GLOBAL BUSINESS & TRADE

Muhammad Shafiqforshaf@gmail.com

http://www.slideshare.net/forshaf

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Globalization

Simple example of globalization• George Lucas is a film maker• He made film on star war series• Idea accepted from France, technicians from UK, film made in UK,

Tunisia, Norway, US• Actors from US, UK, and 14 countries• 40% Revenue outside US, one of major source right to different

companies• Potential problems were: dubbing, addition, censor, scene reduction.

Technical adjustments etc

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Learning Objectives• To understand the history and impact of global business.• To learn the definition of global or international business.• To recognize the growth of global linkages today.• To understand the U.S. position in world trade and the

impact international business has on the United States.• To appreciate the opportunities and challenges offered by

international business.

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Need for International Business

• More and more firms around the world are going global, including:

• Manufacturing firms• Service companies (i.e. banks, insurance, consulting

firms)• Art, film, and music companies

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Need for International Business

• 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 labor, capital,

and technology• provides challenging employment

opportunities• reallocates resources, makes preferential

choices, and shifts activities to a global level

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What is global business?

global business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.

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Types of global BusinessExport-import trade

Foreign direct investment

Licensing

Franchising

Management contracts

Why companies go beyond their country• To expand sales• To acquire resources• To diversify sources of sales and supplies• To minimize competitive risk

To expand sales• Sales depends on two factors

• Consumer interest in product • Consumer willingness and ability buy

• Motive behind international is expansion of sales by MNC• Prominent companies are: Nestle(SWE), Gillete (USA, Philips (HOL)• US Bio-tech firms earns 25%, small business 31% of exports

Acquire resources• Companies seek product services and components produced in

foreign countries• Look for foreign capital, technology etc.• Acquiring resources may enable a company to improve their quality of

products

Diversify resources of sales and supplies• To minimize swings in sales and profit companies may seek out

foreign markets to take advantage of business cycle.• Avoid the full impact of sales reduce in one country by offsetting for

another

Minimize competitive risk• Many co enter into international markets for defensive reasons• They compete their competitors in interntional market

Reasons for recent international business growth in globalization scenario• Expansion in technology• Liberalization of cross-border movement• Development of supporting services• Increase in global competition

Modes of International business• Merchandise export and import• Service export and import

• Tourism and transportation• Performance of services (turnkey operations, management operation• Use of Assets (Licensing agreements, royalties, franchising etc.).

• Investments• Foreign Direct investment (Joint venture, mixed venture)• Portfolio investment (loaning, bonds, bills or notes)

External influences on international business• Political policies • Legal practices (taxation, employment, foreign exchange repatriation)• Cultural factors (anthropology, sociology and psychology)• Economical factors• Geographical influences (high mountains, climatic condition such as

hurricans, flood, earthquake)

Competitive environment• Varies to industry, company, and country• Homogenous and identical products• Major adv in price, marketing, innovation, or other factors• Numbers and comparative capabilities of competitors• Competitive differences by country

External InfluencesPhysical and societal factors• Political policies and legal

practices• Cultural factors• Economic factors• Geographical influences

Modes• Importing and exporting• Tourism and

transportation• Turnkey operation• Management contracts• Direct and portfolio

investment

OperationsObjectives• Sales expansion• Resource acquisition• Competitive risk minimization

Competitive environment

• Major adv in price, marketing, innovation, or other factors

• Numbers and comparative capabilities of competitors

• Competitive differences by country

MeansFunctions• Marketing• Exporting and

importing• Global

manufacturing and supply chain management

• Accounting• Finance• HR

Overlying alternatives

• Choice of countries

• Organization and control mechanisms

GLOBAL BUSINESS: OPERATIONS AND INFLUENCES

Export and import function in globalization• Exports and imports are important for the development and growth of national

economies because not all countries have the resources and skills required to produce certain goods and services. Nevertheless, countries impose trade barriers, such as tariffs and import quotas, in order to protect their domestic industries.

• Kenya's other significant exports are petroleum products, sold to near neighbours, fish, cement, pyrethrum, and sisal. The leading imports are crude petroleum, chemicals, manufactured goods, machinery, and transportation equipment. Africa is Kenya's largest export market, followed by the European Union.

• Ghana is a net importer of goods and services; net imports are 25 percent of GDP (2005). Most imported products are for local consumption. Export commodities are gold, cocoa, timber, tuna, bauxite, aluminium, manganese ore, diamonds and horticultural produce.

foreign direct investment (FDI)• A foreign direct investment (FDI) is a controlling ownership in a

business enterprise in one country by an entity based in another country.

• Horizontal FDI, where multi-plant firms duplicate roughly the same activities in multiple countries, has been distinguished from vertical FDI, where firms locate different stages of production in different countries. The bulk of FDI is horizontal rather than vertical.

