then become a joint venture When this happens, the worker can forget pension plans.

B. Economic Implications
Developments in technology also have significant economic implications :B1. Increased productivity the most fundamental effect of technology is greater productivity in terms of both quality & quantity This is the main reason why technology at all levels is adopted As a result of productivity improvements, real wages of employees tend to rise & prices of some products decline.

B2. Need to Spend on R&D Research & Development (R&D) assumes considerable relevance in organisations as technology advances Firms are required to consider, decide & take action on at least six issues. First, the allocation of resources to R&D. It enables business improve corporate performance by enabling the firm to better develop synergies among product lines & business units.
Secondly, technology transfer, the process of taking

new technology from the laboratory to the market place is equally important when the company fails to develop much in the way of major innovations.
Thirdly, time factor is important in R&D. Companies can no longer assume that competition

will allow them the time needed to recover their investment.

Fourthly, as new technology comes in, the old

technology needs to be abandoned. The process of old replaced by new is called technological discontinuity. Such discontinuity occurs when a new technology cannot be used simply to enhance the current technology but actually substitutes for that technology to yield better performance. The R&D manager must determine when to abandon present technology & when to develop or adapt new technology.
Fifthly, the firm must also decide on its own R&D or

to outsource technology. As a rule, it may be stated that a company should buy technologies that are commonly available but make (& protect) those at are rare, valuable, hard to imitate, & have no close substitutes. In addition, outsourcing technology may be appropriate when : The technology is of little significance to competitive advantage The supplier has proprietary technology The suppliers technology is better &/or cheaper & reasonable easy to integrate into the current system The technology development process requires special expertise, & the technology development process requires new people & new resources.
The sixth & the final issue relates to the decision on

product innovation or process innovation. In the early stages, product innovations are most important because the products physical attributes & capabilities affect financial performance considerably. Later, process innovations such as improved manufacturing facilities, increasing product quality, & faster distribution become important in maintaining the products economic returns. B3. Jobs Become Intellectual

With the advent of technology, jobs tend to become more intellectual or upgraded A job hitherto handled by an illiterate & unskilled worker now requires the services of an educated & component worker Introduction of new technology dislocates some workers This makes it obligatory on the part of business houses to retrain its employees & to rehabilitate those displaced & untrainable Equal is the responsibility of the government

to provide training & educational facilities to its citizens - those who pick up & acquaint themselves with the new technology, the job will be rewarding as they stand to gain through increased productivity, reduced prices, & increased real wages Along with upgrading jobs, technology has its impact on human relations Since interaction & activity affect sentiments, & they begin to feel & think about one another & about their work situation.

B4. Problem of Technostructure Not only jobs become more intellectual & knowledge-oriented, even the incumbents tend to become highly professional & knowledgeable Such an enterprise has to face on this account serious problems :First, motivation of such employees is a

difficult task because incentives as attractive remuneration, job security, & just treatment, hardly inspire the enlightened employees to work more. They are instead motivated by opportunities which offer challenges or growth or achievement.
Secondly, retraining such employees for long is a

difficult job. Flighting & not sticking to one company is their culture. The company has to make several exceptions to discourage rootless ness of its professional employees : Regular attendance & punctuality have to be relaxed Dual promotion ladders have to be established so that distinguished technical people can rise in rank Profit-sharing to be provided to give creative persons a financial stake in the ideas they create Attendance at professional get-togethers has to be sponsored Writing professional articles has to be encouraged & special assignments & part-time teaching may be allowed.
Thirdly, scientific & professional workers constitute,

the technostructure. The technostructure tries to

control the organisation through influencing managements decision-making. But they are more action oriented & are yet to learn social problems of business decisions. Management is, therefore, in a in a tight position to balance the ruffled feelings of technocrats & the social consequences of business decisions. B5. Increased Regulation & Stiff Opposition A by-product of technological advancement is the ever-increasing regulation imposed on business by the government of the land & stiff opposition from the public as the host govern-ment has the powers to investigate & ban products that are directly harmful or hurt the sentiments of a section of society. B6. Rise & Decline of Products & Organisations Change of technology is a norm & not an exception This poses another problem to business A new technology may spawn a major industry but it may also destroy an existing one Transistors, for example, hurt the vacuumtube industry & xerography hurt the carbon paper business A typical product, today, is subject to a cycle : introduction, growth, maturity, decline, & abandonment An organisation that is associated with particular technology will go in sequence through the following stages :(i) birth, (ii) growth, (iii) policy, (iv) procedure,

