Globalisation

Topics: International trade, Globalization, International economics Pages: 14 (3695 words) Published: February 5, 2013
Introduction
The globalisation of business and commerce has become an increasingly significant reality worldwide: in 2000, the global trade in goods and services reached 25% of world GDP (Govidarajan & Gupta 2000), while in terms of manufactured goods, international trade has multiplied by more than 100 times since 1955 (Schifferes 2007). The rise of globalisation posits a number of important challenges to a business seeking international presence. Numerous strategic aspects must be taken into account prior to commitment at an international level, and afterwards. Constant flexibility is required to adapt to changing patterns at local, regional and international levels. This research paper seeks to identify the main issues affecting international businesses, including accounting practices, cultural issues, strategic choices and political risk.

1. Globalisation in the International Business Environment
Definitions of globalisation refer to it as “growing economic interdependence among countries as reflected in increasing cross-border flows of three types of commodities: goods and services, capital, and knowhow” (Govidarajan & Gupta 2000, p.275), or as

“the closer integration of the countries and peoples of the world ...brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders" (Stiglitz 2002, p. 9).

Globalisation is usually divided into globalisation of markets and globalisation of production (Hill 2005). According to Levitt (1983), market globalisation implies a standardisation of products across the world as national barriers become less and less relevant. Nevertheless, this type of globalisation appears less of a reality as national markets still present significant differences, marketing strategies continue to have country-specific traits and customer needs differ across countries (Douglas & Wind 1987). Instead, production globalisation appears more of a reality. Globalisation of production refers to the sourcing of goods and services to take advantage of a difference in the factors of production (land, labour, capital). Globalisation of production continues to suffer from trade barriers, costs of transportation, economic, social and political risks and others (Hill 2005). While trade barriers have been significantly lowered since World War II, formal and informal barriers continue to survive.

Globalisation has significantly impacted on the business environment, prompting the development of the multi-national enterprise (MNE). The governance of the MNE is recognised as being different than that of a national company. For instance, Bartlett and Ghoshal (1998) have introduced the influential concept of the transnational model, which allows the transfer of knowledge developed and jointly shared on a worldwide basis. In order to create a successful global business, Bengley and Boyd (2003) have underlined the importance of a global mindset, defined as the ability to develop and interpret criteria for business performance that are not dependent on the assumptions of a single country, culture or context. Corporate management must not automatically assume that the culture of the home office is equally applicable elsewhere (Bradley 2005). An important new development in the international business arena has been the rise of ‘mini-multinationals’ – small and medium size enterprises that do business on a global basis (Hill 2005).

2. Strategic Choices for International Business
Beginning with the pioneering work of Perlmutter (1969), numerous scholars have emphasised the importance of adopting a global strategic approach to business (i.e. Hamel and Prahalad 1985, Yip 1989). However, the optimal strategy for tackling global markets has been a matter of dispute. Often scholars propose an evolutionary view of strategy, which goes from a simple...

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