Concept, forms and characteristics of international business in globalization

and GB
Concept of globalization
All measures of globalization process considered here point to the inevitable conclusion that the
level of globalization of Asian countries as of now Is indeed very low. Compared with its own
past, these seem to be progressing significantly towards international integration; but this has
been modest and gradual. However, in comparison with many countries especially in Asia, LDCs
have been considerably lagging behind.
In terms of all indicators of globalization, one common measure of globalization is openness to
external trade; and by this measure, the extent of Asias globalization is insignificant - one of the
lowest in the world.
Nepals share in world exports is 0.001 percent. This situation to the fact that Nepal has not yet
started on globalization. The empirical data do not bear out the criticism that Nepal is rushing
into globalization. Nepal is passing through a process of transition towards globalization.

Forms of international business/ Forms of operation

i.
Merchandise export and imports
ii.
Service exports and import (Trade and tourism)
iii.
Investment (DI) , portfolio investment, forms of merchandise trade and DI
iv.
After investments (MNE)
Forces of globalization
i. Globalization of capital markets
ii. Growth and declining costs of transportation and communication technologies
iii Regional trading agreements
Some general Characteristics of IB in Globalization
Language, Education system , Values and attitudes, Social organizations , Political
orientation, Legal environment, National sovereignties , Government policies , Economic
development , Economic system, Planning , Global organization structure, Different view
of
organizational authority, Staffing /world wide labor pool, Leadership ,
Communication , Reporting system for controlling : The global system need many
different requirements , Modern technology , IT, Product development modification
through R and D
Globalization and Its Characteristics
Globalization is the process of increased interconnectedness among countries most notably in the areas of
economics, politics, and culture.

McDonalds in Japan, French films being played in Minneapolis, and the United Nations, are all
representations of globalization.
The idea of globalization may be simplified by identifying other several key characteristics:
Improved Technology in Transportation and Telecommunications
What makes the rest of this list possible is the ever-increasing capacity for and efficiency of how people
and things move and communicate. In years past, people across the globe did not have the ability to
communicate and could not interact without difficulty. Nowadays, a phone, instant message, fax, or video
conference call can easily be used to connect people. Additionally, anyone with the funds can book a
plane flight and show up half way across the world in a matter of hours. In short, the "friction of distance"
is lessened, and the world begins to metaphorically shrink.
Movement of People and Capital
A general increase in awareness, opportunity, and transportation technology has allowed for people to
move about the world in search of a new home, a new job, or to flee a place of danger. Most migration
takes place within or between developing countries, possibly because lower standards of living and lower
wages push individuals to places with a greater chance for economic success.
Additionally, capital (money) is being moved globally with the ease of electronic transference and a rise
in perceived investment opportunities. Developing countries are a popular place for investors to place
their capital because of the enormous room for growth.
Diffusion of Knowledge
The word 'diffusion' simply means to spread out, and that is exactly what any new found knowledge does.
When a new invention or way of doing something pops up, it does not stay secret for long. A good
example of this is the appearance of automotive farming machines in Southeast Asia, an area long home
to manual agricultural labor.
Non-Governmental Organizations (NGOs) and Multinational Corporations
As global awareness of certain issues has risen, so too has the number of organizations that aim to deal
with them. So called non-governmental organizations bring together people unaffiliated with the
government and can be nationally or globally focused. Many international NGOs deal with issues that do
not pay attention to borders (such as global climate change, energy use, or child labor regulations).
Examples of NGOs include Amnesty International or Doctors without Borders.
As countries are connected to the rest of the world (through increased communication and transportation)
they immediately form what a business would call a market. What this means is that a particular
population represents more people to buy a particular product or service. As more and more markets are
opening up, business people from around the globe are coming together to form multinational
corporations in order to access these new markets. Another reason that businesses are going global is that
some jobs can be done by foreign workers for a much cheaper cost than domestic workers; this is called
outsourcing.

At its core globalization is an easing of borders, making them less important as countries become
dependent on each other to thrive. Some scholars claim that governments are becoming less influential in
the face of an increasingly economic world. Others contest this, insisting that governments are becoming
more important because of the need for regulation and order in such a complex world system.
Is Globalization a Good Thing?
There is a heated debate about the true effects of globalization and if it really is such a good thing. Good
or bad, though, there isn't much argument as to whether or not it is happening. Let's look at the positives
and negatives of globalization, and you can decide for yourself whether or not it is the best thing for our
world.
Positive Aspects of Globalization
As more money is poured in to developing countries, there is a greater chance for the people in
those countries to economically succeed and increase their standard of living.

Global competition encourages creativity and innovation and keeps prices for
commodities/services in check.