(v) theory, (vi) religion, (vii) ritual, & (viii) last rites. B7. Boundaries Redefined Technological changes have significant consequences for industries : Technological change is a potent force in the reconfiguring of industry boundaries, it may broaden or narrow generally excepted industry boundaries As a consequence of its impact on whole industries, technological change can have a significant impact on the prevailing business definition of individual companies. Companies may find themselves in a different business due to technological changes that they or others have effected Technological change is one of the important factors giving rise to product substitution & product differentiation. Technological change is a dominant force in shaping competitive dynamics in many industries. It influences industry boundaries & structure, product substitution & differentiation, & the price quality relationships between products Technological change in the form of process (as opposed to product) & materials innovations may contribute to many of the impacts noted above

Finally, for multi-product companies (preceding discussion applies to single-business units), technological change may have multiple impacts.

C. Plant Level Changes

The impact of technology at the plant level is also significant. C1. Technology & Organisation Structure Technology has considerable influence on organisation structure, length of the line of command, & span of control of the chief executive Where companies use technology, which is fast changing, matrix structures are more common Some companies use a matrix even though the rate of technological change is not fast Besides technology, other factors that have their influence on organisation structure are history & background of a company & the

personalities of the people who founded the firm & managed it subsequently, but the impact of technology is considerable Line of command tend to be lengthy where the production is routine & process based Decision-making is highly centralised It tends to be short if the production activities are customised The use of specialists will be more & hence decisionmaking gets delegated In mass production technologies, the number of people whom an executive controls tends to be larger than when the production is unit based Any technological advancement will result in :a) the expanded availability of a range of

products & services

b)substitution of capital for labour, leading to

higher productivity & lower costs

c) increases in sales or power for the innovating

organisation relative to its competitors

d)initiation of changes in behaviour among

customers, suppliers, employees, or society, &

e) side-effects on the quality of physical

environment. C2. Resistance to Change The manager of a given business unit shall face resistance to change as new technology poses new problems The resistance to change is often psychological A typical businessman himself is opposed to adopting new technology as it is expensive & risky When he is making enough money with

obsolete technology why must he worry about new technology?

Specifically, resistance to change stems from the

following reasons :1. 2. 3. 4. 5. 6. 7. 8. Psychological or social commitments to existing products, process & organisation, Sizable capital investments in long-life single-use facilities, Low profits & reduced rate of growth, Small size or fragmented activities, Complacent top management, Industry norms & associations or cartels that perpetuate industry-bound thinking, Lack of successful entrepreneurial models to emulate, & Powerful labour resistance to changes in methods.

C3. Fear of Risk There is always the fear of risk. A research oriented-company like DuPont an intended substitute for the forecasted shortage of shoe leather, after an investment of $3000 million, abandoned the project in 1971 because of quality & cost problems. C4. E-commerce

The phenomenal growth of the internet & the associated World Wide Web has made ecommerce possible E-commerce is contributing to a growing percentage of cross-border transactions It rolls back some of the constraints of location, distance, scale, & time zones The Web allows, both small & large, to expand their global presence at a lower cost than ever before, wherever they may be located, & what ever their size Modern factories are now able to produce goods in a shorter period of time (to produce one car it takes less than 10 seconds) & with fewer defects thanks to the introduction of Six Sigma quality programmes Six Sigma is a statistical term that means 3.5 errors per million, effectively eliminating performance problems & ensuring that products conform to standards While e-commerce focuses on marketing & sales process, E-business emphasises integration of systems, processes, organisations, value chains, & markets Integration operate through Internet & helps build new relationships between businesses & customers

The internet & e-business provide a number of benefits

in global business, including the following :-

1. Convenience in conducting business worldwide; facilitating communication across borders which brings markets closer 2. An electronic meeting & trading place, which adds efficiency in the conduct of business 3. Power to consumers as they gain access to limitless options & price differential 4. Efficiency in distribution

C5. Telecommunications The obvious dimension of the technological environment facing international business is telecommunications This growth is welcome as business, domestic or global, cannot prosper without an efficient telephone system, such as, 3G, MMS of
NOKIA.

