UGC/ GB/ Globalization and G.

Business
International business is defined as Those business activities that involve the crossing of
national boundaries. Tasks and functions of International business (IB) are same as
Domestic firms.
But greater difficulty in performing them effectively and integrating them in IB.
The activities in IB include :
i.
import and export of commodities and manufacturing goods
ii.
investment of capital in manufacturing, extractive, agricultural, transportation
and communications assets
iii.
supervision of employees in different countries
iv.
investment in international services like banking, advertising, tourism,
retailing and construction
v.
transactions involving copy rights, patents, trade marks, and process
technology
All of these can take place between individuals, firms and others public and private
bodies. The levels of risk involved in IB are thus clearly higher than those in domestic
transactions.
Nature of IB
i.
All most all of the large enterprises in developed countries are international
in character
ii.
Many small and medium sized firms are also involved internationally even
if only in the form of export or import activities
iii.
Competitive environments are typically industry specific and industries,
today are very often competitive internationally
iv.
Public policy issues are often related to international trade , investment and
finance, no country can afford to neglect the foreign sector when drawing
up its economic policies.
IB transactions thus, include transfer of goods and services, technology, and
managing knowledge and capital to other countries.
Forms of IB activities of MNC with host country include: licensing agreement,
management contract, joint venture and subsidiary or branches.
Characteristics of IB
i.
Language
ii.
Education system
iii.
Values and attitudes
iv.
Social organizations
v.
Political orientation
vi.
Legal environment
vii.
National sovereignties
viii. Government policies
ix.
Economic development
x.
Economic system
xi.
Planning
xii.
Global organization structure
xiii. Different view of organizational authority
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xiv.
xv.
xvi.
xvii.

Staffing /world wide labor pool

Leadership
Communication
Reporting system for controlling : The global system need many different
requirements
xviii. Modern technology
xix. IT
xx.
Product development modification through R and D
History of international business
-

Problems like wars, civil strife/ robbery, economic cultural barriers

Soon after people began to live in the settled communities they began to trade.
Many items like textiles and skins have a survived . So the full extent of early
trade is not known. But Jericho, an oasis town from 9000 B. C , is thought have
been early trading centre for salt and bitumen from the dead sea , cowrie shells
from the Red sea and copper and turquoise from the Senai Peninsula.
Before 2000 years before BC Mesopotania (Egypt) , Greece, and Phoenicia
were sending trading ships around the known world land bordering the
Mediterranean sea
Phonician visited Cornwell (SW of England)- To access rich deposit of tin,
bronze
Growing Mediterranean trade could control of Greece
By 500 BC, there were recognizable signs of specialization and mass production
in that country
With 300 years, the initiative had passed to the ourgeoning Roman Empire
with control of international trade following the movement of military power
and cultural hegemony . Rome became the centre of international business
for the age.
With the decline of Roman Empire in the 5th century AD., Constantinople
became the main centre for a time.
But about 650 AD , Europe had slipped into a dark period of fragmentation
and migrate that discouraged and almost discontinued international trade.
This period did not rally come to an end until the Crusaders from Europe set
up what were meant to be permanent bases called for regular supplies and
led to the establishment of Venice and Geonoa (Ports) as major international
trading ports. They were also important in absorbing and transmitting back
to Europe knowledge of and demand for a host of material and goods which
were unknown at home. This remained an important axis of international trade
until the 16 century , by which time the centre of the trading world had
moved backed to western Europe and leadership had passed into the hands
of Spaniards and the Portuguese as a result of their sea faring preeminence
/supremacy
Mercantilist trade theory and practice were developed during the 16th century

The Mercantilist doctrine disintegrated with the onset of the industrial

revolution which greatly increased world trade through a prolonged period of
higher effective innovation.
By the mid 19th century(1850), two American companies (Colt industries
incorporated and the singer company and a Scottish firm( J and P Coats) were
operating in the same ways as MNCs do today.
By 20th century several companies (including Ingrsoll Rand, GE, International
Harvester, HJ Height, and Bayer were functions recognized as MNCs.
Before world war I, international capital movements were associated with
large scale population movements out of Europe.
The majority were portfolio investor with UK becoming the largest creditor
nation because of domestic prosperity , the need to secure sources of raw
materials and highly developed institutional framework which successfully
channeled available funds overseas.
In war period, the relative wealth of European nations decreased and the US
become a major creditor nation, increasingly became of DI by US
Corporations in Overseas subsidiary.
Global financial crisis of 1930s in international portfolio investment
Since 1945 , these have been 3 distinct phases in the development of
international business : i. MNCs from US and UK were dominant until about
1960(Till 1950s) and these were concentrated field of extraction of problems
and other raw materials ii. Till 1960s ( 1970) firms from continental Europe
and Japan entered the same and the dominance of UK and US decreased
iii. During the period 1970s and 80s, firms from Europe followed by Japan
have became an increasingly important source of FDI. The US is still an
important source but has increasingly become a major recipient of FDI from
other nations.
Dimensions of International Business
1. Changing pattern of IB
2. Technology Impact
3. Functional Impact
4. Competitive Impact
5. Environmental Impact
6. Political Impacts
7. Strategies
Globalization refers to a process by which an activity or undertaking becomes
worldwide in scope.
It is the process on integration of world as one market.
Globalization refers to a strategy of approaching world wide markets with a
standard product.
Globalization via the development and spread of MNE through FDI
is a more recent (20th century) phenomenon.
Globalization since 16th century through international trade world wide started .
It is not a 20th century phenomenon.

