International Business Final and the Trend of Globalization - Essay Example

Globalization of production refers to the concept that the entire world is a marketplace and the production process should be devised consideringall the feasible options available throughout the world. The trend of globalization has given the producers and marketers the scope of manufacturing on a worldwide basis and selling the manufactured products to the entire world. As a result the producers get the chance to exploit the cheapest factors of production from all places around the world. For example the work that involves a lot of cheap labor are outsourced to the countries that possesses huge population like India. Globalization of production also involves utilizing the technology and communication aspects to a great extent to manufacture products and sell them within the domestic market as well as in the overseas markets. The trend of distributing the production networks all over the world offers a firm the advantages like competitive edge and cost cutting. Competitive edge is achieved when the firm’s produced products are sold all over the world bringing in a good amount of profit. Cost cutting takes place when the firm’s production system takes into consideration and exploits all the cheap factors of production that are available in different parts of the world at cheaper price. 2. Globalization has created lots of changes throughout the world. The changes introduced both positive and negative impacts on the countries. It is believed that the developed countries reap the maximum benefit out of the process of globalization. The developed nations shift their production units to the places where the cost of production will be cheaper. The cheaper production cost helps the nation to generate more profit from the sale of their produced products. This is helping the economy of certain developed nations to prosper and grow. However on the other hand the underdeveloped nations and the developing nations are constantly losing their resources which are being purchased by the wealthy nations for the purpose of manufacturing products and services which in turn are again being sold in the developing or underdeveloped nations. Thus it has become a topic of debate that addresses the issue whether globalization is a blessing or a curse. The positive side of globalization is that it enhances the job opportunities and economy across the world. But the negative side denotes that since the developed nations are shifting their plants to the overseas nations due to the availability of cheap resources, the labor there are getting under paid in comparison to the labors of the developed nations. Therefore despite the creation of job opportunities, globalization also creates disparity in the amount of wages received by the workers of the developed and developing nations. 3. Religion is one of the important elements of culture. Religion determines whether a person is Hindu, Muslim, Christian, Sikh, etc that implies which God does the person believes in and which rituals related to their religion does they follow. Globalization has created the integration of all the religions and this has affected the business operations to a great extent. For example the case of McDonalds can be taken into account in this respect. McDonalds prepare different kind of fast foods that contain both vegetarian and non vegetarian items. The non vegetarian foods contain chicken, egg, fish, beef, lamb, pork etc. However McDonalds have eliminated beef and pork from its wide range of menu while entering the Indian market, since the Indian market included people from both Hindu and Muslim religions and beef and pork are restricted for these two religions respectively. Moreover religion affects the language, dressing style, values and morals of a person. Thus the business operations get highly influenced by these factors as these are the elements that form the basis of a human being. 4. The term culture includes the behavior, beliefs, arts, languages, institutions, etc. of an individual. Culture decides how a person should behave at a social event and at a professional level. For example as per the western culture it is fine to address a senior by name and greet them using hi and hello. However in the Asian nations it is expected that the juniors would address their seniors as sir and should show sufficient amount of respect to them. As per the theories presented by Geert Hofstede, the western nations have a low cultural context and the Asian nations have a high cultural context. This can be concluded since the Asian people make decisions that are highly associated to their cultures and moral values. On the other hand the western nations follow a low cultural context since their lifestyle, behavior, professional life; relationships etc have nothing to do with their cultural contexts. 5. Micro risk implies the political risks that don’t affect all the operations of a business. For example, when a country sets some strict guidelines for protecting the environment it would certainly influence the industrial operations of the nation. However some service sectors and some other industries like fast food and restaurant chains will not get affected by the environmental guidelines set by the nation. The procedures followed by businesses can govern micro risk by redirecting the investments into assignments or industries that always stay unaltered by significant changes. Macro risk implies the political risks that have significant influence on every aspect of trade that takes place in an overseas nation. When a country enhances its tax and duty rates or it gets involved in a war or when it reduces the value of its currency, it actually gives rise to macro risk that affects the overall functioning of the industries and not some particular sectors. It is recommended for the business owners of every nation that they must constantly upgrade their knowledge about the law and the political regulations of the country so that they