C6. Transportation In addition to developments in computers & telecommunications, several major innovations in transportation have occurred since World
War II

While the advent of commercial jet has reduced the travel time of businessmen, containerisation has lowered the costs of shipping goods over long distances. C7. Gobalisation of Production Technological breakthroughs have facilitated globalisation of production A satellite based communications system allows Texas Instruments (TI) to co-ordinate on a global scale, its production planning, cost accounting, financial planning, marketing, customer service, & human resource. C8. Markets Along with the globalisation of production, technological innovations have facilitated the internationalisation of markets As stated earlier, containerisation has made it more economical to transport goods over long distances, thereby creating global market Low-cost global communications networks such as the World Wide Web are helping to electronic global market places In additions, low-cost jet travel has resulted in the mass movement of people around the world This has reduced the cultural distance between the countries & is bringing about convergence of consumer tastes & preferences At the same time, global communications networks & global media are creating a worldwide culture Worldwide culture is creating a world market for consumer goods. C9. Technology Transfers

Technology transfers includes :-

i)

Internal transfer of technology from the R&D or engineering department to the manufacturing department of a firm based in a country The same transfer of technology from a laboratory or operations of an MNC in one country to its laboratory or operations in another country The transfer of technology from a research consortium supported by many firms to one of its members Simply told, technology transfer is a process that permits the flow of technology from a source to a receiver through published material Purchase & sale of machinery, equipment & intermediate goods, transfer of data & personnel; & interpersonal communication

ii)

iii)

Enhancing Technological Capabilities 1. Severe Compitition 2. To gain competitive edge 3. Huge funds for R & D only with developed countries 4. Developing countries depend on adaptation & assimilation of existing technologies 5. India developing quality IT & bio-technology 6. Developing countries prefer hard aspect of technology(plant, equipment, patents NOT soft aspect(knowledge, know-how, mgt.practices) 7. Import of technology is a short term measure Technology Generation 1. TNC play major role 2. Economies of scale, ability to finance R&D 3. Govt. depts. Some private firms, individual scientists, with the help of govt. / Big corporations do R&D 4. FDI brings technology to the host country 5. Developing countries mainly depend on hard aspect of technology, also on adapting/improving existing technologies 6. MNC / TNC coming to developing countries for R&D due to abundant and economical scientists here. Technology transfer 1. Internalised by TNC To affiliates for development, production, economies of scale, secrecy intact, economical & faster, repeated upgradation, new skills to host country, new avenues to parent co. BUT, new technology can be expensive to affiliate, difficult to absorb and adopt new tech. in host country 2. Externalised transfer Tech. transfer through, franchising, licencing, sub-contracting, joint ventures etc. Steps to falicitate tech. trfr. Attract new MNC, Provide incentives, Attract investment, Liberalize tax / trade regime Improve infrastructure, Improve skills of employees,

Help local firms in getting right technology from right sources

Technology transfer comprise six categories :1. International Technology Transfer is across national boundaries. Generally, such transfers take place between developed & developing countries. 2. Regional Technology Transfer is transferred from one region of a country to another. 3. Cross-industry or Cross-sector Technology Transfer is transferred from one industrial sector to another. 4. Interfirm Technology Transfer is transferred from one company to another. 5. Intra-firm Technology Transfer is transferred within a firm, from one location to another. Intrafirm transfers can also be made from one department to another within the same facility. 6. Pirating or Reverse-Engineering whereby access to technology is obtained as the expense of the proprietary rights of the owners of technology.

