GATS (General Agreements on Trade in Services)
It is a known fact that trade in services is the rapidly growing field in the global scenario. According to WTO, in the year 2001, services constituted about 60% of the world’s output (in GDP). The trade in services has particularly increased in developing countries. The total trade in services occupied more than 50% in the exports of the developing countries. The rapid growth and change has prompted the members of the WTO to bring in changes in rules and regulations on trade in services and GATS was introduced on 1st January 1995. This is one of the important agreements of WTO which contains two main parts: the frame work of agreement containing rules and regulations and the schedule of Nations who gave the commitment on access to their domestic markets by foreign suppliers. Now WTO has 148 member countries.
Each WTO member lists in its national schedule those services, which it wished to guarantee access to foreign suppliers. All member countries are considered as MFNs (Most Favoured Nations) i.e, all commitments apply on non – discriminatory basis to all member countries.
Coverage of GATS:
The GATS covers all internationally traded services with two exceptions: services provided by the Government and services in Air transport sector. The GATS defines that trade in services can be made in four ways, they are:
1. Services supplied from one country to another (e.g. International telephone calls)
2. Consumers from one country making use of another country (e.g. Tourism)
3. A company from one country setting up subsidiaries or branch to provide services in another country (e.g. Banking)
4. Individual travelling from their own country to supply services in other country (e.g. Actress or construction worker)
Benefits of Services Liberalisation:
1. An efficient services infrastructure provides a base for economic success. Services such as telecommunications, banking, insurance and transport supply strategically important inputs for all sectors.
2. People can have access to world-class services.
3. Trade liberalisation in services leads to low cost. The best e.g. telecommunications.
4. Faster innovation takes place with liberalised services e.g. ATM, Phone banking, Internet banking etc.
5. Greater transparency and predictability benefit is there for customers. This makes possible for the people to make their investments in service sector.
6. More FDIs are attracted in the countries, which will bring the new skills and technologies into the country. The domestic employees can learn the new skills from the MNCs.
Service sector in India:
In the line with the global trend, the services sector in India is growing rapidly and the contribution of services in India’s GDP increased to 54.2% in 2000-01 from 51.5% in 1998-99. The total trade in services from India is accounting to 1.3% in the total world trade in services. India exhibits a strong revealed comparative advantage in services related goods. The importance in service sectors in India are telecommunications, IT, ITES, BPO and Banking and financial services. India has permitted 100% FDI in IT and ITES and more than 51% in telecommunications.
Trade Related Investment Measures (TRIMs)
It refers to certain condition or restrictions imposed by a Government in respect of foreign investment in the country. The TRIM text provides that the foreign capital would not be discriminated by the member Governments.
Features of TRIMs
1. Abolition of restriction imposed on foreign capital
2. Offering equal rights to the foreign investor on par with the domestic investor
3. No restrictions on any area of investment
4. No limitation or ceiling on the quantum of foreign investment
5. Granting of permission of without restrictions to import raw material and other components
6. No force on the foreign investors to use the total products and or materials
7. Export of the part of the final product will not be mandatory
8. Restriction on repatriation of dividend interest and royalty will be removed
9. Phased manufacturing programming will be introduced to increase the domestic content of manufacturer
Trade Related Intellectual Property Rights (TRIPs)
Intellectual property rights may be defined as “Information with commercial value”. IPR have been characterised as a composite of “ideas and creative expression”. Plus “ the public willingness to bestow the status of property. It include
a. Protection of patent
b. Copyright
c. Industrial design
d. Geographical indication
e. Trademarks
f. Trade secrets
g. Layout design (topographies of integral circuits)
Friday, July 23, 2010
WTO
Establishment of WTO
In order to implement the final of Uruguay round agreement of GATT the WTO was established on 1st January 1995. India is one of the founder members of WTO (Out of 104). The WTO is an organisation GATT is a legal agreement. The WTO was designed to play the role of ‘Watch Dog’.
