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

1. Deciding whether to go abroad or not

2. Deciding which market to enter
3. Deciding how to enter the market
Mercantilism: mid-16th century
 A nation’s wealth depends on accumulated treasure
 Gold and silver are the 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”.
 4-26

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.
 4-28

Porter’s Diamond
(Harvard Business School, 1990)

 The Competitive Advantage of Nations.

 Looked at 100 industries in 10 nations.
 Thought existing theories didn’t go far enough.
 Question: “Why does a nation achieve international
success in a particular industry?”
 4-30

Porter’s Diamond
Determinants of National Competitive Advantage

Firm Strategy,
Structure and
Rivalry

Factor Endowments Demand Conditions

Related and
Supporting
Industries
 Determinants of National Competitive
Advantage
 Factor endowments: Nation’s 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 industry’s 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
 Puts home office people in charge of
key international management positions.
The MNC headquarters and the affiliates
world company managers all have the
same basic experience, attitudes and
beliefs about how to manage operations.
Many Japanese firms follow these
practices.
Polycentric
 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 MNC’s 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
 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 company’s
product . A Regiocentric approach often
relies on regional group cooperation of
local managers.
Geocentric
 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. Example: IBM.
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.