International Technology Transfer

Parties in the Transfer Process
i) Home country, ii) Host Country, & iii) The Transaction i) Home country Argue that the establishment of production facilities
By MNCs in subsidiaries abroad decrease their Export potential

Some of the MNCs imports stem from their Subsidiaries, the volume of imports of the home Country tends to increase

Besides, technology transfer tends to effect adversely Competitive advantage of the home country Labour unions in the home country too oppose Technology transfer on the ground that the jobs Generated from the new technology will benefit the Host country citizens. ii)Host Country a) Economic Implications b) Social Implications

Economic Implications Economic implications include payment of fee, royalty, dividends, interest, & salaries to foreign technicians & tax concessions resulting in loss to the national exchequer All these are payable to the transferring country &

might prove very expensive to the host country Many times, the type of technology transferred by international business is not appropriate to developing countries, is designed to produce the types of goods that a rich country needs & to do so by methods, which are appropriate to resources endowment of developed nations. b) Social Implications Along with the transfer of technology, there is the transmission of culture from the exporting countries The upper & middle class Indians are a case in point Majority of these neo-rich people are totally Westernised & Americanised in their attitudes, behaviours, food habits, & dress accustomedness This is because, we import technology from the
United States & European countries.

iii)Transaction This element focuses on the nitty-grities of the transfer.

Stages in the Transfer Process

The transfer of technology between countries, particularly from rich to developing nations, proceeds in five different, but coordinated stages :-

1.Assignments, including sale & licensing agreements

covering all forms of industrial property including patents, inventors certificates, utility models, industrial designs, trademarks, service names, & trade names.

2.Arrangements, covering the provision of know-how

& technical expertise in the form of feasibility studies, plans, diagrams, models, instructions, guides, formulations, service contracts & specifications, &/or involving technical, advising, & managerial personnel, personnel training, & equipments for training.

3.Arrangements, covering the provision of basic or

detailed engineering designs, & the installation & operations of plant & equipment.

4.Purchases, including leases & other forms of

acquisition of machinery, equipment, intermediate goods, &/or raw materials insofar as they are part of transactions involving technology transfers

5.Industrial & technical cooperation agreements of

any kind, including turnkey agreements, international subcontracting, as well as provision for managements of & marketing services Technology is not a homogeneous phenomenon. There are different types of technology, each posing fundamentally different problems & demanding different solutions in the international transfer process.

International Technology Issues -

Foreign Technology Acquisition

One of the major issues in technology relates to the mode of acquisition Developing new technology may conjure up visions of scientists & product developers working in R&D laboratories In reality, new technology comes from many different sources, including suppliers, manufacturers users, other industries, universities, government & MNCs While every source needs to be explored, each firm has specific sources for most of the new technologies.

Broadly the acquisition routes are three :A. Internal Technology Acquisition B. External Acquisition C. Combined Sources

Internal Technology Acquisition Internal technology acquisition option have the advantage that any innovation becomes the exclusive property of the firm In addition, the resulting technology will be tailored to meet the firms needs However, internal development has risks The development take longer time than acquiring already developed technology from external sources In addition, internally generated technology is more expensive than the one acquired from outside sources.

B. External Acquisition External technology acquisition is the process of acquiring technology developed by other for use in the company External technology acquisition generally has the advantage of reduced cost & time to implement & lower risks However, technology available from outside sources was generally developed for different applications Therefore, external acquisition should contain an aspect of adaptation to the acquiring co. application.

C. Combined Sources
Many forms of technology acquisition are combinations of external & internal activities Combined acquisition seek to overcome the limitations of internal & external sources, taking advantages of both the actions at the same time

Technology acquisition Routes

Technology transfer & Absorption Contract R&D R&D Strategic Partnership PURELY INTERNAL X X X X PURELY EXTERNAL

Licensing Purchasing Joint Venture Acquisition of Co. With Technology

X X X X

Choice of Technology Terms & Conditions of Technology Transfer

Globalisation
The world economy is passing through structural changes These changes are driven by globalisation of business as well as by the revolution in information, communication, & transportation technology Nations now have powerful technology in their hands, fundamentally transforming the way in which business is conducted around the globe The World Trade Organisation (WTO) is contributing to globalisation by removing trade barriers between countries & involving mechanism for smooth conduct of trade among nations The WTO has also evolved a mechanism to manage technology better The main provision of the WTO that influence technology transfer are included under the following sections :1. Trade Related Aspects of Intellectual Property
Rights (TRIPs)

2. 3. 4. (ITA)

Trade Related Investment Measures (TRIMs) Subsidies & Countervailing Measures (SCMs) The Information Technology Agreements

