Globalization and International Business

The term globalization we use today was coined by Harvard Business School’s marketing professor Theodore Levitt in a Harvard Business Review article titled as The Globalization of Markets in 1983. In this article, Levitt says, “Companies must learn to operate as if the world were one large market – ignoring superficial regional and national differences”. 

There are at least two aspects through which globalization occurs, namely globalization of markets and globalization of production.

One of the drivers behind the globalization process is declining trade and investment barriers, and the other one, as we all are facing every day, is technological change.

A free trade agreement (FTA) a pact between a group of countries that have reduced trade barriers/tariffs to exports and imports among them to increase the trade of goods and services.

Proponents of globalization argue that everyone benefits from globalization, as evidenced in lower prices, greater availability of goods, better jobs, and access to technology. Those who favor globalization acknowledge threats but view them as temporary, short-term disruptions. 

The supporters of globalization focus on the bright side of it. They argue that globalization has the potential to make this world a better place to live in and to solve some of the long-lasting structural problems such as unemployment and poverty. The proponents say globalization represents free trade, which promotes global economic growth, creates jobs, makes companies more competitive, and reduces prices for consumers. 

Opponents of globalization point out growing trade deficits and slow growth as factors damaging emerging economies, consequently, putting more pressure on the weaker ones and potentially paving the way for a total collapse.

Since globalization brings loss of competence, autonomy, and depreciation of legitimacy for nation-states, the concept itself severely suffers in the highly globalized world order. 

The general problem with globalization is that it has made the rich richer while making the non-rich poorer.

Offshoring is the process by which companies undertake some activities at offshore locations instead of in their countries of origin.

The CAGE (cultural-administrative-geographiceconomic) framework is useful for analyzing the different dimensions of the distance between any two countries. Culture refers to the attributes of a society that are sustained mainly by interactions among people, rather than by the state. Differences in languages, ethnicities, religions, values, and norms make cultural distance greater. Administrative attributes encompass laws, policies, and institutions that typically emerge from a political process and are mandated or enforced by the government. Lack of colonial ties, lack of shared regional trade block, lack of common currency, and prevalence of political hostility increase administrative distance. The geographic attributes of countries that can affect cross-border economic activity mostly grow out of natural phenomena, although some human interventions may also be involved. Greater physical distance, lack of land border, and differences in time zones and climates enhance geographic distance. Economic distance refers to differences that affect cross-border economic activity through economic mechanisms. Differences in economic size (GDP), wealth (GDP per capita), cost or quality of natural resources, financial resources, human resources, information or knowledge, and infrastructure heighten geographic distance. 

Internationalization is “the process by which a firm gradually changes in response to the imperatives of international competition, domestic market saturation, desire for expansion, new markets, and diversification. It is an institutional or corporate strategy that focuses on making goods and services as adaptable as possible so that they can quickly enter different national markets. 

International management is the process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural contexts.

Multidomestic corporations are made up of relatively independent subsidiaries each of which produces customized goods and services for the local market being served.

A Born-global firm is a company that adopts a global perspective and engages in international business from or near its inception.

International business today is about being part of global networks. It can be speculated that global networks made the country of origin redundant in the global economy. As a consequence of the trend exemplified by companies such as Boeing, Apple, and Microsoft, in many cases, it is becoming irrelevant to talk about American products, Japanese products, German products, or Korean products. The outsourcing of productive activities to different suppliers results in the creation of global products, that is, “global products.” The USA dominated the global economy for a long time, but today its dominance over the world economy, international trade, foreign direct investments is shaking; multinational companies are not just US controlled organizations anymore, and the global economy is not limited to Western societies. 

There are four foundations on which laws are based in the world: Islamic law, socialist law, common law, and civil or code law. In addition to national variations, international laws, too, are relatively not consistent, and they include unwritten understandings that arise from repeated interactions among nations. 

A Command economy can be regarded as a state motivated monopoly where the state also owns properties. Command economy is on the opposite side of the market economy where factors of production are state-owned, and the economy is centrally planned and managed. Coherent with collectivist ideals, not the individual, but the society as a whole is prioritized. In a pure command economy, all businesses are state-owned. It is believed that in this way, governments are in a better position to make investments that are in the best interest of society. 

Since the collapse of the iron curtain, the number of command economies has fallen.

The key institutes in the global business environment are:

• The GATT and the World Trade Organization
• The World Bank
• The International Monetary Fund (IMF)
• The United Nations
• The International Organization for Standardization (ISO)

Paracholism is defined as a narrow focus in which people see things only through their own eyes and from their own perspective

Dutch social psychologist Geert Hofstede (1928 - 2020) identified six dimensions of culture which aim to explain how and why people from various cultures behave: 

1. Power distance
2. Uncertainty avoidance
3. Individualism versus collectivism
4. Masculinity versus femininity
5. Time orientation
6. Indulgence versus restraint

The cultural dimensions identified by Fons Trompenaars are as follows:

1. Universalism vs. Particularism
2. Individualism vs. Communitarianism
3. Neutral vs. Affective
4. Specific vs. Diffuse
5. Achievement vs. Ascription
6. Attitudes toward Time
7. Attitudes toward the Environment