Objectives of WTO
1. To raise the standard of living of the people
2. To introduce sustainable development
3. To ensure better growth of developing and least developed countries]
Functions of WTO
1. To administer and implement multilateral trade agreements
2. To act as a forum for multilateral trade negotiations
3. To resolve trade disputes
4. To examine national trade policies
5. To cooperate with other international organisations involved in the global economic policy making
6. To maintain trade related database.
7. To act a watchdog of international trade.
8. To act as a management consultant for world trade
9. To provide technical assistance and training for developing countries.
10. To administer trade policy review mechanism
Principles of WTO
1. Transparency
2. MFN treatment (Most Favoured Nation)
3. National treatment
- imported products should be treated on par with the domestic products
4. Free trade principle
5. Dismantling trade barriers (MFAs etc.)
6. Rule based trading system
7. Treatment for LDCs (Least Developed Countries)
8. Competition
9. Environment protection
GATT
1.A set of rules and multilateral agreement
2.Was designed with an attempt to establish international trade organisation
3.It was applied on provisional basis
4.Its rules are applicable to trade in merchandise goods
5.GATT was originally a multilateral instrument
6.Its dispute settlement system was not faster and automatic
WTO
1.A permanent institution
2.It is established to serve its own purpose
3.Its activities are full and permanent
4.Its rules are applicable to trade in merchandise and trade in related aspects of intellectual property
5.Its agreements are almost multilateral
6.Its dispute settlement system is fast and automatic
Impact of GATT & WTO
• Currently there are 149 members.
• Represents 90% of world trade.
• 9 of 10 disputes satisfactorily settled.
• Tariff reduction from 40% to 5%.
• Trade volume of manufactured goods has increased 20 times.
Impact of GATT & WTO to India
Benefits to India
1. The GATT secretariat estimated that largest increase in the level in goods in will be in the areas of clothing (60%), agriculture, foresting and fishery (20%) and processed foods and beverages (19%). India has competitive advantage in these fields.
2. India’s textile and clothing exports will increase due to the removal of Multi Fiber Arrangements (MFA) by 2005.
3. Greater security in international trade
4. Market access to a number of advanced countries
5. The reduction of agricultural subsidies will increase agricultural exports.
Disadvantages to India
1. TRIPs (Trade Related Intellectual Property Rights) is against Indian Patent Act 1970. Only process patents can be granted under this. TRIPs provides also product patents. The duration of patents is 20 years under TRIPs.
2. Plant breeding and seed production will be affected severely
3. It will hike prices in Pharmaceuticals sector.
4. Patents has been extended to large area of micro organizations
5. Application of TRIM will affect the growth of local products.
6. Service sector like insurance, banking, telecommunications, transports are backward in India compared to the developed countries. Therefore inclusion of trade in services is detrimental to interest of India.
In order to implement the final of Uruguay round agreement of GATT the WTO was established on 1st January 1995. India is one of the founder members of WTO (Out of 104). The WTO is an organisation GATT is a legal agreement. The WTO was designed to play the role of ‘Watch Dog’.
Objectives of WTO
1. To raise the standard of living of the people
2. To introduce sustainable development
3. To ensure better growth of developing and least developed countries]
Functions of WTO
1. To administer and implement multilateral trade agreements
2. To act as a forum for multilateral trade negotiations
3. To resolve trade disputes
4. To examine national trade policies
5. To cooperate with other international organisations involved in the global economic policy making
6. To maintain trade related database.
7. To act a watchdog of international trade.
8. To act as a management consultant for world trade
9. To provide technical assistance and training for developing countries.
10. To administer trade policy review mechanism
Principles of WTO
1. Transparency
2. MFN treatment (Most Favoured Nation)
3. National treatment
- imported products should be treated on par with the domestic products
4. Free trade principle
5. Dismantling trade barriers (MFAs etc.)
6. Rule based trading system
7. Treatment for LDCs (Least Developed Countries)
8. Competition
9. Environment protection
GATT
1.A set of rules and multilateral agreement
2.Was designed with an attempt to establish international trade organisation
3.It was applied on provisional basis
4.Its rules are applicable to trade in merchandise goods
5.GATT was originally a multilateral instrument
6.Its dispute settlement system was not faster and automatic
WTO
1.A permanent institution
2.It is established to serve its own purpose
3.Its activities are full and permanent
4.Its rules are applicable to trade in merchandise and trade in related aspects of intellectual property
5.Its agreements are almost multilateral
6.Its dispute settlement system is fast and automatic
Impact of GATT & WTO
• Currently there are 149 members.
