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International BusinessGlobalisationTuesday, 21 March 201712:03 pmSUMMARY OF MAIN THEMES OF GLOBALISATION.The world economy is becoming more globalThere are many drivers of globalisationGlobalisation is thrusting nation-states towards a more tightly integrated global economyThe nature of internat...

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International Business

Globalisation Tuesday, 21 March 2017 12:03 pm

SUMMARY OF MAIN THEMES OF GLOBALISATION.  The world economy is becoming more global  There are many drivers of globalisation  Globalisation is thrusting nation-states towards a more tightly integrated global economy  The nature of international business is changing in response to the changing global economy.  There are some concerns raised by rapid globalisation  Three are implications of rapid globalisation for individual managers.

A fundamental shift is occuring in the world economy  Integrated world economy  Interdependant world economy Globalisation and opportunities Globalisation and threats Outsourcing and offshoring

What is globalisation? Globalisation refers to the shift towards a more integrated and interdependent world economy.  Facets of globalisation o Globalisation of markets o Globalisation of production o Emergence of global institutions

The globalisation of makrets  The historically distant and separate national markets are merging into one huge global marketplace in which the tastes and preferences of consumers in different nations are beginning to converge on some global norm  Examples of consumer products o Prada Fashion o Sony PlayStation o McDonalds o Apple iPhones o IKEA furniture

Globalisation of production  Sourcing goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production, thereby allowing them to compete more effectively against their rivals.  Examples of globalisation of production

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Boeing 777 and 787 'Dreamliner commercial aircrafts Jomatsu's construction and mining equipment Imaging Partners Online (IPO) radiology services

Over the past 60+ years, a number of important global institutions have been created to:  Help manage, regulate and police the global marketplace  Promote the establishment of multinational treaties to govern the global business system. Examples of global institutions  General Agreement on Tariffs and Trade (GATT) o An international treaty that committed signatories to lowering barriers to the free flow of goods across national borders a predecessor of the WTO  World Trade Organisation (WTO) o Responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties  International Monetary Fund (IMF) o Created to maintain order in the international monetary system.  World Bank (International Bank for reconstruction and development) o Set up to promote economic development.  United Nations (UN) has 4 purposes o Maintain international peace and security o Develop friendly relations among nations o To cooperate in solving international problem and promote respect for human rights o Be a centre for harmonising the actions of nations.

Drivers of globalisation Two macro factors seem to underlie the trend towards greater globalisation  Declining trade and investment barriers: the decline in barrier to the free flow of goods, services and capital  The role of technological change : particulrarly the dramatic developments in recent year in communication, info processing and transportation technologies. Declining trade and investment barriers  After WW2, the industrialised countries of the West began the process of removing barriers to the free flow of goods, service and capital between nations  Under GATT, over 100 nations negotiated further decreases in tariffs and made progress on a number of non-tariff issues.  Under the WTO, a mechanism now exists for dispute resolution and the enforcement of trade laws.  A push to cut tariffs on industrial goods, services and agricultural products.  This has increased international trade (both exporting and importing) world output and foreign direct investment.

The role of technological change  The lowering of trade barriers made globalisation of markets and production a theoretical possibility; technological change made it a tangible reality.  Major technological advancements: o Microprocessors and telecommunications o The internet and the World Wide Web

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Transportation technology.

Drivers of globalisation. Microprocessors and telecommunications  Advances in communications and information processing have lowered the cost of global communication and therefore the cost of coordinating and controlling a global organisation.  Moore's Law o The premise that the power of microprocessor technology doubles and its cost of production drops by half every 18 months. The internet and the World Wide Web  The rapid growth of the world wibe web is the latest expression of technological development  Fewer than 1 million users were connected to the internet in 1990 but there were 50 million in 1995 and more than 2.39 billion users in 2011  The web is an equaliser. It rolls back the constraints of location, scale and timezones.  The web makes it much easier for buyers and sellers to find each other.  It allows business to expand their global presence at a lower cost than ever before. Transportation technology.  The most important developments: o Commercial jet aircraft o Superfreighters o Introduction of containerisation  Transportation technology greatly simplifies trans-shipment from one mode of transport to another  'Transportation is creating a global village' (Renato Ruggeiero, former Director-General of the WTO) Implications of globalisation for production  As transportation cost declined, dispersal of production to geographicall separate locations became more economical.  A world wide communications network has become essential for many international businesses  The internet has been a major force for facilitating trade in service  The development of commercial jet aircraft has also helped knit together the worldwide operations of many international businesses. Implications of globalisation for markets  Technological innovations have facilitated the globailsation of markets  Low-cost global communications networks are helping to create electronic global marketplaces.  Faster and low-cost transportation has made it more economical to ship products around the world.  Low-cost jet travel has resulted in the mass movement of people between countries.  Global communication networks and global media (CNN and BBC) are creating world wide culture.

