INTERNATIONAL

BUSINESS
MANAGEMENT
ASSIGNMENT-1

Submitted by: SAKSHI SHARMA

th
BBA(G) 6 C
08414901718
Q1. What is globalization? What is its rationale? How is that globalization resulted in
unification of world’s economies and in what way?

ANS. Globalization is the free movement of goods, services and people across the world in a
seamless and integrated manner. Globalization is the result of the opening up of the global
economy and the concomitant increase in trade between nations. In other words, when countries
that were hitherto closed to trade and foreign investment open up their economies and go global,
the result is an increasing interconnectedness and integration of the economies of the world.
Globalization also means that countries liberalize their import protocols and welcome foreign
investment into sectors that are the mainstays of its economy. This means that countries become
magnets for attracting global capital by opening up their economies to multinational
corporations. Moreover, globalization results in freeing up the unproductive sectors to
investment and the productive sectors to export related activities resulting in a win-win situation
for the economies of the world.

Globalization is grounded in the theory of comparative advantage which states that countries that
are good at producing a particular good are better off exporting it to countries that are less
efficient at producing that good. Conversely, the latter country can then export the goods that it
produces in an efficient manner to the former country which might be deficient in the same. The
underlying assumption here is that not all countries are good at producing all sorts of goods and
hence they benefit by trading with each other. Further, because of the wage differential and the
way in which different countries are endowed with different resources, countries stand to gain by
trading with each other.

Globalization has benefits that cover many different areas. It reciprocally developed economies
all over the world and increased cultural exchanges. It also allowed financial exchanges between
companies, changing the paradigm of work. Many people are nowadays citizens of the world.
The origin of goods became secondary and geographic distance is no longer a barrier for many
services to happen.

 RATIONALE OF GLOBALISATION:

The main arguments in favor of globalization are as follows:

1. Cost Reduction: Globalization helps to reduce costs in two ways. First, standardization of
products and processes provides economies of scale. Second, global firms have better bargaining
power over suppliers of raw materials, components, equipment and services.

2. Global Learning: Transfer of best practices, skills and people across subsidiaries facilitates
accumulation of knowledge and experience. Skills acquired in one unit can be leveraged in other
units.
3. Arbitrage Advantage: A global firm can raise resources in one country for the benefit of
subsidiaries in other countries. It can gain a competitive advantage. Differences in taxes, interest,
etc. also can provide an advantage.

4. Rapid Industrialization: Globalization helps in the free flow of capital and technology from
one country to another. Developing countries can accelerate the process of industrialization with
the help of foreign capital and technology. There is expansion of the market.

5. Better Allocations of Resources: Capital flows from surplus nations to needy nations. Global
firm can acquire capital at a low cost. Free trade leads to more productive allocation of factors of
production which helps reduce costs and increase income. A global firm can get location
economies which arise from performing a business activity in the optimal location for that
activity.

6. Reduction in Poverty: Foreign direct investment helps to create jobs and increase wages.
When firms concentrate on their core competencies markets, etc. expand, incomes rise.
Globalization is helping the middle class in developing countries and increasing social mobility.
Total production and consumption in the world as a whole increased.

7. Employment Generation: Globalization leads to shifting of manufacturing facilities to low

wage developing countries. It creates job opportunities in these countries. There is spread up of
production facilities throughout the world.

8. Balanced Development: With the free flow of capital and technology, the developing
countries industrialize fast. There is more balanced development of all the countries.

9. Better Quality of Life: Consumers have a wider choice. Firms strive to reduce prices and
achieve global quality standards. As a result goods and services of better quality become
available to people at lower prices. Their standards of living rise.

10. Human Development: Rapid and balanced industrialization of the world helps to improve
the skills of people. Higher economic growth enables national governments to provide better
welfare facilities like education, healthcare, etc. to the public.

11. Dissemination of knowledge: New communications and information technology lead to

faster and wider dissemination of knowledge. Several key issues like human rights, child labor,
gender equality, etc. are brought to the fore on a global level. There is exchange of cultures.

 UNIFICATION OF WORLD’S ECONOMIES:

Globalization compels businesses to adapt to different strategies based on new ideological trends
that try to balance the rights and interests of both the individual and the community as a whole.
This change enables businesses to compete worldwide and also signifies a dramatic change for
business leaders, labour, and management by legitimately accepting the participation of workers
and the government in developing and implementing company policies and
strategies. Risk reduction via diversification can be accomplished through company involvement
with international financial institutions and partnering with both local and multinational
businesses. Globalization brings reorganization at the international, national, and sub-national
levels. Specifically, it brings the reorganization of production, international trade, and the
integration of financial markets. This affects capitalist economic and social relations, via
multilateralism and microeconomic phenomena, such as business competitiveness, at the global
level. The transformation of production systems affects the class structure, the labour process,
the application of technology, and the structure and organization of capital. Globalization is now
seen as marginalizing the less educated and low-skilled workers. Business expansion will no
longer automatically imply increased employment. Additionally, it can cause a
high remuneration of capital, due to its higher mobility compared to labour.

