DEPARTMENT OF BUSINESS ADMINISTRATION-BBA (GENERAL)

 COURSE CODE: BBA 6.3

 NAME OF THE COURSE: INTERNATIONAL BUSINESS
 SEMESTER & SECTION: 6TH SEM B and D
 PREPARED BY : Prof. Sumalatha N

MODULE : 3- Globalization

Introduction
Globalization is the process of extending social relations across world-
space, Globalization describes the interplay across cultures of macro-
social forces. These forces include religion, politics and economics.
Globalization can erode and universalize the characteristics of a local
group. Advances in transportation and telecommunications infrastructure,
including the rise of the Internet, are major factors in globalization,
generating further interdependence of economic and cultural activities.

Meaning
Globalization is the process by which businesses or other organizations
develop international influence or start operating on an international
scale.
Definition
It is defined as "the increasing integration of national economic systems
through groath in international trade, investment and capital flows".

CHARACTERISTICS / FEATURES OF GLOBALIZATION

The main features of globalization are stated below:

1. Intellectual
Globalization is a creature of the thinkers, entrepreneurs, manufacturers
and policymakers of the dominant countries of the world.

2. Economic
The major economic feature of globalization is the dominance of the
Transnational Corporation, and the international division of labour in
which the world economy can be organized as a global assembly line. An
example is given in the following illustration of how a Pontiac Le Mans
motor car is produced:
South Korea is responsible for the assembly operations.
Japan makes the advanced components, engines and electronics.
Germany provides the style and design.

3. Technological
"An information technology-driven, knowledge-based revolution is du
major driver globalization. The fastest growing area of trade relates to
high tech products and service Furthermore, access to new technology,
creates opportunities to change work processes, an to modify the very
nature of work.

4. Organizational
Globalization is characterized by corporate reorganization on a massive
success Organizations are being flattened, some are being downsized,
strategic corporate alliances an formed, mergers and acquisitions are the
order of the day and franchises are expanding a rapid rate.

5. Political
The threat to the nation state is real as they surrender to the hegemonic
power contained in framework agreements such as the WTO. Within
nation states, the power of the state is diminishing under globalization.
This is leading to the privatization of state-owned entities a states accept a
minimalist role in economic activities.

6. Social
The most important social feature of globalization is the growing
disparity between the rich and the poor. The ratio of the income of the top
20% in the world to that of the poorest 20% rose from 30:1 to 84:1 in
1995.

7. Borderless Globe
Breaking of national barriers and creation of interconnectedness; the idea
of borderless globe is one of the important characteristics of
Globalization

8. Liberalization
Liberalization is again an important features of Globalization.
Liberalization is the freedom of the industrialist/businessman to establish
industry, trade or commerce either in his country or abroad; free
exchange of capital, goods, service and technologies between countries.
ESSENTIAL CONDITIONS FAVOURING
GLOBALIZATION

The essential conditions favoring globalization are:

1. Liberal Trade Policies

👉 Countries must reduce tariffs, quotas, and trade barriers to encourage free trade.

Example:
After the 1991 economic reforms, India reduced import duties, allowing foreign
goods and companies to enter the market.

2. Political Stability

👉 A stable government creates a safe and predictable environment for foreign

investment.

Example:
Countries like Singapore attract global investors due to stable governance and clear
policies.

3. Technological Advancement

👉 Development in communication, transport, and digital technology is essential.

Example:
The internet and digital payment systems allow businesses to operate globally (e.g.,
online shopping across countries).

4. Developed Infrastructure

👉 Good transport, power supply, ports, and communication systems support

global trade.

Example:
Modern ports and airports in Dubai make it a global trade hub.

5. Skilled Human Resources

👉 Availability of educated and skilled workforce attracts multinational companies.

Example:
India’s IT professionals have helped companies outsource services to cities like
Bengaluru.

6. Open Financial System

👉 Free flow of capital and foreign investment is necessary.

Example:
Foreign Direct Investment (FDI) in sectors like retail and telecom in India.

7. Supportive Government Policies

👉 Governments must encourage globalization through reforms, incentives, and ease

of doing business.

