Globalisation and global business

environment
Unit 3
 Intro
The shift towards a more integrated and
interdependent world economy
Two part- global markets, global production

Countries increase worldwide trade and

exchange of open, integrated and borderless
economy
 Nature of globalisation
1. Improved technology in transportation
2. Improved telecommunication
3. Movement of people
4. Movement of capital
5. Diffusion of knowledge
6. MNC
7. Diversity of participations
8. Growing complexity
 Objectives
To provide wide choice
To unite culture of market
To free flow of capital
Increase industrialisation
To create jobs
To boost economy
 4 components
Globalisation of market
Globalisation of production
Globalisation of investment
Globalisation of technology
Causes of Globalisation of business
Expansion of technology
Cross-border trade & resource movement
Development of services that support
international business
Growing consumer pressures
Global competition
Changing political situations
 Stages in Globalisation
Domestic company
International company
Multinational company
Global company
Transitional company
 Impact of Globalisation on business
Positive impact of Globalisation
Negative impact of Globalisation
 Positive impact of Globalisation
1. Goods & services
2. Financial markets
3. Government
4. Conflict
5. Free flow of technology
6. Spread of production facilities
7. Balance development
8. Increase production& consumption
9. Lower prices with high quality
10. Culture exchange
11. Increase employment & income
12. Balanced human development
 Negative impact of Globalisation
1. Reduced jobs & income
2. Poor labour practices & environment
3. National sovereignty getting limited
4. Reluctance of developed & developing countries
5. Short term gains
6. Non economic hurdles
7. Big business
8. Consumerism
9. Social security
10. risks
 International business environment
International business = sum total of all
external forces working upon the firm
Environment= domestic, foreign ,
international
 Indian business environment
Privatisation
Economic liberalisation
FDI
CSR initiatives
Laws & corruption
Marketing
Manufacturing
Supply chain
 Nature of international business
environment
Forced dynamism
Cooperation among countries
Liberalisation of cross border movement
Transfer of technology
Growth in emerging markets
Trade in agriculture & manufacturing goods
Trade partners RTA
Containerised cargo- air, sea, land
Global production network
Intra firm trade
 Factors Affecting IBE
1. International economic environment
2. International social environment
3. International culture environment
4. International political environment
5. International legal & regulatory environment
6. International technological environment
7. International natural environment
 Political environment
the complete set of institutions, interest
groups that govern political norms & rules in
their functions
Types of political environment
1. Domestic
2. Foreign
3. International
 Legal environment
Legal system- Means & methods that is uses
to regulate business practices
Regulation ensure equality and justice in
society by framing laws, acts- labor laws
Three bodies of law
1. International laws
2. Host country laws
3. Home country laws
 Impact of LE
1. Reregulation
2. Globalisation
3. Concern for natural environment
4. Intellectual property
5. Product liability & safety
6. Competition among business
7. Bribes & corrupt practices
8. Advertising & sales promotion
9. contracts
 Culture environment
Body of general beliefs, values that are shared
by a nation
Beliefs & value are generally formed history,
language, religion, geographic location,
government, education

System of values & norms that are shared

among a group of people and that taken
together constitute a design for living
 Impact of CE
1. Selection of mode on entry
2. Strategy actions
3. Language barriers
4. Customs
5. Target audience
6. Technology
7. Politics
 Global trade & investment
environment
Trade- buying & selling of commodities for
valuable consideration
Global trade- exchange of capital, goods &
services across international border
Need for global trade & investment
1. Large scale production
2. Degree of self sufficiency
3. Geographic factors
4. Occupational distribution
5. Transportation
6. Compensating the production
 Components of GTI
Trade in goods & services
FDI
Portfolio investment
Investment income
 Factors affecting GTI
Impact of inflation
Impact of national income
Impact of government policies
Subsidies of exporters
Restriction on imports

