Global Business

MBA II Year VI Trimester

Unit 1

• INTRODUCTION TO TRANSACTIONAL BUSINESS

•Introduction to Transactional Business

•Elements of Transactional Business
•Globalisation
•Transactional Business Environment-PESTEL
•Economical-Political-Demographical-legal
TRANSNATIONAL BUSINESS

• Transnational strategy in business is a type of international business

plan that fits:
• the business must have high local responsiveness and high global
integration.
• This means that a transnational business is one that usually has
branches or offices in all the countries they serve, but that these
local branches are integrated into the larger global goals and plans
of the business.
• Transnational businesses consider the cultures in the countries they
operate in and how best to appeal to those people specifically rather
than assuming every country's population wants the exact same
thing.
 What is Global Business?
Business activities that involves the transfer of
resources, goods, services, knowledge, skills, or
information across national boundaries/borders
Resources: Raw materials, capital, and people
Goods: Semi-finished or finished
Services: Accounting, legal, banking, insurance,
healthcare, education, tourism, consultancy, etc..
Knowledge and skills: Technology, innovations,
various skills, IPRs, brand names, etc.
Information flows: Databases and networks
 Participants in Global Business
Parties involved in International Business

• Individuals (individual investors, tourists,

employees, students, etc.)
• Companies (private or public)
• Government (central bank, government
institutions, etc.)
• International institutions (World Bank, IMF, WTO,
etc.)

Among these, companies are the dominant players

in Global Business
 How Transnational Business?

•International Business Transactions: Activities

crossing national boundaries
•Mainly manifested in two ways:
➢Transnational trade refers to exports and imports of
goods and services across the borders of a country
Bilateral trade, multilateral trade, pluri-lateral trade
➢Transnational investments implies cross-border
transfer of resources to carry out business activities
outside home country
 Modes of Transnational Business
International Trade

➢Merchandise exports and imports

• Tangible items (e.g., cars, televisions, etc.)

➢Service exports and imports

• Tourism and transportation

• Performance of services

• Use of intangible assets

 Modes of Transnational Business
Foreign Investments

➢Direct investment : Key features

• Control and ownership
• Access to foreign markets
• Access to foreign resources
• Higher foreign sales than exporting (often)
➢Portfolio investment: Key features
• Non-control of foreign operations
• Financial benefit
 Transnational Vs. Domestic Business
• Transnational business is mostly the outgrowth of
domestic business (eg. Japanese car makers)
• International business is more riskier than domestic
business (because countries are different)
➢Differences in environmental dynamics
• Diversity between countries with respect to economic
growth, inflation, interest rates, cultures, social customs,
business practices, laws, political systems, technology, etc.
➢Operational nature become more complex
• Receipts and payments in multiple currencies, different
accounting methods, consumers, employees, regulators, and
the competitors
 Transnational versus Domestic Business
➢Differences in environment of their operations
• Economic Environment:
• Differences in tariff structures and trade promotion schemes
• Differences in currencies (exchange rate), inflation, interest
rates, accounting practices, etc.
• GDP growth and purchasing power (Economic stability)
• Socio-Cultural Environment:
• Cultures, social customs, business practices, etc.
• Social and cultural norms and values differ between
countries
 Transnational Vs. Domestic Business
• Political and Legal Environment
• Political stability and government policies affects
international business
• Changes in trade policies, fiscal policies and other policies
are taken in view of the political priorities of the govt.
• Foreign exchange regulations and foreign investment
policies
• Well-developed sound legal system may provide unbiased
and fair treatment in international business
• Uniformity in interpretation of laws and clarity of legal
procedures
 Transnational Vs. Domestic Business
• Competition
• More severe competition in international market than in
domestic market because of various similar products from
different countries
• Infrastructure
• Financial, institutional and physical infrastructure
• More important is physical infrastructure in the form of
roads, telecommunication, ports, etc.
• Technology
• Opportunity for knowing and getting highly cost-effective
technologies, especially for developing countries
Stages of international business

1.Domestic
2.International
3.Multinational
4.Global
5.Transnational
International Companies
The operations of such companies lie in one single home
country as the base center.

