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 goodsii. investment of capital in manufacturing, extractive, agricultural, transportation

and communications assetsiii. supervision of employees in different countriesiv. investment in international services like banking, advertising, tourism,

retailing and constructionv. transactions involving copy rights, patents, trade marks, and process

technologyAll 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 IBi. Languageii. Education system iii. Values and attitudesiv. Social organizations v. Political orientationvi. Legal environmentvii. National sovereignties viii. Government policies ix. Economic development x. Economic systemxi. Planning xii. Global organization structurexiii. Different view of organizational authority

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xiv. Staffing /world wide labor poolxv. Leadership xvi. Communication xvii. Reporting system for controlling : The global system need many different

requirements xviii. Modern technology xix. ITxx. 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

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- 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 1930’s –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 1950’s) and these were concentrated field of extraction of problems and other raw materials ii. Till 1960’s ( 1970) firms from continental Europe and Japan entered the same and the dominance of UK and US decreased iii. During the period 1970’s and 80’s, 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 IB2. Technology Impact 3. Functional Impact4. Competitive Impact5. Environmental Impact6. 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.

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Drivers(Driving forces) of Globalization 1. The internet , IT and Technology have been major new drivers of

globalization since the beginning of the 1990’s. The world’s 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 (1850’s) 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 agreement5. Market needs and wants

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6. Transportation and communication improvement 7. Product development costs8. 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 forces1. Management Myopia2. National control and barriers3. Market differences 4. Costs 5. Nationalization6. War7. Organization history8. Domestic forces

Forms of globalization

1. Cultural globalization 2. Political globalization 3. Environmental globalization4. Economic globalization

Nature of globalization1. World trade2. Portfolio investment 3. FDI4. 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 world’s 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.

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Globalization Strategies1. Exporting2. Licensing and Franchising 3. Fully Owned manufacturing facility4. Joint venture5. Merger and Acquisition6. Strategic alliance

Global economic boom-Global economic forces crossed border-1990’s 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 1990’s -Service sector has added more in GDP-Japan, E .Asian went to consumer driven-Experience of 1990’s 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. Merchandise exports and imports 2. Service exports and imports (Transport and tourism)3. Investment (DI), portfolio investment, forms of merchandise trade and DI4. After investments (MNE)

Motivation if international businessi. To expand salesii. 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 DIiv. 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

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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 barrierGATT 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 GATT’s 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 other’s 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 importsii. 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 1970’s and 1980’s , VER was a common form of protection used against Japan in products ranging from steel , to machine tools to automobiles to semi-conductors , among others.-During the 1970’s and 1980’s , 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 government’s attempt to lower a firm’s 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 1950’s , over 80 percent of the world’s major innovations were first introduced in US by 1965. This figure had declined to 55 percent and the decline continues today.

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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 world’s 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 linesNepal’s investment service providers (Company) can provide internet account to access information relating to international business technologies.-Nepal’s 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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