International Business and Trade Lesson 5 PDF

International Business and Trade AN OVERVIEW LESSON 5 LESSONS 5.1 International Business and Trade 5.2 Globalization 5.3 Glocalization 5.1 International Business and Trade Business - is generally defined as an occupation, profession,...

International Business and Trade AN OVERVIEW LESSON 5 LESSONS 5.1 International Business and Trade 5.2 Globalization 5.3 Glocalization 5.1 International Business and Trade Business - is generally defined as an occupation, profession, or trade. An occupation is a person’s usual or principal work or business especially as a means of earning a living to support himself. Occupation could be means of employment as a clerk in an office or as a manager in a company. Profession refers to a paid occupation, especially one that involves specialized educational training and formal qualification and license. Trade is basic economic concept involving the buying, selling, or exchange of goods or services. External factors. market dynamics, level of competition strength and internal strengths and weaknesses. What is the Nature of a Business? The nature of business defines the core identity of a company – what it does, how it operates, and its place in the market. Getting to grips with this concept provides valuable insight for entrepreneurs, investors and other stakeholders when evaluating a business. The nature of business refers to the fundamental characteristics that shape a company’s purpose, offerings and market approach. It encompasses aspects like: Legal structure – e.g partnership, private limited company Products and services – what the business sells or provides to customers Target market – the customer segments the business caters to Business model – how the company generates revenue and profit Business Nature Components Purpose: Every business starts with a purpose. Activities: Businesses have set operations like people have daily tasks. Scale: Business scale varies. Stakeholders: Businesses involve stakeholders like owners, employees, customers, suppliers and communities. Economic Contribution: A business contributes via job creation, taxes, trade and innovation. Risks & Challenges: The landscape is dynamic with competition, trends, regulations and events posing risks. Legal Structure: Businesses operate within legal frameworks. Business According to Nature/Scope Business According to Nature/Scope Business According to Nature/Scope Business According to Nature/Scope What Impacts The Nature Of Business? 1. Legal Structure 5. Business Mode Sole proprietorships Value proposition Partnerships Target market Private limited companies Distribution channels Public Limited companies Revenue streams Non-profit organization Cost structure Margin model 2. Product & Services 3. Target Market 4. Industry Sector The Internal & External Factors Influencing The Nature of Business Internal Factors External Factors Ownership Model Economic Landscape Geography Management culture Environmental Obligations Company size Regulations Competitors Technology used Market Globalization Staff Skills Investor demands Purpose Alignment Customer expectations  Business According to Ownership SOLE PROPREITORSHIP PARTNERSHIP CORPORATION Owned and operated by a single Owned by two or more individuals A legal entity separate from its individual. The owner has full who share profits, losses, and owners, providing limited liability control and is personally management responsibilities. protection. Corporations can be responsible for all debts and Partnerships can be general or publicly traded or privately held. liabilities limited. LIMITED LIABILITY COOPERATIVE FRANCHISE COMPANY (LLC) Combines the benefits of a Owned and operated by a group of A business that operates under the corporation and a partnership, individuals for their mutual benefit. name and business model of an offering limited liability protection Members share profits and existing company. The franchisee while allowing profits to be taxed decision-making responsibilities. pays fees to the franchisor for the personally. right to operate.  Global Supply Chain Key Components A global supply chain refers to the network of suppliers, manufacturers, warehouses, distribution centers, and retailers that work together to produce and SOURCING MANUFACT URING deliver goods and services across multiple countries. This interconnected system allows businesses to source materials, produce goods, and distribute products on a global scale DISTRIBUTI LOGISTICS ON Benefits and Challenges BENEFITS CHALLENGES Cost Efficiency Complexity Market Expansion Risk Management Access to Resources Quality Control Innovation and Expertise Regulatory Compliance Recent Trends Resilience and Flexibility: In response to disruptions like the COVID-19 pandemic, companies are focusing on building more resilient and flexible supply chains. Sustainability: There is a growing emphasis on sustainable practices, including reducing carbon footprints and ensuring ethical sourcing. Technology Integration: Advances in technology, such as automation, artificial intelligence, and blockchain, are being integrated to improve supply chain efficiency and transparency  Foreign Direct Investment Foreign Direct Investment (FDI) refers to an investment made by a company or individual in one country into business interests located in another country. Typically, FDI involves establishing business operations or acquiring business assets in the foreign country, such as ownership or controlling interest in a foreign company Key Characteristics Ownership and Control FDI usually involves acquiring a significant stake in a foreign company, often leading to a controlling interest or substantial influence over its operations Long-Term Investment Unlike portfolio investments, which can be easily liquidated, FDI is typically a long- term investment aimed at establishing a lasting interest in the foreign business Active Management FDI often includes the provision of management, technology, and expertise to the foreign business, beyond just capital investment Types of FDI Horizontal FDI