• Represents 90% of world trade.
• 9 of 10 disputes satisfactorily settled.
• Tariff reduction from 40% to 5%.
• Trade volume of manufactured goods has increased 20 times.
Impact of GATT & WTO to India
Benefits to India
1. The GATT secretariat estimated that largest increase in the level in goods in will be in the areas of clothing (60%), agriculture, foresting and fishery (20%) and processed foods and beverages (19%). India has competitive advantage in these fields.
2. India’s textile and clothing exports will increase due to the removal of Multi Fiber Arrangements (MFA) by 2005.
3. Greater security in international trade
4. Market access to a number of advanced countries
5. The reduction of agricultural subsidies will increase agricultural exports.
Disadvantages to India
1. TRIPs (Trade Related Intellectual Property Rights) is against Indian Patent Act 1970. Only process patents can be granted under this. TRIPs provides also product patents. The duration of patents is 20 years under TRIPs.
2. Plant breeding and seed production will be affected severely
3. It will hike prices in Pharmaceuticals sector.
4. Patents has been extended to large area of micro organizations
5. Application of TRIM will affect the growth of local products.
6. Service sector like insurance, banking, telecommunications, transports are backward in India compared to the developed countries. Therefore inclusion of trade in services is detrimental to interest of India.
GATT
General Agreement on Tariffs and Trade (GATT)
• WWII allies want international organization in trade arena similar to UN in political arena.
• GATT proposed by US in 1947 as step toward ITO.
o 1948: Havana Conference.
o Failed charter for the International Trade Organization.
• GATT
o 23 original members
o Now 149 members including the Saudi Arabia
• Multilateral agreement: objective is to liberalize trade by eliminating tariffs, subsidies, import quotas, etc.
• Used ‘rounds’ to gradually reduce trade barriers.
• Generalized System of Preferences
• MFN status
• Products of LDCs are given duty free access to IDCs.
Objectives of GATT
1. To raise the standard of living of the people in the world
2. To ensure full employment and steady income
3. To develop the use of resources of the world
4. To expand production and international trade
Several rounds of negotiations were held since the inception of the GATT.
The significant round is the Uruguay round of 1986.
Uruguay Round and Dunkel Proposal
Uruguay round of multi national trade negotiations was initiated in September 1993.
Mr. Arthur Dunkel, the Director General of GATT submitted a proposal on 20th December 1991 popularly known as Dunkel Proposal which envisages many areas like trade related investment measures (TRIMs), Trade related intellectual property rights (TRIPs).
An arrangement regarding multilateral trading system was finally signed in Marrakesh, Morocco on 15th April 1994.
• WWII allies want international organization in trade arena similar to UN in political arena.
• GATT proposed by US in 1947 as step toward ITO.
o 1948: Havana Conference.
o Failed charter for the International Trade Organization.
• GATT
o 23 original members
o Now 149 members including the Saudi Arabia
• Multilateral agreement: objective is to liberalize trade by eliminating tariffs, subsidies, import quotas, etc.
• Used ‘rounds’ to gradually reduce trade barriers.
• Generalized System of Preferences
• MFN status
• Products of LDCs are given duty free access to IDCs.
Objectives of GATT
1. To raise the standard of living of the people in the world
2. To ensure full employment and steady income
3. To develop the use of resources of the world
4. To expand production and international trade
Several rounds of negotiations were held since the inception of the GATT.
The significant round is the Uruguay round of 1986.
Uruguay Round and Dunkel Proposal
Uruguay round of multi national trade negotiations was initiated in September 1993.
