Global Business Management

MID-TERM EXAMINATION

GLOBAL BUSINESS MANAGEMENT

Global business refers to international trade whereas a global business is a company doing business across the world. The exchange of goods over great distances goes back a very long time. International business refers to firms’ performance of trade and investment activities across national borders. It is the trade of goods, services, technology, capital or knowledge at a global level. It involves cross-border transactions of goods and services between two or more countries. Transactions of economic resources include capital, skills, and people for the purpose of the international production of physical goods and services such as finance, banking, insurance, and construction. International business is also known as globalization. Globalization of markets is the ongoing economic integration and growing interdependency of countries worldwide. International business is characterized by international trade and investment. International trade refers to exchange of products and services across national borders, typically through exporting and importing. International investment refers to international transfer or acquisition of ownership in assets.

International business has formed networks of global links that brings nations, institution, financial market, living standards together Due to development and invention of several technologies world has become smaller which enabled to conduct businesses even faster. Some of the reasons why the firms globalize are as follows:

1. Seek opportunities of growth through market diversification- when the firms are domestically established, there is some substantial market potential that exists abroad. In addition to offering sales opportunities that often cannot be matched with that of the home country, foreign markets can extend marketable life of products and services that have reached maturity in the home country market
2. Earn higher margins and profits- for many types of products or services, market growth in matured economies is sluggish or flat. Whereas internationalizing into typically high-growth emerging markets or developing economies can command higher profit margins due to less intense competition and that too combined with strong market demand.
3. Gain new ideas about products, services, and business methods- international markets are characterized by tough competitors and demanding customers with various needs. Unique foreign environments expose firms to new ideas for products, processes and business methods
4. Gain access to lower-cost and better-value factors of production- internationalization enables the firm to access capital, technology, managerial talent, and labor at lower costs, higher quality, or better value.
5. Develop economies of scale in sourcing, production, marketing, and R&D- economies of scale reduce the per-unit cost of manufacturing by operating at high volume. By expanding internationally, the firm greatly increases the size of its customer base, thereby increasing the volume of goods it produces.

Evolution of global business

During the 1960s multinational enterprises emerged as a focus of interest both for economists and for the general public. Much of the literature of that era provided a very time-bound perspective on this phenomenon. Economists tended to treat multinationals as byproducts of post-World War II international financial integration and improvements in communications and transport technologies. To the broader public, in the United States and elsewhere, they were associated with U.S. economic expansion and indeed were perceived as reflecting a particularly “American” form of business organization.

Since that era, the international economy has changed dramatically: multinational enterprises became truly “multinational” as East Asian and European firms expanded in global markets and new cross-national “strategic partnerships” of firms emerged.

From the late nineteenth to well into the twentieth century, most foreign direct investment was focused on the development of natural resources, with some spinoff growth of ancillary services. Latin America and Asia were particularly notable recipients of this investment. FDI in manufacturing expanded slowly through the early twentieth century and more dramatically in the period after World War II, and the geographic center for such investment shifted to Western Europe. This trend in turn was overtaken by developments in the service sector (particularly in finance) in the past two decades, with East Asia and Western Europe, along with the United States, as major areas of investment activity.

Although there have been periods of single-country dominance in outward investment (the United Kingdom between the 1880s and 1914, and the United States in the 1950s and 1960s), perhaps more significant has been the consistent growth of multinational operations over the past century. As noted earlier, During the pre-World War I era, investment flows were tied to some extent to the “imperial” territories of various European nations (with regions such as Latin America becoming a battleground for European and American investors), and occurred through a peculiar form called “free-standing companies” as well as the more familiar home-and-branch operations.

In the interwar period, as national governments imposed a variety of constraints on international trade and capital flows, international cartels flourished, in part as a means of circumventing them. In the period since the 1970s, a new form of “strategic partnership” among firms of different nationalities has emerged, reflecting both the diverse origins of enterprises in global markets and the effects of financial integration coupled with the growth of regional trade blocs. In each era multinational businesses have altered their forms of operation to suit contemporary conditions, while sustaining a general trend toward growth and integration.

Why the firms stated to globalize?

1. Worldwide reduction in barriers to trade and investment
2. Market liberalization and adoption of free markets
3. Industrialization, economic development and modernization
4. Integration of world financial systems and markets
5. Advances in technology

Managerial/operational challenges faced by global business managers

There are various challenges faced by the firms and business managers to internationalize or globalize their firms. The three major challenges are listed below:

1. International financial management-

   International finance management is challenging for large multinational enterprises (MNEs). For example- Motorola has facilities in nearly 50 countries. Its network of subsidiaries and strategic business units raises funds in financial markets worldwide. International financial managers at firms like Markel and Motorola acquire and allocate financial resources for the firm’s current and future activities to help maximize company value.