business studies

1. BMA2B01 / BMA22B2 / BMX2B01
Lecture 5 – GLOBALISATION AND INTERNATIONAL
TRADE 2017 – 08 – (21 to 25)

2. Summative Assessments
It is compulsory to write
Summative Assessment 2
Summative Assessment TWO
Date: Thursday, 28 September 2017
For APK
17h00
BMA2B01 & BMA22B2 at
D1Lab 208 and D1 Lab 308
For BMX2B01 venue to be confirmed

3. 3
Learning Outcomes
Learn about
globalisation and
international trade
Learn about
international trade
theories, how these
developed and how
they are implemented
Study the impact of the
digital economy and
innovation, the
subsequent complexity,
and the impact of these
on globalisation
Understand and
develop globalisation
strategies
Understand the role of
Government in
international trade
and globalisation
Understand the
nature of trade and
the dependencies or
independencies
between countries
Develop an
understanding of the
role of globalisation
and international
trade in the world of
business.
Be able to apply the
principles of
globalisation and
international trade on
businesses.

4. 4
Businesses becoming more global and porous with respect to external
conditions and global markets because of increased competition
World of business is undergoing its own radical change – there are more
changes due to disruptive technologies and profusion of knowledge
Economic world has undergone changes based on needs of societies
The linear world of cause and effect has made way for a digital economy
based on new relationships and alliances
The industrial wave of the mid-1900s has been replaced by the digital
wave
Industrial world embraced order & stability by focusing on rules & structure,
Digital wave allows for rapid change and flexibility focusing on tech & info
Context - Globalisation

5. 5
 There is a shift from an industrial, machine-like structure to a non-linear
alternative
•brings about new rules for business and new drivers for growth.
•presents opposing views about markets, business focus and collaboration.
The Digital World of Work
Industrial World Digital World
Focus on the present Focus on the future
Rules and laws Flexibility and openness
Knowledge confirmation Knowledge development
Authoritative Hypothetical
Loyal customers Volatile customers
Innovation is important Innovation is vital
Technology is important Technology is critical
Tribalism Global village
Job preservation Job creation
Status quo is important Flexibility, speed and change are vital

6. 6
Internationalization
• the increasing geographical dispersion of economic activities
across national borders
Globalization:
• is a more advanced form of internationalization
• integrates economies, industries, markets, cultures and policy-making
around the world.
• describes the process by which national and regional economies,
societies, and cultures become integrated
• through a global network of trade, communication, immigration and
transportation made possible
• by technology, the fall of trade barriers and the building of
international alliances
• focuses on international market expansions,
• but it impacts locally on jobs, health, education and the economy
Globalisation & Internationalisation
Take not of the definition of globalization on page 127, 2nd paragraph

7. 7
Deterritorialization: The eradication of social, political, or cultural practices from their
native places and populations.
In supraterritoriality, barriers to the flow of goods and services between countries are
almost eliminated
• Globalization in its current phase has been described as an
unprecedented compression of time and space reflected in the
tremendous intensification of social, political, economic, and cultural
interconnections and interdependencies on a global scale
• In a world before globalization:
• Distance matter and territorial boundaries kept things in and out of
countries
• But now, in a world of deterritorialization and supraterritoriality:
• Distance becomes almost irrelevant (the end of distance)
• Boundaries are increasingly permeable.
• Groups and cultures increasingly don’t have a territorial basis
• A new kind of non-physical “place” is emerging

8. 8
Domestic Business
• Conducts business
only in its home
country.
International
Business
• Is based primarily
in one country but
transacts business
outside its
boundaries.
Multinational
Corporation (MNC)
• Has significant
operations in more
than one country
Classifying Business in the Global Village

9. 9
Taking a Business Global
Global Sourcing • The use of worldwide resources (outsourcing).
Importing &
Exporting
• A domestic firm buys products from foreign firms and
sells them in its home market (importing)
• A domestic firm sells its locally-made products to
foreign buyers in overseas markets (exporting).
Licensing
• One company allows another company to use its
assets (intellectual property) for a fee.
• Brand name, a trademark, a particular technology or
a patent
Contracting
• A company has a foreign firm manufacture the goods
that it sells as its own.
Joint Venture
• An enterprise that is created when firms agree to
share in its ownership.
Direct
Investment
• Investment that occurs when a company builds or
purchases operating facilities (subsidiaries) in a
foreign country.

