European and international business - Essay Example

European and International Business Globalization has accelerated in recent years, a development that have significant implications for the regulation and governance of international business, trade and investment. International business implies no fundamental shift in the underlying principles of trading or business functions but simply more cross - border transactions .In simpler terms it includes all commercial transactions - private and governmental - between two or more countries. Private companies undertake such transactions for profit; governments may or may not do the same in their transactions International Business comprises a large and growing portion of the world's total business. The world have seen a tremendous increase in the global transactions and foreign trade in the recent years. The main reason behind this is that now more and more countries are getting engaged in trading with each other in order to increase their profit or sales or protecting them from being eroded by competition. The main objectives which are influencing the companies to engage in international business are expansion of sales, acquiring resources, minimizing competitive risk and diversification of sources of sales and supplies (Johnson & Turner, 2003). Besides these there are few other factors like economic factors, cultural factors, technological factors, and social factors which have influenced to a greater extent. Reasons for recent international business growth:- It's hard to determine just how much international business has occurred at different times in history. Shifting boundaries may cause what were domestic transactions to become international transactions, or vice versa. Regardless, international business has been growing recently at a faster pace than global production .Apart from reasons such as to expand sales to acquire resources, to diversify sources of sales and supplies and to minimize competitive risk; there are few more factors which have influenced the growth of international business. These factors are: -> Rapid increase and expansion of technology -> Liberalization of cross-border movements -> Development of supporting services -> Increase in global competition Expansion of technology: In recent years, the pace of technological advances has accelerated to greater heights and the knowledge of products and services is available more quickly and widely due to communication and transportation technology. By increasing the demand for new products and services, technology has tremendous impact on international business. As the demand increases, so do the number of international business transactions. The recent technological improvement led to the production of high quality products at lower cost. As a result, the domestic countries have entered foreign countries to find market for their products. Liberalization of cross - border movements: Every country restricts the movement across its borders of goods and services and the resources, such as workers and capital to produce both .These restrictions hinder the international trade and thus the government today has imposed fewer restrictions on cross - border movements in order to facilitate trade. With the enactment of the World Trade Organizations (WTO) in 1995, the restrictions imposed on international trade are diminishing. There are many reasons as for why the government has reduced the restrictions. Few among them are: their domestic products will become more efficient as a result of foreign competition, their citizens expressing the desire for better access to a larger variety of goods and services to lower prices and so on (Rugman & Brewer, Nov 2001). Development of supporting services: Companies and governments have developed services which earn international business. For example, banks have developed efficient means for companies to receive payments for their foreign sales. Although companies do barter internationally, it can be cumbersome, time consuming risky and expensive at certain moments and this might have been a cause of trouble for few years. As on today, most producers can be paid relatively easily for goods and services sold abroad because of financial facilities. Besides many more such type of supporting facilities are making ease for carrying international trade. With the advent of financial institutions like IDA (International Development Associations), IBRD (International Bank for Reconstruction and Development), and IMF (International Monetary Fund) there has been a financial ease faced in trade related activities. Increase in global competition: The pressures of increased foreign competition can persuade a company to expand its business into international markets. Today companies can respond rapidly to many foreign sales opportunities. They can shift production quickly among countries if they are experienced in foreign markets and because they can transport goods efficiently from most places. All these facilitates the company to not only increase their profits and sales but also at the same time expand their horizons throughout the world. Korea's Car Industry - A Case Study Korea's automobile industry has grown phenomenally since its birth in 1962. Production increased tenfold in the first decade, tenfold again in the second decade, and twenty fold in the third. As a result, Korea has risen rapidly in the ranks of the worlds auto producers. It was not even on the charts in 1980 - Korean production was about one-tenth that of Brazil, which ranked tenth - yet rose to eleventh in the world in 1986, to ninth in 1991 and sixth by 1993. The Korean government initially envisioned its car industry growing to fifth in the world by the twenty-first century. Korea's car makers, however, pushed even harder and reached fifth place in 1994 by producing 2.3 million cars, surpassed only by the United States, Japan, Germany and France. In addition, Table: Growth of Automobile Industry in Korea (in thousands). Samsung, the largest chaebol, announced plans to join existing Korean firms in producing cars beginning in 1998. Particularly notable is the fact that the rapid growth of the Korean automobile industry was accompanied by a high level of domestic production of parts and components (Andrew, 2004). The remarkable progress in the localization of parts and components production is largely due to the Korean government's adherence to the automobile manufacturing policy patterned after the Japanese model. The Korean strategy of automobile industry development differs in many respects from the strategies of most of the developing countries where completed cars are assembled by subsidiaries of foreign companies (usually multinationals) or by joint ventures with foreign firms, and the development of ancillary firms is closely linked to multinational corporations which control the supply of major parts and components. In contrast, most ancillary firms in Korea developed prior to independent of primary firms, and this has greatly facilitated the rapid localization of parts and components within a relatively short period of time. On the other hand, at least historically, follow the primary firm-led development pattern which was observed in some Japanese cases. Korea's auto exports also increased rapidly, from 1,341 in 1976 to 737,943 in 1994, making automobiles the nations seventh largest export items behind electronics, textile products, machinery, steel products and footwear in 1992 (James, 1990). How have Korean automakers grown technologically fast enough to emerge as new contenders in the world market How has the industry