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