Example:
“Make in India” initiative encourages foreign companies to manufacture in India.

8. Presence of Multinational Corporations (MNCs)

👉 MNCs play a key role by expanding business across borders.

Example:
Global companies operating in multiple countries, creating jobs and boosting trade.

9. Cultural Acceptance

👉 People must be open to new ideas, lifestyles, and products.

Example:
Acceptance of international food brands and fashion trends in India.

10. Global Institutions Support

👉 International organizations promote global cooperation and trade.

Example:
The World Trade Organization (WTO) sets rules to ensure smooth international trade.

ROUTES OF GLOBALIZATION

The various routes of globalization are:

1. International Trade
International trade is the exchange of capital, goods and services across
international borders or territories. In most countries, such trade
represents a significant share of gross domestic product (GDP). While
international trade has been present throughout its history economic,
social and political importance has been on the rise in recent centuries,
Industrialization, advanced technology, transportation, globalization,
multinational corporations and outsourcing are all having a major impact
on the international trade system. Increasing International trade is crucial
to the continuance of globalization. Without international trade, nations
would be limited to the goods and services produced within their own
borders.
i) Export
ii) Import

2. Foreign Direct Investment (FDI)

i) International company

ii) MNC

iii) Global company

iv) Transnational company

1) International Company

International company is normally the second stage in the development of

a company towards the transitional corporation. The orientation of the
company is basically ethnocentric and the marketing strategy is
extension, i.e., the marketing mix developed for the home market is
extended into the foreign markets. International companies normally rely
on the international business.

ii) Multinational Company

When the orientation shifts from ethnocentric to polycentric, the
international company becomes multinational. In other words, when a
company decides to respond to market differences, it evolves into a stage
three multinational company that pursued a multi-domestic strategy. The
focus of the stage three company is multinational that pursues a
multinational or, in strategic terms, multi-domestic. The marketing
strategy of the multidimensional company is adaptation. In multinational
companies each foreign subsidiary is managed as if it were an
independent city state. The subsidiaries are part of an area structure in
which each country is part of a regional organization, that reports to
world headquarters.

III) Global Company

The global company will have either a global marketing strategy or a
global sourcing strategy but not both. It will either focus on global
markets and source from the home or a single country to supply these
markets or it will focus on the domestic market and source from the
world to supply its domestic channel. However, according to the
interpretation of few experts all strategies product development,
production marketing etc. will be global in respect of the global
corporation.

iv) Transitional Company

The transitional corporation is much more than a company with sales,
investments and operations in many countries. This company, which is
increasingly dominating in markets and industries around the world, is an
integrated world enterprise that links global resources with global
markets at a profit.

Characteristics of a Transnational Corporation:

i) Geocentric Orientation.

ii) Thinks globally and acts locally.

iii)Global strategy but allows value addition to customer.

iv) Allows adaptation to add value to its global offer.

v) Assets distributed throughout the world.

vi) Independent and specialized.

vii) Research & Development integrated.

viii) Production spread but specialized and integrated.

3. Other Routes

1) Licensing
A license may be granted by a party ("licensor") to another party
("licensee") as an element of an agreement between those parties. A
shorthand definition of a license is "an authorization (by the licensor) to
use the licensed material (by the licensee)." In particular, a license may
be issued by authorities, to allow an activity that would otherwise be
forbidden. It may require paying a fee and/or proving a capability. The
requirement may also serve to keep the authorities informed on a type of
activity and to give them the opportunity to set conditions and limitations.