Mr. Arthur Dunkel, the Director General of GATT submitted a proposal on 20th December 1991 popularly known as Dunkel Proposal which envisages many areas like trade related investment measures (TRIMs), Trade related intellectual property rights (TRIPs).
An arrangement regarding multilateral trading system was finally signed in Marrakesh, Morocco on 15th April 1994.
International Business environment
Internal Environment
1. Organisational structure
2. Production
3. Finance
4. Marketing
5. HRM & HRD
6. R&D
External Micro Environment
1. Share holders
2. Creditors
3. Bankers and financial institutions
4. Competitors
5. Suppliers of Raw material
6. Market intermediaries
7. Customers
External Macro Environment
1. Socio cultural environment
This part deals with attitude of the people to work, wealth, family, marriage, religion, education, ethics, human relations, social responsibilities etc.
Culture is derived mostly from the climatic conditions of the geographical regime and economic conditions of the country.
The features of culture are
1. Culture is based on perspective
2. It is socially shared
3. Culture facilitates communication
4. Culture is learned not inherited genetically
Social environment
1. Religion
2. Family
2. Technological environment
Influence of Technology
1. The way we cook (Electric rice cooker)
2. The way we drink water (Filtered mineral water)
3. Communication (Telephone, Fax, Email, Mobiles etc)
4. Trading (e- commerce)
5. Learning (e – learning)
6. Paying tax, getting information (e – governance)
Ranking of Asian countries based on technology
1. Singapore
2. Japan
3. South Korea
4. Malaysia & Taiwan
5. Hong Kong
6. Indonesia
7. India
Technology transfer
1. Establishing the subsidiaries in the developing countries
2. Establishing joint ventures
3. Acquisition
4. Mergers
5. Technological transfer for royalty
Procedure for scanning technological environment
1. The level of technology of the industry in the home country
2. The level of technology of the industry in the host country
3. Compatibility of the home country technology in the host country
4. If the technology is not compatible then select the appropriate technology for the host country
5. Study the technology with culture, taste, Government regulations etc.
6. Study the mode of technology transfer
7. Study the impact on technology environment
3. Economic environment
International business is mostly and directly influenced by the economic environment of various countries.
