Qus.1 Discuss the benefits of globalization and the factors causing it.

Ans. Globalization means increasing the interdependence, connectivity and integration on a global level with respect to the social, cultural, political, technological, economic and ecological levels.

Benefits of Globalization

  • Goods and people are transported with more easiness and speed
  • the possibility of war between the developed countries decreases
  • free trade between countries increases
  • global mass media connects all the people in the world
  • as the cultural barriers reduce, the global village dream becomes more realistic
  • there is a propagation of democratic ideals
  • the interdependence of the nation-states increases
  • as the liquidity of capital increases, developed countries can invest in developing ones
  • the flexibility of corporations to operate across borders increases
  • the communication between the individuals and corporations in the world increases
  • environmental protection in developed countries increases

Effects of globalization

  • enhancement in the information flow between geographically remote locations
  • the global common market has a freedom of exchange of goods and capital
  • there is a broad access to a range of goods for consumers and companies
  • worldwide production markets emerge
  • free circulation of people of different nations leads to social benefits
  • global environmental problems like cross-boundary pollution, over fishing on oceans, climate changes are solved by discussions
  • more transborder data flow using communication satellites, the Internet, wireless telephones etc.
  • international criminal courts and international justice movements are launched
  • the standards applied globally like patents, copyright laws and world trade agreements increase
  • corporate, national and subnational borrowers have a better access to external finance
  • worldwide financial markets emerge
  • multiculturalism spreads as there is individual access to cultural diversity. This diversity decreases due to hybridization or assimilation
  • international travel and tourism increases
  • worldwide sporting events like the Olympic Games and the FIFA World Cup are held
  • enhancement in worldwide fads and pop culture
  • local consumer products are exported to other countries
  • immigration between countries increases
  • cross-cultural contacts grow and cultural diffusion takes place
  • there is an increase in the desire to use foreign ideas and products, adopt new practices and technologies and be a part of world culture
  • free trade zones are formed having less or no tariffs
  • due to development of containerization for ocean shipping, the transportation costs are reduced
  • subsidies for local businesses decrease
  • capital controls reduce or vanquish
  • there is supranational recognition of intellectual property restrictions i.e. patents authorized by one country are recognized in another

Factors causing it/forces of Globalization

1- Economic forces

Increasing incomes

World trade

World financial markets

Market forces

World competition

Competition in many industries and markets has become increasingly global as the role of governments diminishes and free market forces are allowed to play a more significant role. In addition, the increasing volume of world trade has gone hand in hand with rising real term income levels in the major developed economies. Both are interdependent and closely associated with technological and political developments. Increasing levels of income have greatly stimulated the demand for global products and services.

2- Social forces

Consumerism

Convergence in

customer tastes

Education and skills

Rising real levels of income coupled with a rise in consumer credit in recent years have contributed to worldwide consumerism. Demand for consumer goods and services has increased beyond recognition in comparison with, say, the postwar years. This has been most evident in the case of motor vehicles, consumer electronics products like televisions, hi-fis, video recorders, telephones and home computers, and white goods like washing machines and refrigerators.

3- Technological forces

a- Industrialization - Industrialization marked the beginning of the factory systemand mass production of goods. The continued development of mass production techniques underlies the globalization of industries and the concentration of activities in certain locations, but this has also beendependent on other global forces. Mass production also contributed to thedevelopment of mass markets and, ultimately, to global markets. As massproduction forced prices down, the global attractiveness of certain productsincreased.

b- Transport revolution - Development in transportation is the second technological force without which globalization could not have taken place. The development of railway networks throughout the world and the impact of steam and diesel power on shipping provided the means for moving materials and finished goods around the world.

c- Information and communications revolution- Developments in information and communications technology have had major impacts directly on the advance of globalization itself and on its underlying forces. Global communication technologies, like the telephone, the fax, the Internet and electronic mail, have made it possible for businesses to co-ordinate their activities throughout the world. Global communications like satellite television have also played a role in creating global customer needs, increasing awareness of products and brands across the globe.

4- Political forces

Reduced trade barriers

Intellectual property rights

Privatization

Development of trade blocs

Technical standards

Because of provisions of WTO and its predecessor GATT , barriers to trade have fallensubstantially in postwar years, although progress has been uneven.Trading blocs (sometimes called customs unions), like the EU and theNorth American Free Trade Area (NAFTA), have also played a major rolein fostering the inter-country trade that is the forerunner of global business.

The increasing legal recognition of intellectual property rights in mostcountries of the world has played a major part in protecting global productsand brands. Many governments have taken steps to reduce their levels of intervention I n economic matters. Privatization has become commonplace alongside gradual real term reductions in overall taxation and government spending.

