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7/30/2019 Global Environment 5
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MEANING Globalisation means doing business at global level
without any regards to national or state boundaries.
It is a process of economic integration with globaleconomy .
Globalisation is facilitated by technologicalimprovement,competition,economic growth
interdependence between nations and willingness tointegrate.
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Levels of globalisation Globalisation of a particular company
Globalisation of a particular industry
Globalisation of a particular country level
Globalisation at world level.
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Globalisation of a particular
company Large corporations expand business,earn revenue and
increase asset base across the world,there will be flowof capital,goods & technology know-how acrossdifferent units
Ex. IBM,HP,GE,MICROSOFT etc.
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o a sa on o a par cu ar
industry
The entire industry is dominated by set of companiesand become a global player .
Ex. In case of electronics GE,SIEMENS & PHILIPS arethe companies which have dominated the businessglobally.
In case of software -some of the Indian cos
TCS,INFOSYS,WIPRO,SATYAM ,HCL etc dominatedthe world market.
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o a sa on o a par cu arcountry level
Some of the countries specialize in foreign trade andthrive based on their factor of endowment and exportpotential.
Ex.Singapore as a country thrives as marketintermediary without much manufacturing setup,forthis reason Singapore sea port is very well develpoed
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Globalisation at world level.
As a result of economic interdependence goods,services and capital are flowing across the border .
Service business is taking global shape in order torevive economies of the developed countries.
Developed countries in order to improve operatingmargin ,reduce cost of products and to become
competitive player started outsourcing some of theirwork by taking advantage of labour arbitrage.
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Con.. Cos can improve operating profits and come out with
high quality products at lesser costs.
The money saved could be utilized for othereconomic activities.
Hence developed countries were able to come out ofrecession
S i i
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Stages o g o a isation
ethnocentric Approach
Ethnocentric feels home country is very muchsuitable.It seems similarly in foreign : domesticcompany formulates policy on product,design,HR andmarketing .
Excess capacity or inventory is exported outside India ,
export is viewed as an extension of home market and
handled as separate division at best within marketingdepartment.
The maintenance of domestic approach towardsinternational business is called ethnocentric approach
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Polycentric approach Polycentric approach feels each host country as unique
this may be referred as ethnocentric organisationmatured for next stage of expansion.
Company appoints key personal from the host countrythat in turn will recruit for the vacancy to him.
Policy of host country decisions regarding
design,product and strategy is done by the head of thehost country.
Polycentric approach of the subsidiary focuses on theconditions of the host country.
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Regiocentric approach Regiocentric sees similarities & dissimilarities in a
world.Companies operate in a country for some time.
When host country requirements are met, companydecides to export to nearby country or to anycountry,which share similar economy & culture .
At this stage foreign subsidiary considers regional
approach for formulating strategy & policies.
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Con.. However the same product designed under polycentric
approach is used in other countries of the region,butwith different marketing strategies.
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Geocentric approach Geocentric approach sees similarity and differences in
home and host countries.
In geocentric approach,entire world is a single countryfor the company with multiple subsidiaries.
Company selects people of entire world wherever itssubsidiary functions as independent,autonomous
body in formulating policies,strategy,productdesign,HR,operations,marketing and corporate officeco-ordinates functioning of subsidiaries.
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Factors influencing globalisation History
Economy
Resources & market Production
Political
Industrial organisation
technology
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merits Faster industrialization
Flow of capital
Speed of production Increased standard of living
Flow of technology
Increase in consumption
attitude
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De merits Labour
Rich-poor gap
Depletion of natural resources Commercial exploitation
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Barriers to globalisation Tariffs
Quotas
Voluntary Export Restraint Monetary Barriers
Standards
Local Content Requirements
Investment Restrictions
Bureaucratic Hurdles
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Concepts of globalisationMNC:
companies that maintain significant operations in
two or more countries simultaneously butCONTROL is vested with home country.
TNC:
a company that maintains significant operations in morethan one country simultaneously decentralizes decisionmaking in each operation to the local country.
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Con.. Global village
The concept of a boundary less world; the productionand marketing of goods and services worldwide.
Borderless organization
A management structure in which internalarrangements that impose artificial geographic barriersare broken down
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MNC Advantages Investment,employment and income level increases
consequent to operation of the MNC in the hostcountry
Ancillary industries grow resulting in industrial andeconomic development.
Gets latest technology, managerial techniques and
practices of MNC. Host country gets best & sophisticated management
techniques from the managerial practices of MNCs
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Con Market supplier and intermediaries of the host
country get stimulation of increased business fromMNCs operations.
It creates competitiveness & helps to enhance it.
Host country can take advantage of the foreign culturebrought in by the MNCs
Domestic countrys import will reduce & export getsboost due to the goods produced by MNC,s,this willcreate better favourable balance of trade.
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Control over MNCs activities Department of co affairs.
Ministry of industry & development.
RBI Ministry of finance.
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TNCs characteristics Geocentric orientation
Scanning or information acquisition
Vision & aspiration Geographic scope
Operating style
Adaptation
Extensions
HR policy
purchasing
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Stages of international business Domestic company
International company
Multinational company Global company
Transnational company
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International business risk Legal risk
Country risk - Political risk-financial risk
Regulatory risk Social risk
Environmental risk
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Assessment of Business Risks Check list
Expert based scoring system
Economic methods Rating & ranking system
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Risk Reduction strategies Establish risk assessment system
Developing local economy
Local equity participation Good corporate citizens
Maintaining good political relation