The changing shape of the global economy.

In the 1960s, for stylised factors described the global economy:  The US dominated the world economy and the world trade picture.  There was a US domination in foreign direct investment (FDI)  US multinationals dominated the international business scene.  Centrally planned economies of the Communist world were off-limits to Western international business. The changing world output and world trade picture.  In 1963 the US was the world's dominant industrial power, accounting for 40.3% of world output which has declined to 19.1% in 2011  Other industrialised nations also declined  The share of world output generated by developing countries has been increasing since 1960s  China, India and Brazil have experinced rapid growth  Forecasts predict that developing nations may account for mmore than 60% of the world economic activity by 2020, while todays rich countries may account only for about 38%  As emerging economies continue to grow, a further relative decline in the share of world output and world exports accounted for by the USA and other long established nations seems likely.  Decline of Group of 8 (G8) o 900 million consumers  Rise of Group of 20 (G20) o 4.2 Billion consumers. The changing nature of the multinational enterprise (MNE)  The growth of MNEs from the US, Japan, Europe, Australia & New Zealand after World War 2  Predominance of US and Japanese MNEs began to decline in 1990s  Devloping nations MNE on the Uns top 100 list: o Hutchinson Whampoa (Hong Kong, China) o Vale SA (Brazil) o Cemex (Mexico) o Tata Steel (India) o Citic Group (China) o Petronas (Malaysia) o Rusal (Russia)  Rise of the mini-multinations o Another trend in international business has been the growth of small and mediumsized multinationals (mini-multinationals) o The number is on the rise  Examples of mini-multinationals o Comvita, with its main manufacturing base at Paengaroa in NZ o Lochard, an AUS export award winner. The changing world order  The collapse of Communism in the Former Soviet Union presents a host of opportunities for business.  China's economic development poses huge opportunities and risks, despite communist control  Mexico, Latin america, Asia present tremendous new opportunities  The 08/09 global financial crisis caused a re-assessment of whether governments should intervene in markets of industrialised economies.

The global economy of the 21st century.  The world is becoming favourable to international business  The world may be moving towards a more global economic system, but globalisation is not inevitable  Greater globalisation brings with it risks of its own o Asian financial crisis in 97-98 o Global financial crisis 08-09 o Emergence of sovereign wealth funds (SWF)

Is the shift towards a more integrated and interdependent global economy a good thing?  Anti-globalisation protests highlight the disruptive forces of globalisation  Anti-globalisation protestors now turn up at almost every major meeting of global institutions  Protesters fear that globalisation is forever changing the world in a negative way Globalisation, jobs and income inequality.  Critics of globalisation worry that jobs are being lost to low-wage nations  Supporters of globalisation aregue that free trade will result in countries specialising in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently. Globalisation, labour policies and the environment  Critics of globalisation argue that free trade encourages firms from advanced nations to move manufacturing facilities offshore to less developed countries with lax environmental and labour regulations  Supporters of free trade point out that tougher environmental regulation and stricter labour standards go hand in hand with economic progress and that foreign investment often helps a country to raise its standards Income levels and environmental pollution

Globalisation and national sovereignty  Critics of globalisation worry that economic power is shifting awayy from national governments and towards supranational organisations such as the WTO, the EU and the UN  Critics of globalisation argue that the gap between rich and poor has got wider and that the benefits of gloablisation have not been shared equally.  Supporters of free trade suggest that the actions of governments have brought limited economic improvement in many countries. Globalisation and the world's poor.  Critics of globalisation argue that globalisation has not improved the lot of the poor of the world o International income inequality o Global inequality  Supporters would argue that globalisation has improved the lot of world's poor.

Managing an international business is different from managing a domestic business.  Countries differ  Managers face a greater and more complex range of influences and problems  Competition is intense  International companies must work within the limits imposed by governmental intervention and the global trading system  International transactions require conversion of currency and are exposed to foreign exchange rate risk

Trade Theory Tuesday, 21 March 2017 4:18 pm

Summary of main themes 

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A number of theories were reviewed to texplain why it is beneficial for a country to engage in international trade and has explained the pattern of international trade observed in the world economy. In addition, we have discussed some of the theories of why firms undertake FDI as well as the recent theoretical developments in explaining the internationalisation process of small - to - medium sized enterprises and the emerging trend towards rapid internationalisation by firms.

Free trade  Refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country. The benefits of trade

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International trade allows a country to specialise in the manufacture and export of products that can be produced most efficiently in that country, and import products that can be produced more efficiently in other countries.

The pattern of international trade.  Some patterns of trade are fairly easy to esplain - it is obvious why Saudi Arabia exports oil, Ghana exports cocoa and Brazil exports coffee.  However why does Switzerland export chemicals, pharmaeuticals, watches and jewellery? Why does Japan export automobiles, consumer electronics and machine tools?