interacted with the government in the process Learning through Strategic Alliances With burgeoning restrictions in licensing agreement Korean firms moved into more partnerships and alliances with foreign firms. This strategy was aided by changes in economic, competitive and technological settings that encouraged firms to cooperate rather than compete. Alliance partners are able to enhance innovative capabilities through shared learning, transfers of technical know how, and exchanges of resources. Korea's automobile industry is one of the best examples of industries that have mane good use of the strategic alliance. Korea entered the automobile industry as a follower, behind the Europeans, the Americans, and the Japanese. Yet it was the ability of the Korean chaebols - Hyundai, Daewoo, Kia, and Ssangyong - to forge successful alliances that enabled them dominate the domestic market (George, 2005). Furthermore Samsung's, recent entry through an alliance with Nissan is expected to fuel competition in the Korean fuel industry. Through alliances, Korean firms were able to overcome the effects of delayed entry and lack of technological know how by tapping into foreign technology and expertise, by obtaining spare parts and by using the distribution networks of foreign automakers. Korean automakers were able to learn and to introduce advanced technologies over an extended period of time, as reflected in products engineered by Mitsubishi for Hyundai, GM for Daewoo, Mercedes for Ssangyong, Mazda and Ford for Kia, and Nissan for Samsung. Even unsuccessful alliances have provided Korean manufacturers with valuable insights on how to compete better in the future. On assurances that it would be independent, Hyundai forged and alliance with Ford during the initial growth stage of assembly production and benefited from technical support obtained from Ford in building production plants. After Hyundai and Ford failed to reach an agreement regarding constraints on Hyundai's international operations, the two organizations decided to terminate the alliance in 1973. In 1975 the Hyundai-Ital Design alliance provided Hyundai with comprehensive know-how and technical independence in auto design. The Hyundai-Mitsubishi alliance that was later formalized is considered a historic event in the growth of the Korean auto industry. With help from the Hyundai-Mitsubishi alliance, Hyundai was able to achieve 90 percent localization of its major components production. The Hyundai-Mitsubishi alliance paved the way for Hyundai to export Pony Excels to America. Hyundai joined many other technological alliances in the 1980s and 1990s, thereby becoming technologically independent in automobile production. In 1995, as the most technologically advanced automaker in Korea, Hyundai broadened its co-operative relationship with Mitsubishi, which made possible cooperation across a wide spectrum of areas, from technology development to marketing. Competitive Situation of the International Automotive Industry The automobile industry is another of the principal economic activities - along with electronics and apparel - where efficiency- seeking strategies of TNCs (Transnational Corporations) are most active in establishing new modules. It is the most important of the medium-technology global production chains and is production-driven. The continuing shift from market-seeking to efficiency seeking TNC strategies that has accompanied the globalization process in the auto industry has led to a situation of extreme international competition, one characterized by excess capacity (about 20 million units a year, or 25 percent of the total) as a result of over investment. Auto TNCs must take market share from their rivals to survive in mainly stagnant markets. It is estimated that 40 plants will have to close in the near future, 12 of them in North America. The global automobile market is concentrated in the sense that the ten principal producers accounts for about three quarters of the world output. For the past 30 or so years, Japanese, and more recently, Korean, auto TNCs have been gaining market share at the expense of North America and European auto TNCs and have been working their way up to the list of principal producers. Technological and organizational innovations in the form of lean manufacturing based on higher productivity, improved quality and innovations in inventory management allowed Korean auto manufacturers to produce better passenger vehicles at lower prices. It is to be noted that while some of the Japanese (Nissan, Isuzu, Mazda, Subaru) and Korean (Daewoo, Samsung) auto TNCs faltered as a consequence of economic weaknesses in their domestic economies (and were wholly or partially acquired by US or European TNCs), the strongest continued their relentless advance on US and European market shares. International Trade The data on international trade underscore the importance of government's policies and procedures to encourage the growth of automobile production. Imports and exports has always been a major driver for the competitive positioning of countries. Not surprisingly the success in international trade is deeply connected to the post - war recoveries of Korea. The exposure to the fierce competition in international markets forced domestic companies to enter a vicious circle of demanding customer feedback, peer pressure from global competitors and growing domestic excellence in operations. Only the most efficient and responsive companies could survive this competition but only those few remaining global champions would reap the benefits. Besides, from an economic perspective trade implies production at home which translates into jobs and tax revenues. Subsequently, trade performance is a cornerstone of any competitive analysis among nations. Conclusion: International Business is the process of focusing on the global resources and objectives of the organization on global opportunities and threats. Though there have been certain problems which have obstructed the rapid progress of international business of automobile industry still it is growing at an accelerated speed. There are many reasons behind this growth in International business. The main reason being Globalization. The dynamics of globalization have altered our environment and the fundamental requirements involved in carrying the trade both domestically and internationally. Besides, there are other reasons like expansion of sales, technology advances, increase in global competition, many good facilities being provided by government like liberalization of cross border movements and many financial facilities and so on. As technological advances and international trade continue to shrink the world in which we live, cross - cultural experiences and understandings become not an advantage towards success, but a pre - requisite. This has been witnessed by the car industry in Korea. References: Alan M .Rugman and Thomas L. Brewer.2001: Oxford handbook of International Business Oxford University Press. Bender, Andrew. 2004: Korea. Lonely Planet Publishers. Flink, James J. 1990: The Automobile Age. MIT Press Heneric, Oliver & Licht, George. 2005: Europe's Automotive Industry on the Move: Competitiveness in a Changing World. Springer Publishers. Johnson Debra and Turner Colin. 2003: International Business: Theory & Practice. Routledge UK. Nawla Rajneesh & Hagedoorn John. 1996: Journal on Globalization, Organizational modes and the growth of strategic technology alliances. O'Donnell, Michael & Kwon, Seuing-Ho. 2001: The Chaebol and Labour in Korea: The Development of Management Strategy in Hyundai. Routledge Publishers. . Read More