Drivers(Driving forces) of Globalization

1. The internet , IT and Technology have been major new drivers of
globalization since the beginning of the 1990s. The worlds first com. Web
site was introduced in 1994. Since then electronic commerce (E-commerce)
has spread across the globe as a marketing , sales, and communication
phenomenon.
2. Profitability/Profit motive
3. By the mid-19th century (1850s) two American Companies(Colt Industries
and the singer Company) and a Scottish firm( J and Coats ) were operating in
some ways as MNEs to day. By the early 20 th century , several companies
including- Inger Soll Ran, GE, Int. Harvester, HJ Heinz, and Bayer- were
functioning recognizably as MNCs.

4. Regional economic agreement

5. Market needs and wants
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6. Transportation and communication improvement

7. Product development costs
8. Quality
9. World economic trends
10. Leverages: Transfer, scale economies, reserve utilization, and globalization
11. Global and trans national corporation
12. Regional trading agreements
13. Factors that determine the competitive advantage of nations
Restraining forces
1. Management Myopia
2. National control and barriers
3. Market differences
4. Costs
5. Nationalization
6. War
7. Organization history
8. Domestic forces
Forms of globalization
1.
2.
3.
4.

Cultural globalization
Political globalization
Environmental globalization
Economic globalization

Nature of globalization
1. World trade
2. Portfolio investment
3. FDI
4. MNCs
Changing global business scenario
1. Production activities are now moving from US , w. Europe and Japan to
developing countries in LA, SE Asia, and E. Europe.
In 1950, US had more than half of worlds economic output. In 1990, it share
went to quarter. Even though , NA ,Europe and Japan put together to
produce three quarters of worlds output.
2. The balance of economic activity in developed countries is now switching
from manufacturing to services. In US and Britain , proportion of workers
in manufacturing has declined considerably during the last three decades.
Germany, and Japan built manufacturing industries even after 1945,
Manufacturers share of jobs is now below 30 percent shift of manufacturing
is from developed to developing.

Globalization Strategies
1. Exporting
2. Licensing and Franchising
3. Fully Owned manufacturing facility
4. Joint venture
5. Merger and Acquisition
6. Strategic alliance
Global economic boom
-Global economic forces crossed border
-1990s decade witnessed unprecedented economic activities around the globe
-No single factor behind the economic boom
-Many developing countries attracted FDI
-Reviewed economic and fiscal policies
- Service industries have also shown spectacular growth throughout the globe
during 1990s
-Service sector has added more in GDP
-Japan, E .Asian went to consumer driven
-Experience of 1990s showed Asian will be consumer in coming decades
- Government merges competitiveness
-Regional economic groupings
-Expansion of joint ventures activities
Motivation of international business(Forms of operation)
1.
2.
3.
4.

Merchandise exports and imports

Service exports and imports (Transport and tourism)
Investment (DI), portfolio investment, forms of merchandise trade and DI
After investments (MNE)

Motivation if international business

i.
To expand sales
ii.
To acquire resources
iii.
To diversify sources of sales and supplies
Forms of international business/ Forms of operation
i.
Merchandise export and imports
ii.
Service exports and import (Trade and tourism)
iii.
Investment (DI) , portfolio investment, forms of merchandise trade and DI
iv.
After investments (MNE)
Forces of globalization
i. Globalization of capital markets
ii. Growth and declining costs of transportation and communication technologies
iii.
Regional trading agreements