These companies only export or import products from the

home country.

The offices, hence, only exist in the home country and there is
no foreign direct investment in other countries.

The functioning and strategies are derived mostly from the

primary market which is the domestic home country market.

They have to continuously adjust to trading norms of the home

country.
Spencers is an example in the Indian context.
Multinational Companies

As the name suggests, these companies have direct

operations in more than a single country, however, it
is usually not a very large number.

However, MNC’s have a centralized structure, with

the head office in the home country calling all the
shots.

In this case, products are decided and developed by

the head office and subsidiary offices do have options
to adapt to local markets if needed.
Adidas is an amazing example to explain multinational
companies.
Transnational Companies
These companies are operating in multiple countries,
having foreign direct investment in all of them.

Such companies follow a flexible approach,

understanding and adapting to the local culture and
demand of each country.

Hence, offices in each country work in a decentralized

manner with decision-making powers.

Subsidiary offices can launch and make products

which might not be manufactured in the original
home country, if there is a chance of demand.

Samsung is one of the examples in the Indian context.

Global Companies
These companies work to have a foothold in a large
number of countries, usually larger than a
Multinational Corporation.

They, however, do not follow the system of having an

official head office.

Various subsidiaries are set but standard products are

sold, without any flexibility in terms of adapting to
local consumers.
There is no change in branding or information about a
global company, even if the country of operations
changes.
McDonald’s – a fast-food chain, is an exemplary
example of this kind of companies.
Special problems in Transnational Business

• Political and legal differences

• Cultural differences
• Economic differences
• Differences in the currency unit
• Difference in the language
• Difference in the marketing infrastructure
• Trade and investment restrictions
• High cost of distance
• Difference in business practices
Why do Firms Expand Internationally?
 Drivers/Why do Firms Expand Internationally?
❖Market Motives:
• To expand their sales
• Seize market opportunities in foreign countries through
trade or investment
❖Economic Motives:
• For higher returns (profitability) through higher revenues
and/or lower costs by obtaining cheap resources
• Achieving economies of scale
• Spreading R&D cost
Drivers/Why do Firms Expand Internationally?
❖Strategic Motives:
❖Strategic vision
• To capitalize on their distinctive resources or
capabilities already developed at home
• Technological leadership, brand image, customer loyalty,
and competitive position
• To take first mover advantage
• Vertical integration involving different countries
• To follow the major customer’s abroad (proximity to
customers)
• Japanese tire maker Bridgestone entering US market
Drivers/Why do Firms Expand Globally?

•Domestic market constraints:

• Local market competition
• Saturation in the local market
•Government policies and Regulations
•Monopoly power
•Spin offs of international business
 What is Globalization?
“Globalization is the closer integration of the
countries and peoples of the world, brought about
by the enormous reduction in the costs of
transportation and communication and the
breaking down of artificial barriers to the flow of
goods and services, capital, knowledge, and (to a
lesser extent) people across the borders”

Westernization, Americanization, Walmartization,

McDonaldization, Disneyfication, Coca-Colanization, etc.
 What is Globalization?
Globalization refers to the shift toward a more
integrated and interdependent world economy
Globalization of markets (Economies of scale):
National markets are giving way to global markets
Globalization of production: To take advantage of
national differences in the cost and quality of
factors of production
Emergence of Global Institutions like WTO, IMF,
World Bank, United Nations
 What is Globalization?
Globalization may be defined as the process of
integration and convergence of economic, financial,
cultural, and political systems across the world
➢ Economic Globalization: The internationalization
of production and markets for goods and services,
integration of financial systems, corporations and
industries, technology, and competition
➢ Financial Globalization: Liberalization of capital
movements and spurt in cross-border capital flows
 What is Globalization?