Developing countries are able to reap the benefits of current technology without undergoing
many of the growing pains associated with development of these technologies.

Governments are able to better work together towards common goals now that there is an
advantage in cooperation, an improved ability to interact and coordinate, and a global awareness of
issues.

There is a greater access to foreign culture in the form of movies, music, food, clothing, and
more. In short, the world has more choices.

Negative Aspects of Globalization

Outsourcing, while it provides jobs to a population in one country, takes away those jobs from
another country, leaving many without opportunities.
Although different cultures from around the world are able to interact, they begin to meld, and the
contours and individuality of each begin to fade.
There may be a greater chance of disease spreading worldwide, as well as invasive species that
could prove devastating in non-native ecosystems.
There is little international regulation, an unfortunate fact that could have dire consequences for
the safety of people and the environment.
Large Western-driven organizations such as the International Monetary Fund and the World Bank
make it easy for a developing country to obtain a loan. However, a Western-focus is often applied to a
non-Western situation, resulting in failed progress.

Globalization drivers
Drivers (Driving forces) of Globalization

The internet , IT and Technology, and Profitability/Profit motive with societal view have been
major new drivers of globalization since the beginning of the 1990s. The worlds first Web
site was introduced in 1994. Since then electronic commerce (E-commerce) has spread across
the globe as a marketing , sales, and communication phenomenon.
By the mid-19th century (1850s) two American Companies(Colt Industries and the singer
Company) and a Scottish firm( J and Coats ) were operating in some ways as MNEs to day. By
the early 20th century , several companies including- Inger Soll Ran, GE, Int. Harvester, HJ
Heinz, and Bayer- were functioning recognizably as MNCs.
Profitability/Profit motive with societal view: Regional economic agreement, Market needs and
wants , Transportation and communication improvement, Product development costs, Quality,
World economic trends , Leverages: Transfer, scale economies, reserve utilization, and
globalization , Global and trans national corporation , Regional trading agreements , Factors that
determine the competitive advantage of nations.
Restraining forces: Management Myopia ,National control and barriers, Market differences ,
Costs , Nationalization, War, Organization history, Domestic forces

Global competitive forces

The model of the Five Competitive Forces was developed by Michael E. Porter in 1980. Since
that time it has become an important tool for analyzing an organizations industry structure in
strategic processes.
Porters model is based on the insight that a corporate strategy should meet the opportunities and
threats in the organizations external environment. Especially, competitive strategy should base on
an understanding of industry structures and the way they change.
1. Threat of New Entrants
New entrants to an industry typically bring to it new capacity, a desire to gain market share, and
substantial resources. They are threats to an established corporation.
The threat of entry depends on the presence of entry barriers and the reaction that can be
expected from existing competitors. An entry barrier is an obstruction that makes it difficult for a

company to enter an industry. Porter (1985) considers that the possible barriers to entry are:
Economies
of scale; Proprietary product differences; Brand identity; Switching costs; Capital requirements;
Access to distribution; Absolute cost advantages (Proprietary learning curve; Access to necessary
inputs; Proprietary low-cost product design); Government policy; Expected retaliation.
2. Rivalry among existing firms
According to Wheelen and Hunger (2000), in most industries, corporations are
mutually
dependent. A competitive move by one firm can be expected to have a
noticeable effect on
its competitors and thus may cause retaliation or counter efforts.
Porter (1985) defines the following rivalry determinants among existing firms in an industry:
Industry growth; Fixed (or storage) costs/value added; Intermittent differences; Product
differences; Brand identity; Switching costs; Concentration and balance; Informational
complexity; Diversity of competitors; Corporate stakes; Exit barriers.
3. Substitute Products or Services
Substitute products are those products that appear to be different but can
satisfy the same need as another product. Substitutes limit the potential returns of an industry by
placing a ceiling on the prices firms in the industry can profitably charge.
To the extent that switching costs are low, substitutes may have a strong effect on an industry.
For Byars (1991), substitute products that deserve the most attention from an
organization are those that: Have trends improving their price performance trade-off with the
industrys products; Are produced by industries earning high profits.
4.Bargaining Power of Buyers
Buyers affect an industry through their ability to force down prices, bargain for higher quality or
more services, and play competitors against each other (Wheelen and Hunger, 2000 and 2006).
A buyer or a group of buyers is powerful if some of the following factors hold true:
A buyer purchases a large proportion of the sellers product or service, for example, oil filters
purchased by a major automaker;
A buyer has the potential to integrate backward by producing the product
itself, for example, a newspaper chain could make its own paper;
Alternative suppliers are plentiful, because the product is standard or
undifferentiated, for example, motorists can choose among many petrol
stations;
Changing suppliers costs very little, for example, office suppliers are easy
to find;
The purchased product represents a high percentage of a buyers costs,
thus providing an incentive to shop around for a lower price, for example,
petrol purchased for resale by convenience stores makes us half their
costs;
A buyer earns low profit and is thus very sensitive to costs and service
differences, for example, grocery stores have very small margins;
The purchased product is unimportant to the final quality or price of a

