globalization and its impact on international business and trade activities

1. GLOBAL BUSINESS & TRADE
Muhammad Shafiq
forshaf@gmail.com
http://www.slideshare.net/forshaf

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Globalization

3. Simple example of globalization
• George Lucas is a film maker
• He made film on star war series
• Idea accepted from France, technicians from UK, film made in UK,
Tunisia, Norway, US
• Actors from US, UK, and 14 countries
• 40% Revenue outside US, one of major source right to different
companies
• Potential problems were: dubbing, addition, censor, scene reduction.
Technical adjustments etc

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Learning Objectives
• To understand the history and impact of global business.
• To learn the definition of global or international business.
• To recognize the growth of global linkages today.
• To understand the U.S. position in world trade and the
impact international business has on the United States.
• To appreciate the opportunities and challenges offered by
international business.

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Need for International Business
• More and more firms around the world are going
global, including:
• Manufacturing firms
• Service companies (i.e. banks, insurance, consulting
firms)
• Art, film, and music companies

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Need for International Business
• International business:
• causes the flow of ideas, services, and capital
across the world
• offers consumers new choices
• permits the acquisition of a wider variety of
products
• facilitates the mobility of labor, capital,
and technology
• provides challenging employment
opportunities
• reallocates resources, makes preferential
choices, and shifts activities to a global level

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What is global business?
global business consists of transactions that are
devised and carried out across national borders
to satisfy the objectives of individuals,
companies, and organizations.

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Types of global Business
Export-import trade
Foreign direct
investment
Licensing
Franchising
Management contracts

9. Why companies go beyond their country
• To expand sales
• To acquire resources
• To diversify sources of sales and supplies
• To minimize competitive risk

10. To expand sales
• Sales depends on two factors
• Consumer interest in product
• Consumer willingness and ability buy
• Motive behind international is expansion of sales by MNC
• Prominent companies are: Nestle(SWE), Gillete (USA, Philips (HOL)
• US Bio-tech firms earns 25%, small business 31% of exports

11. Acquire resources
• Companies seek product services and components produced in
foreign countries
• Look for foreign capital, technology etc.
• Acquiring resources may enable a company to improve their quality
of products

12. Diversify resources of sales and supplies
• To minimize swings in sales and profit companies may seek out
foreign markets to take advantage of business cycle.
• Avoid the full impact of sales reduce in one country by offsetting for
another

13. Minimize competitive risk
• Many co enter into international markets for defensive reasons
• They compete their competitors in interntional market

14. Reasons for recent international business
growth in globalization scenario
• Expansion in technology
• Liberalization of cross-border movement
• Development of supporting services
• Increase in global competition

15. Modes of International business
• Merchandise export and import
• Service export and import
• Tourism and transportation
• Performance of services (turnkey operations, management operation
• Use of Assets (Licensing agreements, royalties, franchising etc.).
• Investments
• Foreign Direct investment (Joint venture, mixed venture)
• Portfolio investment (loaning, bonds, bills or notes)

16. External influences on international business
• Political policies
• Legal practices (taxation, employment, foreign exchange repatriation)
• Cultural factors (anthropology, sociology and psychology)
• Economical factors
• Geographical influences (high mountains, climatic condition such as
hurricans, flood, earthquake)

17. Competitive environment
• Varies to industry, company, and country
• Homogenous and identical products
• Major adv in price, marketing, innovation, or other factors
• Numbers and comparative capabilities of competitors
• Competitive differences by country

18. External Influences
Physical and societal factors
• Political policies and legal
practices
• Cultural factors
• Economic factors
• Geographical influences
Modes
• Importing and exporting
• Tourism and
transportation
• Turnkey operation
• Management contracts
• Direct and portfolio
investment
Operations
Objectives
• Sales expansion
• Resource acquisition
• Competitive risk minimization
Competitive
environment
• Major adv in price, marketing,
innovation, or other factors
• Numbers and comparative
capabilities of competitors
• Competitive differences by
country
Means
Functions
• Marketing
• Exporting and
importing
• Global
manufacturing
and supply chain
management
• Accounting
• Finance
• HR
Overlying
alternatives
• Choice of
countries
• Organization and
control
mechanisms
GLOBAL BUSINESS: OPERATIONS AND INFLUENCES

19. Export and import function in globalization
• Exports and imports are important for the development and growth of
national economies because not all countries have the resources and skills
required to produce certain goods and services.
Nevertheless, countries impose trade barriers, such as tariffs
and import quotas, in order to protect their domestic industries.
• Kenya's other significant exports are petroleum products, sold to near
neighbours, fish, cement, pyrethrum, and sisal. The leading imports are
crude petroleum, chemicals, manufactured goods, machinery, and
transportation equipment. Africa is Kenya's largest export market,
followed by the European Union.
• Ghana is a net importer of goods and services; net imports are 25 percent
of GDP (2005). Most imported products are for local
consumption. Export commodities are gold, cocoa, timber, tuna, bauxite,
aluminium, manganese ore, diamonds and horticultural produce.

20. foreign direct investment (FDI)
• A foreign direct investment (FDI) is a controlling ownership in a
business enterprise in one country by an entity based in another
country.
• Horizontal FDI, where multi-plant firms duplicate roughly the same
activities in multiple countries, has been distinguished from vertical
FDI, where firms locate different stages of production in different
countries. The bulk of FDI is horizontal rather than vertical.
• FDI in Retailing in India: Until 2011, Indian central government
denied Foreign Direct Investment (FDI) in multi-brand retail,
forbidding foreign groups from any ownership in supermarkets,
convenience stores or any retail outlets. Even single-brand retail was
limited to 51% ownership and a bureaucratic process. In ...