➢ Cultural Globalization: The convergence of cultures

across the world, which is evident by its impact on
people and their lives
➢ Political Globalization: The convergence of political
systems and processes around the world (the
decline of communist systems and the rise of
democratic systems)
GOING INTERNATIONAL
I B APPROACHES

1. Ethnocentric approach

2. Polycentric approach

3. Regiocentric approach

4. Geocentric approach
I B APPROACHES

1. Ethnocentric approach

• target market is own country , Excessive

production - export - due to change in

customer taste, preferences

1. Ethnocentric approach
Organization Structure
Managing Director
↓
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
MGR MGR MGR MGR MGR
R&D FIN PROD HRD MKTG
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
Asstt. Mgr Asstt. Mgr Asstt. Mgr
North india South India Exports
I B APPROACHES

2. Polycentric approach

• the companies customizes the marketing mix

to meet the taste, performance and needs of

the customers of each international market.

2. Polycentric approach
Organization Structure
Managing Director
↓
→→→ CEO
↓ FOREIGN SUBSIDIARY
↓ SOUTH AFRICA
↓
↓
↓
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻↓
MGR MGR MGR MGR MGR
R&D FIN PROD HRD MKTG
I B APPROACHES
3. Regiocentric approach

• the company operating successfully in a foreign

country thinks of exporting other neighbouring

countries of the host country.

3. Regiocentric approach
Organization Structure
Managing Director
↓
→→→ C E O
↓
↓ SOUTH AFRICA
↓ ↓⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻↓
↓ Mktg Mktg Mktg
↓ ( Lesotho) ( Kenya) ( Nambia)
↓
↓⁻⁻⁻⁻⁻⁻⁻ ⁻ ↓⁻⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻↓⁻⁻⁻⁻⁻⁻⁻⁻↓
MGR MGR MGR MGR MGR
R&D FIN PROD HRD MKTG
I B APPROACHES
4. Geocentric approach

• the company analyses the tastes,

preference and needs of the customers in
all foreign markets and then adopts a
standardized marketing mix for all the
foreign markets.
4. Geocentric approach
Organization Structure
Managing Director
Headquarters India
↓
↓
↓
↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻⁻ ↓
Subsidiary Subsidiary Subsidiary Subsidiary
India South Africa Kenya Nambia
 Drivers of Globalization
Macro Factors:
(a) Declining Trade and Investment Barriers
➢ Liberalization and privatization, changing world
order, etc.
(b) Technological Change
➢ Microprocessors and telecommunications
➢ The Internet and World Wide Web (services trade)
➢ Transportation technology (containerization)
 Drivers of Globalization
❖ Reasons for Recent International Business Growth
➢ Expansion of technology:
• Transportation is quicker
• Communications enable control from afar
• Internet: drastic decline in the transaction cost of transferring
ideas and information
• Transportation and communications costs are more conducive for
international operations
➢ Liberalization of cross-border movements
• Lower governmental barriers to the movement of goods, services,
and resources enable companies to take better advantage of
international opportunities
 Drivers of Globalization
➢ Development of supporting institutional arrangements
• Institutional arrangements

• Are made by business and government

• Ease flow of goods
• Reduce risk
➢ Increase in global competition
• More companies operate internationally because

• New products quickly become global

• Companies can produce in different countries
• Domestic companies’ competitors, suppliers, and
customers become international
 Drivers of Globalization
➢Regional integration
• Experience transfers
• Scale of Economies
• Resource Utilisation
• Global Strategy
Restraining Forces/Barriers for Globalisation

