Delivery in day(s): 3
International Business Environment Oz Assignments
Globalisation has brought greater interconnectedness among the markets and it has also increased the awareness and communication of business opportunities in foreign countries. As stated by Law et al. (2015), investors now have the investment opportunities in greater distances and globalisation has opened up for the profit opportunities for small and large business by improving the communication technologies. Globalisation has made it possible to make better international relations to unify the economies through increased trade and investment. The purpose of the paper is to explore the impact of globalisation on international businesses and consumers in developed and emerging economies. In the first part of the paper, theories of globalisation and international business are explained to show the process of doing the business law in foreign markets. In the following part, this paper critically evaluates the influence of globalisation on international business along with showing the reasons behind business want to do business in international market and modes of entry in the international market are also shown. This paper is also discussed about the impact of globalisation on business in both developed and emerging economies.
Concept of globalisation in business
According to Mowforth and Munt (2015), globalisation is about deepening and increasing the interactions between the individuals and organisations across the world. Products and services in previous time were available within just one country; however, the organisations go new market outside the country. Globalisation has affected the business by increasing the competition and companies have now broadened the target market by expanding the local areas apart from the home countries (Coker 2014). Globalisation has made possible to market the products and services to different countries and the companies need to fight strong competitors in the foreign market as well. The companies also do the outsourcing and the companies also seek for the production locations and the many of the international businesses make partner with new ventures as well. Globalisation has induced improved technologies and efficiency in the business. As stated by Wright (2016), globalisation has pushed the business to create the better system to measure and track the international trade and the businesses. Technological innovation makes it easier to do the business in an efficient environment and technology empowers global trade. In the international market, globalisation represents the integration of the investment, trade, information, cultures and technologies. The international businesses must follow the government policies which are designed to open the foreign economies to boost the improvement of the poor economies and raise the standard.
Theories of globalisation and internationalisation
Vernon’s Product lifecycle
Raymond Vernon discussed Product Life Cycle Theory to explain the pattern of international trade. Product life cycle theory applies mainly on the labour saving and capital using products which mainly cater to the international market to high-income groups. In product lifecycle theory, there are five stages and location of production mainly depends on the stage of the cycle.
In the international market, the company introduces the new product in the foreign market and the customers are not aware of the products. In order to create demand, the management promotes the products to stimulate the sale. In the growth stage, demand increases for the products, therefore, the production cost decreases. The companies in the international market start earning a higher profit. In order to earn more profit margins, the companies start spending more. The third stage is maturity and the products or services of the companies are widely known by the customers. In the maturity stage, the demand of the products and services decreases and the organisations observe the slower level of sales volume (Mark 2015). In the international market, the companies’ face threat of the competitors and organisations has to reduce the price of the products.
The fourth stage is of saturation when the sales of the products neither decrease nor increase in the international market. The organisation does the modification of some of the attributes of the products in order to attract new customers. The fifth stage of the product lifecycle is decline level and in this stage, the product is familiar to the customers and the product has already reached the peak stage.
Product lifecycle starts with home production and from the home market. Then, the organisations export the products to foreign markets. The products start observing the growth in the foreign marketing principle. The companies sometimes start foreign production and these are subsidiaries close to market. In addition, production by subsidiaries is followed in less developed countries for all the marketers (Wiesner et al. 2015). In product life cycle theory, consumer goods sometimes become standardise the companies want to shift the production from high cost to lower cost. For example, Nike is a famous athletic wear company and it has it headquarter in the Beaverton United States. Nike has connected through more than 700 shops across the world in more than 45 countries. However, it is to be noted that most of the manufacturing centres of Nike are located near Indonesia, Taiwan, India, Thailand and China; all these countries have cheap labour.
Dunning’s Eclectic Paradigm
Eclectic paradigm theory provides the three-angled framework for the company determining the benefits to continue foreign direct investment. As stated by Cantwell (2015), the eclectic paradigm is based on the beliefs that all the companies avoid the transaction in the open market when transactions through internal carry low. For an organisation, FDI is beneficial to have a comparative advantage, internalise advantage and ownership advantage. Eclectic paradigm provides a holistic framework based on investigating entire relationships and interactions of the different components (Dunning 2015).