II) Franchising
Franchising is the practice of using another firm's successful business
model. The word "Franchise' is of Anglo-French derivation - from "franc'
- meaning free and is used both as a noun and as a (transitive) verb. For
the franchiser, the franchise is an alternative to building chain stores' to
distribute. Goods-that-avoids the investments and liability of a chain. The
franchiser's success depends on the success of the franchisees. The
franchisee is said to have a greater Incentive than a direct employee
because he or she has a direct stake in the business.

iii) Joint venture

A joint venture is a business agreement in which the parties agree to
develop, for a finite time, a new entity and new assets by contributing
equity. They exercise control over the enterprise and consequently share
revenues, expenses and assets. There are other types of companies such
as JV limited by guarantee, joint ventures limited by guarantee with
partners holding shares.

iv) Wholly owned subsidiaries

A subsidiary, subsidiary company, daughter company or sister company
is a company that is completely or partly owned by another corporation
that owns more than half of the subsidiary's stock and which normally
acts as a holding corporation which at least partly or (when as) a parent
corporation, wholly controls the activities and policies of the daughter
corporation. The subsidiary can be a company, corporation or limited
liability company. In some cases, it is a government or state-owned
enterprise. The controlling entity is called its parent company, parent or
holding company.

v) Mergers and acquisitions

Mergers and acquisitions are both aspects of corporate strategy, corporate
finance and management dealing with the buying, selling, dividing and
combining of different companies and similar entities that can help an
enterprise grow rapidly in its sector or location of origin or a new field or
new location, without creating a subsidiary, other child entity or using a
joint venture. Mergers and acquisitions activity can be defined as a type
of restructuring in that they result in some entity reorganization with the
aim to provide growth or positive value. Consolidation of an industry or
sector occurs when widespread mergers and acquisitions activity
concentrates the resources of many small companies into a few larger
ones, such as occurred with the automotive industry between 1910 and
1940.

Methods of Globalization

1. Economic globalization: Economic globalization is the development

of trade systems within transnational actors such as corporations or
NGOs;

2. Financial globalization: Financial globalization can be linked with the

rise of a global financial system with international financial exchanges
and monetary exchanges. Stock markets, for instance, are a great example
of the financially connected global world since when one stock market
has a decline, it affects other markets negatively as well as the economy
as a whole.

[Link] globalization: Cultural globalization refers to the

interpenetration of cultures which, as a consequence, means nations adopt
principles, beliefs, and costumes of other nations, losing their unique
culture to a unique, globalized supra-culture;
4. Political globalization: Political globalization the development and
growing influence d international organizations such as the UN or WHO
means governmental action takes place at an international level. There are
other bodies operating a global level such as NGOs like Doctors without
borders or Oxfam;
[Link] globalization: Technological globalization the
phenomenon by which millions of people are interconnected thanks to the
power of the digital world via platforms such as Facebook, Instagram,
Skype or Youtube.

6. Geographic globalization: Geographic globalization is the new

organization and hierarchy of different regions of the world that is
constantly changing. Moreover,with transportation and flying made so
easy and affordable, apart from a few countries with demanding visas, it
is possible to travel the world without barely any restrictions;

[Link] globalization: Ecological globalization accounts for the

idea of considering planet Earth as a single global entity a common good
all societies should protect since the weather affects everyone and we are
all protected by the same atmosphere. To this regard, it is often said that
the poorest countries that have been polluting the least will suffer the
most from climate change.

8. Sociological globalization: Sociological globalization information

moves almost in real- time, together with the interconnection and
interdependence of events and their consequences. People move all the
time too, mixing and integrating different societies.

