BUSM4091: International Business Strategy Introduction Globalisation is a worldwide movement which aims to integrate financial, economic and other

business processes across the world. Globalisation implies wide open range of nationalistic and local perspectives to a wider outlook of interdependent and interconnected system with free transfer of services, Goods and capital across national frontiers. Globalisation does not possess any unhindered labour movement, which aims only on economic advantage for business organisations. Here in this report selected indices of globalisation in political, economical and social areas are highlighted to present radical changes reflected in global economy. Major trends in Globalisation are the rise in FDI flows modestly that shares financial strength between transitional economies in terms of both inflows and outflows. Caselli(2006) points out three major dimensions which are commonly accepted that are cultural, political and economic indices. These defenitions offer multiple dimensions to globalisation. He added that globalisation is process between nations, economies and ocieties across large distances to interact and maintain interdependence. Discussion On economic indices, trade in goods, FDI flow , FDI stock, portfolio investment are major indices which directs the globalisation factor at the end. in political indices environmental agreements, participation of UN peacekeeping missions and international organisation membership are major variables triggered as part of globalisation. In key social factors, it is

clear variables which is migration of stock, outbound student mobility, rate of international phone calls, international tourism, international money transfer, trade levels of news papers, trade of books and bandwidth of internet usage globally are key factors of globalisation. These indices are three which includes sub dimension of principal component analysis. Theoretical reasoning is the critical element which is commonly used for the evaluation of globalisation indices. These major variables are the key indicators pointed by National globalisation Index(NGI). The major trend which evolves in last decade is the death of distance due to the globalisation effects. Geographical distance between nations is reduced with the immersive increase in technological stance across the world. Technological stance includes increase in internet bandwidth, and cheaper caller rates across the world. A composite index holds vital data which are suitable for certain additional adjustments. For developing globalisation dimension and with statistical characteristics are used in data set. Orthogonal factors which maximise the variance of principal components in indices extracts the theoretical dimension of globalisation. In economical indices, portfolio stock has increased around 20% in last two years. Portfolio flow has increased around 14% where FDI flow and FDI stock has maintained to achieve around 13% and 19% consecutively. Social factors also gain significant rise as an overall growth of 31%, where trade and services hold major positions in social indices. Trade and politics which come under political indices reflects fir growth where major growth is reflected in embassies and trademark developments. Economic dimension which is proved in mere diverse activities are assumed to introduce theoretical introduction. Financial variables relating to the patent indicators and political variables are second most important

factors. Another key trend which majorly influence the growth of global economy is the accelerating factors n internationalisation of business organisations. More regional investment trends are also increased as part of globalisation. Investors wish to find key economies that can provide more return on their investments. Portfolio investment and industrial segment wise investments are increased in economical indices. The increased scope of joint ventures internationally ad in domestic areas brings out more financial capacity in manufacturing and telecommunication sectors. Services industry across the world ahs rise to significant levels which enriches wide use of intraregional innovative series with support of leading banking organisations. Geographical proximity and cultural affinity is another factor which implies structural and acute picture with regard to the investments in African countries. Restructuring the divestment ratios in transitional economies increase the role of competition polices developed by various economical factors at the end. Taking preventive measures after the failure of major US banks global economy become mature to identify the threats and pitfalls in economic system. Regional financial issues like Greece debt factor alters global investors and movement in business operations to identify the critical elements of cross border activates. Working as consortium, more business organisations got benefit of sharing economic regulations under this consortium . existing trade relationships between nations also act as a fuelling factor in trade operations of business organisations. The existence of considerable FDI stocks in the absence of post stablishment treaty coverage suggests that for some investment relationships, IIAs fall short of being a determining factor for investment. Governments can encourage and support the development of CSR

standards, including through the provision of material support, technical expertise, and mobilizing the participation of relevant stakeholders (Vermeulen et al., 2010). For example, the 4C Association is a sustainability standard for the coffee industry, initiated by the Government of Germany and implemented by the German development agency. With support from the Government of Switzerland and other public and private sector representatives, the 4C Association has become an influential industry standard. Governments can support the development of national certifiable management system standards (MSSs). This approach provides enterprises with a certifiable standard to distinguish themselves in the area of CSR. Recent years have seen the creation of a number of national CSR MSSs, including standards in Brazil and Mexico in 2004, Portugal in 2008, Spain in 2009, and the Netherlands and Denmark in 2010.

Hennart(1994) states that international difference in interest rates are the motivation factors of FDI. Hymer(1960) finds direct and portfolio investment are similar where direct investments are carried out by manufacturing firms and financial organisations participate in portfolio investment. Hymer added his findings on reason to invest in single nation rather than spreading the risk to multiple nation investment. He added that FDI is a tool where investors have the control over production activities of foreign organisation. Hymers theory of FDI looks up on barriers on economic entrance and it may depend on legal system, economy and government of that nation. This may act as a barrier for international production.