Ownership-specific-advantages of an organisation are the trademark, production technique, entrepreneurial skills and returns to scale. As stated by Dunning (2015), in an international market, proprietary information and ownership rights of an organisation are some of the important factors. International businesses consider the ownership advantage as intangible. In addition, location-specific advantages of the organisation are the existence of raw materials, low wages, special taxes and tariffs. This factor is associated with the cost of resources when working one just one location and compared to other. In addition, internalisations advantages of an organisation are the advantages by own production rather than producing through the partnership arrangement. Internalisation technique asks the companies to be cost-effective and to operate in different locations.
Globalisation means for societies and for government
Globalisation has influenced differently for various countries. Developed countries are mainly industrialised and these countries are economically advanced with a high level of prosperity. In addition, developing countries are changing from agricultural economy to the natural resource-based economy with the progress of industrial production (Rupert and Smith 2016). In addition, emerging economies or markets are fast-growing developing and the transition economies.
Market: In market wise, globalisation has influenced the business regarding the targeting the consumers in all markets. Globalisation has impacted the societies to access to products across the globe. The consumers now can access the products of their choices for the emerging concept of globalisation. In addition, globalisation has influenced in lowering the barriers to imports and it encourages the domestic exports as well.
Production: In business aspect, globalisation helps to scan worldwide for production capacity and in societies; globalisation provides the benefits in employment and technology which form Foreign Direct Investment. The government provides incentives to attract the FDI (Robertson 2017).
Finance: In emerging countries, businesses seek the source of capital on a worldwide basis which creates openness to outside capital and the societies integrate into the global capital markets. The government has the interdependence with regional and global financial systems.
Critically evaluate the impact of globalisation on international businesses
Features of international businesses:
International businesses are mainly dominated by some of the developed countries and these developed countries have their MNC. In most of the cases, the multinational companies from the USA, Japan and from the UK dominate the foreign trade. MNCs have a large financial resource, R&D, technology and human resource. The MNCs have highly skilled employees. In addition, international businesses provide the benefit of participating countries and from the developed countries, international businesses get the maximum profit. Developing countries get the technology and foreign capital and the developing countries get the rapid technological development. Moreover, as opined by Intrilligator (2017), international businesses face keen competition across the world and in some of the cases; keen competition is seen between the unequal partners. The international business provides a lot of significance to science and technology which assists the business to produce a large number of products and generate services. Developed countries use improved digitel technology machines and they dominate in global businesses (Hopper et al. 2017). Most importantly, an international business may face the restriction on inflow and outflow of technology, capital and goods. In some of the countries, the government does not allow the international business to enter the countries by having some trade barriers, trade blocks and foreign exchange restrictions. As stated by Permutter (2017), globalisation is an umbrella term for the international businesses for a complex series of social, economic, technological, political and cultural changes seen as increasingly interdependence, interaction and integration between companies and people in disparate locations.
At the international level, MNCs face both opportunities and challenges from the diversified economies. Historically, the globalisation in political, social and economic has been observed during the 1970s getting the particular emergence after the Cold War. Globalisation brought key trends in the economy across the globe (Doz 2017). The international businesses wanted to have the lower wages for the employees and the businesses from the Western countries wanted to get a higher profit margin. In some of the countries, international businesses observe the flood of migrants to cities and some of the economies observe the low inflation and low-interest rate despite the strong growth. Due to the globalisation, international businesses have flourished rapidly and world exports as a share of GDP increased from under 20% in 1994 in over 32% in 2010 (Penrose 2017). It has also been observed the increase rate of Foreign Direct Investment. The companies want to have the foreign ownership of the foreign factories, land and mines. In industrialised countries, foreign investment occurs in large inflows. Of late, in the UK, the countries in home countries are mainly exposed to the global factors and the companies have to compete with the global forces of international market competition, demand and supply. The companies have to take the consideration of demographics, political development and for the companies’ stakeholders’ importance is significant. As observed by Forsgren and Johanson (2014), globalisation is causing nuclear family and consequently, the fall of the value system in emerging countries just like the developed countries. MNC's are set up in metro cities in emerging countries. Nuclear families are more based on utilitarianism, therefore, in case of any dispute relations ends. Dissatisfied and stressed people go to prostitutes and ultimately causing damage to the family structure.
