Unit 1

1. Unit 1 Globalisation

2. Learning Objectives • To understand the meaning of globalisation and the factors contributing to it • To analyse the role played by multinationals in the global business environment • To evaluate the impact of multinational companies on the host country • To explain what regional trading blocs are and their impact on a business of a country that is a member of a regional economic group / bloc

3. Globalisation Globalisation: the ongoing social, economic, and political process that deepens and broadens the relationships and inter-dependencies amongst nations—their people, their firms, their organizations, and their governments International business facilitates the globalization process

4. International Busines International business: all commercial transactions between parties in two or more countries • Private firms are profit-oriented • Government organizations may or may not be profit-oriented The international business environment is more complex and diverse than the domestic business environment

5. Key terms Globalisation The growing trend towards worldwide markets in products, capital and labour, unrestricted by barriers Multinational Companies Business organisations that have their headquarters in one country, but operations in other countries Tariff Tax imposed on an imported product Free International Trade International trade that is allowed to take place without restrictions Quota A physical limit placed on the quantity of imports of certain products

6. International Business • Strategic alliance: a collaborative arrangement of critical importance to one or more of the alliance partners • Multinational enterprise [MNE]: a firm that takes a global approach to its foreign markets and production Multinational corporation [MNC] and transnational company [TNC] may be used in this same context

7. The Forces Behind Globalisation • Increased expansion and technological improvements in transportation and communications networks • Liberalisationof cross-border trade and resource movements • Development of services that support international business activities • Growing consumer demand for foreign products • Increased global competition • Changing political and economic situations • Expanded cross-national treaties and agreements

8. Globalisation • Not a new process but has accelerated in recent years because of: • Liberalisation of international trade • Technological process • Deregulation • Cultural awareness and recognition • Language

9. Multinational Businesses • More than just importers and exporters • Produce goods and services in more than one country Why become a MNC? • Closer to main markets • Lower costs of production • Lower labour rates • Cheaper rent and site costs • Government grants and tax incentives

10. Reasons That Firms Engage in International Business • To expand sales • Volkswagen [Germany] • Ericsson [Sweden] • Michelin [France] • Nestlé [Switzerland] • IBM [USA] • Seagram [Canada] • Sony [Japan]

11. To acquire resources • Products, components, services • Foreign capital • Technologies • Information • To minimize risk • Take advantage of business cycle differences amongst countries • Diversify suppliers across countries • Counter competitors’ advantages

12. Evaluation of MNC’s on ‘host’ countries Benefits Drawbacks Exploitation of the local workforce Pollution Local competing firms may be squeezed out of the market Imposing western culture E.G. McDonalds Profits may be sent back to head office in home country Extensive depletion of natural resources • Investment will bring in foreign currency • Employment opportunities • Local firms forced to focus on quality • Tax revenues to the Government • Management expertise will improve • Total output of the economy will increase and this will raise Gross Domestic Product (GDP)

13. The Criticisms of Globalization • Threats to national sovereignty • Negative costs of economic growth • Increasing income inequality Antiglobalisationforces may use both peaceful and violent means to stop or slow the globalization process. Offshoring (the transferring of production to foreign sites) is particularly controversial.

14. International Business Managers • Must understand the relevance of: • Domestic and international law • Political science • Sociology • Psychology • Economics • Geography • Must be knowledgeable about the competitive dimensions of the international business environment

15. Globalisation and the growth in international trade • World Trade Organisation (WTO) • Negotiates regular reductions in world trade barriers • Contributed to rapid growth of world GDP

16. Regional Trade Blocs – Trading agreements • Four types • Free Trade Areas • Exist where countries agree to trade with each other with no tariffs, quotas or other restrictions • Customs Unions • Free trade areas but each country sets the same level of restrictions (common external barriers) on imports from non-member countries • Common Markets • Extended version of custom union. E.G. European Union • Economic & Monetary Unions • Attempt to create many of the economic conditions that exist within just one country. Common currency.

17. Regional Trade Blocs

18. Implications/Conclusions • Managing an international business differs from managing a domestic business because: • countries and cultures are different • international business operations are more complex than domestic operations • A company’s own competitive strategy influences how and where it can best operate • From one country to another, a company’s relative competitiveness will vary because of the differences in the local and foreign competitors that are present