10. 10
Globalization in a Business Context
 Businesses competing in a global market have to manage an array
of new challenges including:
• The adherence to the laws and regulations of the host country.
• Including taxation, environmental laws, labour laws, charters, etc.
• The extent of localisation of the business operations.
• Measures the contribution to the local economy
• Address any issues related to technology adoption in the area
• The extent of social responsibility.
• Look at social impact, not just profit maximization – CSR initiatives
• Management of the culture gap between the host and parent
countries and their respective markets.
• Manage cultural differences between businesses & economies

11. 11
International Trade
 International trade is defined as the exchange of capital, goods, and
services across international borders or territories.
 In most countries, such trade represents a significant share of the Gross
Domestic Product
 Companies increase their profits through international sales because the
same item often sells at a higher price, and therefore makes a bigger
profit
 One reason for entering foreign markets is the opportunity for long-term
growth
 Allows for the use of foreign resources to increase growth, and assists with
economies of scale through cross-border trading
 Without international trade, nations would be limited to the goods and
services produced within their own borders.

12. 12
Difference between International & Domestic Trade
 International trade is typically more costly than domestic trade
 borders imposes additional costs such as tariffs, time costs due to
border delays and other costs
 Factors of production such as capital and labour are typically more
mobile within a country than across countries
 Thus international trade is mostly restricted to trade in goods and
services, and only to a lesser extent to trade in capital, labour or other
factors of production

13. 13
Main Concepts of International Trade
 Factor Endowments
 Demand Conditions
 Independence, Interdependence and dependence between countries
 Obtaining advantage in the international trade arena

14. 14
Factor Endowments
 By factor endowments,
 we mean a nation’s position in factors of production such as
skilled labour or infrastructure necessary to compete in a given
industry
• Distinguish between Basic and Advanced Factor Endowments
• Basic Factor Endowments are factors present in the country, e.g
natural resources, climate, geographic location and demographics
• Advanced Factor Endowments are the results of investments by
people, companies and govt’s –
• likely to lead to competitive advantage.
• Include communications, skilled labour, research, technology
and education

15. 15
Demand Conditions
 Another concept that is fundamental to international trade is demand
conditions.
 The demand creates capabilities and demanding consumers.
 The demand impacts on quality and innovation.

16. 16
Independence, Interdependence and dependence
 Independence
 The country stands alone and apart in regard to trade
 Interdependence
 This involves networks of mutual trade exchanges
 Dependence – There are 2 possibilities for 1 way dependence
 Monopolistic agreement
 single supplier and others will find a substitute
 Monopsonist agreement
 single buyer and others may lose interest in producing the goods
 Dependence is dangerous because dependent country is vulnerable
and has no safety net in case of a problem

17. 17
Obtaining Advantage in International arena
 There are 3 ways to obtain the advantage
 Absolute advantage
 the ability to produce something more efficiently than any other
country can
 Comparative advantage
 the ability to produce some product more efficiently or better than
other products
 National competitive advantage
 an international competitive advantage stemming from a combination
of factor conditions, demand conditions, related and supporting
industries, and firm strategies, structure and rivalries

18. 18
7 Theories of International Trade
Mercantilism
• States that a nation’s wealth depends on its
accumulated treasures, and requires that there
should be a trade surplus
• In order to achieve a trade surplus, exports should be
maximised through subsidies and imports should be
minimised using tariffs and quota systems
Theory of
absolute
advantage
• The capability of one country to produce more of a
product with the same amount of input than another
country, gives absolute advantage
• A country should only produce goods where it is most
efficient and trade for those in which it is not efficient
in itself
Theory of
comparative
advantage
• imports should take place even if the country is more
efficient in the product’s production than the country
from which it is buying

19. 19
Theories of International Trade
Factor
proportions
theory
• Proposed that goods that are locally abundant should
be exported
Product life
cycle theory
• Begin by exporting the product and at a later stage
move to foreign direct investment
New trade
theory
• In industries where there are high fixed costs,
specialisation increases output and the ability to
enhance economies of scale increases
Theory of
national
competitive
advantage
• Attempts to analyse the reasons for a nation’s
success in a particular industry
• 4 major attributes that determine competitive
advantage of a nation (Porter, 1998):
• factor endowments,
• demand conditions,
• related and supporting industries,
• and firm strategy, structure and rivalry