Caves Theory

Caves (1971) added certain factors to hymers theory. Caves distinguished between Vertical FDI and horizontal FDI. The entrance of same product stream in different region is horizontal FDI where entering to different stage of production or product line at another region shows vertical FDI. Intention of Horizontal FDI due to unique assets of foreign companies and it may depend on two characteristics as well. The first feature is the ownership of asset will be a public good within the firm and the second one states the profit made through the asset in host country must be depend upon production in that region. Vertical FDI is mostly focussed on range of profit attained from foreign markets. The dependency to long term prices and investments is huge which ensure that market structure is characterised by limited suppliers. 2.4.3 Internalisation theory This theory is based on the Caoses theory of the firm (1937) which examines the transaction cost in organisation formation. The cost of internalisation and cost of market price and negotiation to enforce contracts is high. Internalisation process is develops to explain organisations internal production and FDI. Training, research, development and other major operation of organisations are liked financial market. When the market for intermediately products is imperfect then the incentives arises for the firm to internalise the provided benefits which exceeds the cost. Another intermediate product in FDI is knowledge; it may lead to internalisation and internationalisation. The delay in developing knowledge through research and development is highly affected in

financial terms. The internalisation if knowledge leads to bilateral concentration of power and to uncertain outcomes. Models in FDI The emphasis of FDI in a selected region may lead to development and growth in the recipient economy. On other side foreign investors may bring a domestic setting in the recipient country or distortion impact on the countrys economy which may lead to market imperfections. The models of FDI discuss the Concept and effect of FDI (Moran 1998)

The Benign Model The model describes the FDI role to breakout the vicious cycle of restricting underdevelopment. The factors lead to underdevelopment covers lower productivity, lower remuneration which cause lower savings and lower investment. These factors may cause poverty in unfavourable conditions economic and political conditions. Gillis et al.(1996) states that FDI can break this factors of

underdevelopment by contributing more effective marketing, technology and management for better productivity, Increased productivity help to improves the remuneration and saving level of the population. Advantage in national income depends on capital and elasticity of demand to attain capital. FDI improves efficiency and productivity of host country, additional investment along with social and economic interaction produce completion in market with less return to capital. Completion leads to demand of skilled labour and there by equalising the income distribution, education level and healthcare for the society. This model makes advantage to the host countrys economy together with improved life circumstances in the region.

The Malign Model The model links operations of multinational corporations in interested regions for better return and reinvestment. The FDI may cause to social intervention, increased pollution, Thwart passage of law, Minimum wage requirements. Cardoso and Dornbusch (1989) states FDI multinational companies provides can compete with the domestic players in

imperfect completions and drive domestic producers out of the market . These may lead for importing good under the label of multinational companies. The decreased job offers may increase the demand of skills to get employed and lower remuneration. The strength of technology and management from multinational organisations make oligopoly in market and few international players in region. The reinvestment from multinational companies to related industries ruins the small scale producers and they loose the market power. On this situation purchasing power of the regional customers will fall down to selected options and they were forced to use the limited availability in market.

Host economy and FDI

Multinational enterprises are more capital intensive in economies where skilled labour and productivity is high. The benefits of FDI is not only direct investment and attraction to economy, there may be indigenous spill overs. This can act in two ways: market access spill over and productivity. The market access spill over happens when local firm in economy get exact knowledge about distribution network and host markets of Multinational Enterprise. Productivity spill over happen when Multinational enterprise

increases the productivity of domestic firms. Markusen and Venables (1999) analyze the effect of foreign firms on the development of domestic firms in the industrial sector. In their model, foreign companies compete with domestic producers while creating additional demand for domestically produced intermediate goods through linkages with local suppliers. This can lead to domestic firms entering into the intermediate goods sector, which can result in lower costs that, reflected in lower final prices that increase demand, can benefit domestic firms producing final goods. The host economy can improve imports and reduce exports through the promotion of FDI. This may affect exporting regional goods to foreign markets. The FDI can help in short term to make infrastructure and development plans for the host economy. References Reich, Robert (2007) Politics diverted, in Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. New York: Alfred A. Knopf. Reid, Mark (2008) A case study analysis of the Benetton supply chain, MBA paper, University of Greenwich Business School. Cattaneo, Olivier, Gary Gereffi and Cornelia Staritz (eds.) (2010) Global Value Chains in a Postcrisis World: A Development Perspective. Washington, DC: The World Bank. Chari, Anusha and Gupta Nandini (2008) Incumbents and protectionism: the political economy of foreign entry liberalization, Journal of Financial Economics, 88(2). Emerging Markets Private Equity Association (2011) EM PE Fundraising and Investment Review. Washington, DC: EMPEA.

 Eskeland, Gunnar S. and Ann E. Harrison (2003) Moving to greener pastures? Multinationals and the pollution-haven hypothesis, Journal of Development Economics, 70: 123.