• FDI in Retailing in India: Until 2011, Indian central government denied Foreign Direct Investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets.Even single-brand retail was limited to 51% ownership and a bureaucratic process.In ...

Licensing• Licensing is the process of leasing a legally protected (that is, trademarked

or copyrighted) entity – a name, likeness, logo, trademark, graphic design, slogan, signature, character, or a combination of several of these elements.

• A licensing agreement is a legal contract between two parties, known as the licensor and the licensee. In a typical licensing agreement, the licensor grants the licensee the right to produce and sell goods, apply a brand name or trademark, or use patented technology owned by the licensor.

• Attribution is automatic under the CC BY license, meaning that any video you create using Creative Commons content will automatically show the source videos' titles underneath the video player. You retain your copyright and other users get to reuse your work subject to the terms of the license.

franchising• franchising: Arrangement where one party (the franchiser) grants another

party (thefranchisee) the right to use its trademark or trade-name• Franchising is a business relationship in which the franchisor (the owner of

the business providing the product or service) assigns to independent people (thefranchisees) the right to market and distribute the franchisor's goods or service, and to use the business name for a fixed period of time.

• In a management agreement, the chain basically provides the same services as afranchise agreement, such as brand, reservation system etc., but on top of this, there is an agency agreement, meaning the brand operates the hotel, making all the day-to-day decisions on behalf of the owner.

management contract• A management contract is an arrangement under which operational

control of an enterprise is vested by contract in a separate enterprise that performs the necessary managerial functions in return for a fee.

• A management contract is a legal agreement that grants operational control of a business initiative to a separate group. The managerial group executes the necessary tasks in exchange for a negotiated fee.

• A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date. A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging.

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Global Business Questions

• How will an idea, good, or service fit into the international market?

• Should trade or investment be used to enter a foreign market?

• Should supplies be obtained domestically or abroad?

• What product adjustments are necessary to be responsive to local conditions?

• What are the threats from global competitors, and how can these threats be counteracted?

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globalization and the Roman Empire

• Pax Romana, or Roman Peace ensured that merchants were able to travel safely and rapidly.

• Common coinage simplified business transactions.• Rome developed a systematic law, central market

locations, and an effective communication system; all of which enabled international business to flourish in the Roman Empire.

• The growth of the Roman Empire occurred mainly through the linkages of business

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globalization and the Roman Empire (cont.)

• The decline of the Roman Empire can be attributed in part to:

• infighting and increasing decadence • the Pax Romana being no longer enforced• the decline of use and acceptance of the common

coinage• declining levels of communication

• As a result, former Roman allies cooperated with invaders.

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United States: A Global Leader

• The United States has developed a world leadership position due to:

• its use of market-based transactions in the Western world

• a broad flow of ideas, goods, and services across national borders

• an encouragement of international communication and transportation

• Pax Americana, an American sponsored and enforced peace

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The Smoot-Hawley Act• The the 1930’s, the U.S. passed the Smoot-Hawley

Act, which raised import duties to reduce the volume of goods coming into the U.S.

• The act was passed in the hope that it would restore domestic employment.

• The result was a worldwide depression and the collapse of the world financial system.

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Expansion of International Trade

• In the past 30 years, the volume of international trade has expanded from $200 billion to over $7.5 trillion.

• The sales of foreign affiliates of multinational corporations are now twice as high as global exports.

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Global Links Today• International business has created a network of

global links that bind countries, institutions, and individuals with trade, financial markets, technology, and living standards.

• For example, a reduction in coffee production in Brazil would affect individuals and economies worldwide.

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Recent Changes in global Business

• Total world trade declined dramatically after 2000, but is again on the rise.

• The rate of globalization is accelerating.

• Regionalization is taking place, resulting in trading blocs.

• The participation of countries in world trade is shifting.

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The Composition of Trade

• Between the 1960’s and the 1990’s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased.

• More recently, there has been a shift of manufacturing to countries with emerging economies.

• There has been an increase in the area of services trade in recent years.

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The Current U.S. International Trade Position

Exports and Imports of Goods and Services per Capita for Selected Countries

Country Exports per Capita Imports per CapitaAustraliaBrazilChinaJapanKenyaUnited KingdomUnited States

$4,296 379 222 4,165 91 4,767 3,472

$4,525 428 199 3,622 125 5,500 4,962

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The Impact of globalization on the United States

• U.S. international business outflows are important on the macroeconomic level in terms of balancing the trade account.

• On the microeconomic level, participation in international business can help firms achieve economies of scale that cannot be achieved in domestic markets.

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Non-Exporters Exporters

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Globalization• Because of globalization, for the first time in

history, the availability of international products and services can be accessed by individuals in many countries, from diverse economic backgrounds.