Economic system
1. Capitalism
2. Socialism
3. Mixed Economy
Based on the economic conditions the countries are classified as
1. Low income countries (Per capita Income Less than US $ 400)
Features
1. Limited industrialisation.
2. Excessive dependency of population on agriculture
3. High birth rates
4. Low literacy rates
5. Heavy reliance on foreign aid
6. Political instability and unrest
7. Excessive unemployment
8. Technological backwardness
9. Under utilisation of natural resources
10. Excessive dependency on imports
2. Lower middle income countries (Per capita Income US $ 400 -2000)
Features
1. Early stages of industrialisation
2. Expansion of consumer products market
3. Availability of cheap labour and motivated human resources
4. Domestic markets are dominated by the products like Clothing, batteries, tires
5. Location of production of standardised nature products like clothing for exports
6. Pose threat to rest of the world in labour intensive products due to cheap labour
3. Upper middle income countries (Per capita Income US $ 2000 – 12000)
Features
1. Less dependency on agriculture
2. Occupational mobility of the people from agriculture to industry
3. People migrate from rural to urban areas which results in increased urbanisation
4. Increase in literacy and wage rates
5. Formidable competition
6. High exports and rapid economic development
4. High income countries (Per capita Income More than US $ 12000)
Features
1. Oil rich countries are excluded from this category
2. Countries developed through industrial growth
3. Development of information and service sectors
4. Development of technology
5. Domination of professionals and scientists
6. Emphasis on future plans
7. The countries face the problems like pollution, excessive urbanisation, increase in aged population etc.
4. Political environment
Types of Political system
1. Parliamentary system
- People are allowed to take part in the decision making process
2. Absolutist Government
- Ruling the Government like a dictator
Government may also be classified as
1. Two Party system – USA & UK
2. Multiparty System - India
3. Single party System - Egypt
4. One party dominated System - India
Political risk
1. Confiscation: Process of nationalisation of the property with out compensation e.g. China 1949.
2. Expropriation: Process of nationalisation with compensation e.g. India 1969
3. Nationalisation: 100 % role by the Government and no role for private e.g. Burma and Poland
4. Domestication: No foreign ownership and only local players
5. General Instability Risk: Due to social, political and religious unrest e.g. Mahendra Choudry Vs George Speight in Fiji Island
6. Operational Risk: Imposition of control over foreign business. E.g. Enron deal in 1992
Indicators of Political Instability
1. Social unrest
2. Attitudes of nations
3. Policies of the host Government
How to minimise political risk?
1. Stimulation of the local economy
2. Employment of local nationals
3. Sharing ownership
4. Being civic minded (Social responsibility)
5. Political neutrality
6. Behind the scenes lobby.
Democracy
Representative Democracy
Freedoms:
•Expression, opinion, organization
•Media
•Regular elections with universal suffrage
•Limited terms for elected representatives
•Fair and independent court system
•Non political bureaucracy, police force and armed service
•Relatively free access to state information
1. Organisational structure
2. Production
3. Finance
4. Marketing
5. HRM & HRD
6. R&D
External Micro Environment
1. Share holders
2. Creditors
3. Bankers and financial institutions
4. Competitors
5. Suppliers of Raw material
6. Market intermediaries
7. Customers
External Macro Environment
1. Socio cultural environment
This part deals with attitude of the people to work, wealth, family, marriage, religion, education, ethics, human relations, social responsibilities etc.
Culture is derived mostly from the climatic conditions of the geographical regime and economic conditions of the country.
The features of culture are
1. Culture is based on perspective
2. It is socially shared
3. Culture facilitates communication
4. Culture is learned not inherited genetically
Social environment
1. Religion
2. Family
2. Technological environment
Influence of Technology
1. The way we cook (Electric rice cooker)
2. The way we drink water (Filtered mineral water)
3. Communication (Telephone, Fax, Email, Mobiles etc)
4. Trading (e- commerce)
5. Learning (e – learning)
6. Paying tax, getting information (e – governance)
Ranking of Asian countries based on technology
1. Singapore
2. Japan
3. South Korea
4. Malaysia & Taiwan
5. Hong Kong
6. Indonesia
7. India
Technology transfer
1. Establishing the subsidiaries in the developing countries
2. Establishing joint ventures
3. Acquisition
4. Mergers
5. Technological transfer for royalty
Procedure for scanning technological environment
1. The level of technology of the industry in the home country
2. The level of technology of the industry in the host country
3. Compatibility of the home country technology in the host country
4. If the technology is not compatible then select the appropriate technology for the host country
5. Study the technology with culture, taste, Government regulations etc.
6. Study the mode of technology transfer
7. Study the impact on technology environment
3. Economic environment
International business is mostly and directly influenced by the economic environment of various countries.
