Globalization and International Business Unit I (International Business, PU Pokhara University MBA Trimester)

 

Globalization and International Business

1. What is Business?

Business refers to any organized economic activity undertaken with the primary objective of earning profits through the production, sale, or distribution of goods and services that satisfy human needs.

Features of Business:

1. Economic Activity
   Business is a part of economic activities because it involves the exchange of goods and services with a goal of value creation.
    A tea shop earns revenue by providing tea, which satisfies customer needs.
2. Profit Motive
   Unlike non-profit organizations, businesses aim to generate income over expenses. Profit acts as a reward for risk and innovation.
    Nike develops new designs and markets them to earn a profit.
3. Uncertainty and Risk
   Markets can be unpredictable due to factors like changing trends, political instability, or pandemics. Businesses must navigate these uncertainties.
    COVID-19 forced many travel businesses to shut down.
4. Regularity in Dealings
   One-time selling does not qualify as business; it must be consistent and repeated.
    A person selling homemade chocolates every week is running a business, not someone selling once at a school fair.
5. Customer Satisfaction
   Long-term success depends on understanding and fulfilling customer needs better than competitors.
    Amazon excels due to its fast delivery and customer service.

2. Concept of International Business

International business refers to commercial activities that involve the exchange of goods, services, technology, capital, or knowledge across national borders.

Why it's Important:
It allows companies to expand markets, achieve economies of scale, access cheaper labor, and enhance competitiveness.

 

• Apple designing in the US, assembling in China, and selling globally.
• Infosys providing software services to US and European clients from India.

3. Features of International Business

1. Cross-Border Transactions
   Goods and services are exchanged across countries.
    Export of Indian spices to the US.
2. Use of Foreign Currency
   Involves dealing in different currencies, requiring exchange rate management.
    A US firm paying in INR when outsourcing to an Indian call center.
3. Cultural Diversity
   Companies must adapt to diverse cultural values and preferences.
    Starbucks modifies drink flavors to suit Asian taste.
4. Different Legal Systems
   Every country has unique tax, labor, and environmental regulations.
    Compliance with GDPR is required in Europe but not elsewhere.
5. International Risks
   Includes political risk, currency fluctuation, and trade restrictions.
    A company exporting to Russia might be impacted by sanctions.
6. Large-scale Operations
   Operations often span continents and require huge capital.
    Coca-Cola operates bottling plants across continents.

4. Domestic vs International Business

Basis	Domestic Business	International Business
1. Geography	Operates within national boundaries.	Crosses national borders.
2. Currency	Transactions in local currency.	Involves multiple currencies and exchange rates.
3. Culture	Usually a single, homogeneous culture.	Diverse cultures requiring customization.
4. Legal System	One legal framework to follow.	Needs to comply with multiple, often conflicting, laws.
5. Market Scope	Limited consumer base.	Wider consumer base; global market access.
6. Political Risk	Minimal, stable policies.	Greater risk due to political instability or sanctions.
7. Scale of Ops	Smaller in scale.	Large-scale, often requiring multinational coordination.

 Reliance operates mainly in India (domestic), while Unilever sells in over 190 countries (international).

5. Globalization

Globalization is the process by which national economies, societies, and cultures become integrated through global networks of trade, investment, migration, and technology.

Emergence of Globalization

1. Technological Advancements
   Internet, mobile phones, and logistics have erased geographical barriers.
    Zoom allows global meetings in real-time.
2. Liberalization Policies
   Countries reduced restrictions on foreign trade and investment.
    India’s LPG (Liberalization, Privatization, Globalization) reforms in 1991.
3. Global Trade Agreements
   Institutions like WTO, regional groups like EU, promote open markets.
    NAFTA eliminated many trade barriers in North America.
4. Improved Transportation
   Air cargo, container shipping reduced cost and time.
    DHL delivers parcels globally within 48 hours.
5. MNC Growth
   Firms expand into new markets to reduce costs and increase reach.
    Pepsi operates in 200+ countries.
6. Outsourcing/Offshoring
   non-core functions are shifted to nations with cost advantages.
    US firms outsource tech support to India.
7. Global Media
   Netflix, YouTube, and social media create shared experiences.
    K-pop gaining fans worldwide through YouTube.
8. Capital Mobility
   Investors invest globally via stock markets, FDI, or venture funds.
    Japanese investors funding Indian start-ups.