CHALLENGES TO GLOBALIZATION

Challenges to Globalization in International Business

 Political Instability and Regulatory Compliance: Multinational
corporations (MNCs) face risks from shifting government policies,
sudden trade tariffs, sanctions, and varying international law
enforcement.
 Cultural Differences and Local Adaptation: Failure to adapt to
local languages, consumer behavior, and customs can cause failure.
Localizing products and marketing is a massive, costly challenge.
 Supply Chain Complexity: Global sourcing leads to vulnerability,
as pandemics, natural disasters, or geopolitical conflict can cause
severe disruptions.
  Economic and Financial Risks: Volatile currency exchange rates
affect profitability, while operating in developing markets may
pose challenges related to weak infrastructure.
 Ethical, Social, and Environmental Issues: Companies face
scrutiny over exploiting cheap labor, creating environmental
hazards, and contributing to income inequality.
MNC
A Multinational Corporation (MNC) is a business entity that
owns or controls production or services in at least one country other than
its home country. With centralized headquarters, they leverage global
resources for cost-efficiency and market expansion, fostering economic
integration, job creation, and technology transfer while often dominating
local markets.
 Definition: An enterprise that manages production or delivers
services in more than one country.
 Structure: It consists of a "home" country (headquarters) and
"host" countries (subsidiaries/branches).
 Purpose: To exploit international markets, optimize supply chains,
and reduce costs through global operations.
Key Features of MNCs
1. Huge Economic Power: MNCs have massive capital, assets, and
turnover, often larger than the economies of developing nations.
2. Centralized Control: While operations are worldwide, strategic
decisions are made at the central headquarters, usually in a
developed country.
3. Global Reach: They operate in multiple international locations
and have a global brand presence.
4. Advanced Technology: MNCs often have superior technology and
expertise, which they use to produce high-quality goods at lower
costs.
5. Marketing Superiority: They possess sophisticated, worldwide
marketing skills.
6. Product Innovation: Regular investment in research and
development to improve product lines.

Merits (Advantages) of MNCs

 Foreign Investment & Job Creation: MNCs bring in foreign
capital (FDI) and generate employment in host countries.
 Transfer of Technology: They bring advanced production
techniques to developing nations, reducing the technological gap.
 Increased Foreign Exchange: MNCs promote export-oriented
industries, helping host countries earn foreign exchange.
 Better Quality Goods: Increased competition drives local
companies to improve, and consumers gain access to better, high-
quality products.
 Work Culture: They introduce a professional work culture,
excellence in management, and efficiency.
 International Economic Integration: They bridge the gap
between economies and encourage globalization.

Demerits (Disadvantages) of MNCs

 Danger to Domestic Industries: Due to their massive financial
strength, MNCs can out-compete and destroy local, smaller
domestic industries.
  Exploitation of Resources: They might over-exploit the natural
resources of host countries.
 Profit Repatriation: A large portion of the profits is sent back to
the home country, rather than being reinvested in the host country.
 Technological Dependence: Host countries may become heavily
dependent on the technology of foreign nations.
 Ignoring Local Needs: Often, MNCs focus on producing products
for the elite rather than goods needed by the masses in developing
nations.
 Influence on Politics: Large MNCs may influence local
government policies to their advantage.
Examples of MNCs
 Google
 Samsung
 Nestlé
 Toyota

TNC
A Transnational Corporation (TNC) is a business entity that operates,
produces, and sells goods or services in multiple countries, holding,
controlling, or managing income-generating assets outside its home
country. They are key drivers of globalization, often centralizing strategy
while operating decentralized, highly efficient production networks that
contribute roughly 80% of global trade.

 Definition: A corporation that operates in at least two or more countries,

with a centralized headquarters but decentralized foreign operations.
 Key Purpose: To maximize profits by exploiting international
differences in costs (labor, resources), taxes, and to avoid trade tariffs.
 Examples: Coca-Cola, Apple, Vodafone Group, Nike.

Key Features of TNCs

 Large Size & Capital: They possess significant economic power, often
exceeding the GDP of small-to-mid-sized nations.
 Global Operations: Production and sales take place across many
countries, utilizing global supply chains.
 Centralized Strategy: Strategic decisions and R&D are often centralized
at the home country's headquarters, while operational decisions are
managed globally.
 Use of Foreign Direct Investment (FDI): They invest heavily in foreign
countries to establish plants or acquire firms.
 Advantageous Location: They strategically locate manufacturing in
developing countries to reduce costs.

Merits (Advantages) of TNC

For Host Countries (Where they operate):
 Job Creation: Provides employment opportunities for the local
workforce.
 Technology & Skill Transfer: Introduction of advanced production
technologies and management techniques.
 Infrastructure Development: Often invest in local infrastructure (roads,
energy) to support operations.
 Increased Foreign Exchange: Influx of foreign capital and increased
exports.
For Home Countries (Headquarters location):
 Higher Profits: Access to cheaper labor increases profit margins.
 Global Market Access: Ability to reach new consumers. [1, 2, 3]
 Demerits (Disadvantages) of TNC
For Host Countries:
 Exploitation of Labor: Often criticized for paying low wages in
developing nations.
 Repatriation of Profits: Profits earned are often sent back to the home
country rather than being reinvested locally.
 Political Influence: Their economic power can lead to interference in
local policies and regulations.
 Environmental Damage: Some TNCs take advantage of lax
environmental laws in developing nations.
For Home Countries:
 Job Losses: Manufacturing jobs may be shifted abroad, causing
unemployment at home.