Economic system
1. Capitalism
2. Socialism
3. Mixed Economy
Based on the economic conditions the countries are classified as
1. Low income countries (Per capita Income Less than US $ 400)
Features
1. Limited industrialisation.
2. Excessive dependency of population on agriculture
3. High birth rates
4. Low literacy rates
5. Heavy reliance on foreign aid
6. Political instability and unrest
7. Excessive unemployment
8. Technological backwardness
9. Under utilisation of natural resources
10. Excessive dependency on imports
2. Lower middle income countries (Per capita Income US $ 400 -2000)
Features
1. Early stages of industrialisation
2. Expansion of consumer products market
3. Availability of cheap labour and motivated human resources
4. Domestic markets are dominated by the products like Clothing, batteries, tires
5. Location of production of standardised nature products like clothing for exports
6. Pose threat to rest of the world in labour intensive products due to cheap labour
3. Upper middle income countries (Per capita Income US $ 2000 – 12000)
Features
1. Less dependency on agriculture
2. Occupational mobility of the people from agriculture to industry
3. People migrate from rural to urban areas which results in increased urbanisation
4. Increase in literacy and wage rates
5. Formidable competition
6. High exports and rapid economic development
4. High income countries (Per capita Income More than US $ 12000)
Features
1. Oil rich countries are excluded from this category
2. Countries developed through industrial growth
3. Development of information and service sectors
4. Development of technology
5. Domination of professionals and scientists
6. Emphasis on future plans
7. The countries face the problems like pollution, excessive urbanisation, increase in aged population etc.
4. Political environment
Types of Political system
1. Parliamentary system
- People are allowed to take part in the decision making process
2. Absolutist Government
- Ruling the Government like a dictator
Government may also be classified as
1. Two Party system – USA & UK
2. Multiparty System - India
3. Single party System - Egypt
4. One party dominated System - India
Political risk
1. Confiscation: Process of nationalisation of the property with out compensation e.g. China 1949.
2. Expropriation: Process of nationalisation with compensation e.g. India 1969
3. Nationalisation: 100 % role by the Government and no role for private e.g. Burma and Poland
4. Domestication: No foreign ownership and only local players
5. General Instability Risk: Due to social, political and religious unrest e.g. Mahendra Choudry Vs George Speight in Fiji Island
6. Operational Risk: Imposition of control over foreign business. E.g. Enron deal in 1992
Indicators of Political Instability
1. Social unrest
2. Attitudes of nations
3. Policies of the host Government
How to minimise political risk?
1. Stimulation of the local economy
2. Employment of local nationals
3. Sharing ownership
4. Being civic minded (Social responsibility)
5. Political neutrality
6. Behind the scenes lobby.
Democracy
Representative Democracy
Freedoms:
•Expression, opinion, organization
•Media
•Regular elections with universal suffrage
•Limited terms for elected representatives
•Fair and independent court system
•Non political bureaucracy, police force and armed service
•Relatively free access to state information
pros and cons of globalisation
Globalization - Pros
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 – Cons
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.
Differences between International and Domestic Businesses
Countries are different.
The ranges of problems are wider and more complex.
The intervention of governments that may limit international trade and investment.
The need to convert into different currencies.
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 – Cons
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.
Differences between International and Domestic Businesses
Countries are different.
The ranges of problems are wider and more complex.
The intervention of governments that may limit international trade and investment.
The need to convert into different currencies.
Globalisation and Multinational Business
Globalisation and Multi National Business
Globalisation Process
1. Domestic company exports to foreign countries through the dealers and distributors. (Indirect exporting)
2. Domestic company directly exports
3. Domestic company becomes a multi national company by establishing production and marketing.
4. Being full-fledged company like R& D, HR etc.
5. Becomes the true foreign company by satisfying the needs.
Ways of Globalisation
Globalisation may take place in four ways. They are
1. Globalisation of Markets
Globalisation of markets refers to the process of integrating and merging of the distinct world markets into one single market.
Features of Globalisation of Markets
8. The Size of the company needs not to be large to create a global market.
9. The distinctions of national markets are still prevailing even after the globalisation
10. Most of the foreign markets are for non – consumer products.
11. The global business firms compete with each other frequently in different national markets including home market. E.g. Pepsi and Coke
Reasons for Globalisation of markets
1. Large-scale industrialisation enabled mass production. The companies found domestic market is very small. Thus opted for global markets.
2. To diversify risk
3. To increase profits
4. Adverse business environment in the home country
5. The failure of domestic companies
2. Globalisation of Production
The facilities for production may be cheap in the host country than home country. (E.g. China is the international workshop due to cheap labour)
Reasons for Globalisation of Production
1. Import restrictions
2. Availability of quality raw material
3. Cheap labour
4. Liberal labour laws
5. Facility of transportation and cost
6. Facility of exporting the neighbouring countries
3. Globalisation of Investments
Globalisation of investments refers to investment of capital in any part of the world. It also known as ‘Foreign Direct Investment (FDI)’. FDI occurs when a firm directly in new facilities to produce or market in a foreign country.
