International Business Techniques

The international business context.

Globalization
C O U RS E 2
What is globalization?

A historical process, the result of human innovation and

technological progress.
= Increasing integration of economies around the world,
particularly through trade and financial flows.
Refers also to the movement of people (labor) and knowledge
(technology) across international borders.
There are also broader cultural, political and environmental
dimensions of globalization.
 What is globalization?
Globalization has several facets: globalization of markets and of production.
The globalization of markets: the merging of historically distinct and separate national markets into one
huge global marketplace. Falling barriers to cross-border trade have made it easier to sell
internationally.
It has been argued for some time that the tastes and preferences of consumers in
different nations are beginning to converge on some global norm, thereby helping
to create a global market.
Examples: Coca-Cola soft drinks, Sony PlayStation video games, McDonald's hamburgers,
Starbucks coffee, and IKEA furniture
The most global markets currently are not markets for consumer products, here national differences in
tastes and preferences are still often important enough to act as a brake on globalization - but markets
for industrial goods and materials that serve a universal need the world over, such as markets for
commodities (aluminum, oil, and wheat); for industrial products (microprocessors), for commercial jet
aircraft, computer software etc.
What is globalization?
The globalization of production: the sourcing of goods and services from locations
around the globe to take advantage of national differences in the cost and quality
of factors of production (such as labor, energy, land, and capital).
◦ By doing this, companies hope to lower their overall cost structure or improve the quality or
functionality of their product offering, thereby allowing them to compete more effectively.
◦ Example: Boeing 777, a commercial jet airliner
◦ Increasingly, the outsourcing of productive activities to different suppliers results in the creation
of products that are global in nature, that is, "global products“.
The Boeing Dreamliner
Globalization
Global Economy
◦ Resources, markets and competition are worldwide in scope.

Globalization
◦ The process of growing interdependence among elements of the global economy.

Global Sourcing
◦ Firms purchase products and services from around the world for local use.

International Business
◦ Conducting commercial transactions across national boundaries.
Globalisation involves several issues
Factors of globalization
Fast growth of the markets in emerging countries.
◦ Significant growth potential and lots of opportunities for companies in terms of cost savings (e.g. China,
Russia and Eastern Europe, Latin America, India, Northern Africa).
Technological change. Improved communication and IT innovation.
◦ “Cosmopolitan” international customers.
◦ Disruptive innovations (Facebook, Google, Apple etc.).
Changes in the economic paradigm (the “War for Talent”).
The continued liberalization of international trade.
Strategic networking and the international supply chain.
Dimensions of globalization
Increased international trade
◦ Today, the sum of exports and imports across nations is higher than 50% of global production. At the turn of
the 19th century this figure was below 10% and, until 1913, worldwide trade grew by more than 3%
annually.
Integration of capital markets
◦ Global capital markets are open for business 24 hours a day. Transactions can be carried out from anywhere
in the world in a matter of seconds. International capital flows exceed international trade flows by a ratio of
10 to 1.
Expanded and strengthened role of international organizations
◦ World Trade Organization (WTO) - rules for international trade;
◦ World Bank - source of financial and technical assistance to developing countries
◦ International Monetary Fund (IMF) - ensuring stability of international monetary and financial system
◦ Etc.
The drivers of globalization:
multinational corporations
Multinational corporation (MNC) Transnational corporation (TNC)

• A corporation that manages • The company does not identify

production or delivers services in itself with one national home.
more than one country. • Nestlé: employs senior
• The management headquarters executives from many countries
are located in one country, & makes decisions from a global
(home country), while it operates perspective rather than from
in several other countries (host one centralised headquarters.
countries). • high levels of local
• national companies with responsiveness.
foreign subsidiaries.
Multinational corporations
World’s first multinational?
◦ Dutch East India Company (17th-century)
◦ the first business entity to link the East and West.
◦ three-quarters of the cargo-carrying ships in the middle part of the 17th
century.

The first American MNC?

