Integration And Interdependence Of National Economies Economics Essay

International Business conducts business transactions all over the world. These transactions include the transfer of goods, services, technology, managerial knowledge, and capital to other countries. International business involves exports and imports. International Business is also known, called or referred as a Global Business or an International Marketing.

An international business has many options for doing business, it includes,

Exporting goods and services

Giving license to produce goods in the host country

Starting a joint venture with a company

Opening a branch for producing & distributing goods in the host country

Providing managerial services to companies in the host country

My opinion:

Most companies and managers have to face the increasing globalization of markets and competition. With that the company must decide whether it should become a worldwide competitor to survive. Most companies need to compete globally in order to be successful. More companies are exploring new ideas to take their business to the next level, like going globally. Going global will allow for the company to become more diverse. Different markets will be available with different customers. The demands and needs of other countries are likely the same but at different times of the year which allows for the company to earn more profits when it’s slow in their own country. Resources at lower costs can be available when your business goes overseas.

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Once a company has decided to go globally, they have to get their organizations to make it happen. Developing a global strategy is complicated because the company has to play the big major markets, standardize the main product, and adapt to a different market positioning. There are many benefits when going global with a company if they are willing to pursue a global strategy. Going global will take that company’s success to the next level. The manager has to be willing to take risks, and have an openness and conscious decision making. International markets yield potential new opportunities for companies.

Firms internationalize because:

Internationalization has been viewed as a process of increasing involvement of enterprises in international markets.

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 First, there are market factors. In fact, some of the most important reasons for the increasing prevalence of born global firms grow out of the familiar story of the rapid globalization of markets that has accompanied the fall of tariff barriers and other legal barriers to trade combined with increased harmonization in business practices and consumer tastes. At the same time, many newer industries (think, for example, of microprocessors or software) have never been strongly segmented into domestic markets in any significant way but have always been global and demanded global participation from their creation.

2. Second, this trend has been exacerbated by changes in technology that continue to lower communication and transportation costs for small firms, erasing the practical boundaries to international entrepreneurship that previously existed in many industries.

3. Third, there is a set of factors growing out of the increasing use of alliances and the changing nature of firms that make internationalizing from inception not only an option, but a strategic necessity for some new ventures. We will consider each of these in turn.

Other reasons:

Helps as growth strategy: – Geographic expansion may be used as a business strategy. Even though companies may expand their business at home.

Helps in managing product life cycle: – every product has to pass through different stages of product life cycle-when the product reaches the last stages of life cycle in present market, it may get proper response at other markets.

Technology advantages: – some companies have outstanding technology advantages through which they enjoy core competency. This technology helps the company in capturing other markets.

New business opportunities: – business opportunities in overseas markets help in expansion of many companies. They might have reached a saturation point in domestic market.

Proper use of resources: -Sometimes industrial resources like labor, minerals etc. are available in a country but are not productively utilized.

Availability of quality products: – when markets are open, better quality goods will be available everywhere. Foreign companies will market latest products at reasonable prices. Good product will be available in the markets.

Earning foreign exchange: – international business helps in earning foreign exchange which may be used for strategic imports .India needs foreign exchange to import crude oil, deface equipment, raw material and machinery.

Helps in mutual growth: – countries depend upon each other for meeting their requirements. India depends on gulf countries for its crude oil supplies.

Investment in infrastructure: – international business necessitates proper development of infrastructure. A company entering international business must invest in roads.

Q2.In what areas have technological advances had their greatest effect on facilitating world trade and investment?

Ans:

Most important drivers of market globalization since the 1980s have been technological advances in communication, information, manufacturing, and transportation. While globalization makes internationalization an imperative, technological advances provided the means for internationalization. With the help of this, firms now interact more efficiently with foreign patterns and value-chain members than ever before. Firms transmit all variety of data, information, and vital communications that help ensure the smooth running of their operations worldwide.

Companies use information technology to improve the productivity of their operations, which provide substantial competitive advantages. Technological advances have made the cost of international operations affordable for all types of firms.

The most important activity underlying technological advances is innovation. Societies and organizations innovate in various ways, including new product designs, new production processes, new approaches to marketing, and new ways of organizing or training. Innovation results primarily from research and development.

An advance in technology provides the means for internationalization of firms.

Advances in technology:

Facilitates the development and spread new products and technologies;

Reduces the cost of doing business internationally;

Enables even smaller firms to go international

Helps coordinate worldwide activities;

Mitigates geographic distance by providing virtual interconnectedness with customers, subsidiaries, intermediaries, and suppliers.

Technological advances have had the greatest impact in several key areas:

Information technology.

Communication

Manufacturing, and

Transportation.

Q3. Suppose you get a job at Fossil Fuel, Inc, an oil company that has been severely been severely criticized for global business practice that are seen to exacerbate economic, political and social phenomena in some countries. Your boss directs you to increase your familiarity with market globalization, with a view to developing company strategies that are more sensitive to the firm’s globalization critics. In your investigation, you discover that there are five major dimensions associated with market globalization. What are these dimensions? What are the drivers of market globalization? Structure and elaborate your answer in the form of a memo to your boss.