buyers products or services and thus can be easily substituted without

affecting the final product adversely, for example, electric wire bought for
use in lamps.
5. Bargaining Power of Suppliers
Suppliers can affect and industry through their ability to raise prices or reduce the quality of
purchased goods and services.
For Porter (1985), the determinants of supplier powers are the following:
Differentiationof inputs; Switching costs of suppliers and firms in the industry; Presence of
substitute inputs; Supplier concentration; Importance of volume to supplier; Cost relative to total
purchases in the industry; Impact of inputs on cost or differentiation; Threat of forward
integration relative to threat of backward integration by firms in the industry.

Trends in globalization
-There are several major trends pertaining to globalization, which consist of:
demographic, scientific, governance, economic interdependence.
-Population trends - Decreasing population in developed countries, while increasing
population in developing countries, and increased life expectancy.
- Science and technology - Includes the Internet and other computer components as well
as GPS, genetically modified food, etc.
-Increasing integration and interdependence - Includes all areas of economic life as well
as an increasing exchange of products and services across national borders through trade.
-Governance - How national and international laws govern the economic activity and
transnational institutions.
These trends are often interdependent and cannot be easily separated. The various factors associated with
trends in globalization, has been shown to affect population growth. In addition, advances in technology
can have significant impacts on society. Technology has allowed global commercial transactions to take
place at increasingly faster rates, and at greater volumes across national borders. This has also led to other
challenges regarding global commerce, which involve the complex coordination, interaction and
compliance of current international and domestic laws.

Multinational Companies-meaning, concept, types and characteristics

Meaning, concept, types and characteristics of MNC
MNC is defined as an organization that owns productive assets in different countries and has
common strategy formulation and implementation across borders.
MNC id defined as any firm that owns output of goods and services originating in more than
one country.
-A distinction is made based on organizational structure: Global (tightly controlled with
a centralized hub structure) , MN (decentralized federations) and TNC (structures that
permit retaining local flexibility while simultaneously achieving global integration ).
MNEs organizations forms are those of an entity which viewed from the home (parent)
perspective, sells and produces in at least one other sovereign host (subsidiary ) country where
the nature and extent of multinational may be divided further to include certain specific
attributes .
-Distinguishing aspects of MNEs : 2 separate attributes that distinguish MNEs from nonMNEs are: i. Multiple sources of external authority(MA) ii. Multiple denominations of
firm value (MV).
Consideration prior to internationalization (i. e MNCs):To begin with MNCs activities ,
businesses are advised to take 4 steps:
i.
Scan the international situation (Journal to seminar)
ii.
Make connections with Academia and research organizations (Overseas R and
D and counseling with faculty )
iii.
Increase the companys international visibility (trade fair, circulation of
brochure, technology acquisition consultants)iv. Undertake cooperative
research projects (Joint research projects)
Complexity of MNC environment: MNC strategic planning is more complex than domestic
planning . There are at least 5 contributing factors
i.
MN faces multiple political economic, legal , social and cultural environment as
well as various rates of change within each of them
ii.
Interaction between national and foreign environment are complex because of
national sovereignty issues and widely differing economic and social
condition.
iii.

Geographical separation, cultural and national differences and variations in

business practices all tend to make communication between headquarters and
the overseas affiliates difficult.

iv.

MNCs faces extreme competition because of differences in industry structure v..

MNCs are confronted by various international organizations , such as EU,
EFTA, and LAFTA that restrict a firms selection of its competitive strategies.