can effectively tackle the concern of macro risk. 6. Local content requirements refer to the policies that point toward a specific portion of the final product that needs to be manufactured within a certain domain. These policies have been implemented in several industries so that the domestic expansion operations of the industry can get sufficient support. The policies are at present implemented by a number of nations namely China, Canada, Spain, India, Australia, Portugal and Brazil and the levels of success at each of these countries varied every time. These policies are normally introduced to improve the service benefits of the domestic production system from the products manufactured at a local level and also for reaping the advantage of technology repositioning. However the Local content requirements compel the firm to reach a position where the positive and negative forces are cancelled by each other and a stasis is achieved. Inefficiencies of the firm are also encouraged by LCR policies that restrain the potential to make use of economies of scale, thus escalating costs to customers. Additionally, fiscal incentives are often considered subsequent with local content requirement policies to help achieve economies of scale and allied concerns that can effect in increased regional taxpayer charges. It is significant to make a note that local content requirements are industrial procedure, not ecological, and devoid of suitable enticement, they can diminish outlay in the specified industry. Though the host nation enjoys benefits of LCRs, still the nation must be mindful of the necessity to avoid rising inflationary force by imposing or allowing excessive compensation ranges or allowing unnecessary mark-ups for domestic products and services. 7. It has been proposed by David Ricardo in his classical theory of international trade that every product is not possible for every nation to produce. For example if Brazil is good at making coffee, it is because of the climatic conditions, the quality of soil and the kind of labour it possesses. However Brazil won’t be able to produce rice since China is the largest producer of rice and the nation possesses exactly the type of climatic conditions and soil needed for cultivating rice plants. However China won’t be able to produce coffee like Brazil. Thus Ricardo suggested that the nations that are good at producing a particular type of product should get involved into export activities and the products they are unable to produce must be imported from the countries where those products are produced in large quantities. 8. The government of a country plays numerous roles towards making the economy of a nation prosperous and wealthy. With this aim the government intervenes in the pattern of trade carried on within a nation. Government’s intervention into the trade has several motives out of which one is to protect the national security of a country. Some industries like the aerospace, strategic minerals, drugs, weapons etc. are quite sensitive in terms of the security of the nation. The materials used in these industries are controlled and supervised by the government since these industries are used widely to secure the integrity of a country. Another motive is to protect the domestic markets of a country from other overseas markets. For instance, in the developing countries the products produced in the domestic market like handicrafts and home decor items are considered to be lesser in quality when compared with the foreign products. Now if this remains the condition, all the consumers would buy the foreign products and the domestic manufacturers will eventually undergo huge losses. Thus in order to prevent such situation from occurring the government intervenes and imposes huge duty and levy charges on the products imported from the foreign manufacturers. This action in turn, increases the price of the imported products to a great extent that makes a wide difference between the prices of the product manufactured within the country and the product imported from a foreign country. 9. It is often noticed that the governments of various nation imposes high tariffs on the products imported from a foreign nation. Tariffs generate the concept of protectionism, safeguarding a domestic market's products against overseas rivalry. High tariffs typically decrease the importation of a certain product since the increased tariff results in a high price to be paid by the consumers of that product. Hence this in turn protects the domestic market from overseas competition. However the Inverted tariff associations reprimand firms for manufacturing their products in the United States. The foreign trade zone framework offers the firms to pertain to the foreign trade zone board for the power to gain reprieve from inverted tariffs while a raw material or constituent item is subject matter of a privileged duty fee than the end product. Therefore, the importer of the end product offers a lesser duty charge than a producer of the similar product within the domestic products. This offers the importer an unintended and unfair benefit over the domestic producer. Thus the foreign trade zone offsets the effect of tariff in this way. 10. There are several benefits related to the concept of regional economic integration. First of all this concept implies free trade that is devoid of all tariff and non tariff barriers. This encourages the producers to import and export products and services across nations without the fear of high tariff rates. Moreover the consumers also get encouraged towards buying the foreign products since they are charged with lesser prices. The second benefit of regional economic integration could be the vast market formed till now that would allow a high extent of specialization and sophistication of products contributing to addition of contemporary industrial growth. Additionally, the prospect for specialization of local business would provide backing to the flow of fund into the sectors that have a comparative cost advantage, so that the gains from global trade would augment. 