Ans:

GLOBALIZATION OF MARKETS:

Two mega trends have altered the international business landscape: the globalization of markets or economies and technological advances.

Market globalization is a broad term referring to the interconnectedness of national economies and the growing interdependence of buyers, producers, suppliers and governments in different countries.

Globalization allows firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge.

DIMENSIONS OF MARKET GLOBALIZATION:

Integration and interdependence of national economies:

The aggregate of reconfigured and integrated value-chain activities gives rise to economic integration.

Governments contribute to this integration by:

Gradually lowering trade and investment barriers;

Increasingly harmonize their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), e.g. EU.

Establishing supranational institutions that transcend national borders and involve cooperation that seek further reductions in trade and investment barriers, e.g. the United Nations and the WTO.

Rise of regional trading blocs and economic unions:

Since the 1950s, the emergence of regional integration through trade blocs and economic unions.

Trade bloc: A free-trade area established by two or more countries through multiple tax, tariff, and trade agreements, designed to reduce or eliminate barriers to cross-border trade and investment.

Economic and monetary union: A single market with a common currency. This is characteristic of more advanced stages of economic integration.

Growth of Global investment and financial flows:

FDI has grown dramatically.

Firms and governments undertake global currency trading to finance cross-border trade and investment.

The free movement of capital around the world is extending economic activities across the globe and fostering interconnectedness among world economies.

Commercial and investment banking has become a global industry.

The bond market has gained worldwide scope, with foreign bonds representing a major source of debt financing for governments and firms.

Convergence of consumer lifestyle and preferences:

Lifestyles and preferences are converging, i.e. increasingly standardized, resulting in global markets segments.

Transnational media contributes to the convergence of buyer preferences, in part by emphasizing a particular lifestyle observed in the U.S., Europe, or elsewhere.

While converging tastes facilitate the marketing of standardized product/services to global consumers, they also signal the loss of traditional lifestyles and values in individual countries.

Globalization of production:

Intense global competition has made economies of scale a critical key success factor. Global players are forced to evaluate global sourcing to take advantage of national differences in the cost and quality of factor inputs.

This explains why off shoring to low labor-cost locations such as china, Mexico, and Eastern Europe is so popular.

Services shift: the services sector is also global sourcing.

Firms in retailing, banking, insurance, and data processing are all establishing off shore facilities and relationships.

The distribution of foreign direct investment has changed markedly, from an emphasis on manufacturing to services.

DRIVERS OF MARKET GLOBALIZATION:

Worldwide reduction of barriers to trade and investment:

National governments have sought to reduce trade and investment barriers, which has accelerated global economic integration.

The world trade organization (WTO) has facilitated this.

The WTO is a multilateral governing body empowered to regulate international trade and investment, and has been engaged in an ongoing liberalization of member states economies since the late 1940s.

Joining the WTO in 2001, even china has committed to make its market more accessible to foreign companies.

Market opening is closely associated with the emergence of regional trade blocs, a key dimension of market globalization.

Market liberalization and adoption of free markets:

The tearing down of the Berlin Wall in 1989, the collapse of the soviet union’s economy that same year, and china’s free-market reforms signaled the end of the 50- year cold war between communist regimes and democracy.

It was the transition of command economies to market-driven economies that facilitated their membership into the global economy.

The East Asian nations, stretching from South Korea to Malaysia and Indonesia, had already embarked upon an ambitious program of market liberalization in 1991.

These events opened roughly one-third of the world to freer international trade and investment.

With privatization of previously state-owned industries, these countries have enjoyed greater economic efficiency, simultaneously attracting foreign capital.

Industrialization, Economic Development, and Modernization:

Industrialization transitions emerging markets- Asia, Latin America, and Eastern Europe- from being low value-adding commodity producers, dependent on low-cost labor, to sophisticated competitive producers and exporters of premium products such as electronics, computers, and aircrafts.

The adoption of modern technologies, improvement of living standards, higher discretionary income levels and adoption of modern legal and banking practices increases the attractiveness of emerging markets as investment targets and facilitate the spread of ideas, and products.

International of world financial markets:

Integration of world financial markets enables international active firms to rise capital, borrow funds, and engage in foreign currency transactions wherever they go.

Cross-border transaction is made easier partly as a result of the ease with which funds can be transferred between buyers and sellers through a network of international commercial banks.

The globalization of finance enables firms to pay suppliers and collect payments from customers worldwide.

Technological advances as a Driver of Market Globalization:

Advances in technology provides the means for internationalization of firms

Advances in technology:

Facilitates the development and spread new products and technologies;

Reduces the cost of doing business internationally;

Enables even smaller firms to go international

Helps coordinate worldwide activities;

Mitigates geographic distance by providing virtual interconnectedness with customers, subsidiaries, intermediaries, and suppliers.

Technological advances have had the greatest impact in several key areas:

Information technology.

Communication

Manufacturing, and

Transportation