Control problems for MN firm : i. Typically designed financial policies of MNCs ii. Different
financial environment creates problems in disposition of earning , sources of finance and the
structure of capital iii. Importance differences in measurement and control systems often
exist.
Although such problems are more an aspect of MN environment than they are consequences
of poor management the problems are often most effectively reduced through increased
attention to strategic management.
Some multinational corporations are very big, with budgets that exceed some nations' GDPs.
Multinational corporations can have a powerful influence in local economies, and even the world
economy, and play an important role in international relations and globalization.
Multinational corporations because of their enormous size, enjoy massive economic and political
power which enables them to dictate terms to the under-developed countries. They are able to
manipulate prices and profits and restrict the entry of potential competitors through their
dominant influences over new technology, special skills, ability to spend enormous fund on
advertising etc.
MNCs organize this operation in different countries through any of the following five
alternatives:
1) Branches: The simplest form of extending business operations is to set up branches in the
developing countries. Such branches bring with them the technology of the parent company and
are linked up with it.
2) Subsidiaries: Multination also operates by setting up national affiliates as subsidiary
companies. A subsidiary in a particular country is established under the laws of the country. Such
subsidiary companies take advantage of the financial, managerial and technical skills of the
holding company and also benefit by the international reputation that latter enjoys.
3) Joint Venture Company: a joint venture is the establishment of a firm that is jointly owned by
two or more otherwise independent firms. Most joint ventures are 50:50 partnerships. At times,
multinationals enter into a joint venture with an indigenous firm or agency. Under this
arrangement of MNC makes available machinery, capital goods and technological expertise to
the indigenous firm. This form of organization is adopted in those countries where the law
requires control by nationals.
Joint ventures are attractive because: They allow the firm to benefit from a local partners
knowledge of the host countrys competitive conditions, culture, language, political systems, and
business systems. The costs and risks of opening a foreign market are shared with the partner.
When political considerations make joint ventures the only feasible entry mode.
Joint ventures are unattractive because: The firm risks giving control of its technology to its
partner. The firm may not have the tight control over subsidiaries need to realize experience
curve or location economies. Shared ownership can lead to conflicts and battles for control if
goals and objectives differ or change over time.
4) Franchise Holders: This is a special kind of arrangement by which an affiliate firm produces
or markets the product of a multinational firm after obtaining a license from that firm. A formal
contract is entered into between the affiliate firm and the multinational firm which specifically

mentions the rights that are transferred to the affiliate firm and lays down the compensation
(usually in the form of royalties) that it has to pay to the parent firm.
Franchising is attractive because: Firms avoid many costs and risks of opening up a foreign
market. Firms can quickly build a global presence.
Franchising is unattractive because: It may inhibit the firms ability to take profits out of one
country to support competitive attacks in another. The geographic distance of the firm from its
foreign franchisees can make poor quality difficult for the franchisor to detect.
5) Turn key Projects: under this organizational form, the multinational undertakes to complete
the project form scratch to the operational stage. When the project is ready it is handled over to
the host country. In a turnkey project, the contractor agrees to handle every detail of the project
for foreign client, including the training of operating personnel. At completion of the contract,
the foreign client is handed a key to the plant that is ready for full operation.
Turn key projects are attractive because: They are a way of earning economic returns from the
know-how required to assemble and run a technologically complex processes. They can be less
risky than conventional FDI.
Turn key projects are unattractive because: The firm that enters into a turnkey deal will have no
long-term interest in the foreign country. The firm that enters into a turnkey project may create a
competitor.
Through these various methods of operations, MNCs carry their technology to the developing
countries. If MNCs set up a branch or a subsidiary company, it is claimed that there is a direct
injection of foreign experience and expertise in the developing country. The branch or the
subsidiary company can provide a channel for the transmission of the latest improvements from
the developed to the underdeveloped countries.
There is a no question that the branch factory is a highly effective way of improvement
technology. It usually provides, along with the technical expertise, the capital that is not easily
mobilized in underdeveloped countries for new industrial countries for new industrial ventures
and the managerial experience that can so rarely be supplied by them.
The modus operandi of the multinationals in spreading there is very interesting. Like the East
India Company which came to India as a trading company and then spread its net throughout the
country to become politically dominant, these multinationals first start their activities in
extractive industries or control raw materials in the host countries and then slowly enter the
manufacturing and service sectors.

Characteristics of contemporary world business

In the contemporary business world only thing that seems to be constant is change and the nature
of the competition is such that companies need to leverage on the way they manage change to