11. Five levels of economic integration are- a) Political union- Symbolizes probably the most developed type of integration with a familiar administration where the dominion of the member nation is significantly abridged. b) Custom union- Sets universal external tariffs amongst member nations, entailing that the similar tariffs are applicable to third countries. c) Free trade- Tariffs involving the member nations are eliminated or considerably reduced. d) Economic union- Fiscal and monetary policies connecting member nations are coordinated, which involves a point of political incorporation. An additional step involves a monetary amalgamation where a familiar currency is applied, such as by way of the European Union. e) Common market- Factors of production like capital and labor are liberated to move within the associated countries, increasing comparative advantages and scale economies. Thus from the above five types it is clear that common market is quite liberal in nature while political union is rather strict and limits free movement of factors of production. 12. Rationalized production is reliant on increasing the quality of the products, and works further so that the factors of production are used at its best. While practicing the process of rationalized production, the firms look for resources that available across other nations. The theory deals with the idea that if the products are intended to be of better quality it is required that the manufacturer should use the cheapest but the best raw material which might not be available within the nation. In such case, the manufacturer should look for the raw material in abroad. Foreign direct investment generally contributes to the amalgamation of large-scale market of the host nation by the means of financial flows acknowledged from abroad. It also encourages worldwide business. It encourages exports of host nations by assisting access to huge foreign sectors and by augmenting the domestic capital for exports. All sorts of foreign direct investments are able to benefit a firm. Foreign direct investments can augment reputation in the foreign nation by the creation of jobs. The costs of the end product might also be reduced as the products do not have to be traded in. This could as a result, lessen pressure from the regional administrations to provide locally produced products. FDI can as well make possible considerable rise in production as well as can decrease the production costs. 13. When venture decisions are considered from the viewpoint of a policy, it is necessary for a multinational firm to devise their foreign direct investment strategy in such a manner that will affect the host and the home country. From the viewpoint of a host nation it can be considered that the realistic authentication aspects have a positive influence on the foreign direct investment as well as the financial growth. As a long term procedure apart from the creation of an atmosphere that supports the business environment of a nation, it is important for the host nation to lessen the rates of taxes and levies imposed on the goods imported from a foreign firm. Also in order to attract a good amount of foreign direct investment within the nation, it is required that the nation should make available all the vital information to the nations that are willing to enter their market and invest towards some kind of business. This information includes market related and consumer related information. The creation of business information gaps can eventually result in the loss of entry by the foreign direct investors. 14. Cultural differences give rise to several other differences namely ethnic difference, religious difference, climatic difference, ethical difference and so on. When a marketer conducts market research at places that possess different cultural backgrounds, he/she must take into account the different customs, language barriers, environmental differences both external and internal, as well as the taste and preference of the citizens of that place. The domain of market research involves several facets in its operations which includes specifying the target population and the sample population. Then the marketer needs to decide which tool of data collection should be used and how the data collected should be evaluated. After considering all these facets it can be concluded that market research is a time consuming and costly procedure. Now in the case of international market research, the marketer needs to spend time and money for more than one market since there happen to exist cultural differences among the various markets. These differences force the marketer to design different data collection tools, different sample population and different evaluation designs. For example, in some places due to cultural influence, women hesitate to disclose their personal information and in some places people prefer to disclose their information through online questionnaire and they tend to avoid paper questionnaires. Thus these diverse cultural factors at the different markets make it difficult for a marketer to conduct international market research at diverse countries. 15. Primary market research involves gathering information from the direct and primary sources. For example when data is collected about a consumer’s product preference, marketers often opt for primary research techniques that enables them to gather data directly from the consumers. This technique involves various data collection tools, among which questionnaire and interview are the most commonly used tools. Questionnaire can be paper or web based and the interview can be one to one or focus group interview. 16. One ideal example of counter trade is barter. The barter system involves the trade of products and services between countries. This type of transaction does not involve any kind of monetary transaction. In barter system the products and services are exchanged for some other products and services. Barter is a primitive means of trade and the nations involved in such practice used to export products and services that are ample in their country and used to import products and services which they are unable to produce. 