34 countries have 85 changes in 1991 regarding investment. Government of India is allowing 51% of FDI in India.
Reasons for Globalisation of Investment
1. Rapid increase in volume of trade
2. Many countries provided more congenial environment for investment
3. Significant amount of FDI is directed to the developing countries in Asia and Easter Europe
4. Small and medium size companies have started investing in various countries
5. Limitations of exporting and licensing for the domestic companies to invest in foreign countries
6. In order to have control over MNC in marketing and manufacturing they invest
7. In order to avoid restrictions on exports
Modes of Globalisation of Investment
1. Acquisition
2. Joint venture
3. Long term loans
4. Issuing equity shares and debentures
5. GDRs
4. Globalisation of Technology
Companies with the latest technology produce goods with high quality at low cost.
Globalisation of technology can be done in the following ways:
1. Technological collaboration
2. Licensing and royalty
3. Joint ventures and mergers
Stages of Internationalisation
1. Domestic company : The company whose market and manufacturing activities are limited to the national boundary
2. International company : The company will open a branch in foreign country. It will follow the strategies of domestic company.
3. Multinational company : Multi domestic companies responding to the specific needs of different countries
4. Global company: These companies will do production in home country and marketing in more countries or production in several countries and marketing in one country.
5. Transnational company : These companies will do production in several countries and marketing in more countries. What is driving globalisation? : Market drivers; Cost drivers, Government drivers, Competitive drivers and other drivers
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
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
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
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
Other drivers
Revolution in information and communication Globalisation of financial markets
Improvements in business travel
Globalisation Process
1. Domestic company exports to foreign countries through the dealers and distributors. (Indirect exporting)
2. Domestic company directly exports
3. Domestic company becomes a multi national company by establishing production and marketing.
4. Being full-fledged company like R& D, HR etc.
5. Becomes the true foreign company by satisfying the needs.
Ways of Globalisation
Globalisation may take place in four ways. They are
1. Globalisation of Markets
Globalisation of markets refers to the process of integrating and merging of the distinct world markets into one single market.
Features of Globalisation of Markets
8. The Size of the company needs not to be large to create a global market.
9. The distinctions of national markets are still prevailing even after the globalisation
10. Most of the foreign markets are for non – consumer products.
11. The global business firms compete with each other frequently in different national markets including home market. E.g. Pepsi and Coke
Reasons for Globalisation of markets
1. Large-scale industrialisation enabled mass production. The companies found domestic market is very small. Thus opted for global markets.
2. To diversify risk
3. To increase profits
4. Adverse business environment in the home country
5. The failure of domestic companies
2. Globalisation of Production
The facilities for production may be cheap in the host country than home country. (E.g. China is the international workshop due to cheap labour)
Reasons for Globalisation of Production
1. Import restrictions
2. Availability of quality raw material
3. Cheap labour
4. Liberal labour laws
5. Facility of transportation and cost
6. Facility of exporting the neighbouring countries
3. Globalisation of Investments
Globalisation of investments refers to investment of capital in any part of the world. It also known as ‘Foreign Direct Investment (FDI)’. FDI occurs when a firm directly in new facilities to produce or market in a foreign country.
34 countries have 85 changes in 1991 regarding investment. Government of India is allowing 51% of FDI in India.
Reasons for Globalisation of Investment
1. Rapid increase in volume of trade
2. Many countries provided more congenial environment for investment
3. Significant amount of FDI is directed to the developing countries in Asia and Easter Europe
4. Small and medium size companies have started investing in various countries
5. Limitations of exporting and licensing for the domestic companies to invest in foreign countries
6. In order to have control over MNC in marketing and manufacturing they invest
7. In order to avoid restrictions on exports
Modes of Globalisation of Investment
1. Acquisition
2. Joint venture
3. Long term loans
4. Issuing equity shares and debentures
5. GDRs
4. Globalisation of Technology
Companies with the latest technology produce goods with high quality at low cost.