Qus.2.Mergers & Acquisitions

Ans - Globalization and worldwide financial reforms have collectively contributed towards the development of international mergers and acquisitions to a substantial extent. International mergers and acquisitions are taking place in different forms, for example horizontal mergers, vertical mergers, conglomerate mergers, congeneric mergers, reverse mergers, dilutive mergers, accretive mergers and others.
International mergers and acquisitions are performed for the purpose of obtaining some strategic benefits in the markets of a particular country. With the help of international mergers and acquisitions, multinational corporations can enjoy a number of advantages, which include economies of scale and market dominance.

International mergers and acquisitions play an important role behind the growth of a company. These deals or transactions help a large number of companies penetrate into new markets fast and attain economies of scale. They also stimulate foreign direct investment or FDI.

The reputed international mergers and acquisitions agencies also provide educational programs and training in order to grow the expertise of the merger and acquisition professionals working in the global merger and acquisitions sector.

The rules and regulations regarding international mergers and acquisitions keep on changing constantly and it is mandatory that the parties to international mergers and acquisitions get themselves updated with the various amendments. Numerous investment bank professionals, consultants and attorneys are there to offer valuable and knowledgeable recommendations to the merger and acquisition clients.

Advantages of mergers and acquisitions

Synergy between the two parties

Shared knowledge, expertise and skills

Shared technology

Full operational control can be gained in an acquisition (less so in a merger)

Control of quality

Knowledge of local markets

Existing business contacts can be used

Reduces political risks as partner company

will already be established

Locally known trading name

Disadvantages/Potential problems

Costs are higher than most other modes of entry

May create resentment in host country

May take over a business with poor local reputation

May take over a business whose image does not match

May take over a business with problems

Financial exposure is much higher than for

exporting, licensing, etc. as an investment is made abroad which may be lost

Qus.3. International Strategy

Ans.Global Business Strategy can be defined as the business strategies engaged by the businesses, companies or firms operating in a global business environment and serving consumers throughout the world. Global business strategies are closely related to the business developing strategies adopted by businesses to meet their short and long term objectives. The short term goals of the business would be related to improving the day-to-day operations of the company while the long term objectives are generally targeted towards increment of the profits, sales and earnings of the company in the long run ensuring growth and stability of the business and dominance over the national or regional market.

Global business strategies have emerged as a result of globalization and internationalization of established domestic companies which is purported to increase the value of the company in question.

International Strategy examines the issues companies face in crafting strategies suitable for

multinational and globally competitive industry environments.

1. Strategy Options for Entering and Competing in Foreign Markets:

(i) Export Strategies;

(ii) Licensing Strategies;

(iii) Franchising Strategies;

(iv) Multi-Country Strategy or a Global Strategy?

2. Strategic Alliances and Joint Ventures with Foreign Partners.

3. Pursuing Competitive Advantage by Competing Multinationally:

(i) Achieving Locational Advantage;

(ii) Transferring Competencies and Capabilities across Borders;

(iii) Coordinating Cross-Border Activities

4. Competing in Emerging Foreign Markets.

5. Strategies for Local Companies in Emerging Markets:

(i) Defending against Global Competitors by using Home-Field Advantages;

(ii) Transferring the Company’s Expertise to Cross-Border Markets;

(iii) Dodging Global Entrants by Shifting to a New Business Model or Market Niche;

(iv) Contending on a Global Level.

Strategy Options for Entering And Competing In Foreign Markets

A company that decides to expand outside its domestic market and compete internationally or globally needs to take certain generic strategic options as follows:

  1. Maintain a national (one-country) production base and export goods to foreign markets utilizing either company-owned or foreign-controlled forward distribution channels.
  2. License foreign firms to use the company’s technology or produce and distribute the company’s product.
  3. Employ a franchising strategy.
  4. Follow a multicountry strategy, varying the company’s strategic approach from country to country in accordance with local conditions and differing buyer tastes and preferences. The target customer base may vary from broad in some countries to narrowly focused in others.
  5. Follow a global strategy,using essentially the same competitive strategy approach in all country markets where the company has a presence. A company can employ a global low-cost strategy and strive for low-cost leadership over both global rivals and local rivals. Alternatively, it can opt for a global differentiation strategy, endeavoring to set itself apart from rivals on the same products attributes in all countries to create a globally consistent image and a consistent market position.
  6. Use strategic alliances or joint ventures with foreign companies as the primary vehicle for entering foreign markets and perhaps also using them as an ongoing strategic arrangement aimed at maintaining or strengthening its competitiveness.
  7. Export Strategy - Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales. It minimizes both risk and capital requirements, and it is a conservative way to test the international waters.

With an export strategy, a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world.