Lack of restrictions on piracy

 International trade theory
1) Mercantilism theory
2) Classical trade theory- Adam smiths absolute
cost advantage theory, Ricardos comparative
cost advantage theory
3) Heckscher ohlins factor proportions theory
4) Haberlers opportunity cost theory
5) Krugmans new trade theory
6) Vernons product life cycle theory
7) Porters national competitive advantage theory
 1) Mercantilism theory
It started in 16th century in england
Gold & silver are national wealth- currency
Export more gold- import less gold
Government promoted exports restricted
imports
Favorable balance of trade
 2) Classical trade theory
Countries have different set of resources=more
resources more cost effective(commodities)
Assumptions
1. Full employment & free trade
2. Homogeneity of costs
3. Law of constant return
4. Two country two commodities
5. No transport cost
6. No services
 a) Absolute advantage theory
Adam smith 1776
Absolute cost advantage in production on greater
efficiency
England should specialise in production in textile,
France in wine - exchange them
Country should never produce goods when it can
buy lower cost from other country both country
can benefit
Natural advantage & acquired advantage (pdtion)
 b) Comparative advantage theory
David Ricardo
Efficient in production than other country
Feature of CAT
1. Multiplicity of activities
2. Two edged
3. Sigh mixed partial
4. Relative value
5. Express in terms of money & labor
 3) Heckscher Ohlin theory
Swedish economist Eli Heckscher 1919
Later expanded by his student Bertil Ohlin 1933
X Y theory
International trade is nothing but a special case
of inter local or inter regional trade
Factors of production:
1. Labour
2. Capital
It determines the form of good
 4) Opportunity cost theory
Professor Gottfried Haberier 1983
Cost of anything is the value of the alternative
which have to be foregone in order to obtain
that particular thing
10 Labour in production of cloth & wine
10 unit Cloth 8 labour 10 l wine 7 labour
 5) New trade theory
Paul Krugman MIT 1980
Limited no of large organisation for break
even point aerospace airbus & Boeing
Out put for world demand
First mover advantage
Spread of fixed cost & total cost in production
Internal & external economies of scale
 6) Product life cycle theory
Raymond Vernon PLC
Introduction, growth, maturity, decline stage
Production location, market location,
competitive factors, production technology
7) National competitive advantage
Porter diamond model 1990
National natural & endowment characteristics
rise competitiveness
 Implication of international trade
theories
Location
First mover
Governement policy
 Development of world trade system
1820-1930 smith to great depression
1947-1979 GATT, trade liberalisation,
economic growth
1980-1993-disturbing trends (Japan, deficit,
export restriction)
1986-1994 Uruguay round- WTO-1995-
TRIPS, TRIM
1995- WTO-76 country now 153 country
 Principle of WTO
Trade without discrimination most favored
nation, National treatment
Free trade
Predictability
Promoting fair competition
Economic reforms
Organisational structure
Ministerial
conference

General council

Dispute Director Trade policy

settlement body general review body

Council Secretariat of
Committees 1,2,3
1,2,3 WTO

1) Trade &
1) Trade in goods
development

2) Trade in
2) BOP restriction
service

3) Trade 3) budget,
intellectual rights Finance, & admin
 Role & function of WTO
Helping developing economies
Specialised help for exports
Taking information
Inform public
Encourage development reforms
 Impact of WTO
Positive impact
Negative impact
 Positive impact
1. Promotes peace
2. Disputes handled
3. Rule for easier to nation
4. Free trade cuts
5. Choice of product
6. Trade income raises
7. Good governance
 Negative impact
Undemocratic
Human rights
Increase inequality
Small counties not favors
Less local decision making
 Regional grouping of countries
Regional economic integration
Regional trade areas
Regional bloc
 Types of RGC
Preferential trading agreement
Free trade area
Custom union
Common market
Economic union
Political union
 Impact -positive
Trade creation
Competition
Economic growth
Employment
Technological development
Investment
Better resources utilize
Consumer welfare
 Impact - negative
Regionalism
Loss of sovereignty
Concession
Interdependence
Inefficiencies of trade
External barriers
Loss to developing national
 Major regional groups
EU
NAFTA
ASEAN
SAARC
SAFTA
 EU
27 members Austria, Belgium, Bulgaria,
Cyprus, Czech republic, Demark, Estonia,
Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Latvia, Lithuania, Luxembourg,
Malta, Netherlands, Poland, Portugal,
Romania, Slovakia, Slovenia, Spain, Sweden &
UK
Common policy agriculture, transport,
currency etc
 NAFTA
North American free trade agreement
1994- Canada, Mexico, US
 ASEAN- Association of South East
Asian nations
1992
Singapore, Brunei, Malaysia, Philippines,
Thailand, Indonesia
1995- Vietnam, 1997 Myanmar
 SAARC
South Asian Association for Regional
Cooperation
Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan Sri Lanka