What Does the Term Globalisation Mean in Relation to International Business - Assignment Example

Running Head: REPORT-TOPIC 1 TO 6-MODULE 1 Report-topic 1 to 6 Student Name Institution Date Question 1 What does the term globalisation mean in relation to international business and what effects is this trend having on international competition. Globalization is the process by which economies of various nations of the world have become integrated into the international economy through a global network of communication, trade and transport. On the other hand, international business is any economic activity that takes place across many nations. Business across nations take place in all fields including banking, insurance, consultation and all any other business that takes place at the local levels. Globalisation in relation to international business means a world that is characterised by improved technology that has resulted in multinational businesses and higher value of the international trade. This technology and the value of international trade have therefore resulted in transformation of the national companies into multinational corporations (Jagdish, 2004). This trend is however having an impact in the international competition. This is because for business firms to survive in the global market, they have to improve on their productivity. This will require them to employ high technology in their production process, highly skilled labour and efficiency in production. There is competition in acquisition of highly skilled labour in the global market, a factor which is scarce. This therefore calls for increased incentives to the workers so that the company can retain them. Labour has therefore become expensive in the global market due to competition for the labourers. Competition is also felt in production. Every corporation has to struggle to offer the best products so that they can survive the global competition. Technology has to be increased where all processes of production must remain updated. The machinery that is used must also be of high efficiency so that they can achieve maximum production. Globalization has also resulted in international competition for resources. Firms are struggling for resources so that they can have adequate for their production. The strong firms are however on the advantage when it comes to acquiring resources, unlike the smaller firms. However, this competition is of benefit to the customers. This is because they will receive standard goods since all the firms will be struggling to offer the best. The highly skilled workers will also benefit from better pays since all the firms will be competing for the best employees and they will be attracting them by giving them better pay. Prices have also gone down since each firm want to offer affordable prices to the customers. Globalisation will therefore result to increased competition in the international market and this is benefiting the customers as well as the workers. Question 2 Outline concisely, using some point format where appropriate, the main factors in the world economic environment faced by international business. The economic environment in which the international business is taking place is characterised by many factors which include: i. Rapid growth of the economy with rise in Multi-National corporations. The economic landscape is rapidly changing throughout the world. In Europe, a new economic superpower has been created in Europe by formation of an integrated market and economy known as the European Union and further reuniting it with Germany. The rapid growth is also being experienced in the Southeast Asia Nations by use of export-oriented industrialisation. The industrial sector in these nations has greatly boosted the GDP especially by the manufacturing industries, as well as the mining and oil industries. Since the world economy became globalised, there has been a substantial rise in the number of Multi-national corporations. This was mostly supported by the value that was placed on the international trade. This led to a decision of eliminating the trade barriers hence increasing international business competition and capital movement. One of the countries that have been in the forefront towards this is Australia. This has benefited her since it has been able to dispose its surplus products of wool, iron and coal. Multi-national corporations have therefore increased so that they may take advantage of the free trade to trade with commodities such as those surpluses in Australia. ii. Growing international trade. The rate of growth of the international trade has greatly increased since the globalisation took charge. Trade in goods and services globally has increased to more than $US 3 trillion. Around quarter of most of the products that are being produced is for export. Participation of the industrialised nations such as Germany, United States, U.K, and Japan in the international trade has greatly contributed to its growth since their products are the majority among the world exports. The less developed nations have also increased in their contribution to world exports (Vaghefi, 2001). iii. The world economic system. This includes market economy, centrally planned economy and mixed economy. In the market economy, resources are owned by individuals, used by firms to make products and the individuals consume those products. This applies in the highly industrialised nations and affects the MNCs in the international trade. The centrally planned economy is where the government determines what is to be produced, how resources are used and how the output will be distributed. This limits what is to be traded within the international business. A mixed economy is where resources are owned by both the government and the individuals. The government