MODULE 1 – OVERVIEW OF INTERNATIONAL BUSINESS AND GLOBALIZATION

Globalization

Globalization refers to the widening set of interdependent relationships among people from
different parts of a world that happens to be divided into nations. The term sometimes refers to
the elimination of barriers to international movements of goods, services, capital, technology,
and people that influence the integration of world economies (Daniels, Radebaugh, & Sullivan,
2019).

Globalization and the relaxation of trade barriers have led to the growth of international
trade. Growing demand for products has also led to greater awareness of brands and special
services. Furthermore, international Trade is the exchange of capital, goods and services
across international borders or territories, which could involve the activities of the government
and individual. In most countries, such trade represents a significant share for gross domestic
product (GDP) (Dawson, 2017).

Factors in Increased Globalization

What factors have contributed the growth of globalization in recent decades? Most analysts
cite the following factors:

1. Increase in and application of technology.

2. Liberalization of cross-border trade and resource movements
3. Development of services that support international business
4. Growth of consumer pressures
5. Increase in global competition
6. Changes in political situations and government policies
7. Expansion of cross-national cooperation

The Costs of Globalization (Daniels, Radebaugh, & Sullivan, 2019)

Threats to national sovereignty

You’ve probably heard the slogan “Think globally, act locally.” In essence, it means that local
interests should be accommodated before global ones. Some observers worry that the
proliferation of international agreements, particularly those that undermine local restrictions on
how goods are produced and sold, will diminish a nation’s sovereignty—its freedom to “act
locally” and without externally imposed restrictions.

 The Question of Local Objectives and Policies

 The Question of Small Economies’ Overdependence
 The Question of Cultural Homogeneity

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Evironmental stress

The Argument for Global Growth and Global. Cooperation Not everyone agrees with such
a conclusion. Others argue that globalization has positive results for both sustaining natural
resources and maintaining an environmentally sound planet. Global cooperation, they say,
fosters superior and uniform standards for combating environmental problems, while global
competition encourages companies to seek resource-saving and eco-friendly technologies,
such as automobiles that use less gas and emit fewer pollutants.

Growing income inequality and personal stress.

In measuring economic well-being, we not only look at our absolute situations but also compare
ourselves to others. We generally don’t find our economic status satisfactory unless we’re doing
better and keeping up with others.

Income Inequality. By various measurements, income inequality, with some notable

exceptions, has been growing both among and within a number of countries. Critics claim
that globalization has affected this disparity by helping to develop a global superstar system,
creating access to a greater supply of low-cost labor, and developing competition that leads
to winners and losers.

Personal stress. There is some evidence that the growth in globalization goes hand in hand
not only with increased insecurity about job and social status but also with costly social
unrest

Characteristics of Global Trade (Dawson, 2017)

 Trading globally gives consumers and countries the opportunity to be exposed to new
markets and products (i.e., foods, clothes, spare parts, oil, jewelry, wine, stocks,
currencies and water).
 Services are also traded: tourism, banking, consulting, and transportation.
 Export are product sold to the global market and products that is bought from the global
market is import.
 Imports and exports are accounted for in a country’s current account in the balance of
payments.
 Industrialization, advanced technology, including transportation, globalization,
multinational corporations, and outsourcing are all having a major impact on the
international trade system.
 International trade is mostly restricted to trade in goods and services, and only to a lesser
extent to trade in capital, labor or other factors of production.
 Trades in goods and services can serve as a substitute for trade factors of production.
Ex. Import of labor-extensive goods by the United States from China. Instead of

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 importing Chinese labor, the United States imports goods that were produced with
Chinese labors.
 International trade is also a branch of economics, which, together with international
finance, forms the larger branch called international economics.

Global Marketing

Global Marketing is “marketing on worldwide scale reconciling or taking commercial advantage

of global operational differences, similarities and opportunities in order to meet global
objectives” (Dawson, 2017).

Companies today can no longer afford to pay attention only to their domestic market, no
matter how large it is. Many industries are global industries, and those firms that operate
globally achieve lower costs and higher brand awareness. At the same time, global marketing
is risky because of variable exchange rates, unstable governments, protectionist tariffs and
trade barriers, and several other factors. Given the potential gains and risks of
international marketing, companies a systematic way to make their international
marketing decisions. The company must understand the international marketing environment
(Global marketing: International trade system, economic environment, 2020).

