GLOBALIZATION AND INTERNATIONAL BUSINESS
As people, firms, and other organizations have expanded their access to resources, goods, services, and markets across wider geographical areas, they have also become more deeply affected (positively and negatively) by conditions outside their home countries. Globalization refers to the broadening set of interdependent relationships among people from different parts of a world that happens to be divided into nations. What is International Business?
International business involves all commercial transactions—private and governmental—between parties of two or more countries. Global events and competition affect almost all firms—large or small. However, the international environment is more complex and diverse than a firm’s domestic environment. [See Fig. 1.1.]
II.THE FORCES DRIVING GLOBALIZATION
Globalization is a difficult concept to measure. Currently, about 25 percent of world production is sold outside of its country of origin, restrictions on imports continue to decline, the foreign ownership of assets as a percent of world production continues to increase, and world trade continues to grow more rapidly than world production. Recessionary contraction in recent years has at least temporarily reversed this trend. That said, on a value basis, only a few countries (mainly very small nations) either sell more than half of their production abroad or source more than half of their consumption from foreign countries. Further, the principal source of capital in almost all nations is still domestic. Following are seven interrelated factors that have contributed to the spiraling growth in globalization.
Factors in Increased Globalization
There are seven factors that are often cited as having contributed to the increased growth in globalization. 1. Increase in and Expansion of Technology
Vast improvements in transportation and communications technology—including the development of the Internet—have significantly increased the effectiveness and efficiency of international business operations. Today, a much larger portion of the population is involved in the development of new products, than just the production of products. 2. Liberalization of Cross-Border Trade and Resource Movement Over time most governments have lowered restrictions on trade and foreign investment in response to the expressed desires of their citizens and producers. The primary motives for this change include giving citizens greater consumer choice and lower prices, international competition making domestic producers more efficient, and the hope that liberalization will cause other countries to also lower trade barriers. 3. Development of Services That Support International Business Services provided by government, banks, transportation companies, and other businesses greatly facilitate the conduct and reduce the risks of doing business internationally. 4.Growing Consumer Pressures
Because of innovations in transportation and communications technology, consumers are well-informed about and often able to access foreign products. Thus competitors the world over have been forced to respond to consumers’ demand for increasingly higher quality and more cost-competitive offerings. 5.Increased Global Competition
The pressures of increased foreign competition often persuade firms to expand internationally in order to gain access to foreign opportunities and to improve their overall operational flexibility and competitiveness. How companies become global players can be discussed using the terms born-global companies and clustering. 6.Changing Political Situations
The transformation of the political and economic policies of Eastern Europe, Vietnam, and China has led to vast increases in trade between those countries and the rest of the world. In addition, the improvements in national infrastructure and the provision of trade-related services by governments the world over have further led to substantial increases in foreign trade and investment levels. 7.Expanded Cross-National Cooperation
Governments have increasingly entered into cross-national treaties and agreements in order to gain reciprocal advantages for their own firms, to jointly attack problems that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all countries. Often, such cooperation occurs within the framework of international organizations such as the International Bank for Reconstruction and Development (World Bank). III.WHAT’S WRONG WITH GLOBALIZATION?
Antiglobalization forces have protested both peacefully and violently as they press for legislation and other means to stop or slow the globalization process. Issues of threats to national sovereignty, increasing income inequality, and growth and environmental stress are addressed in the Point—Counterpoint sections found throughout the text. 1. Threats to National Sovereignty
Many citizens fear that a country’s participation in multilateral agreements will diminish its sovereignty and freedom from external control and curtail its ability to act in its own best interests. In particular, people in small countries worry that dependence on larger countries for sales and/or supplies, as well as the presence of large international firms, will make them vulnerable to the demands of parties against which they are essentially powerless. In addition, people the world over are concerned that globalization will bring the homogenization of products and traditional ways of life—including language and social structure. 2. Economic Growth and Environmental Stress
Clearly, economic growth can result in both positive and negative consequences, including damage to society and the environment. While globalization can, in fact, support the sustenance of natural resources and the maintenance of an environmentally sound planet, unless the positive consequences of globalization keep pace with the negative costs of economic growth, the sustainability of economic improvement on a worldwide basis will, at best, be problematic. 3. Growing Income Inequality and Personal Stress
Offshoring, the process of shifting domestic production to a foreign country for the purpose of serving the home market at a reduced cost, speeds up the process of altering the relative economic discrepancies between the two countries involved. Thus, even if the overall global gains from globalization are positive, there remains a continuing challenge to bring about the positive gains in ways that minimize costs to the losers. It is easy to think about the impacts of globalization at a macro level, but individuals are impacted very specifically causing stress and insecurity.