Module- 1 Globalisation and Trends in Management Systems

PRINCIPLES OF GLOBAL BUSINESS MANAGEMENT

What is globalization?
The shift towards a more integrated and interdependent world economy The process of Social, Political, Economic, Cultural and Technological integration among the countries around the world Examples Nokia cell phones Disney Films Pepsi

Globalization : An Example
Office American
Gasoline Car

BP Service Station Consult

Stockbroker Korean immigrant Coffee beans from Brazil Chocolate from Peru Coffee Stall Shares

Designed in Germany Assembled in Mexico (DaimlerChry Components in USA & Japan Fabricated from Korean Steel and M alaysain Rubber British MNC in US Oil wells of Africa Pumped out by French company Shipped in a Greek Shipping Line Designed in Finland Assembled in Texas Chip sets designed by Indian Engineer working in San Diego for Qualcomm Chip sets manufactured in Taiwan Duetsche Telecom, German Transformed from state owned monopoly into global co by Israeli CEO

Another Example
Accounting work outsourced from US to India Around 100,000 US individual tax returns were done in India Indian accountants trained in US tax rules, perform work for US accounting firms The process: Access Individual Tax returns perform Routine calculations save their work Inspected by a US accountant Billing of clients

Two components of Globalisation

The globalization of markets The globalization of production

Globalization of markets
The merging of distinctly separate national markets into a global marketplace
Tastes and preferences converge onto a global norm Firms offer standardized products worldwide creating a world market For Example: Citigroup Credit cards Coca Cola Sony Play Station

Globalization of markets
Most global markets are markets for Industrial goods Such as aluminum, oil, wheat, microprocessors, airplanes Significant differences still exist between national markets on many relevant dimensions These differences require that marketing and operating strategies and product features be customized to best match conditions in a country

Globalization of markets
Range of problems are wider and more complex in different countries Government intervention in trade and investment creates problems International investment is impacted by different currencies There is competition between the same products in every nation Example Pepsi vs Coca Cola Ford vs Toyota Boeing vs Airbus

Globalization of production
Refers to sourcing of goods and services from locations around the world Takes advantage of differences in cost or quality of the factors of production Labor Land Capital Companies lower their overall cost structure and improve quality of their products This enables them to compete effectively

Global Production
Example 1

Swan Optical

Manufacturing

Design

1-5

Globalization of production
IBM Think Pad

Designed in USA

Best location to design

Case, Keyboard & Hard Drive

Thailand

Display screen & Memory

South Korea

Built in Wirelass Card

Malaysia

Microprocessor

United States

Assembled

Mexico

Shipped

USA

Globalization debate-Pro
Expand Revenues Produce in Nations where cost of inputs is low Lower prices for goods and services Economic growth stimulation Increase in consumer income Creates jobs Countries specialize in production of goods and services that are produced most efficiently

Globalization debate-Con
Destroys manufacturing jobs in wealthy, advanced countries Wage rates of unskilled workers in advanced countries declines Companies move to countries with fewer labor and environment regulations Loss of sovereignty Example- Decline in market share of General Motors from 50% to 28% due to Japanese Brand Toyota which became the third largest automobile company in US behind Ford & GM

Emergence of Global Institutions

Globalization has created the need for institutions to help manage, regulate and police the global marketplace
GATT WTO IMF World bank United Nations

Role of Global Institutions

Lower Trade Barriers Facilitate Cross Border Trade & InvestmentGlobalisation Establishing Multi national agreements IMF & World Bank promote Economic Development IMF is the lender of the last resort helps to bail out nations in crises The World Bank provides low interest loans for Infrastructure developments UN aims at Full employment, Economic and Social progress, higher standards of living

General Agreement on Tariffs & Trade

GATT was established to:

police the world trading system remove barriers to the free flow of trade, services and capital between nations

Uruguay round created the World Trade Organization

World Trade Organization

153 members on 23 July 2008 (97% of world trade) assumed prior GATT agreements and extended GATT to include services and intellectual property

promotes lower trade and investment barriers

IMF and World Bank

International Monetary Fund (IMF) and the World Bank were created in 1944 by 44 nations that met at Bretton Woods, New Hampshire IMF was created to maintain order in the international monetary system World Bank was created to promote economic development through low-interest loans

United Nations
Established in 1945 by 51 nations committed to preserving peace through international cooperation and collective security Membership is now at 192 countries Four main purposes Maintain international peace and security Develop friendly relations among nations Cooperate in solving international problems and in promoting respect for human rights Serve as a center for harmonizing the actions of nations

Global drivers
Macro factors that underlie trend towards greater globalization
Decline in trade barriers Technological change

Pattern of declining tariffs

Declining barriers to trade

Globalization of markets and production has been facilitated by
Reduction in trade barriers (Tariff and Non Tariff) Removal of restrictions to foreign direct investment

Decline in Trade and Investment Barriers

Resulting in:
volume of world trade has grown faster than the world economy flow of FDI has grown faster than the growth in world trade and world output

The Role Of Technological Change

Microprocessors and telecommunications
The internet and world wide web Transportation technology

Implications of Technological Change

Lower costs of transportation and information processing has facilitated the dispersion of production to geographically separate locations and the growth in international trade in services
Technological innovations have facilitated the globalization of markets

Other Factors That Underlie Trend Towards Globalization

Increased competition in the domestic market Profit advantage Growth opportunities / increase market share Increasing consumer needs Global Economic trends Government Policies and Regulations Monopoly on the business / industry Strategic vision of the organisation

The drivers of globalisation

Market drivers Per capita income converging among industrialised nations Convergence of lifestyles and tastes Organisations beginning to behave as global customers Increasing travel creating global consumers Growth of global and regional channels Establishment of world brands Push to develop global advertising Government drivers Reduction of tariff barriers Reduction of non-tariff barriers Creation of blocs Decline in role of governments as producers and customers Privatisation in previously state-dominated economies Shift to open market economies from closed communist systems in eastern Europe Increasing participation of China and India in the global economy Other drivers Revolution in information and communication Competitive drivers Continuing increases in the level of world trade Increased ownership of corporations by foreign acquirors Rise of new competitors intent upon becoming global competitors Growth of global networks making countries interdependent in particular industries More companies becoming globally centred rather than nationally centred Increased formation of global strategic alliances Globalisation of financial markets Improvements in business travel Cost drivers Continuing push for economies of scale Accelerating technological innovation Advances in transportation Emergence of newly industrialised countries with productive capability and low labour costs. Increasing cost of product development relative to market life

Managing in a Global Marketplace

Managing Difference in countries (PEST Analysis) Control and Coordinate production and marketing activities Knowledge of rules governing international trading and investment system Currency Market