Key Differences between MNCs and TNCs

Multinational Corporation Transnational Corporation

Feature
(MNC) (TNC)
A company with assets and
A company with operations in
facilities in more than one
Definition foreign countries, but without a
country, managed from a
central, dominant headquarters.
central HQ.
Centralized: Strategies are Decentralized: Foreign
Management
dictated by the home country operations have high autonomy
Structure
HQ. to make decisions.
Identified with a specific "home Operates as a borderless entity;
Operational Base
country". not identified with one country.
Top-down: Decisions are made Localized: Decisions are made
Decision-Making at HQ and implemented by local management to fit local
globally. markets.
Standardizes products to Tailors products and services
Product Strategy
maximize global efficiency. specifically to local markets.
Often done in the home country Distributed across various
R&D Location
and distributed. regional branches.
Examples Coca-Cola, Apple (centralized Nestle, Shell, Accenture,
 strategy). Unilever.

Meaning of Technology Transfer

Technology transfer refers to the process of sharing or disseminating
technology, knowledge, skills, methods, and manufacturing processes
among organizations, institutions, or countries. This can involve the
movement of technical knowledge from research institutions or
universities to businesses or from one company to another. The main
goal is to develop new products, improve existing processes, or
enhance the capabilities of different entities. Technology transfer can
take various forms, including licensing agreements, joint ventures,
partnerships, and the sale of technology.

Issues in Technology Transfer

Technology transfer, while beneficial, comes with several challenges and
issues that can complicate the process:
1. Intellectual Property (IP) Concerns:
o Ownership and Rights: Determining the ownership of
intellectual property and the rights to use it can be complex,
particularly when multiple parties are involved.
o Protection: Ensuring that the transferred technology is
adequately protected against infringement and misuse is
critical, especially in international settings where IP laws
may differ.
2. Cultural and Organizational Differences:
o Communication Barriers: Differences in language,
business practices, and organizational culture can hinder
effective communication and collaboration.
o Adaptation: The receiving entity might face challenges in
adapting the technology to its specific context or integrating
it with existing systems.
3. Economic and Financial Barriers:
o Cost: High costs associated with acquiring, adapting, and
implementing new technology can be prohibitive for some
organizations.
o Funding: Securing adequate funding for technology transfer
projects can be challenging, particularly for smaller firms or
developing countries.
4. Technical Challenges:
 o Compatibility: Ensuring that the new technology is
compatible with existing systems and processes can be
technically challenging.
o Complexity: The complexity of the technology and the level
of expertise required to implement and maintain it can be
significant obstacles.
5. Legal and Regulatory Issues:
o Compliance: Navigating different legal and regulatory
frameworks, particularly in international transfers, can be
difficult.
o Trade Restrictions: Export controls, sanctions, and other
trade restrictions can impede the transfer of certain
technologies.
6. Quality and Standardization:
o Standards: Differences in technical standards and quality
requirements can pose challenges, necessitating
modifications or additional testing.
o Consistency: Maintaining consistent quality and
performance of the technology during and after the transfer
process is crucial.
7. Trust and Relationships:
o Trust: Building trust between the parties involved in the
technology transfer is essential for effective collaboration.
o Training: Adequate training and knowledge transfer to the
receiving entity's personnel are critical for successful
implementation.
o Retention: Ensuring that the knowledge and skills are
retained within the organization, particularly in the face of
staff turnover, is important.
Addressing these issues requires careful planning, clear agreements,
effective communication, and ongoing support and collaboration between
the parties involved in the technology transfer process.