  1. Licensing Strategy - Licensing makes sense when a firm with valuable technical know-how or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. Licensing also has the advantage of avoiding the risks of committing resources to country markets that are unfamiliar, present considerable economic uncertainty, or are politically volatile.
  2. Franchising Strategy - Franchising has much the same advantages as licensing. The franchisee bears most of the costs and risks of establishing foreign locations; a franchiser has to expend only the resources to recruit, train, and support franchisees. The big problem a franchiser faces is maintaining quality control; foreign franchisees do not always exhibit strong commitment to consistency and standardization.

A Multicountry Strategy or A Global Strategy?

The more diverse market conditions are, the stronger the case for a multicountry strategy where the company tailors its strategic approach to fit each host country’s market situation.

But country-to-country variations still allow room to connect the strategies in different countries by making an effort to transfer ideas, technologies, competencies, and capabilities that work successfully in one country market to other country markets.

A global strategy involves:

(1) integrating and coordinating the company’s strategic moves worldwide, and

(2) selling in many if not all nations where there is significant buyer demand.

The strength of a multicountry is that it matches the company’s competitive approach to host- country circumstances. A multicountry strategy is essential when there are significant country-to-country differences in customers’ needs and buying habits, when buyers in a country insist on special-order or highly customized products, when host governments exact regulations requiring that products sold locally meet strict manufacturing specifications or performance standards, and when trade restrictions of host governments are so diverse and complicated they preclude a uniform, coordinated worldwide market approach.

Strategic Alliances and Joint Ventures With Foreign Partners

•Strategic alliances can help companies in globally competitive industries strengthen their competitive positions while still preserving their independence.

•Cooperative arrangements between domestic and foreign companies have a strategic appeal for reasons besides gaining wider access to attractive country markets.

Pursuing Competitive Advantage by Competing Multinationally

There are three ways in which a firm can gain competitive advantage (or offset domestic disadvantages) by expanding outside its domestic market.

(1) One way exploits an MNC or global competitor’s ability to deploy R&D, parts manufacture, assembly,

distribution centers, sales and marketing, customer service centers and other activities among various

countries in a manner that lowers costs or achieves greater product differentiation.

(2) A second way involves efficient and effective transfer of competitively valuable competencies and
capabilities from its domestic markets to foreign markets.

(3) A third way draws on a MNC or global competitor’s ability to deepen or broaden its resource strengths

and capabilities and to coordinate its dispersed activities in ways that a domestic-only competitor cannot.

Achieving Locational Advantages

To use location to build competitive advantage, a company must consider two issues: (i) whether to concentrate each activity it performs in a few select countries or to disperse performance of the activity in many nations; and (ii) in which countries to locate particular activities.

Competing In Emerging Foreign Markets

Companies racing for global leadership have to consider competing in big and emerging country markets like China, India, Brazil, Indonesia, and Mexico – countries where the business risks are considerable but where the opportunities for growth are huge, as their economies develop and living standards increase toward levels in the modern world.

Ford’s attempt to sell a Ford Escort in India at a price of $21,000 – a luxury car price, given that India’s best-selling Maruti-Suzuki model sold at the time for $10,000 or less, and that fewer than 10% of Indian household have annual purchasing power greater than $20,000 – met with less than enthusiastic market response.

Strategies For local Companies In Emerging Markets

1. Defending Against Global Competitors by Using Home-Field Advantages

•When the pressures for global competition are weak and a local firm has competitive strengths well suited to the local market, a good strategy option is to concentrate on the advantages enjoyed in the home market.

•Bajaj-Auto has defended its turf against Honda by focusing on buyers who wanted low-cost, durable scooters and easy access to maintenance in the countryside.

  1. Transferring The Company’s Expertise to Cross-Border Markets

•When a company has resource strengths and capabilities suitable for competing on other country markets, launching initiatives to transfer its expertise to cross-border markets becomes a viable strategic option.

  1. Dodging Global Entrants By Shifting to a New Business Model or Market Niche

•When industry pressures to globalize are strong, any of three options make the most sense: (I) shift the business to a piece of the industry value chain where the firm’s expertise and resources provide competitive advantage, (ii) enter into a JV with a globally competitive partner, or (iii) sell out to (be acquired by) a global entrant into the home market who concludes the company would be a good entry vehicle.

4. Contending On A Global Scale

•As a participant in GM’s supplier network, it learned about emerging technical standards, built its capabilities, and became one of the first Indian companies to achieve QS 9000 certification, a quality standard that GM now requires for all suppliers.

Organisational management and planning strategy
This is one of the changes that an organisation does in order to meet challenges of the intended market. It also goes inline with how approaches can affect organisational performance. The organisation should comprise of a structure that will provide a confident management team, sales force, technical team and the company directors. The use of a scorecard to control and monitor the company’s performance is very important as the concept is very simple, all factors that influence the organisation’s overall performance are taken into account and analysed mathematically. Typically, a scorecard measures across four key areas;