Barriers to Technology Transfer

The final international technology issue relates to barriers. The problems encountered in transfer of technology are : A limited general understanding of the concept of technology, & the lack of consistent framework for its study Lack of systematic planning for technology in developing countries or misunderstanding of its underlying philosophy Lack of bilateral scientific/ technology advantage in the process of technology transfer (mutual benefits) Lack of systematic & integrated engineering & socioeconomic approach to the technology transfer process Lack of a relevant quantitative framework/ approach to the analysis & evaluation of technology

transfer to developing countries Failure to include ergonomic aspects in technology transfer or to accord sufficient value to the human machine interface variable of the transferred technology, or the failure to adjust the technology to the existing socio-cultural system Lack of attention to environmental consideration & assessment of technological impact Failure to determine whether a national consensus & orientation exist for a transfer Failure to recognise the local potential (cultural & economic) for adoption of technology (that is, failure to determine the availability of social & economic infrastructures) Failure to determine if the existing national productive capacity is adequate to support the application of the transferred technology Restricting the feasibility study of technology transfer to financial assessments (mostly cost benefit analysis) Absence of any substantial effort to review & utilise the potential of technological interchange & sociotechnical collaboration for technology transfer between developing countries Presence of ethnical problems within the technology transfer failure to evaluate or consider conflict causing factors pertaining to the transferred technology. 1. sector conflict factors conflicts that can arise within the techno-economic systems

These factors can be categories into :2. rural urban conflict factors arising because of spatial (that is, regional) imbalance in the distribution of physical resources needed for specific industry in the long-term (for instance, sacrificing the existing production institutions in an area in order to initiate to new, imported, mostly large scale technology), leading to 3. Factors disturbing the socio-cultural balance that operate with in the social system : due to the nonconformity of the transferred technology with the available potential, & with the inherent objective of development policies & national techno-economic plans in developing countries ; & due to the lack of specific software & any other sophisticated supportive tools for technological planning & technology assessment within the technology transfer framework. Technology Diffusion (adoption) Diffuse means spread out, scatter, pour in Different directions, Diffusion of technology is the process by which technology is communicated among and adopted by the members of a social system. Technology is transfered & shared by suppliers, buyers and affiliates R&D institutions Competitors

Technology Dissemination (Spread widely) Ex : Worldwide expansion of mobile networks has put mobile technology into the hands of millions of people who do not have access to desktop computers or reliable landline connections to the Internet. Innovative programs have been put in place to disseminate crucial health, social and political data over mobile devices and to use them to collect eyewitness reports and personal health information. Technology Spill over (overflow) Positive and negative, TNC can poach R&D staff of local firms offering better incentives thus hindering the local firms prospectives.

Technology Diffusion

Diffuse means spread out, scatter, pour in different directions, Diffusion of technology is the process by which technology is communicated among and adopted by the members of a social system

People naturally resist change

Technology Spill over (overflow)

INTERNATIONAL BUSINES THEORIES :1. MERCANTILE THEORY OF 17TH CENTURY 17th century of mercantilism which emphasized that a country should export as many goods as possible and minimize the import of goods. Mercantilism emphasized trade surplus and zero sum game - where only one participant would reap the benefits, while absolute advantage theory proposed a positive sum game - where all participants in the free trade would benefit from international commerce. Mercantilism also advocated use of government to achieve trade surplus while Adam Smiths theory emphasized free trade, where supply and demand of goods would be dictated by the invisible market forces, with no government involvement - laissezfaire. 2. The absolute advantage theory The absolute advantage theory was given by Adam Smith in 1776; according to the absolute advantage theory each country always finds some absolute advantage over another country in the production of a particular good or service. Simply because some countries have natural advantage of cheap labour, skilled labour, mineral resources, fertile land etc. these countries are able to produce some specific type of commodities at cheaper prices as compared to others. So, each country specializes in the production of a particular commodity. For example, India finds absolute advantage in the production of the silk saris due to the availability of skilled workers in the field, so India can easily export silk saris to the other nations and import those goods in which other countries find absolute advantages. But this theory is not able to justify all aspects of international business. This theory leaves no scope of international business for those countries that are having absolute advantage in all fields or for those countries that are having no absolute advantage in any field.