The phenomenon seems to be driven by three major forces: the globalization of all product and
financial markets, technology, and deregulation. Globalization of product and financial markets
refers to an increased economic integration in specialization and economies of scale, which will
result in greater trade in financial services through both capital flows and cross-border entry
activity. The technology factor, specifically telecommunication and information availability, has
facilitated remote delivery and provided new access and distribution channels, while revamping
industrial structures for financial services by allowing entry of non-bank entities, such as
telecoms and utilities. Deregulation pertains to the liberalization of capital account and financial
services in products, markets, and geographic locations. It integrates banks by offering a broad
array of services, allows entry of new providers, and increases multinational presence in many
markets and more cross-border activities.

In a global economy, power is the ability of a company to command both tangible and intangible
assets that create customer loyalty, regardless of location. Independent of size or geographic
location, a company can meet global standards and tap into global networks, thrive and act as a
world-class thinker, maker, and trader, by using its greatest assets: its concepts, competence, and
connections.
Q2. Distinguish between international, multinational, global and transnational firms.

ANS. 1) International Companies

 The operations of such companies lie in one single home country as the base center.
 These companies only export or import products from the home country.
 The offices, hence, only exist in the home country and there is no foreign direct
investment in other countries.
 The functioning and strategies are derived mostly from the primary market which is the
domestic home country market.
 They have to continuously adjust to trading norms of the home country.
 Spencer’s is an example in the Indian context.

2) Multinational Companies

 As the name suggests, these companies have direct operations in more than a single
country, however, it is usually not a very large number.
 However, MNC’s have a centralized structure, with the head office in the home country
calling all the shots.
 In this case, products are decided and developed by the head office and subsidiary offices
do have options to adapt to local markets if needed.
 Adidas is an amazing example to explain multinational companies.

3) Transnational Companies

 These companies are operating in multiple countries, having foreign direct investment in
all of them.
 Such companies follow a flexible approach, understanding and adapting to the local
culture and demand of each country.
 Hence, offices in each country work in a decentralized manner with decision-making
powers.
 In fact, subsidiary offices can launch and make products which might not be
manufactured in the original home country, if there is a chance of demand.
 Nokia is one of the examples in the Indian context.
4) Global Companies

 These companies work to have a foothold in a large number of countries, usually larger
than a Multinational Corporation.
 They, however, do not follow the system of having an official head office.
 Various subsidiaries are set but standard products are sold, without any flexibility in
terms of adapting to local consumers.
 There is no change in branding or information about a global company, even if the
country of operations changes.
 McDonald’s – a fast-food chain, is an exemplary example of this kind of companies.

Q3. Discuss the concept, nature and scope of international business.

ANS. International business relates to any situation where the production or distribution of goods
or services crosses country borders. Globalization—the shift toward a more interdependent and
integrated global economy—creates greater opportunities for international business. Such
globalization can take place in terms of markets, where trade barriers are falling and buyer
preferences are changing. It can also be seen in terms of production, where a company can
source goods and services easily from other countries. Some managers consider the definition of
international business to relate purely to “business,” as suggested in the Google case. However, a
broader definition of international business may serve you better both personally and
professionally in a world that has moved beyond simple industrial production. International
business encompasses a full range of cross-border exchanges of goods, services, or resources
between two or more nations. These exchanges can go beyond the exchange of money for
physical goods to include international transfers of other resources, such as people, intellectual
property (e.g., patents, copyrights, brand trademarks, and data), and contractual assets or
liabilities (e.g., the right to use some foreign asset, provide some future service to foreign
customers, or execute a complex financial instrument). The entities involved in international
business range from large multinational firms with thousands of employees doing business in
many countries around the world to a small one-person company acting as an importer or
exporter. This broader definition of international business also encompasses for-profit border-
crossing transactions as well as transactions motivated by nonfinancial gains (e.g., triple bottom
line, corporate social responsibility, and political favour) that affect a business’s future.
  NATURE:

1. International Restrictions: In international business, there is a fear of the restrictions which

are imposed by the government of the different countries. Many country’s governments don’t
allow international businesses in their country. They have trade blocks, tariff barriers, foreign
exchange restrictions, etc. These things are harmful to international business.