◦ I. M. Singer and Company (Singer Manufacturing Company) – sewing
machines.
Dimensions of globalization
Increase of MNC
◦ MNC evolution:
◦ Early 1990s: 37,000 parent firms controlling over 200,000 foreign affiliates worldwide.
◦ 2/3 of these parent firms: from 14 major home developed countries.
◦ 2006: more than 78,400 parent firms controlling over 777,600 foreign affiliates worldwide.
◦ No matter where you go in the world, certain businesses will always have a presence.
Multinational corporations
The role of MNCs in the process of globalization is important:
◦ they carry out much of the trade, investment, and other international business activity;
◦ their operations involve the international movement of people and the spread and adaptation of
cultures.

MNC are influenced by the international environment and also influence that environment.

◦ The international business activity become more global.

◦ The relative economic importance of MNCs and the countries they represent is altering.

Example: HSBC
Example of MNC:
HSBC ranked the fifth largest bank in the world with revenue of $146.5 billion in 2008. The
company started its life in Hong Kong in 1865 as the Hong Kong and Shanghai Banking
Corporation.
Today, HSBC has operations in all the main regions of the world, a position it has reached largely
through whole or partial equity investments in other banks. The group’s corporate headquarters
were moved to London in January 1993, after the takeover of the UK’s Midland Bank the
previous year.
Key functions including strategic management, human resource management, legal affairs, and
financial planning and control are now centralized in London, but other operations are
decentralized.
The HSBC Group has also adopted common technology throughout its banking operations and a
uniform international brand and logo. The global and local aspects of its mission are
encapsulated in the strap line: ‘The world’s local bank’.
Source: Harrison , A. (2011). International Entry and Country Analysis
Multinational corporations’ s issues
 Implications for businesses
The world has entered a new economic stage
Turbulence:
◦ always means an increase in risk and uncertainty;
Factors that can cause chaos:
◦ is very difficult to model and to predict.
◦ technological advances and the information
Business turbulence = the unpredictable and swift revolution;
changes in an organization’s external or internal ◦ disruptive technologies and innovations;
environments that affect its performance.
◦ the “rise of the rest”;
◦ hypercompetition;
◦ sovereign wealth funds;
◦ the environment;
◦ customer power.

Source: Kotler, P., Caslione, J. A. (2009). Chaotics: The Business of Managing and Marketing in the Age of
Turbulence, AMACOM, 2009
What are Global Value Chains?
Global value chains (GVCs) refer to international production sharing, a phenomenon where
production is broken into activities and tasks carried out in different countries.
Countries can participate in GVCs by engaging in either backward or forward linkages.
GVCs represent a relatively attractive and straightforward option for countries seeking to
industrialize. Due to the international fragmentation of production and unbundling of
operations, countries no longer need to create complete products or value chains. Instead, they
can create targeted industries by “inserting” themselves into a particular stage of production
along the value chain that suits their existing level of capability.

Read all: Seric, A. & Tong, Y. S. (2019). What are global value chains and why do they matter?,
https://iap.unido.org/articles/what-are-global-value-chains-and-why-do-they-matter
How did Covid-19 affect globalization?

Impact on mobility
Closing of industries and national borders
Impact on international trade
Impact on GVCs
Impact on cooperation among countries
Increase in digitization & automation
Relocation of businesses / GVCs
Further readings
Ortiz-Ospina, E., Roser, M. (2018) International Trade, Published online at OurWorldInData.org. Retrieved from:
https://ourworldindata.org/international-trade
IMF (2000). Globalization: Threat or Opportunity?,
https://www.imf.org/external/np/exr/ib/2000/041200to.htm#chart1a
Interactive charts: Observatory for Economic Complexity (OEC), https://oec.world/
OECD, Global Value Chains (GVCs), https://www.oecd.org/industry/ind/global-value-chains.htm
McKinsey (2019). Globalization in transition: The future of trade and value chains,
https://www.mckinsey.com/featured-insights/innovation-and-growth/globalization-in-transition-the-future-of-trade-a
nd-value-chains

World Economic Forum (2020). Coronavirus won't spell the end for globalization - but change is unavoidable,
https://www.weforum.org/agenda/2020/05/coronavirus-wont-spell-the-end-for-globalization-but-change-is-unavoida
ble

World Economic Forum (2020). COVID-19 could spur automation and reverse globalization – to some extent,
https://www.weforum.org/agenda/2020/05/covid-19-automation-globalisation-coronavirus-world-pandemic-change