Worldwide Competition

One of the product categories in which global competition has been easy to track in U.S.
automotive sales. The increasing intensity of competition in global markets is a challenge
facing companies at all stages of involvement in international markets. As markets open up,
and become more integrated, the pace of change accelerates, technology shrinks distances
between markets and reduces the scale of advantages of large firms, new sources of
competition emerge, and competitive pressures mount at all levels of the organization. Also,
the threat of competition from companies in countries such as India, China, Malaysia, and Brazil
on the rise, as their own domestic markets are opening up for foreign competition, stimulating
greater awareness of international marker opportunities and of the need to be internationally
competitive. Companies which previously caused on protected domestic markets are entering
into markets in other countries creating new source of competition, often targeted to price-
sensitive market segments. Not only is competition is intensifying for all firms regardless of
their degree of global market involvement, but the basis for competition is
changing. Competition continues to be market-based and ultimately relies on delivering
superior value to customers. However, success in global markets depends on knowledge
accumulation and deployment. Today, more and more marketing companies specialize in
translating products from one country to another (Dawson, 2017).

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Domestic Marketing (Dawson, 2017)

 A marketing restricted to the political boundaries of a country. A company marketing only

within its national boundaries only has to consider domestic competition.
 Products and services are developed for customer in the home market without thought
of how the product and services could be used in other markets and the marketing
decisions are made at headquarters.
 The biggest obstacle these marketers are facing is being blindsided by emerging global
marketers.
 The domestic market is a large market that every nation needs. These marketers are all
restricted to be under control of certain boundaries in that company or country.
 A firm operating in a domestic market also gets the opportunity to operate in different
areas and this gives the company an opportunity to have bigger marketers to advertise
to.

International Marketing (Dawson, 2017)

 International marketing is the export, franchising, joint venture of full direct of an

organization’s product or services into another country.
 Development of the marketing mix for that country is then required.
 It can be a straightforward as using marketing strategies, mix and tools for export on
the one side, to a highly complex relationship strategy including localization, local
product offering, pricing, production and distribution with customized promotion, offers,
website, social media and leadership.
 Internationalization and international marketing meet the needs of selecting foreign
countries where company’s value can be exported and there is inter-firm and firm
learning, optimization and efficiency in economies of scale and scope.
 The firm does need to export or enter all world markets to be considered an
international marketer.

Global Marketing (Dawson, 2017)

 Global marketing is a firm’s ability to market to almost all countries on the planet.
 The global firm retains the capability, reach, knowledge, staff, skills, insights and
expertise to deliver value to customers worldwide.
 The firm understands the requirement to service customers locally with global standard
solutions or products, and localizes that products as required to maintain an optimal
balance of cost, efficiency, customization and localization in a control-customization
continuum to best meet local, national and global requirements to position itself against
or wit competitors, partners, alliances, substitutes and defend against new global and
local market entrants per country, region or city.

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  The firm will price its products appropriately worldwide, nationally and locally, and
promote, deliver access and information to its customers in the most cost-effective
way.
 The firm needs to understand, research, measure and develop loyalty for its brand and
global brand equity (stay on brand) for long term.

Elements of Global Marketing (Dawson, 2017)

Not only do standard marketing approaches, strategies, tactics and processes apply,
global marketing requires an understanding of global finance, global operations and
distribution, government relations, global human capital management and resource
allocation, distributed technology, development and management, global business logic,
interfirm and global competitiveness, exporting, joint ventures, foreign and direct
investments and global risk management.

The standard “Four P’s” of marketing: product, price, place and promotion are all affected
as a company moves through five revolutionary phases to become a global company.

Product. A global company is one that can create a single product only have to tweak
elements for different marketers.

Example: Coca-Cola uses to formulas (one with sugar, one with corn syrup) for all markets. The
product packaging in every county incorporates the contour bottle design and the dynamic
ribbon in some way, shape, or form. However, the bottle can also include the country’s native
language and in the same sizes as other beverage bottles or cans in that same country.

Luxury products, high-tech products, and new innovations are the most common
products in the global marketplace. They are easier to market in a standardized way
than other products because there are no traditional cultural values attached to their
meanings.

Price. Price will always vary from market to market. Price is affected by many variables:
cost of product development (product locally or incorporated), cost of ingredients, cost of
delivery (transportation, tariffs, etc.) and much more. Additionally, the product’s position in
relation to the competition influences the ultimate profit margins. Whether this product is
considered high-end, expensive choice, the economical, low-cost choice, or something in-
between helps determine the price point.

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 Place. How the product is distributed is also a country-by-country decision influenced by
how the competition is being offered to the largest market. Using Coca-Cola as an example
again, not all cultures use vending machines.

 In the United States, beverages are sold by the pallet via warehouse stores.
 In India, this is not an option.

Placement decisions must also consider the product’s position on the market place.

For example, a high-end product would not want to be distributed via a “dollar store” in the
United States. Conversely, a product promoted as the low-cost option in France would find
limited success in a pricey boutique.

Promotion. After product research, development and creation, promotion (specifically

advertising) is generally the largest line item in a global company’s marketing budget. At
this stage of a company’s development, integrated marketing is the goal. The global
corporation seeks to reduce costs, minimize redundancies in personnel and work, maximize
speed of implementation, and to speak with one voice.