6. Drivers of Globalization

1.      Technological Innovation – Technology has revolutionized how businesses operate globally. Innovations in communication, information technology, logistics, and transportation have made it easier and faster to connect, produce, and deliver across borders.

Internet & email: Companies like Amazon manage global operations and customer service with real-time digital tools.

Air freight: DHL and FedEx deliver international packages within 48 hours.

Automation & robotics: Used in global factories to ensure standard quality and efficiency.

2.      Economic Liberalization – Many countries have liberalized their economies by reducing tariffs, removing restrictions on foreign investments, and opening up their markets to international competition.

India’s 1991 economic reforms led to increased foreign direct investment (FDI) and the entry of global firms like McDonald’s and Hyundai.

China’s accession to WTO in 2001 attracted massive foreign investments and turned it into the “world’s factory.”

3.      Market Expansion –Firms seek new markets once local demand becomes saturated. They turn to international markets to grow their customer base and sales.

Apple sells iPhones in over 100 countries because the U.S. market alone cannot sustain long-term growth.

Netflix expanded into Asia, Africa, and Latin America to boost subscriptions.

4.      Cost Efficiency – Firms globalize to reduce production costs by accessing cheaper labor, materials, and operations in other countries.

Nike outsources production to countries like Vietnam and Indonesia where labor is cheaper.

BPO industry in India thrives because of its low labor costs and skilled English-speaking workforce.

5.      Infrastructure Development – Advances in physical (roads, ports, airports) and digital (internet, telecom) infrastructure make global business easier and more reliable.

Singapore’s ports are among the world’s most efficient, supporting international trade.

High-speed internet and cloud computing allow real-time global collaboration (e.g., Google Drive, Zoom).

6.      Policy Support – Governments support globalization through policies like trade agreements, investment protection, and tax treaties that make international business safer and more profitable.

NAFTA (now USMCA) made trade easier between the U.S., Canada, and Mexico.

Double Taxation Avoidance Agreements (DTAAs) ensure businesses don’t pay tax twice on the same income.

7.      Competitive Pressures – To remain competitive, businesses globalize to access resources, technologies, and markets that their competitors are already using.

When Toyota entered the U.S., Ford and GM had to upgrade their models to compete.

Samsung and Apple compete fiercely across multiple global markets.

8.      Consumer Demand – Modern consumers want access to global brands, diverse products, and international lifestyles. Businesses respond to this demand by entering global markets.

Starbucks expanded globally to meet rising global demand for premium coffee culture.

Zara sells fast fashion globally to satisfy customer appetite for trendy clothing.

 

7. Process of Globalization

1. Liberalization – Deregulation of industries and removal of trade restrictions.
2. Integration – Financial markets and supply chains become interconnected.
3. Technology Sharing – Innovations spread globally via FDI or licensing.
4. Cultural Globalization – Western, Eastern, and hybrid cultures blend.
5. Mobility – Workforce migration and capital movement increase efficiency.

8. International Business vs Globalization

Aspect	International Business	Globalization
Scope	Trade, investment, and operations across borders.	Includes economic, cultural, political, and technological aspects.
Nature	Practical and operational.	Broad and conceptual.
Actors	Corporations, firms.	Nations, institutions, individuals, and firms.
Example	IBM selling laptops in Japan.	Global spread of Hollywood, iPhones, TikTok.

 

9. Major Trends in Global Economic Structure

1. Shift to Emerging Economies
   Emerging markets like China and India now drive global GDP growth.
    China’s GDP surpassed $17 trillion by 2023.
2. Service-Oriented Economies
   Advanced economies focus on finance, healthcare, IT.
    70% of US GDP comes from services.
3. Digital Transformation
   Digital platforms revolutionize commerce and communication.
    Shopify enables small businesses to sell globally.
4. Reduced Trade Barriers
   Free trade areas and trade liberalization fuel growth.
    RCEP in Asia-Pacific region boosts intra-Asia trade.
5. Global Value Chains (GVCs)
   Complex supply chains span multiple countries.
    Intel chips made in USA, assembled in Malaysia.
6. Green and Sustainable Economy
   Focus on climate-friendly business models.
    European Union’s Green Deal.
7. Demographic Trends
8. Geopolitical Realignments
   Rise of BRICS, trade wars, and new alliances are reshaping power.
    US-China trade war impacts global supply chains.

🖉 NrnTechCommerce.blogspot.com