Globalization and International Business

Chapter Objectives To define globalization and international business and show how they affect each other Why should we study international business To understand why companies engage in international business Factors/reasons contributing to the growth of IB International companies or extent of international organization www.AssignmentPoint.com

Meaning of Globalization The broadening set of interdependent relationships among people from different parts of a world that happens to be divided into nations. It is the process of growing interdependence among countries. www.AssignmentPoint.com

Because of globalization people have altered the way they live, they have more deeply affected by the conditions outside their immediate domain. Globalization has expanded the resources, products, services and markets available to people. People get more variety, better quality or lower prices because of globalization. However, these connections between supplies and markets would not happen without international business. www.AssignmentPoint.com

Meaning of International Business All commercial transactions—including sales, investments, and transportation—that take place between two or more countries. International business means any cross border transactions; any business transaction that cross the boundary, that is, transaction between two enterprises or two countries. Transaction may happen between governments or individuals. www.AssignmentPoint.com

Why should we study international business? Most companies either are international or compete with international companies. Modes of operation may differ from those used domestically. The best way of conducting business may differ by country. An understanding helps to make better career decision. An understanding helps to decide what governmental policies to support. www.AssignmentPoint.com

Factors in Increased Globalization/ Reasons contributing to the growth of IB Increase in and expansion of technology Liberalization of cross-border trade and resource movements Development of services that support international business Growing consumer pressures Increased global competition Changing political situations Expanded cross-national cooperation www.AssignmentPoint.com

Reasons That Firms Engage in International Business Expanding sales Acquiring resources Minimizing risk www.AssignmentPoint.com

Modes of Operation in International Business Exports and Imports Merchandise Export and Import Service Export and Import www.AssignmentPoint.com

Merchandise Exports and Imports Merchandise exports and imports usually are a country’s most common international economic transaction. Merchandise exports are tangible products that is, goods, sent out of a country. Merchandise imports are goods brought into a country. www.AssignmentPoint.com

Service Exports and Imports Service exports and imports generate nonproduct international earnings and payments through international nonproduct sales and purchases. The company or individual receiving payment is making service export. The company or individual paying is making service import. Service exports and imports can take many forms- Tourism and transportation Performance of services Use of assets. www.AssignmentPoint.com

Service Exports and Imports Tourism and Transportation International tourism and transportation are important sources of revenue for airlines, shipping companies, travel agencies, and hotels. Performance of Services Some services- banking, insurance, rentals, engineering, management services etc.- companies earn in the form of fees. Performance of services takes two forms- Turnkey project or operation Management contract www.AssignmentPoint.com

Service Exports and Imports Turn Key Project or operation Companies pay fees for engineering services that are often handled by turnkey operations such as construction. It is a project which is constructed by a foreign authority in exchange of fees and is handed over to the local authority when they are ready to begin operation. Management contract It is a contract based on which firms in one country render management expertise to the firms of another. It is an arrangement in which one company provides personnel to perform general or specialized management function for another. www.AssignmentPoint.com

Service Exports and Imports Use of Assets When companies allow others to use their assets, such as trademarks, patents, copyrights, they receive earnings called royalties. Licensing is an agreement between two parties- licensor and licensee, by which the licensor (owner) permits the licensee( user) to use its intellectual property like- patent, trademark etc for production or distribution of goods in return of a fee or commission. Franchising is an agreement between two parties- franchisor and franchisee by which the franchisor allows the franchisee to operate an enterprise using an intellectual www.AssignmentPoint.com

Service Exports and Imports property like-patent, trademark in return for a fee and keeping a reasonable amount of control in the hands of franchisor. www.AssignmentPoint.com

Investments Foreign investments means ownership of foreign property in exchange for a financial return, such as interest and dividends. Foreign investment takes two forms: direct and portfolio. Foreign direct investment refers to the transfer of capital by the nationals or citizens of one country into another to start a business under its ownership and control. Objective of FDI is to earn profit by managing and controlling. www.AssignmentPoint.com

Investments Portfolio investment refers to transfer of capital by nationals or citizens of one country into another in the form of buying stocks and bonds and giving loans to company. Objective of portfolio investment is to earn interest or dividend. www.AssignmentPoint.com

International companies and terms to describe them Multinational Corporation (MNC) A multinational corporation is a firm that engages in foreign direct investment and owns and controls value adding activities in more than one country. A multinational corporation (MNC) or enterprise (MNE),is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation. www.AssignmentPoint.com

International companies and terms to describe them The International Labour Organization (ILO) has defined an MNC as -“a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries.” MNCs typically buy resources from a variety of countries, create goods and services in a variety of countries and then sell those goods and services in a variety of countries. www.AssignmentPoint.com

International companies and terms to describe them Multinational Organization (MNO) MNO is a not- for- profit organization. That means, activities of the multinational organization is not aimed at earning profit. Example- International Red Cross, UNO, Oxfam etc. www.AssignmentPoint.com

Types of MNCs based on Approaches of Operation Multidomestic Corporation A multidomestic corporation is one that views itself as a collection of independent operating subsidiaries, each of which focuses on a specific domestic market, is free to customize its products, marketing campaigns, and production techniques to serve the needs of local customers. Global Corporation A global corporation views the world as a single homogeneous market place and strives to create globally standardized goods and services that will meet the needs of customers worldwide. www.AssignmentPoint.com

Types of MNCs based on Approaches of Operation Transnational Corporation A transnational corporation seeks to combine the earlier two approaches: global-scale- efficiencies ( global corporation) and local responsiveness ( multidomestic approach). World Company A world company is a firm that transcends national boundaries and in so doing loses its national identity. No company has actually reached this level, although some are moving toward it. www.AssignmentPoint.com