3. The comparative ADVANTAGE theory After 40 years of absolute advantage theory, in order to provide the full justification of international business David Richardo presented the Richardian modelcomparative cost theory. According to the comparative cost theory, two countries should do business with each other if one country is having an advantage in the ability of producing one good relative to another good as compared to some other countrys relative ability of producing same goods. It can be well understood by taking an illustrationIf USA could produce 25 bottles of wine and 50 pounds of beef by using all of its production resources and France could yield 150 bottles of wine and 60 pounds of beef by using the same resources, then according to absolute advantage theory France finds clear advantage over USA in the production of both beef and wine. So, there should not be any business activity between the two countries. But this is not the case according to the comparative cost theory. Comparative cost theory suggests relative comparing of the beef and wine production. In relative comparing we can find that France sacrifices 2.5 bottles of wine for producing each pound of beef (150/60) and USA sacrifices 0.5 bottles of wine for producing each pound of beef (25/50). So, we can see that production of beef is more expensive in France as compared to USA. Comparative cost theory suggests USA to import wine from France instead of producing it and in similar manner theory suggests France to import beef from USA instead of producing it. In this way, comparative cost theory well explains the driving forces behind international business.

4.

Opportunity cost theory The opportunity cost theory was proposed by Gottfried Haberler in 1959. The opportunity cost is the value of alternatives which have to be forgone in order to obtain a particular thing. For example, Rs. 1,000 is invested in the equity of Rama News Limited and earned a dividend of six per cent in 1999, the opportunity cost of this investment is 10 per cent interest had this amount been deposited in a commercial bank for one year term. Another example is that, India produces textile garments by utilizing its human resources worth of Rs. 1 billion and exports to the US in 1999. The opportunity cost of this project is, had India developed software packages by utilizing the same human resources and exported the same to USA in 1999, the worth of the exports would have been Rs. 10 billion. Opportunity cost approach specifies the cost in terms of the value of the alternatives which have to be foregone in order to fulfil a specific art. Thus, this theory provides the basis for international business in terms of exporting a particular product rather than other products. The previous example suggests that it would be profitable for India to develop and export software packages rather than textile garments to the USA. RATIONALE (Advantages) FOR GLOBALISATION :- (fundamental reason, logical basis) 1. Cost reduction 2. Global learning 3. Arbitrage advantage 4. Rapid industrialisation 5. Better allocation of resources 6. Reduction in poverty 7. Employment generation

8. Balanced development 9. Better quality of life 10. Human development 11. Dissemination of knowledge 12. Integration of economies 13. Flow of men, money, material 14. Advancement in transportation, communication & technology 15. Creation of Trading blocs, such as the North American Free Trade Agreement (NAFTA)-Members U.S, canada, Mexico the European Union (EU) Britain, France, Germany, Italy, Spain etc. the Asia-Pacific Economic Co-operation (APEC) Australia, Canada, Indonesia, Japan, Korea, malaysia, New Zealand, Singapore, Thailand, etc. the Association of South East Asian Nations (ASEAN) Brunei, Myanmar, Combodia, malaysia, Philipines, Singapore, Thailand, Vietnam. and the East Africa Community (EAC) Brundi, kenya, Rawanda, Tanzania, Uganda support regional cooperation between geographical neighbours.

Disadvantages of Globalisation 1. Threat to domestic industry 2. Unemployment 3. Exploitation of labour 4. Overuse of natural resources 5. Widening gap between rich & poor 6. Threat to national sovereignty

INTERNATIONAL BUSINESS THEORIES

1. Mercantile theory-17th century England Trade for Gold & Silver, maintain trade surplus - Export more import less, Govt. should impose tariff on Imports, based on zero sum game gain for 1 country loss for other country. Critisised for this, there should be positive sum game where all countries gain by trade. 2. Absolute Cost Advantage theory- BY Adam Smith in 1776, states that countries should produce and export that product which they can produce at a lesser cost than others. Ex- Britain cloth, France wine. Critisised for unrealistic assumptions homogeneity of products, tastes, two country, two commodity, labour cost of production. 3. Comparative Cost Advantage theory-David Recardo-1817, states that countries should produce and export that product which they can produce at a lesser Comparative cost than others. Assumptions Labour only, homogenous, fixed supply, full employment, same tech. in both countries, no transport cost, no barriers of trade. 4. Factor Endowment theory by Eli Hecksher-1919 & Bertil Ohlin -1933 What factor a country has more ? Labour OR capital . Ex. India & China have ample cheap labour so should engage and export of labour oriented products cloth / leather products, and import Capital oriented products from U.S / Japan etc. Risk in international trade Buyer insolvency Non-acceptance Credit risk Regulatory risk Intervention Political risk War and other uncontrollable events unfavorable exchange rate movements

