INTRODUCTION TO

INTERNATIONAL BUSINESS
UNIT - 1
International Business
by Charles Hill or
Aswathappa
Lesson 01
GLOBALISATION
Prof. R. Srinivasan
3
Learning Objectives:
Meaning of International Business
Importance of International Business
Problems in IB
Need for IB
Theories of IB
4
What is International Business ?
International Business is all business transactions that
involve two or more countries.

International Business comprises a large and growing
portion of the worlds total business.

International Business usually takes place within a more
diverse external environment.

What does it cover ?

5
It cover--------
Export and Import of goods and Services
Investments FDI, FII
Human resources
IPR- Intellectual Property Rights-
Licensing, Franchising.
Manufacturing
Commercial Borrowings
6
IB is the whole gamut of business
activities that crosses national
borders:
IB can effect people in many broad ways
such as,
People's economic well being,
Political status
Skill level or knowledge

7
Definition:
IB is a field of study and practice that
encompasses public and private business
activity affecting the persons or institutions
of more than one national state, territory or
colony
8
Problems or Challenges in
International Business:
Language, law, customs and regulations
Country information may be difficult to
obtain
Foreign Exchange transactions
Cultural differences

9
Broader range of managerial skills
required
Need to take help from intermediaries
Monitoring trends in foreign market may
be difficult.
Control & communication systems
Market risks
10
Why Firms engage in IB ?
To expand sales/ market PLC
To acquire resources
To diversify sources of sales and supplies
To minimise competitive risk
Rapid increase in and expansion of technology
Development of the institutions needed to
support and facilitate international trade
Increased global competition

What is globalization?

The shift towards a more integrated and
interdependent world economy
Two components:
The globalization of markets
The globalization of production

Globalization of markets

The merging of distinctly separate national
markets into a global marketplace
Tastes and preferences converge onto a global
norm
Firms offer standardized products worldwide
creating a world market

Globalization of markets

Significant differences still exist between
national markets on many relevant dimensions

These differences require that marketing and
operating strategies and product features be
customized to best match conditions in a
country.
Globalization of markets
Countries are different
Range of problems are wider and more
complex
Government intervention in trade and
investment creates problems
International investment is impacted by
different currencies
Globalization of production
Refers to sourcing of goods and services from
locations around the world to take advantage
of
Differences in cost or quality of the factors of
production
Labor
Land
Capital


Emergence of global institutions

Globalization has created the need for
institutions to help manage, regulate and
police the global marketplace
GATT
WTO
IMF
World bank
United Nations
Global drivers
Macro factors that underlie trend towards
greater globalization

Decline in trade barriers
Technological change
18
WORLD TRADE ORGANISATION
Successor to GATT in 1995
GATT established in 1947
Headquartered in Geneva.
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INTERNATIONAL MONETARY
FUND
Established in 1947 to manage fixed
exchange rates and liquidity problems of
countries.
Each country deposited with IMF a certain
amount so that IMF accumulated a large
pool of foreign exchange.
Countries with Balance of Payment
problems would borrow from IMF.
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IMFs objectives :
Promote exchange rate stability
Maintain orderly exchange arrangements
Avoid competitive currency devaluations
Establish multilateral system of payments
Eliminate exchange restrictions
Create standby resources

21
UNITED NATIONS CONFERENCE
ON TRADE AND DEVELOPMENT
Formed in 1964 as a permanent body
attached to UNO
To bridge the gap between developing and
developed nations.
Conferences held once in 4 years.
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Functions of UNCTAD
Promote international trade
Speed up economic development of
developing nations
Negotiate multilateral trade agreements.
Co-ordinate the activities of other
insitutions.
Declining barriers to trade
Globalization of markets and production has
been facilitated by
Reduction in trade barriers
Removal of restrictions to foreign direct
investment


Globalization debate-Pro
Lower prices for goods and services
Economic growth stimulation
Increase in consumer income
Creates jobs
Countries specialize in production of goods
and services that are produced most efficiently

Globalization debate-Con
Destroys manufacturing jobs in wealthy,
advanced countries
Wage rates of unskilled workers in advanced
countries declines
Companies move to countries with fewer
labor and environment regulations
Loss of sovereignty
The drivers of globalisation
Market drivers
Per capita income converging among industrialised
nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising
Cost drivers
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Government drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and
customers
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
Competitive drivers
Continuing increases in the level of world trade
Increased ownership of corporations by foreign
acquirors
Rise of new competitors intent upon becoming global
competitors
Growth of global networks making countries
interdependent in particular industries
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Revolution in information and communication
Globalisation of financial markets
Improvements in business travel
Market drivers
Per capita income converging among industrialised
nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising
Cost drivers
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Government drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and
customers
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
Competitive drivers
Continuing increases in the level of world trade
Increased ownership of corporations by foreign
acquirors
Rise of new competitors intent upon becoming global
competitors
Growth of global networks making countries
interdependent in particular industries
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Revolution in information and communication
Globalisation of financial markets
Improvements in business travel
The drivers of globalisation
Market drivers
Per capita income converging among industrialised
nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising
Cost drivers
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Government drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and
customers
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
Competitive drivers
Continuing increases in the level of world trade
Increased ownership of corporations by foreign
acquirors
Rise of new competitors intent upon becoming global
competitors
Growth of global networks making countries
interdependent in particular industries
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Revolution in information and communication
Globalisation of financial markets
Improvements in business travel
The drivers of globalisation
Market drivers
Per capita income converging among industrialised
nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising
Cost drivers
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Government drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and
customers
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
Competitive drivers
Continuing increases in the level of world trade
Increased ownership of corporations by foreign
acquirors
Rise of new competitors intent upon becoming global
competitors
Growth of global networks making countries
interdependent in particular industries
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Revolution in information and communication
Globalisation of financial markets
Improvements in business travel
The drivers of globalisation
Market drivers
Per capita income converging among industrialised
nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising
Cost drivers
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Government drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and
customers
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
Competitive drivers
Continuing increases in the level of world trade
Increased ownership of corporations by foreign
acquirors
Rise of new competitors intent upon becoming global
competitors
Growth of global networks making countries
interdependent in particular industries
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Revolution in information and communication
Globalisation of financial markets
Improvements in business travel
The drivers of globalisation
Market drivers
Per capita income converging among industrialised
nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising
Cost drivers
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with
productive capability and low labour costs.
Increasing cost of product development relative to
market life
Government drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and
customers
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist
systems in eastern Europe
Increasing participation of China and India in the global
economy
Competitive drivers
Continuing increases in the level of world trade
Increased ownership of corporations by foreign
acquirors
Rise of new competitors intent upon becoming global
competitors
Growth of global networks making countries
interdependent in particular industries
More companies becoming globally centred rather than
nationally centred
Increased formation of global strategic alliances
Other drivers
Revolution in information and communication
Globalisation of financial markets
Improvements in business travel
The drivers of globalisation