Globalisation of technology can be done in the following ways:
1. Technological collaboration
2. Licensing and royalty
3. Joint ventures and mergers
Stages of Internationalisation
1. Domestic company : The company whose market and manufacturing activities are limited to the national boundary
2. International company : The company will open a branch in foreign country. It will follow the strategies of domestic company.
3. Multinational company : Multi domestic companies responding to the specific needs of different countries
4. Global company: These companies will do production in home country and marketing in more countries or production in several countries and marketing in one country.
5. Transnational company : These companies will do production in several countries and marketing in more countries. What is driving globalisation? : Market drivers; Cost drivers, Government drivers, Competitive drivers and other drivers
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
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
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
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
Other drivers
Revolution in information and communication Globalisation of financial markets
Improvements in business travel
Definition,nature,scope,need and problems for international business
Definition: International Business is the process of focusing on the resources of the globe and objectives of the organisations on global business opportunities and threats.
International business defined as global trade of goods/services or investment. More comprehensive view does not focus on the “firm” but on the exchange process
Free Trade occurs when 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 allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country.The Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). Others are not so easy to understand (Japan and cars).
Nature of International Business
1. Accurate Information
2. Information not only accurate but should be timely
3. The size of the international business should be large
4. Market segmentation based on geographic segmentation
5. International markets have more potential than domestic markets
Scope of International Business
1. International Marketing
2. International Finance and Investments
3. Global HR
4. Foreign Exchange
Need for International Business
1. To achieve higher rate of profits
2. Expanding the production capacity beyond the demand of the domestic country
3. Severe competition in the home country
4. Limited home market
5. Political conditions
6. Availability of technology and managerial competence
7. Cost of manpower, transportation
8. Nearness to raw material
9. Liberalisation, Privatisation and Globalisation (LPG)
10. To increase market share
11. Increase in cross border business is due to falling trade barriers (WTO), decreasing costs in telecommunications and transportation; and freer capital markets
Reasons for Recent International Business Growth
1. Expansion of technology
2. Business is becoming more global because
•Transportation is quicker
•Communications enable control from afar
•Transportation and communications costs are more conducive for international operations
3. Liberalization of cross-border movements
4. Lower Governmental barriers to the movement of goods, services, and resources enable
Companies to take better advantage of international opportunities
International Business operations and influences
Problems in International Business
1. Political factors
2. High foreign investments and high cost
3. Exchange instability
4. Entry requirements
5. Tariffs, quota etc.
6. Corruption and bureaucracy
7. Technological policy
International business defined as global trade of goods/services or investment. More comprehensive view does not focus on the “firm” but on the exchange process
Free Trade occurs when 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 allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country.The Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). Others are not so easy to understand (Japan and cars).
Nature of International Business
1. Accurate Information
2. Information not only accurate but should be timely
3. The size of the international business should be large
4. Market segmentation based on geographic segmentation
5. International markets have more potential than domestic markets
Scope of International Business
1. International Marketing
2. International Finance and Investments
3. Global HR
4. Foreign Exchange
Need for International Business
1. To achieve higher rate of profits
2. Expanding the production capacity beyond the demand of the domestic country
3. Severe competition in the home country
4. Limited home market
5. Political conditions
6. Availability of technology and managerial competence
7. Cost of manpower, transportation
8. Nearness to raw material
9. Liberalisation, Privatisation and Globalisation (LPG)
10. To increase market share
11. Increase in cross border business is due to falling trade barriers (WTO), decreasing costs in telecommunications and transportation; and freer capital markets
Reasons for Recent International Business Growth
1. Expansion of technology
2. Business is becoming more global because
•Transportation is quicker
•Communications enable control from afar
•Transportation and communications costs are more conducive for international operations
3. Liberalization of cross-border movements
4. Lower Governmental barriers to the movement of goods, services, and resources enable
Companies to take better advantage of international opportunities
International Business operations and influences
Problems in International Business
1. Political factors
2. High foreign investments and high cost
3. Exchange instability
4. Entry requirements
5. Tariffs, quota etc.
6. Corruption and bureaucracy
7. Technological policy
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