• External Factors
• Government policies and controls
• Social and cultural
• political opposition against foreign business
• Tariffs and Trade restrictions(Tariffs, Quota..)
• Monetary barriers(Blocked currency, difference exchange
rate)
• Civil issues, terrorism etc
• Infrastrurure
• Internal Factors
• Management myopia(short term gains)
• Organisational culture
 Globalization –stages : Historical Perspective
➢ Initial years of human history, people remained confined
to their communities, villages, or local regions
➢ Hardly any formal barriers such as tariffs or non-tariff
restrictions for the movement of goods or visa
requirements for people
➢ Pre-World War I period (1870-1914): rapid integration of
economies in terms of trade flows and people movement
➢ Two World Wars (1914-1945): brought various restrictions
on the movements of goods and services
➢ After 1945: there was a drive to increased integration
(World Bank, GATT, IMF, etc.)
 How to Measure Globalization?
Components of Globalization Index:- (A.T.Kearney)
• Economic Integration: trade, FDI, portfolio capital
flows, income flows (profits, wages, etc.)
• Personal Contact: Travel & tourism, telephone traffic
• Technology: No. of internet users, technology
collaborations
• Political Engagement: memberships in international
organizations, foreign embassies, participation in UN
missions
 Who Benefits from Globalization?
Globalization is a complex phenomenon. It has
winners and losers at various levels
• Developed countries are high on globalization while
developing countries are not (Why?)
• Widening gap between the rich and the poor
• Globalization can be a threat to the sovereignty of
nations
• It exposes national economies to uncertainties of
global economy
 The Globalization Debate
• Job losses at home (1999 Seattle anti-globalization
protests and protests against outsourcing)
• It comes at the expense of the environment
• Human right violations
• Cultural imperialism of global media and MNCs
• It enhances the monopoly power of large MNCs
 The Globalization Debate
To a consumer, globalization means more choices at better
quality and lower prices
For job seekers, more employment opportunities
For business, wider market for their products and services
(economies of scale)
For producers, expanded availability of resources and
technology and knowledge transfer
For the economy, economic development and growing
prosperity
Reduce global divide by advancing to a homogeneous
civilization and a uniform business system
 Success of Globalization-Conditions
• Globalization could be more advantageous to
participating nations if global infrastructure is better
developed

•Global infrastructure includes

➢Institutional framework (multilateral agreements
in trade, investment, and service)
➢Market efficiency (capital market and foreign
exchange market)
 Consequences of Globalization

• In the long run, globalization generally leads to:

• higher living standards
• more efficient resource usage
• greater access to technology, products, and services
In particular, liberalization of markets
appears to enhance income levels
 Consequences of Globalization

• Countless new business opportunities for

internationalizing firms
• New risks and intense rivalry from foreign
competitors
• More demanding buyers who source from suppliers
worldwide
• Greater emphasis on proactive internationalization
• Internationalization of firm’s value chain
 Movers

Restraining factors
The Drivers and Consequences of Market Globalization -
Summary
Issues in GlobalBusiness
• 1) Political and Legal Differences – Generally the political and legal climate of foreign
• markets are different. The political and Legal environment will not be uniform in all
• provinces of many home markets.
• 2) Problems due to Cultural Differences – The cultural differences create problems in
• International marketing.
• 3) Problem due to Economic Differences
• 4) Change by Currency – The currency unit differs from nation to nation, leads to
currency
• convertibility, besides the problems of exchange rate fluctuation.
• 5) Problems relating to language
• 6) Lack of Proper Marketing Facilities – Example an advertising medium very effective
• in one market may not be effective in another market.
• 7) Restriction relating to Trade
• 8) Transport Cost.
Advantages of globalization (Pros)
• Free flow of capital and increase in the total capital employed.
• Free flow of technology.
• Increase in industrialization.
• Spread of production facilities throughout the globe.
• Balanced development of world economies.
• Increase in production and consumption.
• Commodities at lower prices with high quality.
• Cultural exchange and demand for a variety of products.
• Increase in jobs and income.
• Higher standard of living.
• Balanced human development
Disadvantages of Globalization (Cons)
• Globalization kills domestic business.
• Exploits human resources.
• Leads to unemployment and under employment.
• Decline in demand for domestic product.
• Decline in income.
• Widening gap between rich and poor.
• Transfer of natural resources.
• National sovereignty of stake.
• Leads to commercial and political colonialism.