TRADE BARRIERS

Tariffs (taxes and duties imposed on goods and services that are imported and exported)ex. Import duty,Customs duty Non-tariff barriers to trade - Import licenses , Export licenses , Import quotas

Top trading nations

Main articles: List of countries by exports and List of countries by imports

Rank 1 2

Date of information European Union (Extra-EU27) $3,197,000,000,000 2009 [26] United States $2,439,700,000,000 2009 est. Peoples Republic of China $2,208,000,000,000 2009 est.

Country

Exports + Imports

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Germany Japan France United Kingdom Netherlands Italy Hong Kong South Korea Belgium Canada Spain Russia Mexico Singapore India Taiwan (Republic of China) Switzerland Australia United Arab Emirates

$2,052,000,000,000 $1,006,900,000,000 $989,000,000,000 $824,900,000,000 $756,500,000,000 $727,700,000,000 $672,600,000,000 $668,500,000,000 $611,100,000,000 $603,700,000,000 $508,900,000,000 $492,400,000,000 $458,200,000,000 $454,800,000,000 $387,300,000,000 $371,400,000,000 $367,300,000,000 $322,400,000,000 $315,000,000,000

2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est. 2009 est.

Source : Exports. Imports. The World Factbook.

Top traded commodities (exports)

Rank 1 2 3 4 5 6 7 8 9 10 Commodity Value in US$(000) Mineral fuels, oils, distillation products, etc $1,658,851,456 Electrical, electronic equipment $1,605,700,864 Machinery, nuclear reactors, boilers, etc $1,520,199,680 Vehicles other than railway, tramway $841,412,992 Pharmaceutical products $416,039,840 Optical, photo, technical, medical, etc apparatus $396,337,696 Plastics and articles there of $386,628,064 Pearls, precious stones, metals, coins, etc $320,174,080 Organic chemicals $310,106,432 Iron and steel $273,024,416 Date of information 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009

Risk in international trade

Companies doing business across international borders face many of the same risks as would normally be evident in strictly domestic transactions. For example, Buyer insolvency (purchaser cannot pay); Non-acceptance (buyer rejects goods as different from the agreed upon specifications); Credit risk (allowing the buyer to take possession of goods prior to payment); Regulatory risk (e.g., a change in rules that prevents the transaction); Intervention (governmental action to prevent a transaction being completed); Political risk (change in leadership interfering with transactions or prices); and War and other uncontrollable events.

In addition, international trade also faces the risk of unfavorable exchange rate movements (and, the potential benefit of favorable movements).[
TRADE BARRIERS

Trade barriers are a general term that describes any government policy or regulation that restricts international trade. The barriers can take many forms, including the following terms that

include many restrictions in international trade within multiple countries that import and export any items of trade: Tariffs Non-tariff barriers to trade Import licenses Export licenses Import quotas Subsidies Voluntary Export Restraints Local content requirements Embargo

Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results. Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel. Trade barriers are often criticized for the effect they have on the developing world. Because richcountry players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive processed goods. The Commitment to Development Index measures the effect that rich country trade policies actually have on the developing world.

Examples of free trade areas

North American Free Trade Agreement (NAFTA) South Asia Free Trade Agreement (SAFTA) European Free Trade Association European Union (EU) Union of South American Nations New West Partnership (An internal free-trade zone in Canada between Alberta, British Columbia, and Saskatchewan)

Other trade barriers include differences in culture, customs, traditions, laws, language and currency. A tariff is a tax levied on imports or exports. The word is derived from the Arabic word tarif, meaning fees to be paid. Tariffs are usually associated with protectionism, a governments policy of controlling trade between nations to support the interests of its own citizens. For economic reasons, tariffs are usually imposed on imported goods. In the past, tariffs formed a much larger part of government revenue than they do today. When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according to the tariff formula. Since the goods cannot continue on their way until the duty is paid, it is the easiest duty to collect, and the cost of collection is small. Traders seeking to evade tariffs are known as smugglers. There are various types of tariffs:

An ad valorem tariffs is a set percentage of the value of the good that is being imported. Sometimes these are problematic, as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. Conversely, when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is high.