Advantages and Disadvantages of Global Marketing (Dawson, 2017)

Advantages

The advantages of global market include:

 Economies of scale in production and distribution

 Lower marketing costs
 Power and scope
 Consistency in brand image
 Ability to leverage goods ideas quickly and efficiently
 Uniformity of marketing practices
 Helps to establish relationships outside of the “political arena”
 Helps to encourage ancillary industries to be set up to cater for the needs
of the global player
 Benefits of eMarketing over traditional marketing

Disadvantages

The disadvantages of global market include:

 Differences in consumer needs, wants, and usage patterns for products

 Differences in consumer response to marketing mix elements

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  Differences in brand and product development and the competitive
environment
 Differences in legal environment, some of which may conflict with those
of the home market
 Differences in the institutions available, some of which may call for the
creation of entirely new ones (e.g, infrastructure)
 Differences in administrative procedures
 Differences in product development
 Differences in administrative procedures and product placement can
occur

International business

International business comprises all commercial transactions (private and governmental sales,
investments, logistics and transportation) that take place between two or more regions,
countries and nations beyond their political boundaries. The term “international business”
refers to all those business activities which have cross-border transactions of goods, services,
resources between two or more nations. Transactions of economic resources include capital
skills, people etc. for international production of physical goods and services such as finance,
banking, insurance, construction etc. (Dawson, 2017).

International business consists of all commercial transactions between two or more countries
(Daniels, Radebaugh, & Sullivan, 2019).

 The goal of private business is to make profits.

 Government business may or may not be motivated by profit.

Studying international business is important because (Daniels, Radebaugh, & Sullivan, 2019)

 Most companies either are international or compete with international companies.

 Modes of operations may differ from those used domestically.
 The best way of conducting business may differ by country.
 An understanding helps you make better career decisions.
 An understanding helps you decide what governmental policies to support.

A multinational enterprise (MNE) is a company that has a worldwide approach to markets and
production or one with operations in several countries. Well-known MNEs include fast-food
companies such as McDonald’s and Yum Brands, vehicle manufacturers such as General
Motors, Ford Motor Company and Toyota, consumer-electronics producers like Samsung, LG

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and Sony, and energy companies such as ExxonMobil, Shell and BP. These multinational
enterprises can make business in different types of market (Dawson, 2017).

Figure 1.1.1. Factors in International Business Operations

Source: International Business: Environments and Operations by Daniels, Radebaugh, & Sullivan (2019)

The conduct of a company’s international operations as shown in Figure 1.1.1. depends on two
factors: its objectives and the means by which it intends to achieve them. Likewise, its
operations affect, and are affected by two sets of factors: physical/social and
competitive. Understanding the complexities may be useful to you. Companies’ international
operations and their governmental regulations affect overall national conditions—economic
growth, employment, consumer prices, national security—as well as the success of individual
industries and firms. A better understanding of international business will help you make more
informed decisions, such as where you want to work and what governmental policies you want
to support (Daniels, Radebaugh, & Sullivan 2019).

Why Companies Engage in International Business (Daniels, Radebaugh, & Sullivan 2019)

1. Expanding Sales. Pursuing international sales usually increases the potential market
and potential profits.
2. Acquiring Resources. Foreign sources may give companies: lower cost, Lower costs,
new or better products and additional operating knowledge.
3. Reducing Risk. International operations may reduce operating risk by smoothing sales
and profits and preventing competitors from gaining advantages.

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Modes of Operations in International Business (Daniels, Radebaugh, & Sullivan 2019)

1. Merchandise Exports and Imports. Merchandise exports and imports are usually a
country’s most common international economic transactions. Merchandise exports are
tangible products—goods—that are sent out of a country; merchandise imports are
goods brought into a country.
2. Service Exports and Imports. The terms export and import often apply only to
merchandise. For non-merchandise international earnings, we use the terms service
exports and service imports and are referred to as invisibles. The provider and receiver
of payment makes a service export; the recipient and payer makes a service import.
Services constitute the fastest growth sector in international trade and take many
forms. In this section we discuss the most important:
o Tourism and transportation. The economies of some countries depend heavily
on revenue from these sectors
o Service performance. Some services, including banking, insurance, rental,
engineering, and management services, net companies earnings in the form of
fees: payments for the performance of those services
o Asset use. When one company allows another to use its assets—such as
trademarks, patents, copyrights, or expertise—under contracts known as
licensing agreements, they receive earnings called royalties.
3. Investments. Dividends and interest paid on foreign investments are also considered
service exports and imports because they represent the use of assets (capital). The
investments themselves, however, are treated in national statistics as separate forms
of service exports and imports. Note that foreign investment means ownership of
foreign property in exchange for a financial return, such as interest and dividends, and
it may take two forms: direct and portfolio.
4. Types of International Organizations. Companies work together—in joint ventures,
licensing agreements, management contracts, minority ownership, and long-term
contractual arrangements—all of which are known as collaborative arrangements.
o Multinational Enterprise A multinational enterprise (MNE) usually refers to any
company with foreign direct investments. This is the definition we use in this
text. However, some writers reason that a company must have direct
investments in some minimum number of countries to be an MNE. The term
multinational corporation or multinational company (MNC) is often used as a
synonym for MNE, while the United Nations uses the term transnational
company (TNC).

