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MODULE 1
CHAPTER I
GLOBALIZATION AND OVERVIEW OF
INTERNATIONAL BUSINESS
OBJECTIVES
After studying this unit, you should be able to:
• Understand the meaning of Globalization
• Determine the difference between Globalization of Production and
Globalization of Markets
• Understand the political stability of a country
INTRODUCTION
Globalization is the word used to describe the growing interdependence of the
world’s economies, cultures, and populations, brought about by cross-border trade
in goods and services, technology, and flows of investment, people, and information.
Countries have built economic partnerships to facilitate these movements over many
centuries. But the term gained popularity after the Cold War in the early 1990s, as
these cooperative arrangements shaped modern everyday life. This guide uses the
term more narrowly to refer to international trade and some of the investment flows
among advanced economies, mostly focusing on the United States.
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Political Stability
Political stability is a variable of great importance in a country's evolution
since, across time, it was identified as causing law level of economic growth, but
also it was presented as a consequence of poor economic development. The purpose
of this paper is to analyze the influence of political stability on economic growth in
Romania and to conclude in what extent this political factor is a condition for a future
and continuous sustainable growth in our country. By using statistical and
econometric approach (correlation and multivariate regression) we conclude that
political stability has an important role in a country's economic growth and that a
stable political environment helps in building a coherent and continuous path for
sustainable development.
INTERNATIONAL BUSINESS: AN OVERVIEW
INTRODUCTION
One of the most dramatic and significant world trends in the past two decades
has been the rapid, sustained growth of international business. Markets have become
truly global for most goods, many services, and especially for financial instruments
of all types. World product trade has expanded by more than 6 percent a year since
1950, which is more than 50 percent faster than growth of output the most dramatic
increase in globalization, has occurred in financial markets. In the global forex
markets, billions of dollars are transacted each day, of which more than 90 percent
represent financial transactions unrelated to trade or investment. Much of this
activity takes place in the so-called Euromarkets, markets outside the country whose
currency is used.
Evolution of International Business
The business across the borders of the countries had been carried on since
times immemorial. But, the business had been limited to the international trade until
the recent past. The post-World War II period witnessed an unexpected expansion
of national companies into international or multinational companies. The post
1990’s period has given greater fillip to international business.
International Trade to International Marketing: Originally, the producers used
to export their products to the nearby countries and gradually extended the exports
to far-off countries. Gradually, the companies extended the operations beyond trade.
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STAGES OF INTERNATIONALIZATION
Stage 1 – Domestic Company: Domestic Company limits its operations, mission
and vision to the national political boundaries. These companies focus its view on
the domestic market opportunities, domestic suppliers, domestic financial
companies, domestic customers etc. These companies analyze the national
environment of the country, formulate the strategies to exploit the opportunities
offered by the environment.
Stage 2 – International Company: These companies select the strategy of locating
the branch in the foreign market and extend the same domestic operations into
foreign markets. These companies remain ethnocentric or domestic country oriented.
Normally internalization process of most of the global companies starts with this
stage of two processes. Many of the companies follow this strategy due to limited
resources and also to learn from the foreign market gradually before becoming a
global company without much risk.
Stage 3 – Multinational Company: This stage of multinational company is also
referred as multidomestic company formulates different strategies for different
market, thus the orientation shift from ethnocentric to polycentric. Under polycentric
orientation the offices/branches subsidiaries of a MNC work like a domestic
company in each country where they operate with distinct policies and strategies
suitable to that country concerned.
Stage 4 – Global Company: Global company is the one which has either produces
in home country or in a single country and focuses on marketing these products
globally and focuses on marketing these products domestically.
Stage 5 – Transnational Company: Transnational company produces, market,
invests and operate across the world. It is an integrated global enterprise which links
global resources with global market at profits. There is no such pure transnational
corporation.
CHARACTERISTICS OF A TRANSNATIONAL COMPANY
This company thinks globally and acts locally. This company adopts global
strategy but allow value addition to the customer of a domestic country. The assets
of a transnational company are distributed throughout the world, independent and
specialized. The R&D facilities of a transnational company are spread in many
countries.
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