Reasons behind the MNEs internationalisation
Pull factors in internationalisation are those factors in a country which attract foreign investors. Foreign investors sometimes like the new markets to expand the business for the growth of the company (Sharma 2015). Most of the MNEs in recent time want to expand the businesses in Asian countries as Asian economies are growing along with it has maximum numbers of customers. In addition, foreign investors also check the greater efficiency of the country (Picciotto and Mayne 2016). For example, Italy is energy efficient country and Italy observed the development in the transport sector and it has slowed the industrial sector which may account to almost 25% of the GDP. Sweden based company Volvo Group, which is in transportation and in heavy equipment production businesses entered Italy. Italy provides the facility of doing businesses efficiently and it would produce the buses, truck, marine and industrial engines. Till date, Volvo manufactured the products in Sweden, Belgium and in China. The investors also observe the proximity to the resources while doing the businesses in foreign countries. Volvo did not do well in business. Geely, the Chinese car marker was interested to purchase Volvo and they made the business separate. Geely's takeover of Volvo signals the ambition of China's car companies to expand the business (Businessstandard.com 2018). In addition, the companies want to access to technologies and skills from the countries and from the skilled employees. In India, most of the MNEs want to expand the businesses because it has skilled employees and it has been working to develop the technologies. Most importantly, investors also judge the proximity to customers. For example, Xiaomi Corporation is China-based Electronics Company and it expands the businesses to India, Singapore and Malaysia to sell the electronic gadgets. Xiaomi wants to sell the products where the company will have a large number of customers. Xiomi chose India as it can provide the access of 1.2 billion populations and the midscale market segment can easily be captured.
Push factors in the international market are those factors in a company's home country which persuade it to seek growth in abroad. According to Richter et al. (2016), the investors may found that the home country's market becomes saturated and it has nowhere to expand the business. The home country can face the economic downturn and the business may face the issue. The investors may face the issue of regulatory changes and taxation issue also. For example, Tata Group started the business in India before the dawn of independence in India. Tata Group of India expanded the business internationally in a defensive mode after 2004 anticipating Indian economy would attract the foreign investment and the competition in the Indian market would be soaring high (Cravino and Levechenko 2017). Many Tata Group companies are now global forces and these businesses reflect the international ambitions. Tata Motors purchased Land Rover and Jaguar to expand the business in international market.
Modes of internationalisation
The companies can internationalise the businesses in mainly four ways.
Export: Direct export means the company can sell the products to the consumers directly without using another organisation or arrangement in another country. Indirect exporting is associated with selling to intermediary and they can sell the products to the wholesalers and from the wholesalers, the products reach to the customers (Cumming and Zahra 2016).
Foreign Direct Investment: In international businesses, the companies can start a subsidiary in the foreign market. In subsidiary business, the parent company controls the business. Lamborghini automobile has its parent company is Audi and Audi is owned by Volkswagen. In addition, the companies can choose to expand the business through a joint venture where two companies can join to develop the market. Moreover, the acquisition is another example of foreign investment where a company can make acquisition of foreign business to expand the market (Mok et al. 2014).
Portfolio investment: The companies can do ownership stake as it is a shared ownership in the company by the founders. As stated by Neelankavil (2015), ownership stake is also called the controlling interest by taking 50% of the ownership.
Outsourced production: The companies can take the option of international licensing which allows foreign firms to manufacture a proprietary's product in a specific market in fixed term. Licensor in a home country can make a limited product with limited rights. In addition, the companies can provide the franchising to expand the business. Subway, an US-based company expands the business using the franchising strategy in more than 112 countries. In the franchising relationship, a business owner makes the relationship in which the franchisor assigns to the independent business owner the right to make the business (Robertson and Dale 2015).
Critically evaluate the impact of globalisation on consumers
Globalisation impacts on the correlated economic stability and political movement. As stated by Dolphin (2015), globalisation is of two types; elite globalisation represents minority forces and other globalisation is making money. In Southeast Asia, globalisation creates the free-market system with trade barriers and free trade allows competition also. Therefore, the consumers get the chance to savour different types of products and consumers also get the chance to taste the international products and services (Yu et al. 2014). Today's economy is consumer driven and consumers accept the foreign-made products. However, some of the consumers do not like to purchase foreign products. Some of the consumers arise the questions of working condition in a foreign market. The countries start the fair-trade movement through which the workers receive the fair and large compensation for what the workers produce (Gilpin 2018).