Investment in the same industry abroad as the investor operates in domestically (e.g., a car manufacturer opening a plant in another country. Vertical FDI Investment in a foreign business that operates within the investor’s supply chain (e.g., a manufacturer investing in a foreign supplier or distributor Conglomerate FDI Investment in a foreign business that is unrelated to the investor’s existing business operations (e.g., a tech company investing in a foreign food processing company) Benefits of FDI Market Access: Provides companies with access to new markets and customers, potentially increasing sales and revenue. Resource Acquisition: Allows businesses to acquire resources, technology, and expertise that may not be available domestically. Economic Growth: FDI can stimulate economic growth in the host country by creating jobs, increasing productivity, and fostering innovation Challenges of FDI Political and Economic Risks: Investors face risks related to political instability, economic fluctuations, and changes in regulatory environments in the host country. Cultural Differences: Navigating cultural differences and adapting business practices to local norms can be challenging. Regulatory Compliance: Ensuring compliance with local laws and regulations can be complex and costly.  Technological Advancement and Cultural Exchange Technological Advancement: Cultural Exchange: Innovations in communication and Globalization promotes the information technology have made exchange of cultural practices, it easier for businesses to manage ideas, and values, enriching international operations and business practices and consumer collaborate across borders. experiences. E-commerce platforms enable Businesses must navigate cultural businesses to reach global differences and adapt their customers without the need for a strategies to local preferences and physical presence in every market norms Major ways of entering a foreign market Entering a new market involves several strategies, each with its own advantages and challenges. Here are some of the major ways businesses can enter international markets: 1. Exporting Direct Exporting: Selling products directly to customers in a foreign market without intermediaries. Indirect Exporting: Using intermediaries such as agents or distributors to sell products in a foreign market Major ways of entering a foreign market 2. Licensing and Franchising Licensing: Allowing a foreign company to produce and sell products using your brand, patents, or technology in exchange for royalties Franchising: Granting a foreign entity the right to operate a business using your brand and business model, often in exchange for an initial fee and ongoing royalties 3. Joint Ventures and Strategic Alliances Joint Ventures: Partnering with a foreign company to create a new, jointly owned business entity Strategic Alliances: Forming partnerships with foreign companies to collaborate on specific projects or business activities without creating a new entity Major ways of entering a foreign market 4. Foreign Direct Investment (FDI) Greenfield Investment: Establishing new operations or facilities in a foreign country from scratch Acquisition: Purchasing an existing foreign company to gain immediate access to the market 5. E-commerce and Digital Platforms Leveraging online platforms to sell products and services directly to international customers without a physical presence in the foreign market 6. Turnkey Projects Contracting with foreign entities to design, construct, and equip facilities, which are then turned over to the client when ready for operation. Major ways of entering a foreign market 7. Piggybacking Partnering with a company that already has a presence in the target market to sell your products through their established distribution channels. 8. Contract Manufacturing Outsourcing production to a foreign manufacturer while retaining control over product design and marketing Major ways of entering a foreign market Considerations for Choosing a Market Entry Strategy Market Research: Understanding the target market’s economic conditions, cultural nuances, and competitive landscape. Risk Analysis: Assessing potential risks such as political instability, economic fluctuations, and regulatory challenges. Resource Availability: Evaluating the resources required for each entry strategy, including capital, expertise, and time. Long-Term Objectives: Aligning the chosen strategy with the company’s long-term goals and objectives 5.2 Globalization of Business Globalization refers to the growing interconnection of nations' economies. It represents the flow of financial products, goods, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of countries around the globe fostered through free trade. Corporations gain a competitive advantage on multiple fronts from globalization. They can reduce operating costs by manufacturing abroad, buy raw materials more cheaply because of the reduction or removal of tariffs, and most of all, gain access to millions of new consumers. Globalization of Business What Globalization means Globalization is a social, cultural, Socially, it leads to greater interaction among political, and legal phenomenon. various populations. Culturally, globalization represents the exchange of ideas, values, and artistic expression among cultures. Globalization also represents a trend toward the development of a single world culture. Politically, globalization has shifted attention to intergovernmental organizations like the United Nations (UN) and the World Trade Organization (WTO). Legally, globalization has altered how international law is created and enforced. History of Globalization Globalization is not a new concept. Traders traveled vast distances in ancient times to buy commodities that were rare and expensive for sale in their homelands. The Industrial Revolution brought advances in transportation and Contemporary Period communication in the 19th century that Globalization 3.0 (2000 - Present): eased trade across borders. Globalization 4.0 (2018 onwards): Modern Period Globalization 1.0 (19th century - World War I) Globalization 2.0 (Post-World War II - 2000): Early Modern Period Colonialism (16th - 19th centuries) Ancient and Medieval Periods Industrial Revolution (18th - 19th centuries): Silk Road (1st century BC - 5th century AD) Age of Exploration (15th - 17th centuries) Pros and Cons of Globalization PROS Economic Growth Globalization facilitates the transfer of technology, knowledge, and goods, boosting economic growth by making countries more productive your audience and add a unique zing and appeal to your Presentations. Easy to change colors, photos and Text. Access to New Markets Businesses can expand their operations globally, accessing new markets and customer bases Cultural Exchange Increased interactions among people from different parts of the world lead to the sharing of ideas, traditions, and values, enriching cultural diversity. Improvement in Communication Advances in technology and telecommunications have made global communication easier and more efficient. Pros and Cons of Globalization PROS Reduction in Prices Global competition can lead to lower prices for goods and services, benefiting consumers. Innovation and Competition Increased competition drives innovation, leading to better products and services. Global Cooperation Countries collaborate on global issues such as climate change, security, and health, promoting peace and stability. Pros and Cons of Globalization CONS Economic Inequality Globalization can widen economic disparities both within and between countries Cultural Homogenization The spread of global culture can lead to the erosion of local cultures and identities. Exploitation of Labor Companies may exploit labor in developing countries, leading to poor working conditions and low wages. Environmental Degradation Increased production and transportation associated with globalization can have negative environmental impacts. Job Displacement Globalization can lead to job losses in certain industries as companies move production to countries with lower labor costs. Pros and Cons of Globalization CONS Over-dependence on Global Markets Countries may become overly dependent on global markets, making them vulnerable to global economic fluctuations. Threat to Local Businesses Local businesses may struggle to compete with large multinational corporations. Why Is Globalization Important?  Why Is Globalization Important? You can simply impress your audience You can simply impress your audience and add a unique zing and appeal to and add a unique zing and appeal to your Presentations. your Presentations. Globalization is important as it increases the size of the global market, and allows more and different goods to be produced and sold for cheaper prices. It is also important because it is one of the most powerful forces affecting the modern world, so much so that it can be difficult to make sense of the world without understanding globalization. Is Globalization Good or Bad?  Is Globalization Good or Bad? You can simply impress your audience You can simply impress your audience and add a unique zing and appeal to and add a unique zing and appeal to your Presentations. your Presentations. It depends. Proponents of globalization will point to the dramatic decline in poverty throughout the world for more than two decades after around year 2000, which many economists attribute in part to increased trade and investment between nations. Similarly, they will argue that globalization has allowed products and services such as cellphones, airplanes, and information technology to be spread far more widely throughout the world. How Does Globalization Impact Society?  How Does Globalization Impact Society? You can simply impress your audience You can simply impress your audience and add a unique zing and appeal to and add a unique zing and appeal to your Presentations. your Presentations. Globalization has had a large impact on societies around the world, leading to massive migrations from rural to industrial or urban areas and to the rapid growth of cities and trade hubs. While this has meant an overall increase in incomes and a higher standard of living in general, it has also led to problems such as crime, domestic violence, homelessness, and poverty. You can simply impress your audience You can simply impress your audience and add a unique zing and appeal to and add a unique zing and appeal to your Presentations. your Presentations. How Does Globalization Impact Society? 5.3 Glocalization of Business Glocalization is a combination of the words "globalization" and "localization." The term is used to describe a product or service that is developed and distributed globally but is also adjusted to accommodate the user or consumer in a local market. Glocalization is the adaptation of global and international products into the local contexts they're used and sold in. The term was coined in the Harvard Business Review, in 1980, by sociologist Roland Robertson, who wrote that glocalization meant "the simultaneity—the co-presence—of both universalizing and particularizing tendencies." What Is the Difference Between Globalization and Glocalization? What is the Difference between Globalization and Glocalization? Globalization is the spread of products, ideas, and capital across international borders by corporations. One criticism of globalization is that it can result in the homogenization of cultures and consumers around the world. Glocalization pays attention to local practices, customs, and culture to have these products better fit regional wants and needs. Why is Glocalization Important? Why is Glocalization Important? When products are adapted to the local communities’ tastes and preferences, it allows multinational companies to acquire trust and grow in those particular regions. Adopting a glocal strategy is crucial if a business is under high pressure for local responsiveness, but the opportunities for leveraging the company’s skills are available. As more communities adopt glocalized products, the company increases global scale of its revenue collection. 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