Why International Business Differs from Domestic Business (Daniels, Radebaugh, &
Sullivan 2019)

1. Physical and Social Factors. The physical and social factors we show above can affect
how companies produce and market products, employ personnel, and even maintain

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 accounts. Remember that any of these factors may require a company to alter its
operation abroad (compared to domestically) for the sake of efficiency.
1. Geographic Influences. Managers who are knowledgeable about geography are
in a position to determine the location, quantity, quality, and availability of the
world’s resources, as well as ways to exploit them. The uneven distribution of
resources throughout the world helps explain why different products and services
are produced in different places. Further, countries differ in size of landmass and
population.
2. Political Policies. Not surprisingly, a nation’s political policies influence how
international business takes place within its borders (indeed, whether it will take
place). Obviously, political disputes—particularly military confrontations—can
disrupt trade and investment. Even conflicts that directly affect only small areas
can have far-reaching effects.
3. Legal Policies. Domestic and international laws play a big role in determining
how a company can operate abroad.
o Domestic law includes both home- and host-country regulations on such
matters as taxation, employment, and foreign-exchange transactions.
o International law — in the form of legal agreements between countries—
determines how earnings are taxed by all jurisdictions. International law
may also determine how (and whether) companies can operate in certain
places.
o Finally, the ways in which laws are enforced also affect a firm’s foreign
operations. In the realm of trademarks, patented knowledge, and
copyrights, most countries have joined in international treaties and enacted
domestic laws dealing with violations.
4. Behavioral Factors. The related disciplines of anthropology, psychology, and
sociology can help managers better understand different values, attitudes, and
beliefs. In turn, such understanding can help managers make operational
decisions abroad.
5. Economic Forces. Economics explains why countries exchange goods and
services, why capital and people travel among countries in the course of
business, and why one country’s currency has a certain value compared to
another’s.
2. The Competitive Environment. Companies’ competitive situations may differ by: (1)
their rankings among countries, (2) the competitors they face by country; and (3) the
resources they can commit internationally.
o Competitive Strategy for Products. Products compete by means of cost or
differentiation strategies, the latter usually by:
o developing a favorable brand image, usually through advertising or from
long-term consumer experience with the brand; or
o developing unique characteristics, such as through R&D efforts or different
means of distribution.

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 o Competitors Faced in Each Market. Finally, success in a market (whether
domestic or foreign) often depends on whether the competition is also
international or local.

Activity 1.1.

 Read Chapter 1. Overview of International Business and Globalization of International Business:

Environments and Operations by Daniels, Radebaugh, & Sullivan.
 Watch online video on “International Trade and Business for Beginners (2020) by Murat Ozturker.
 Explore the World Trade Organization (WTO) website

Study Questions

1. What is the value of globalization, international trade and international business?

2. What are the factors affecting trade between countries? Which among these factors most likely to
contribute most and why? (political stability, currency, demand for country’s products and goods,
exchange rates)
3. How can World Trade Organization help international business firms?

References
Global marketing: International trade system, economic environment. (2020). Principles of Marketing.
World Trade Organization. Retrieved from https://www.wto.org/english/thewto_e/whatis_e/what_we_do_e.htm
Cavusgil, S.T., Knight, G. & John Riesenberger, J. (2018). International Business The New Realities (4th
Ed.).
Czinkota, M. R. and Ronkainen, I. A. (2015). International Marketing. Thomson South-Western
Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2019). International business: Environments and operations.
PEARSON.
Dawson, C. (2017). International trade. Larson & Keller.
Ozturker (2020). International trade and business for beginners (2020) by Murat Ozturker. Retrieved 7 August
2020 from

Online Reading Materials

 “Definition: What is Business Intelligence?” Retrieved from

https://www.microstrategy.com/us/resources/introductory-guides/business-intelligence-the-definitive-
guide
 Chapter 1. Overview of International Business and Globalization on pages 43-85 of International
Business: Environments and Operations by Daniels et.al.
 World Trade Organization. Retrieved 7 August 2020 from
https://www.wto.org/english/thewto_e/whatis_e/what_we_do_e.htm

Online Video Links and Materials

 “International Trade and Business for Beginners (2020)” by Murat Ozturker. Retrieved 7 August 2020
from https://www.ssyoutube.com/watch?v=o3BNXCKGBpg

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