is therefore involved in planning for exports. iv. International trade barriers and the exchange rates. Trade protection is a government action to protect its local producers from the competition of the overseas producers. This may limit the participation of such a country in the international trade since the government will control what is being traded internationally. Exchange rates may also pose problems in international trade since there is use of a common currency, that is, the U.S dollar. Countries suffering inflation may therefore be affected by the exchange rate. Question 3 Using point format, outline the key roles of range of international trade organisations discussed in the study guide. The international trade organisation that play major roles in international trade include: i. United Nations United Nations plays an indirect role in international trade. UN is considered as the world’s police force thus maintaining peace in countries that participate in the international business. Political violence among the countries involved in international trade may lead to destruction of foreign assets and this may hinder them from continuing in international business. United Nations also plays a role on boosting the economy of those countries affected by inflation. It funds such nations enabling them to continue participating in international business. UN also procures goods and services from businesses all over the world. This promotes the economy of those countries enabling them to trade internationally. It is also an employer of specialists in international business. ii. The World Bank According to the Articles of Agreement contained in the World Bank’s Charter, the three purposes of the World Bank are to facilitate capital investments in its member countries, to encourage foreign private investments and to encourage balanced growth of the international trade by maintaining equilibrium in balance of payments. To achieve this, the World Bank encourages international investment so that the domestic resources can be mobilized. World Bank also works with its close organizations to promote foreign investments by lending loans. Most of the Multi-national corporations supply goods and services to the borrowers of the World Bank who also spend the loans given buying goods in the international market. The World Bank also finances institutions in the less developed nations to promote their participation in the international trade (Polak, Gwin & Brookings Institution, 1998). iii. The Asian Development Bank. This is a regional development bank that promotes economic development in Asian nations and a few others in the globe. Its vision is to achieve a region that is free of poverty. To achieve this, it offers financial and technical assistance to help them reduce poverty and improve the quality of life. ADB also promotes cooperation among its member countries with other countries such as United States, Canada, Japan and Germany, which can be donors to its projects. By improving the economic status of the Asian countries, it enables them to participate in international trade (Asian Development Bank, 1999). iv. The International Monetary Fund (IMF). The major role of IMF is to ensure that there is a workable international monetary system and to ensure that this principle goes beyond any conflicting national interest. A workable monetary system is important in ensuring that there is an effective flow of goods, services and capital between nations. This ensures that there is economic growth that will enable the countries to participate in international trade. For example, in Asia, the IMF helped the Asia Pacific business region during the financial crisis of 1997. The typical roles of IMF includes reducing budget deficits, reducing inflation, reducing current account deficits and increasing privatisation and deregulation of range of markets (Carin & Wood, 2005). v. The World Trade Organisation (WTO) and the General Agreement on Tariffs and Trade (GATT). GATT was formed in 1947 with the aim of ensuring free trade in the member countries. Its influence in trade resulted in a fivefold increase in world trade between 1950 and 1975. It negotiated over the trade barriers that existed before with the aim of ensuring free trade among its member countries. Its main goal was to promote a free and competitive international trading environment. Reforms in the GATT involved formation of a permanent body known as the World Trade Organisation. WTO is involved in supervising and liberalizing international trade. It regulates trade activities between its member countries and offering a framework for trade negotiations. It also formalizes trade. After setting the trade frameworks, WTO also enforces participation in the international trade by its member countries. This follows the WTO agreements which must be signed by government representatives from its member countries. WTO therefore facilitates the participation of its member countries in the international trade by eliminating trade barriers and maintaining procedures for settling trade disputes (Palmeter & Mavroidis, 2004). Question 4 What is meant by the term ‘political risk’ in relation to international business? What type of strategies can international business use to manage political risk? Political risk refers to changes that may occur in a country’s political environment that may adversely affect the country’s participation in international business. These include war, insurrection or political violence. Political risk can be in form of ownership risk, operating risk and transfer risk. Macro political risk is one that affects the business activity of all firms in that country while the micro political risk affects the business activities of a specific firm or a specific industry. When the risks are