The impact of globalisation on international business
The world is evolving, and with it trade and businesses are undergoing a huge changes. Goods and services from any country are easily available all over the world, and while the roots of globalisation are pretty old, this facet is quite new. Globalisation can be defined as the easy availability of goods, connectivity amongst nations, and also access to trade rights in any country. But as we mentioned before, globalisation has old roots.
The famous silk route that connected China with Europe is one of the best examples. Trade and business across nations were quite prevalent and the search for new markets even led to the discovery of new continents. But trade at that time was a difficult affair. The silks, the spices, the precious stones all were acquired with great difficulty and at high prices.
However, after the industrial revolution, which shook the cobwebs out of the outdated modes of production and ushered in an era of mass production of goods, the phenomenon called globalisation was fully born. Factory production, improved distribution and the availability of goods across markets created a further rise in demand. More and more businesses selling essential items such as processed food, medicines, household items and desirable items such as jewellery, fancy cars etc. were set up. Globalisation was thus born with a new face and the birth was heavily aided by remarkable changes in distribution and communications technology and the techniques of production.
International business is a world rife with possibilities as well as cut-throat competition. In order to compete it is very important that the products or services of a particular business are better than its competitors. Businesses thus are evolving too. Old methods are frequently becoming redundant and are being continuously replaced by newer methods. Globalisation thus has opened up the world of opportunities as well as created a host of other factors that an organisation has to consider if it has to survive in this new world.
To remain competitive businesses often now have to source raw materials internationally as well as outsource their labour force to foreign shores. When venturing into a new market, it is much easier if the business forges alliances and joint ventures with local businesses. This not only gives the business the advantage of a ready market, but saves on costs as well. Gobalisation has thus helped businesses to create huge markets as well as provide a range of products which has left the consumer spoilt for choice (Reddy, 1997).
The volume of world trade has increased many fold since the 1950s. The opening up of economies as well as the creation of new opportunities has resulted in an increase in productive potential as well as evaporating the barriers to economic investment. The world has become a global market.
What is globalisation?
Changes in policy and immense changes, as well as new developments, in the field of technology, have resulted in the growth spurt that has eventually led to melting down of international boundaries and led to the global outreach of products and services. Major policy changes have opened up the markets domestically and internationally, and now local products are competing with international products.
If we look at the current market situation we can easily see that those countries who adopted an open approach towards international brands, and opened up their markets to compete with foreign products, have gained a lot from globalisation. Their economies have received an upward thrust that has catapulted their growth story in a hitherto unimaginable way. Even a communist giant like China has opened up some of its markets for foreign direct investment and created strategies and policies that are friendly to foreign investment. This has brought the Chinese economy to the forefront and has also resulted in an increase in the per capita income of its citizens.
Another very important factor that has boosted globalisation is the stupendous growth in the field of technology. Technological development has resulted in rapid development of many aspects of our civilisation. The world as we know today is very different from the one which existed fifty or even ten years ago. The kind of technological advancement that has been achieved has not only made many important discoveries, but also led to a technology-enabled lifestyle. Together with that, people have the use of an extensive number of gadgets in their day to day affairs. In this scenario, it is only natural that the products and services need to be better with each passing day, otherwise they will be immediately replaced. Globalisation has thus made businesses walk on a razor’s edge in order to maintain their foothold in the fiercely competitive global market (Archibugia & Iammarino, 1999).
The business world has thus learned to be aware of technological changes that can affect their productivity and also positively or negatively impact their very survival. There is a permanent shift in the way information is being accessed by an individual from any location of the world and utilising it for the development of their own business. Even government agencies are not untouched by the all-consuming urge of globalisation. Interestingly enough one of the major forces behind globalisation are the changing political situations as we already discussed in terms of the Chinese trade policy. Globalisation has also led to the growth in the supporting services such as banks, transport companies etc.
One of the major advantages of globalisation is perhaps its ability to promote international co-operation. Policies are being created and nurtured which support the development of trade and in the long run benefit all countries, such as the creation of the World Trade Organisation (WTO) to ensure that trade flows smoothly. Since the consumer today is as much aware of their requirements as the means of getting it, it is the obligation of the businesses to fulfil those consumer requirements. The competition thus is pretty tough, and the liberalisation of policies and opening up of markets has helped gain access to a plethora of international opportunities.
Why do we need international business?
Businesses are driven by the profit motive. Businesses have responsibilities towards their shareholders as well as other stakeholders to obtain a proper return on investment and also earn a profit. There are a few important aspects to this –
- Acquisition of resources
Resources would include both raw materials as well as finished goods. The acquisition of resources that will benefit the company and also help it to do better than its competitor is an objective for any business. Advanced technology with better components can help a business beat their competition.
- Increase in market base
The products that are available in India, China or the United States, are also now easily available in Britain as well. This is because markets have opened up and are now completely dependent on the continuous flow of goods from one end of the world to the other. This is good news from the point of view of business. The production of goods and services is dependent on demand, and the larger the market the greater the demand.
- Minimising the risk factor
The sales and profit of any product undergoes the cycle of demand and supply. If a business is limited to just one country, then the periodic shift in demand may affect its profitability, and it could be vulnerable during a slump. To negate this, it is essential that the risk be spread over as wide an area as possible. Thus international markets can help a business to stay afloat as while one market may be depressed another could be booming at any one time.
How is international business done?
There are various ways through which the world of international business operates. It is quite important to note that all these ways have something in common, and that is the urge for global outreach.
- Import and export of merchandise
Merchandise means tangible goods that are brought in from a foreign country or that are sent over to a foreign country for sale.
- Import and export of services
Services are intangible or non-merchandise products. They include transportation and tourism. For example, a British citizen travelling to India using Air India and staying in an Indian hotel represents service export income for India and service import expenses for Britain. Note that international business services are generally more restricted by local regulations than tangible goods are.
The foreign investments are of two types: FDIs or Foreign Direct Investment and Portfolio investment. Foreign direct investment is used when the company wants to gain a controlling interest or the sole ownership of a business. Portfolio investment is a form of non-controlling interest.
International businesses have made the world much smaller and also had a huge impact on the way business is conducted. This is visible in the various ways that have been adopted to transact business all over the world. International business has thus been hugely impacted by the phenomenon of globalisation.
Globalisation has brought people and businesses much closer, therefore, the impact on international business is huge as well as remarkable. Globalisation and international business are very interrelated. International business has both taken advantage of globalisation and contributed to its development. The idea of globalisation is making everything available at places hitherto considered difficult for business, as well as the utilisation of resources that are useful, but are not easily available. Merchandise and service industries have both greatly benefitted from international transactions and even small traders have been able to benefit from it. This has also helped to bring in a wave of entrepreneurship and encouraged people to start something of their own. In a real sense globalisation ushers in an era of oneness that was not there before. Are there any disadvantages? Not for businesses, if they can cope with the increased competition, they gain from global markets and resources, but for the rest of us it makes the world increasingly identical with the same international brands such as MacDonald’s, Starbucks and Coca-Cola wherever you are in the world!
Archibugia, D. & Iammarino, S., 1999. The policy implications of the globalisation of innovation. Research Policy, 28(2-3), pp. 317-336.
Cavusgi, S. T., Knight, G. R., Rammal, H. G. & Rose, E. L., 2014. International Business. s.l.:Pearson Australia.
Dunning, J. H., 1999. Governments, Globalization, and International Business. Econ Papers.
Dunning, J. H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of the 1990s. s.l.:Routledge.
Reddy, P., 1997. New trends in globalization of corporate R&D and implications for innovation capability in host countries: A survey from India. World Development, 25(11), pp. 1821-1837.