17. If a software company intends to enter a foreign country by the means of a wholly owned subsidiary, then the subsidiary must be of the similar kind of business. Otherwise when firms choose a subsidiary belonging to a diverse line of business then it certainly faces the limitation of getting distracted from its set objective. 18. Polycentric staffing framework makes the host country’s workers to handle the operations at the subsidiaries. In this case the parent company holds the key position at the firm’s headquarters. Polycentric staffing practice helps in the reduction of cultural myopia however this staffing practice puts a limit on the career mobility opportunities of the employees. 19. When employees are sent to an overseas place for completion of an assignment by his/her organization then that process is known expatriation. During expatriation the employees are likely to face cultural shock as they enter a new country having a new culture. But gradually the employees tend to get adjusted with the new environment and at this point of time when they are again relocated to their homeland, the process of which is referred to as repatriation, they go through a reverse cultural shock. This reverse cultural shock involves feelings of exclusion, confusion, anxiety, disorientation, and fear to some extent. The employees who experience such reverse cultural shocks often finds it difficult to adjust in their home country after spending a long time at an overseas place. Organizations can implement the cyclic process of developing a repatriation strategy to help the employees in their repatriation process. This model consists of four phases and represents a cyclical process. The first stage involves development of the philosophy and principles of the repatriation strategy. The second stage involves a formally documented agreement on repatriation. In the third stage the strategy is implemented through supportive programs. Variety of issues needs to be addressed during the employee’s returning back. Organizations must make sure that the abroad assignment supports an employee’s career and this commitment must be shown to the work community of the company. The Fourth and final stage of the process involves the evaluation of the re-entry process so that it becomes easier to identify the portion of the program which needs further modification by the international human resource management division. 20. While expanding on a global basis a manufacturing company always considers the factors of production, their cost and availability. On the other hand the service company focuses on the global market, the consumer’s demand and the competitors already dominating the global market. A service company should focus on elements like innovation, cost control, delivery speed and win-win partnerships with the local companies. However a firm should keep in mind that there happens to be a lot of hindrances on the way of global expansion that primarily include cultural differences, climatic differences and diverse foreign markets. 21. International staffing aims at shifting staffs for fulfilling a variety of corporate purposes. There can be three key reasons for such shift one is filling up the vacancies in the foreign branches because of lack of proficient employees; the second reason could be using international projects for management development rationale. The third reason could be establishing coordination and control of geographically allocated units. This approach can pave the way for both benefits and limitations for the company. A diverse group of workers can be the reason for innovative ideas on the one hand but on the other hand the diversity can lead to conflicts. International staffing approach gathers people from different backgrounds. This inevitably discriminates the people on the basis of their religion, language, culture and so on. These differences can bring altogether new ideas and also disputes. It’s the management’s task to deal with International staffing approach with tact and skill. 22. Since DHL is a German firm, therefore when it merged with Airborne of the U.S. it faced issues of cultural and environmental differences. It is assumed that since DHL could not deal with the restructure approach in a new location therefore it decided to close their U.S. wing in the middle of 2008. The theory of first mover has been possibly derived from the challenging board games like chess in which the participant making the first move enjoys an intrinsic advantage. The first mover theory follows the same principle. In the field of business, being renowned as the first one to introduce and sell a completely new concept, product or service might prove to be a long term means of success for the firm. The term first mover indicates the company that entered the market at the first place with its new set of contributions. A first mover firm enjoys both benefits and limitations. The limitations are- 1. Risk- The risk of uncertainty always remains for the first mover firm. 2. Correcting the errors- The new joiners gradually tend to learn from the mistakes committed by the pioneer firm and then they avoid repeating those mistakes which saves their time, resources and cost to a great extent. 3. Poor Return on Investment- Since the first movers bring up a certain product or service which is entirely new to the customers, it takes a comparatively longer time to get recognized and become popular. Thus the first movers experience a poor ROI than the other players in the market since it spends a considerable amount for establishing the product. 4. Training cost- The first movers experience the difficulty of providing with new kind of training session to its employees so that the new product or service is launched efficiently. Read More