Trade theory and government policy.  Mercantilism  Free trade  New trade theory  Porter's theory of national competitive advantage

Mercantilism  Mercantilism asserted that it is in a country's best interest to maintain a trade surplus, to export more than it imports.  Mercantilism advocated government intervention to achieve a surplus in the balance of trade  It viewed trade as a 0 sum game, one in which a gain by one country results in a loss by another  As economic philosophy, mercantilism is problematic and not valid, yet many political views today have the goal of boosting exports while limited imports by seeking only selective liberalisation of trade.

Absolute Advantage  It is argued that countries differ in their ability to produce goods efficiently - opposes mercantilism 

A country has an absolute advantage in the production of a product when it is more efficient than any other country at producing it.

Comparative Advantage Ricardo's theory  In 1817 David Ricardo took Adam Smiths theory one step further by exploring what might happen when one country has an absolute advantage in the production of all goods  It makes sense for a country to specialise in the production of those goods that it produce most efficiently and to buy the goods its inefficient at producing from other countries - even if it means buying goods from other countries that it could produce more efficiently itself.

New Trade Theory

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New trade theory suggest that because of economics of scale (unit costs reductions associated with a large scale of output) and increasing returns to specialisation, in some industries there are likely to be only a few profitable firms.

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Firms with first-mover advantages (the economic and strategic advantages that accrue to early entrants into an industry) will develop economies of scale and create barriers to entry for other firms.

New trade theory:  Increase product variety and reduces costs  Economies of scale, first-mover advantages and the pattern of trade  The pattern of trade we observe in the world economy may be the result of o First-mover advantages o Economies of scale National Competitive Advantage: Porter's diamond 

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Porter's 1990 study tried to explain why a nation achieves international success in a particular industry and identified 4 attributes that promote or impede the creation of competitive advantage

Evaluating Porter's theory Government policy can affect demand through product standards, influence rivalry through regulation and anti-trust laws, and impact the availability of highly educated workers and advanced transportation infrastructure.

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The four attributes, government policy and chance work as a reinforcing system, complementing each other and in combination creating the conditions appropriate for competitive advantage.

Foreign direct investment (FDI) in world economy.  What is foreign direct investment? o FDI occurs when a firm invest directly in new facilities to produce and/or market in a foreign country. o Once a firm undertakes FDI it becomes a multinational enterprise. Why foreign direct investment?  Firms could choose exporting or licensing  Fdi can be expensive and risky  Firms can seek new markets and resources  Firms can improve efficiency by moving to countries that offer cost-related advantages, investment incentives or science and industrial parks  Firms can seek strategies assets by investing in local firms to gain access to distribution networks, gain local knowledge and other ownership advantages. Internalisation theory  Internalisation theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets  When market imperfections are making transactions less efficient a ompany may undertake FDI  Market imperfections include trade barriers and the protection of specialised knowledge. Limitations of exporting o The viability of an exporting strategy is often constrained by transportation costs and trade barriers. o When transportations costs are added to production costs, it becomes unprofitable to ship some products over a large distance o Some foreign direct investment is undertaken as a response to actual or threatened trade barriers such as import tariffs or quotas. Limitations of licensing o Licensing gives away valuable technological know-how to a potential foreign competitor o Licensing does not give a firm the tight control over manufaturing, marketing and strategy in a foreign country that may be required to maximise its profitability. o Capabilities are often not amenable to licensing.

Advantages of foreign direct investment.  FDI is an alternative way of entering into foreign markets when transportation costs or trade barriers make exporting unattrative  A firm will favour FDI when it wishes to maintain control over technological know-how or over its operations and business strategy, or when its capabilities are simply not amenable to licensing, as may often be the case. Focus on managerial implications  What is important?

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Acceleration of internationalisation The theory of FDI Location First mover advantages Policy

International Business Environment Saturday, 3 June 2017 1:20 pm

Summary of main themes  Instruments of trade and FDI policy  Political and econmic arguments for government intervention  Regional economic integration  Legal systems - intellectual property, patents, copyrights and trademarks, product safety and product liability  Economic endowments. What is free trade?  Referes to a situtation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country.  Although many nations are committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups.

Barriers to trade include Tariffs

Anti-dumping duties

Subsidiaries

Custom inspection practises

Quotas

Discretionary product classifications

Voluntary export restraints

Authorisation procedures

Embargoes

Multiple exchange rates

Local content requirements

Health and safety assessments

Licence fees

Labelling laws

Preferential licensing

Government preferred suppliers

Product standards

Why governments intervene in trade?

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Two types of arguments for government intervention: political and economic o Political arguments are concerned with protecting the interest of certain groups within a nation (usually producers), often at the expense of other groups (normall consumers) o Economic arguments are typically concerned...