gain a competitive advantage. Moreover, the types of changes the companies experience vary in
nature as well, for instance, as industries consolidate, there are increasing number of mergers and
acquisitions, the pressures on organization to compete in a more global arena are leading to
different competitive pressures and more strategic alliances.
Furthermore, rapid technological changes are forcing organizations to embrace new technologies
and change the way they work and interface with suppliers and customers.
However, the phenomenon is not new and has seen a series of management fads like cultural
change programmes, total quality management, business process re-engineering etc.
Unfortunately most of the change programs launched within the organizations are below par,
evident in the figure of around 70% failure . Hence, strategic change is becoming a highly sought
after managerial competence.
Moreover, the change management process is highly complicated and there is no fixed norm that
could be followed. However, like most other areas in management experts have proposed models
for organizational change model of change, the planning model, the action research model and
the integrative planning model.
These models cover various aspects of the change management process enabling planned
change; however, one facet of the process that has emerged in recent times of increasing
globalization is that of organizational culture.
The role of cultural awareness has become rather significant, be it international mergers,
acquisitions or just internal business process changes. There has been a barrage of literature
detailing the ways of diagnosing cultural changes and assessing cultural risk in managing change
and aligning strategy and culture with the intended change. Along with managing cultural
diversity during change processes, it has become a standard practice for organizations to publish
its core values defining its organizational culture along with its mission statements on their
websites
and
financial
statements.
Be it the construction industry or an Aerospace organization strategic change is attracting an
increased attention from the management.
Especially the extent of involvement of the people and stakeholders in the process of strategic
has been under a constant debate. There are organizations, where people decide their own targets
and managers their own salaries, which has redefined strategic change and involvement of
people. The bottom line is that strategic management has many facets and is developing into an
area which will receive a lot of management attention.
Role of government in strengthening business competitiveness
Since businesses operate within the regulatory framework of the government, it assumes a very important
role in enhancing competitiveness. Governments must be more business friendly by reengineering
systems and procedures to be more responsive and reducing bureaucratic red tape that hinders business
efficiency. Creating a more integrated, coordinated, and stronger network between government agencies,
the private sector, and academia will contribute to the enhancement of business. Efforts should also focus
on increasing the accountability and integrity of public service.

Improving the physical infrastructure will lead to the smoother movement of people, products, and
services, facilitating faster delivery of goods and services. Developing a communications infrastructure
with broadband transmission provides an effective platform for e-commerce and real-time business
transactions.
The business environment should contribute to overall competitiveness by improving coordination among
public-sector agencies, providing support and? incentives for R&D activities, human resources
development and education, encouraging and promoting innovation and creativity, facilitating the
development of industrial clusters, and enhancing the productivity and competitiveness of SMEs.
Globalization and trade liberalization coupled with rapid advances in information and communications
technology have resulted in an unprecedented intensification of market competition worldwide. The
governments of many Asian countries have made competitiveness a high priority in their strategic
planning and policy formulation for development plans.
Improving the physical infrastructure will lead to the smoother movement of people, products, and
services, facilitating faster delivery of goods and services. Developing a communications infrastructure
with broadband transmission provides an effective platform for e-commerce and real-time business
transactions.

Global expansion strategy of MNCs

International expansion strategies of service MNCs may differ from those of manufacturing
MNCs due to the unique characteristics of service industries. A key difference is that services -being intangible, non-storable, and un-transportable -- cannot be traded without requiring the
providers or receivers to physically relocate (Bhagwati 1984).
The inseparability of production and consumption activities in the case of services accounts for
the importance of FDI as a means of selling services in foreign markets, since this means that
most services cannot be traded across borders and service MNCs most therefore establish a local
presence. This unique feature of service industries must be considered when analyzing the
international strategies of firms in these industries. There are also other factors that are
particularly important in service industries. Because of different languages and cultural
backgrounds, services supplied by MNCs may need to be adapted to the needs of local
customers, particularly in developing countries.
Li and Guisinger (1992) found that service foreign investment in developed countries is
negatively related to the cultural distance between the home and host countries and is positively
related to the market size of the host country, the openness of the host country to inward FDI in
services, the international competitiveness of service industries in the home country, the global
oligopolistic reaction, and the growth of firm size.
They also found that international expansion decisions of service MNCs from the triad regions
of Japan, Western Europe, and North America, which already have an established presence in

other developed countries seem to be motivated by the goal of serving the local customers and
other foreign customers in the host market.
Johanson and Vahlne (1977) have developed a model of the international expansion process that
is based on knowledge and incremental commitment. According to their model, international
expansion is seen as a process involving a series of incremental decisions in which firms often
develop their international operations in small steps, rather than by making large foreign
production investment at a single point in time. The basic assumptions of the model are that lack
of knowledge is an important obstacle to the development of international operations, and that
the necessary knowledge can be acquired primarily through prior experience with operations
abroad.
Service MNCs may also lead, as well as follow, manufacturing FDI abroad. This is particularly
important in developing countries and in countries recently opened to foreign investment.
Consulting, legal services, accounting, banking, and other professional business service firms
may move into a newly-opened country to gather necessary information and prepare and
facilitate for their home country clients to expand in the region. This may be the case for the
presence of foreign accounting firms. Many service MNCs, once established abroad after
following the home country client firm, begin to extend their services to local firms and other
foreign firms in the host market. This two-stage process suggests that the importance of the
client-following strategy may decrease over time.
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