21. Licensing
• Licensing is the process of leasing a legally protected (that is,
trademarked or copyrighted) entity – a name, likeness, logo,
trademark, graphic design, slogan, signature, character, or a
combination of several of these elements.
• A licensing agreement is a legal contract between two parties, known
as the licensor and the licensee. In a typical licensing agreement, the
licensor grants the licensee the right to produce and sell goods, apply
a brand name or trademark, or use patented technology owned by
the licensor.
• Attribution is automatic under the CC BY license, meaning that any
video you create using Creative Commons content will automatically
show the source videos' titles underneath the video player. You retain
your copyright and other users get to reuse your work subject to the
terms of the license.

22. franchising
• franchising: Arrangement where one party (the franchiser) grants another
party (thefranchisee) the right to use its trademark or trade-name
• Franchising is a business relationship in which the franchisor (the owner of
the business providing the product or service) assigns to independent
people (thefranchisees) the right to market and distribute the franchisor's
goods or service, and to use the business name for a fixed period of time.
•
• In a management agreement, the chain basically provides the same
services as afranchise agreement, such as brand, reservation system etc.,
but on top of this, there is an agency agreement, meaning the brand
operates the hotel, making all the day-to-day decisions on behalf of the
owner.

23. management contract
• A management contract is an arrangement under which operational
control of an enterprise is vested by contract in a separate enterprise
that performs the necessary managerial functions in return for a fee.
• A management contract is a legal agreement that grants operational
control of a business initiative to a separate group. The managerial
group executes the necessary tasks in exchange for a negotiated fee.
• A forward contract is a customized contract between two parties to
buy or sell an asset at a specified price on a future date. A forward
contract can be used for hedging or speculation, although its non-
standardized nature makes it particularly apt for hedging.

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Global Business Questions
• How will an idea, good, or service fit into the
international market?
• Should trade or investment be used to enter a
foreign market?
• Should supplies be obtained domestically or
abroad?
• What product adjustments are necessary to
be responsive to local conditions?
• What are the threats from global competitors,
and how can these threats be counteracted?

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globalization and the Roman Empire
• Pax Romana, or Roman Peace ensured that merchants
were able to travel safely and rapidly.
• Common coinage simplified business transactions.
• Rome developed a systematic law, central market
locations, and an effective communication system; all
of which enabled international business to flourish in
the Roman Empire.
• The growth of the Roman Empire occurred mainly
through the linkages of business

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globalization and the Roman Empire (cont.)
• The decline of the Roman Empire can be
attributed in part to:
• infighting and increasing decadence
• the Pax Romana being no longer enforced
• the decline of use and acceptance of the common
coinage
• declining levels of communication
• As a result, former Roman allies cooperated with
invaders.

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United States: A Global Leader
• The United States has developed a world
leadership position due to:
• its use of market-based transactions in the Western
world
• a broad flow of ideas, goods, and services across
national borders
• an encouragement of international communication
and transportation
• Pax Americana, an American sponsored and
enforced peace

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The Smoot-Hawley Act
• The the 1930’s, the U.S. passed the Smoot-Hawley
Act, which raised import duties to reduce the
volume of goods coming into the U.S.
• The act was passed in the hope that it would
restore domestic employment.
• The result was a worldwide depression and the
collapse of the world financial system.

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Expansion of International Trade
• In the past 30 years, the volume of international
trade has expanded from $200 billion to over
$7.5 trillion.
• The sales of foreign affiliates of multinational
corporations are now twice as high as global
exports.

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Global Links Today
• International business has created a network of
global links that bind countries, institutions, and
individuals with trade, financial markets,
technology, and living standards.
• For example, a reduction in coffee production in Brazil
would affect individuals and economies worldwide.

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Recent Changes in global Business
• Total world trade declined dramatically after
2000, but is again on the rise.
• The rate of globalization is accelerating.
• Regionalization is taking place, resulting in
trading blocs.
• The participation of countries in world trade is
shifting.

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The Composition of Trade
• Between the 1960’s and the 1990’s the
importance of manufactured goods increased
while the role of primary commodities (i.e.
rubber or mining) had decreased.
• More recently, there has been a shift of
manufacturing to countries with emerging
economies.
• There has been an increase in the area of services
trade in recent years.

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The Current U.S. International Trade
Position
Exports and Imports of Goods and Services per Capita
for Selected Countries
Country Exports per Capita Imports per Capita
Australia
Brazil
China
Japan
Kenya
United Kingdom
United States
$4,296
379
222
4,165
91
4,767
3,472
$4,525
428
199
3,622
125
5,500
4,962

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The Impact of globalization on the United States
• U.S. international business outflows are important
on the macroeconomic level in terms of balancing
the trade account.
• On the microeconomic level, participation in
international business can help firms achieve
economies of scale that cannot be achieved in
domestic markets.

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Average Plant Salary and Wages (per
worker, dollars per hour)
0
5
10
15
20
25
30
All Plants Small Plants Large Plants
$perhour
Non-Exporters Exporters

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Globalization
• Because of globalization, for the first time in
history, the availability of international products
and services can be accessed by individuals in
many countries, from diverse economic
backgrounds.