INTRODUCTION TO INTERNATIONAL BUSINESS AND GLOBALIZATION

PRESENTATION OUTLINE

• Philosophy of International Business

• Reasons for International Business

• Differences between Domestic and International Business

• Globalization

• Advantages / Disadvantages

• Key Drivers of Globalization

PHILOSOPHY OF INTERNATIONAL BUSINESS

What is International Business?

Business Activities involving transactions of goods, services and resources beyond

national boundaries

Why countries engage in International Business?

Stimulates Foreign Trade, Improves Technical Collaboration and brings in

Foreign Investments

INDIA’S EXPORT AND IMPORT STATISTICS (IN USD MILLION)

2014-15 2015-16 % Growth 2015-16 /

2014-15

Merchandise

Exports (including re-

exports)

27998.50 22346.75 -20.19

imports 39233.24 32752.99 -16.52

Trade Balance -11234.74 -10406.24

Services

Exports 13012.00

Imports 7324.00

Trade Balance 5688.00

REASONS FOR INTERNATIONAL BUSINESS

How long ago did International Business start?

• Earliest civilizations engaged in trade of exotic goods

• International Production gained prominence in the colonization era, limited to

extracting minerals and production of primary commodities in colonies

• MNCs are the torch – bearers of International Business today

REASON: Scarcities lead to interdependence

DIFFERENCES: DOMESTIC AND INTERNATIONAL BUSINESS

• Transactions for International Businesses mostly intra-firm and use Transfer Pricing

(arbitrary pricing of intra-firm transactions at more/less than the arm's length

prices). Designing of prices a complicated task.

• Transactions carried out in unfamiliar conditions and hence business strategy must

be chalked out carefully to minimize friction with host country’s government.

• Legal Environment: Rules, Regulations, Policies

• Political Environment: Stability in political climate

• Economic Environment: Foreign Exchange constraints

• Socio-Cultural Environment: Language, Social Behaviour, attitude towards consumption and

production

DIFFERENCES: DOMESTIC AND INTERNATIONAL BUSINESS

• Risks are involved when conducting International Business. Political risks threaten

business execution (Nestle's Maggi), economic risks such as fluctuating exchange

rates lead to profitability risks.

• Management functions in organizations involved in International Business have

different accounting, marketing, personnel and production priorities; keeping the

International Marketplace as the focus

GLOBALISATION: ADVANTAGES AND DISADVANTAGES

Advantages Disadvantages

Economies of different countries integrate leading to

efficient utilization and allocation of resources

Cross border flow of goods and services not exactly

free due to rigid tariff and non tariff barriers

between nations, social implications

Rapid growth in trade Creates an inequitable gap between developed

and developing countries; Africa, Balkan regions

excluded from the globalization story. Unskilled and

less skilled labour experience significant wage

reductions due to globalization pressures exerted by

developed nations

Economic liberalization in developing countries

opens up business opportunities for transnational

companies through Foreign Direct Investments

leading to increase in cross-border capital

movement

Global brands, under the pretext of competition,

threaten the sustenance of local firms in the industry

GLOBALISATION: ADVANTAGES AND DISADVANTAGES

Advantages Disadvantages

Increased competition from global firms force local

businesses to improve quality standards and reduce

cost

Developed nations face challenges from skilled

labor in developing countries leading to poor job

security, suppressing bargaining influence of trade

unions. Eg: Business Process Outsourcing

Consumers enjoy wider set of products and services

to select. Quality and price competition ultimately

leads to customer's gain

Forces of globalization, via the Internet and mass

media, have led to cultural convergence with

individuals forgetting their cultural values and

national identity

KEY DRIVERS OF GLOBALIZATION

GlobalizationEconomic

Liberalization

Technological Breakthrough

Multilateral Institutions

International Economic Integration

Move towards free marketing systems

Rising R&D costs

Advents in Logistics Management

Emergence of Global Customer Segments

Regulatory Controls

Emerging New Trade Barriers

Cultural Factors Nationalism

Wars and Civil Disturbances

Management Myopia

MOVERS

CONSTRAINTS

KEY DRIVERS OF GLOBALIZATION

• Liberalized tariff structures and regulations

• The breakthroughs achieved in technology help firms in functioning efficiently

in the global marketplace

• Multilateral institutions such as WTO and GATT have contributed to

globalization by consistently reducing tariffs and increasing market access

• International economic integrations such as the European Union reduce trade

barriers among member countries

KEY DRIVERS OF GLOBALIZATION

• Countries that had centrally planned economies previously have begun

adopting free market systems which integrates with the global economy

• A surge in business operations executed at a global level is observed due to

growing market access and movement of capital

• Affordable access to swift transportation and strides taken in logistics

management benefit global movement of goods

• Consumer preferences in different nations are becoming similar due to global

standardization of products and services

THANK YOUTHIS PRESENTATION HAS BEEN PUT TOGETHER BY GROUP 1, SECTION M2