Global Business Environment

Unit 25

Lecture 1 (1)
International Business and
Globalization
 LECTURER INFORMATION
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 LECTURE CONTENTS

I. The Forces Driving Globalization and

International business (IB)

II. Why Companies Engage in IB

 I. The Forces Driving
Globalization and International
business (IB)
 Globalization is the widening and deepening of
interdependent relationships among people from
different nations.
 International Business (IB) consists of all
commercial transactions between two or more
countries.
Although hard to measure, globalization
• has been growing,
• is less pervasive than generally thought,
• has economic and noneconomic dimensions, is stimulated
by several factors.
 Factors in increased Globalization

3. . Development of
1. Rise in and 2. Liberalization of
services that support 4. Growth of consumer
application of cross-border trade and
International Business pressures
technology resource movements
(IB)

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
 Factors in increased Globalization

3. . Development of
1. Rise in and 2. Liberalization of
services that support 4. Growth of consumer
application of cross-border trade and
International Business pressures
technology resource movements
(IB)

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
1. Rise in and application of technology
Rising productivity - taking less time to produce the same thing
⇒ Frees up more people to develop new products because fewer people are
necessary to produce them
⇒ Average people can buy more, including the new products, by working the
same number of hours.
1. Rise in and application of technology
The entry of new products creates a need for other complementary products
(such as cases and apps for smartphones)
⇒ Construction of many new products cannot successfully take place in a single
country
⇒ The optimum scale size of production seldom corresponds with the market
demand in a single country.
⇒ Sell both domestically and internationally to spread the fixed developmental
and production costs over more units of production.
1. Rise in and application of technology
Advances in Communications and Transportation
⇒ Strides in communications and transportation now allow us to discover,
desire, and demand goods and services from abroad
⇒ Thanks to the Internet, companies can instantly exchange pictures of samples.
⇒ Even small companies can reach global customers and suppliers.
 Factors in increased Globalization

3. . Development of
1. Rise in and 2. Liberalization of
services that support 4. Growth of consumer
application of cross-border trade and
International Business pressures
technology resource movements
(IB)

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
2. Liberalization of cross-border trade and
resource movements
Every country restricts the entry and exit of goods, services and resources -
workers, capital, tools, etc. Most governments have reduced such restrictions.
⇒ Their citizens want a greater variety of goods and services at lower prices.
⇒ Competition spurs domestic producers to become more efficient.
⇒ They hope to induce other countries to lower their barriers in turn.
 Factors in increased Globalization

3. Development of
1. Rise in and 2. Liberalization of
services that support 4. Growth of consumer
application of cross-border trade and
International Business pressures
technology resource movements
(IB)

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
3. Services that Support IB
Companies and governments have developed services that facilitate global
commerce
⇒ Eg: Bank credit agreements - clearing arrangements that convert one currency
into another and insurance that covers such risks as nonpayment and damage.
 Factors in increased Globalization

1. Rise in and 2. Liberalization of 3. Development of

4. Growth of consumer
application of cross-border trade and services that support
pressures
technology resource movements IB

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
4. Growth in Consumer Pressures
More consumers know more about products and services available in other
countries
⇒ Spurred companies to spend more on research and development (R&D) and to
search worldwide for innovations and products they can sell to evermore-
demanding consumers.

Consumers are more proficient at scouring the globe for better deals.
 Factors in increased Globalization

1. Rise in and 2. Liberalization of 3. Development of

4. Growth of consumer
application of cross-border trade and services that support
pressures
technology resource movements IB

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
5. Increase in Global Competition
Increased competitive pressures can persuade companies to buy or sell abroad
⇒ Eg: The early success of foreign-born baseball players in U.S. leagues
undoubtedly spurred U.S. basketball and football organizations to look for and
develop talent abroad.
Born-global companies
⇒ Start out with a global focus because of their founders’ international experience
and because advances in communications give them a good idea.
 Factors in increased Globalization

1. Rise in and 2. Liberalization of 3. Development of

4. Growth of consumer
application of cross-border trade and services that support
pressures
technology resource movements IB

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
6. Changes in Political Situations and
Government Policies
After World War II, business between Communist countries and the rest of the
world was minimal.
⇒ Today, only a few countries are heavily isolated economically or do business
almost entirely within a political bloc.
 Factors in increased Globalization

1. Rise in and 2. Liberalization of 3. Development of

4. Growth of consumer
application of cross-border trade and services that support
pressures
technology resource movements IB

6. Changes in political
5. Increase in global 7. Expansion of cross-
situations and
competition national cooperation
government policies
7. Expansion of Cross-National Cooperation
Interests can be addressed through international cooperation by means of
treaties, agreements, and consultation.
⇒ 1. To gain reciprocal advantages
⇒ 2. To attack problems jointly that one country acting alone cannot solve
⇒ 3. To deal with areas of concern that lie outside the territory of any nation.
II. Why Companies Engage in IB
Sales expansion
There are more potential consumers in the world than in any single country.
Additional sales from abroad may enable a company to reduce its per-unit
costs.
⇒ World’s largest companies derive more than half their sales outside their home
countries.
Resource Acquisition
Domestic supplies are inadequate (such as industrial diamonds in the United States).
Foreign locations may give companies:
⇒ lower costs,
⇒ new or better products,
⇒ additional operating knowledge.
Risk Reduction
Selling in countries with different timing of business cycles can decrease
swings in sales and profits:
⇒ increasing sales stability through operations in countries that enter and recover
from recessions at even slightly different times.

Companies often go international for defensive reasons.

 Link to the Requirements of P1 :
Define the concept globalization in terms of different
dimensions (eg: economic, political, cultural
dimensions).
Thank you for listening!