They also face the problem of inappropriate transfer pricing where a company declares a value for goods being traded which differs from the market price, aimed at reducing overall taxes due. A SPECIFIC tariff, is a tariff of a specific amount of money that does not vary with the price of the good. These tariffs are vulnerable to changes in the market or inflation unless updated periodically. A REVENUE tariff is a set of rates designed primarily to raise money for the government. A tariff on coffee imports imposed by countries where coffee cannot be grown, for example, raises a steady flow of revenue. A PROHIBITIVE tariff is one so high that nearly no one imports any of that item. A PROTECTIVE tariff is intended to artificially inflate prices of imports and protect domestic industries from foreign competition (see also effective rate of protection,) especially from competitors whose host nations allow them to operate under conditions that are illegal in the protected nation, or who subsidize their exports. An environmental tariff, similar to a protective tariff, is also known as a green tariff or eco-tariff, and is placed on products being imported from, and also being sent to countries with substandard environmental pollution controls. A RETALIATORY tariff is one placed against a country who already charges tariffs against the country charging the retaliatory tariff (e.g. If the United States were to charge tariffs on Chinese goods, China would probably charge a tariff on American goods, also). These are usually used in an attempt to get other tariffs rescinded.

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTBs are anti-dumping measures and countervailing duties, which, although they are called non-tariff barriers, have the effect of tariffs once they are enacted. Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources. In other forms, they are criticized as a means to evade free trade rules such as those of the World Trade Organization (WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that restrict the use of tariffs. Some of non-tariff barriers are not directly related to foreign economic regulations, but nevertheless they have a significant impact on foreign-economic activity and foreign trade between countries. Trade between countries is referred to trade in goods, services and factors of production. Nontariff barriers to trade include import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export subsidies, countervailing duties, technical barriers to trade, sanitary and phyto-sanitary measures, rules of origin, etc. Sometimes in this list they include macroeconomic measures affecting trade.

Six Types of Non-Tariff Barriers to Trade

1. Specific Limitations on Trade: 1. Quotas 2. Import Licensing requirements 3. Proportion restrictions of foreign to domestic goods (local content requirements) 4. Minimum import price limits 5. Embargoes 2. Customs and Administrative Entry Procedures:

3.

4.

5.

6.

1. Valuation systems 2. Antidumping practices 3. Tariff classifications 4. Documentation requirements 5. Fees Standards: 1. Standard disparities 2. Intergovernmental acceptances of testing methods and standards 3. Packaging, labeling, and marking Government Participation in Trade: 1. Government procurement policies 2. Export subsidies 3. Countervailing duties 4. Domestic assistance programs Charges on imports: 1. Prior import deposit subsidies 2. Administrative fees 3. Special supplementary duties 4. Import credit discriminations 5. Variable levies 6. Border taxes Others: 1. Voluntary export restraints 2. Orderly marketing agreements

Examples of Non-Tariff Barriers to Trade

Non-tariff barriers to trade can be: Import bans General or product-specific quotas Rules of Origin Quality conditions imposed by the importing country on the exporting countries Sanitary and phyto-sanitary conditions Packaging conditions Labeling conditions Product standards Complex regulatory environment Determination of eligibility of an exporting country by the importing country Determination of eligibility of an exporting establishment(firm, company) by the importing country. Additional trade documents like Certificate of Origin, Certificate of Authenticity etc. Occupational safety and health regulation Employment law Import licenses State subsidies, procurement, trading, state ownership Export subsidies Fixation of a minimum import price Product classification Quota shares Foreign exchange market controls and multiplicity Inadequate infrastructure Buy national policy Over-valued currency Intellectual property laws (patents, copyrights) Restrictive licenses Seasonal import regimes Corrupt and/or lengthy customs procedures