too great for the potential returns or the host government imposes unacceptable terms, investments may be rejected. Managing political risk is important in international business because it protects the new and the existing businesses form business risks that may be posed by political instability. This may also enable some firms to quit from markets that are in politically unstable environments (Lionel, 1999). Various strategies that international business firms can use to manage political risks from affecting business firms include: Negotiations between the multi-national corporations and the host government for long term commitment in regulating the firm. The agreement can be in writing even though there can be no practical way to enforce the commitment if the government goes back on its contractual obligations. Another way can be use of the firm’s relative bargaining power. For example, if a firm has technology that is not available in a host country, it can take advantage of it since the host country will be on the losing side if its terms are unbearable. Multi-national corporations can also result into lobbying the politicians and the government officials in the host country so that they can refute the decisions that may affect their business activities. The governments of the affected countries can also exert pressure in the host country’s government through diplomatic channels. Multinational corporations may also form a joint venture with a local partner to try and reduce the element of political risk. This is because the adverse effects of the political risk may affect both the foreign and the local partner. Integrative techniques may also be employed to help the multi-national corporations to become part of the host country’s infrastructure. This may include maximising production in the local country by using local resources, local suppliers and contractors. Integrative techniques may also involve conducting local research and developments together with labour management relations. Question 5 Explain why people involved in international business need to be aware of the culture and customs of the foreign countries with whom they deal or in which they operate. Describe concisely some of the key ethical issues faced by companies operating internationally. For firms to do business in another country, they must be aware of the culture and customs that are observed by the nationals of the host country. Failure to respect the culture can result to jeopardy in the international trade. A firm should therefore be fully aware of the culture and the customs which is dominated by the local country’s attitudes, opinions and values. Culture may be problematic to many business people since it is dynamic and often hard to understand. When one is doing business in a foreign nation, it is very important to understand the basic elements of culture that must be observed. This is important because violating other people’s culture and customs while in their country makes the hosts feel uncomfortable off the foreigner’s presence. An understanding of the foreign country’s culture can help the firms to build international competence and they become more globally sensitive. Some of the key ethical issues faced by companies operating internationally include: Managing relationships: when operating in a foreign country, it is important that one maintains harmony with the colleagues. It is very necessary for one to avoid conflicts especially with those in superior positions. This is one of the issues that can make the host s feel uncomfortable in presence of a foreigner. Another ethical factor to consider is the people’s attitude. This is attitude towards time, work and leisure, towards change and achievement. Attitude towards time can be noticed in behaviours such as punctuality, deadlines and response to business communication. People respond differently in different countries and it is therefore important to take note of this when in a foreign nation. Some countries also equate work to leisure. Some believe that when their income increases, the leisure should also increase. Another ethical issue that may face international business organisations is religion. Some countries are very rooted to religion such that it dictates the way business is run. For example, countries which operate on Islamic law are against interests. Such countries also operate on what pleases God and not how the law dictates. Operating business in such countries requires that firms be careful in their lending activities since they cannot impose interest rates. Important aspect of culture is communication is also another point that will be put into consideration. It is very essential to learn about communication in a foreign country since it differs both verbally and non-verbally. Various aspects of communication are also interpreted differently across cultures and it is necessary for one to be aware of the differences. References Jagdish, B. (2004). In Defense of Globalization. Oxford: Oxford University Press. Lionel, M. (1999). "Specialization and Efficiency in World Production". The Review of Economic Studies 21 (3): 165–180. Vaghefi, M. Et al. (2001). International business: theory and practice. Taylor & Francis Asian Development Bank. (1999).Asian Development Bank: what it is what it does, how it works. Mandaluyong City: Asian Development Bank. Palmeter, N. & Mavroidis, P. (2004). Dispute settlement in the World Trade Organization: practice and procedure. Cambridge: Cambridge University Press. Carin, B. & Wood, A. (2005). Accountability of the International Monetary Fund. Birmingham: Ashgate Publishing. Polak, J., Gwin, C. & Brookings Institution. (1998).The World Bank and the International Monetary Fund: a changing relationship. New York: Brookings Institution Press. Read More