Internet another driving force of globalisation among the consumers as the customers gets to know about the international products and companies through the internet. Many of the international brands start their business through the internet and e-commerce. Consumers are no longer expecting the local merchant to provide their products and they can purchase their products through online market across the country (Zazda 2015). In India, recently e-commerce business observes the growth among the customers. Many of the foreign electronic brands start their India expansion through using e-commerce like Flipkart or Amazon. The foreign international brands are mostly from China or Taiwan, some of the international brands are Huawei, Xiaomi, 10.or and Infinix mobile brands.
With the advancement of time, the globalisation brings new technologies and products to the merging countries. Competition generally increases with time as foreign-made products are cheap and the quality of the products is good. Products availability is given the consumers enough choices to buy from. The technology has improved with time and Nokia Company is another example of ill-effect of globalisation. Nokia is a Finland based company and it was one of the successful companies in the previous time in the world market by offering mobile devices. Stagnant has come in the handset making business and Nokia has started to face the mammoth challenges from the competitors. The taste of the consumers has been changed with time and Nokia failed to change itself with time and with emerging technologies (Theregister.com 2018). Apple has brought iOs and Google has brought the Android operating system with a duration of time.
Globalisation has influenced the local businesses as well and the consumers have stopped to purchase from local businesses. The customers like to purchase from e-commerce or from the foreign-owned supermarket stores and shopping malls. However, globalisation is providing massive job opportunities to the young generation in both developed and emerging countries. Globalisation has pushed for the rebirth of local industry (Sinclair 2017).
It has been observed that international trade always creates a win-win situation. There is no deal unless both parties see benefit from the transaction. At the same time, around the world, people enjoy cheap products which they can't produce at the same cost. Globalisation enables trade globally, with more partners and with more variety. It generates interactions between people, improves mutual understanding, makes friends and generally helps to create co-operation. Global economy exploded, partly due to globalisation and our living conditions improve as well. Globalisation is also a competition; blue-collar workers are competing with someone in a poor country where they are happy to take a job at a fraction of the wage. While the whole human experience improves, there is, of course, winners and losers. People are losing their jobs to the poor countries, those making a huge profit because their work is accepted by billions of people across the world.
1. Business Standard. 2018. Available at: https://www.business-standard.com/article/companies/high-growth-drives-volvo-to-weigh-local-assembly-options-117041900483_1.html [Accessed 29th Sept 2018]
2. Cantwell, J., 2015. An introduction to the eclectic paradigm as a meta-framework for the cross-disciplinary analysis of the international business. The Eclectic Paradigm (pp. 1-22). Palgrave Macmillan, London.
3. Coker, C., 2014. Globalisation and Insecurity in the Twenty-first Century: NATO and the Management of Risk. Abingdon: Routledge.
4. Cravino, J. and Levchenko, A.A., 2017. Multinational firms and international business cycle transmission. The Quarterly Journal of Economics, 132(2), pp.921-962.
5. Cumming, D.J. and Zahra, S.A., 2016. International business and Innovation and entrepreneurship implications of Brexit. British Journal of Management, 27(4), pp.687-692.
6. Dolphin, T. ed., 2015. Technology, globalisation and the future of work in Europe: Essays on employment in a digitised economy. IPPR.
7. Doz, Y.L., 2017. Strategic management in multinational companies. In International Business (pp. 229-248). Abingdon: Routledge.
8. Dunning, J.H., 2015. Reappraising the eclectic paradigm in an age of alliance capitalism. In The Eclectic Paradigm (pp. 111-142). Palgrave Macmillan, London.
9. Flentø, D. and Ponte, S., 2017. Least-developed countries in a world of global value chains: are WTO trade negotiations helping?. World Development, 94, pp.366-374.
10.Forsgren, M. and Johanson, J., 2014. Managing networks in international business. Abingdon: Routledge.