1.2 Overview of changing global picture

-World economy has been changed since world war II
-change in emergence of global market for new opportunities
-Global competitive
-World economic integration stood at 10 percent at the beginning of 20th century.
In the beginning of 21st century, it is more than 5o percent
-More economic integration in E U and NAFTA
-Just 40-50 years ago, the world was far less integrated than today
-Changes taken place in automobile Renault, Citroin, Aeugeot, Morris, Volvo of
Europe were radically different from American Chevorlet, Cordor, Plymouth, or
Japanese models. Largest automobiles evolved into global companies.
Within 1992 and 2002, there have been several remarkable changes in world
economy
-Recession in 2008 started
-New reality of changed world economy are:
i. capital movements rather than trade have become the driving force of world
economy
ii. Production has uncoupled employment
iii. The growth of commerce via internet diminishes the importance of national
barriers
iv. World economy dominates the macro economies of individual countries.
-Because of these, there has been change in declining trade barriers, change in
cost due to communication, information and transportation technologies
1.3. Declining trade barrier
GATT 8 trade negotiations have settled: Tariffs would fall an average of 40
percent throughout the world by 2000.
-Since 1947, GATT had reduced international tariff levy significantly across a
wide range of products. It has encouraged good behavior in the conduct of
international trade and led to a much useful dialogue and communicating
among nations
.
-Free measures prejudicial to international trade (other than hidden NTB) have
not been initiated since the GATT first negotiation.
-Conclusion of the Uruguay round in December 1993 created the most
significant trade agreement in GATTs history. Tariffs would fall by an average
40 percent throughout the world by the year 2000.
The USA and EU each cut tariffs on the others products by 50 percent
immediately which more cuts to follow.
-GATT itself was restructure , renewed organization as the world organization
and its power extended.
-Implications of various tariffs measures leads to incentives and demand for
protection of free trade.
- 2 forms of protection : i. Tariffs and ii. NTB
i. Tariffs: advalorem , specific and compound rates
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with the success of GATT in the last few decades before 1994 , TB have become
less important as a form of protection than NTB or forms of conduct , non price
protection of exports and imports
ii. NTB Quota or QR on the volume of imports like textile quotas(MFA)- This
quota was allowed for 40 years until the Uruguay round of negotiations.
During 1970s and 1980s , VER was a common form of protection used against
Japan in products ranging from steel , to machine tools to automobiles to semiconductors , among others.
-During the 1970s and 1980s , also few the increasing application of another
form of NTB ,antidumping restrictions , particularly by the US and EU.
-This form of protection seeks to prevent exporters from dumping their
products at less than fair value /domestic price in the importing countries.
-The net result is for the exporters prices to be increased in the importing
country.
-Use of D and ID subsidies that is a governments attempt to lower a firms
costs by D and ID use of public funds- is another common form of NTB . For
example, subsidies by French government to its firms and industry became issue
to prevent GATT agreement from being conducted.

1.4 Change in cost declining in communication and transport technology and

access to information technology are the driving forces of international business
Technology is one of the dimension of changes that have become so much part
of our living that it sometimes difficult to appreciate the changes they have
brought about.
-First step of man in moon and visit on moon on commercial basis
-New product and short ended life cycle
-In 1991, the launch of small car ferry makes news with no other ship building at
the same time as on the river. Finding a reason for this decline means looking no
further than the massive advances in shipbuilding technology made in Japan
sine 1945.
Communication, information and communication technologies are critical aspect
of MNC operating and represents the most important competitive advantage an
international firm can possesses.
Suitable technology development in communication, information and transport
technologies can internationalize the advantage throughout MNCs network of
subsidiaries for little extra cost.
Innovation is the key to MNC success.
The past 30-40 years have been seen a dramatic decline in the technological
advantage once enjoyed by US. In the late 1950s , over 80 percent of the
worlds major innovations were first introduced in US by 1965. This figure had
declined to 55 percent and the decline continues today.

Declining in cost in communication and information technology

-Net connection can substantially improve communication with existing foreign
customers, suppliers, agents, and distributors.
-Identify new customers and distributors and generate a wealth of information
on market trends and on the latest technology and research and technical
developments.
-The worlds first web site was introduced in 1994. Since then electronic
commerce(e-commerce), has spread across the globe as a marketing sales and
communication phenomenon. Today , domestic and international business
mangers and entrepreneurs around the world are using the internet to increase
their marketing reach and improve their profitability.
-The internet is a global network of competitors which communicate with each
other via telephone lines
Nepals investment service providers (Company) can provide internet account to
access information relating to international business technologies.
-Nepals government adopted IT policy in 2000. But Science and technology
policy was in 1989.
-In the new competitive scenario, technology and innovation will drive any
nation to take advantage from international business.
-One form of technological change that has been especially important is change
in information system.
-Timely advances for cost reduction due to information technology are: use of
electronic media to communicate over distances including the telephone,
electronic bulletin, and facsimile machines.
-The internet use is growing faster than any other technology in history.
-Between 1933 and 1997, the number of computers connected to the internet
grew from 1 million to 20 million by 2001, this figure is expected to rise in
120 million.
-Use of internet lower communication costs , reduces time to market fro goods
and services, allows delivery of many kinds of information in a digital format,
reduces transport and distribution costs and allows for more fully integrated
and broader business alliances.

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