2. Benefits to Participating Countries: It gives benefits to the countries which are participating
in the international business. The richer or developed countries grow their business to the
global level and they get maximum benefits. The developing countries get the latest
technology, foreign capital, employment opportunities, rapid industrial development, etc.
This helps developing countries in developing their economy. Therefore, developing
countries open up their economy for foreign investments. 

3. Large Scale Operations: International business contains a large number of operations at a

time because it is conducted on a large scale globally. Production of the goods at a large
scale, they have to fulfil the demand at a global level. Marketing of the product is also
conducted at a large scale to make them aware of the product. First, they fulfil the domestic
demand and then they export the surplus in the foreign markets.

4. Integration of Economies: International Business combines the economies of many countries.

The companies use the finance, labour, resources, and infrastructure of the other countries in
which they are working. They produce the parts in different countries, assemble the product
in other countries and sell their product in other countries.

5. Dominated By Developed Countries: International business is dominated by developed

countries and their MNC’s. Countries like U.S.A, Europe, and Japan all are the countries that
are producing high-quality products; they have people working for them on high salaries.
They have large financial and other resources like the best technology and Research and
Development centers. Therefore, they produce good quality products and services at low
prices. They help them to capture the world market.

6. Market Segmentation: International business is based on market segmentation on the basis of

the geographic segmentation of the consumers. The market is divided into different groups
according to the demand of the consumers in different countries. It produces goods according
to the demand of the consumers of the different market segmentations.
  SCOPE:

The significance of international business is better than ever as companies around the world
become enhanced connected. It is always played a major role in a country’s growth and
economy. International business is very important for the sustenance of a country as the gross
domestic product or the GDP is reliant on good foreign business. It is a very broad term because
it holds various types of rules and regulations. It refers to business activities that take place
transversely national frontiers.

International business is much broader than international trade. It includes not only international
trade (i.e., export and import of goods and services) but also a wide variety of other ways in
which the firms operate internationally. International Management professionals are familiar
with the language, culture, economic and political environment, and business practices of
countries in which multinational firms actively trade and invest.

Major forms of business operations that constitute international business are as follows.

 Merchandise exports and imports

Merchandise means goods that are tangible, i.e., those that can be seen and touched. When
viewed from this perceptive, it is clear that while merchandise exports mean sending tangible
goods abroad, merchandise imports mean bringing tangible goods from a foreign country to
one’s own country.

 Service exports and imports

Service exports and imports involve trade in intangibles. It is because of the intangible aspect of
services that trade in services is also known as invisible trade.

 Licensing and franchising

Permitting another party in a foreign country to produce and sell goods under your trademarks,
patents or copyrights in lieu of some fee is another way of entering into international business. It
is under the licensing system that Pepsi and Coca Cola are produced and sold all over the world
by local bottlers in foreign countries.

 Foreign investments

Foreign investment is another important form of international business. Foreign investment

involves investments of funds abroad in exchange for financial return. Foreign investment can be
of two types: direct and portfolio investments.

 Monopoly Power

It might arrive from patent rights, technological advantages, product segregation etc. Another
reason for internationalization is limited market information.
  Benefiting from currency exchange

Those who add an international business to their assortment may also advantage from currency
fluctuations. For example, when the U.S. dollar is down, you might be able to export more as
foreign customers benefit from the favourable currency exchange rate.

 Limitations of Domestic Market

Some demographic trends such as a contraction in birth rate decline in domestic demand, fully
tapped market potential have adverse effects on some businesses. When the domestic market is
small, international business is the option for growth. Depression in the home market drives
companies to explore foreign markets.

 Increased revenues

One of the top advantages of international business is that you may be capable to enlarge your
number of probable clients. Each country you add to your list can open up a new path to business
growth and increased revenues.

 Growth opportunities

Foreign markets both developed country and developing country provide considerable expansion
opportunities for the firms from a developing country. MNCs are interested in no. of developing
countries due to initially increasing in their income and population of the predictable 1 billion
increases in world population during 2000 to 2015; only about 3% will be in the high-income
countries, foreign markets, both developed and developing countries after ample opportunities
for developing country firms also.

 Expand and diversify

International business can enlarge and expand its activities. This is because it earns very high
profits. It also gets financial help from the government.

 Opportunity to specialize

International markets can open up avenues for a new line of service or products. It can also give
you an opportunity to specialize in a different area to serve that market.