20. 20
Determining Trade Partners
 There are two major theories which explains how countries determine
choice of trading partner.
Country Differences Theory Country Similarity Theory
• In this theory, the decision to
trade is based on differences
between the countries.
• These differences refer to the
various country and product
factors, for instance, climate,
factor endowments and
innovation capabilities
• The greater the differences in
countries, the greater the amount
of trade
• The greater the similarities
between two counties, the bigger
the amount of trade.
• Also known as the small leaps
theory because, as a product is
developed in one country, the
next best place to sell it is the
most similar country
• E.g. Canada is the largest trading
partner with USA because these
countries are similar

21. 21
Four Enablers / Business Drivers of Globalization
 Outward Business Culture
 Culture is the set of values and beliefs that define how an entity lives
and operates
 An outward business culture emphasises competitiveness with regard
to other companies and focuses on market leadership.
 Technology
 Technology transforms relationships between suppliers, producers,
retailers and customers.
 Information
 The result of processing, manipulating and organising data such a
way that it adds value and gives meaning.
 Open Innovation
 The use of purposive inflows and outflows of knowledge to accelerate
internal innovation and expand markets for external use of innovation
respectively’. Seeks and develops ideas found outside business

22. 22
Legislation and Fair Globalization
 Role of Government
 all states should develop national competencies, regulate economic
activity, promote labour equality and provide the relevant services for
international alliances
 host government can take actions to protect the local business
community, whilst at the same time benefiting from globalisation
initiatives.
 Triple Bottom Line approach (3BL)
 defines a business’s ultimate worth in financial, social and
environmental terms and, hence, assesses its strategy
 It improves good corporate citizenship as it takes into account social
and environmental responsibilities along with financial ones

23. 23
Impact of Globalization
 Globalisation can change perceptions
 Improve the bottom line
 Open up new markets
 Drives competitiveness and lower cost

24. 24
Competing in international markets
 Host country should be evaluated in terms of:
• different buyer patterns,
• distribution channels,
• potential for growth, driving forces,
• political and economic stability,
• competitive forces and some of the following considerations:
• how govt strategy affects business
• sound fiscal and monetary policies; secure property rights; level of
corruption
• the direction a country takes i.t.o its own development
• Govt practices that may lead to a demise of business ventures

25. 25
Trade Blocs
 Type of intergovernmental agreement, often part of a regional
intergovernmental organisation,
 where regional barriers to trade are reduced or eliminated among the
participating states
 Members of successful trade blocs usually share four common
traits:
 Similar levels of per capita GNP
 Geographic proximity
 Similar or compatible trading regimes
 Political commitment to regional organization

26. 26
Global Trading Agreements
 World Trade Organization
 Establishes and enforces world trade laws.
 Trade Alliances
 European Union
 Created a single market without national barriers to travel,
employment, investment, and trade.
 Euro (€)… Single currency for the EU
 North American Free Trade Agreement (NAFTA)
 United States, Canada, and Mexico
 Association of Southeast Asian Nations(ASEAN)
 Asia-Pacific Economic Cooperation (APEC)

27. 27

28. BRICS
Brazil-Russia-India-China-South
Africa
• Association of national emerging economies. It is not a Trade Bloc
• With the entrance of South Africa, in April 2011, the BRIC became
BRICS, with capital "S".
• The BRICS Leaders agreed to the establishment of a New
Development Bank
• Partnerships fostered by BRICS expected to go a long way in boosting
the growth of trade and industrialisation in the African continent.

29. 29

30. 30
Assessing Globalisation
 The globalisation paradox
 Globalisation is paradoxial as perceptions differ widely of who
beneficiaries are.
 The fact is there can be benefits to both parent and host country.
 On the whole, countries gain more than they lose, although that does
not necessarily mean individuals are always better off
 The most successful strategies find some balance between over-
globalisation and under globalisation

31. 31
Development of a global business strategy
 3 Stages
 Develop Core Strategy
 Usually developed in home country
 Identify the countries for potential global contribution and reasons
why this is necessary
 Internationalise the core strategy.
 Done through the expansion and/ or adaptation of activities using
the core strategy
 Globalise the strategy by implementing across countries
 This integrates the strategy worldwide to the countries identified in
the first stage

32. 32

33. 33
Common mistakes in globalisation
 To assume that local and global markets are the same.
 No link between the global strategy, the business and the implementation
(including resources).
 To assume that globalisation is a good imperative for success.

34. 34
Advantages of Globalisation
 Cost reductions by using economies of scale, lower labour and plant
costs.
 Improved quality of goods or services because of a specific location,
manufacturer or supplier.
 Customer satisfaction because of extended product offering, ease of
access or localisation.
 Competitive position because of the global market share.

35. QUESTIONS