6.1 Importance of International Management

Globalization has transformed business, connecting economies and cultures worldwide. Companies now access foreign markets, resources, and talent easily, but face increased competition and the need to adapt strategies for diverse markets. This interconnectedness has led to global value chains and real-time collaboration across borders.

Key drivers of globalization include trade agreements, foreign direct investment, and the internet. These factors have reduced barriers to international trade, increased cross-border investments, and revolutionized global connectivity. Emerging markets like China and India have become major players, shifting the balance of economic power and driving innovation.

Globalization and International Business

Impact of globalization on business

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• Globalization has led to increased interconnectedness of economies, cultures, and people worldwide
  • Provides easier access to foreign markets, resources (raw materials, labor), and talent
  • Intensifies competition from international players (multinational corporations)
  • Requires businesses to adapt strategies to succeed in diverse markets (localization, customization)
• Globalization has facilitated the growth of global value chains
  • Production processes are dispersed across multiple countries (manufacturing in China, assembly in Mexico)
  • Enables businesses to optimize operations by leveraging comparative advantages of different locations (lower costs, specialized skills)
• Advancements in technology and communication have enabled real-time collaboration and coordination across borders
  • Video conferencing, cloud computing, and project management tools support global teams
  • Enhances cross-cultural communication and collaboration
• Globalization has created opportunities for businesses to expand their customer base and diversify their revenue streams
  • Tapping into new markets (emerging economies) reduces dependence on domestic market
• Increases exposure to global risks and uncertainties
  • Currency fluctuations, political instability (trade disputes, sanctions), and cultural differences
  • Businesses need to develop risk management strategies and contingency plans (hedging, scenario planning)
  • Requires consideration of geopolitical factors in decision-making

Key drivers of globalization

• Trade agreements have reduced barriers to international trade (international trade)
  • Multilateral agreements, such as the World Trade Organization (WTO), promote free trade among member countries
  • Regional trade agreements, such as the European Union (EU) and the United States-Mexico-Canada Agreement (USMCA), create integrated markets and eliminate tariffs
  • Bilateral trade agreements between two countries (US-China, Japan-UK) facilitate trade and investment flows
• Foreign direct investment (FDI) has increased as companies seek growth opportunities abroad
  • FDI allows companies to establish a physical presence in foreign markets (subsidiaries, joint ventures)
  • Investors gain access to new markets, resources, and technologies (natural resources, skilled labor)
  • Host countries benefit from job creation, knowledge transfer (management practices), and economic development
• The Internet has revolutionized global connectivity and information sharing
  • E-commerce platforms (Amazon, Alibaba) enable businesses to reach customers worldwide
  • Digital technologies facilitate cross-border communication, collaboration (video conferencing), and data exchange (cloud storage)
  • Social media (Facebook, Twitter) has created new channels for marketing, customer engagement, and brand building

Emerging markets in global business

• Emerging markets, such as China, India, and Brazil, have become major players in the global economy
  • Large and growing consumer markets with increasing purchasing power (rising middle class)
  • Abundant natural resources (oil, minerals) and low-cost labor
  • Governments actively promoting economic growth and foreign investment (tax incentives, infrastructure development)
• Multinational companies from developing countries are expanding their global presence
  • Leveraging cost advantages and local market knowledge to compete with established players (Huawei, Tata Group)
  • Acquiring foreign assets and brands to gain access to new markets and technologies (Lenovo's acquisition of IBM's PC division)
  • Forming strategic alliances and partnerships to enhance their global competitiveness (Haier's partnership with GE Appliances)
• The rise of emerging markets is shifting the balance of economic power
  • Increasing influence in global trade, investment, and governance (G20, BRICS)
  • Challenging the dominance of developed countries and traditional multinationals (US, Europe, Japan)
• Emerging market companies are driving innovation and disrupting traditional business models
  • Adapting products and services to meet the needs of local markets (mobile payments in Africa)
  • Leveraging digital technologies to leapfrog traditional infrastructure constraints (e-commerce in rural areas)
• The global business landscape is becoming more diverse and multipolar
  • Increased competition and collaboration among companies from different regions and backgrounds
  • Requires businesses to develop cultural intelligence and adapt to local market conditions (language, customs, regulations)
  • Emphasizes the importance of managing cultural diversity in global operations

Global Business Strategy and Operations

• International market entry strategies play a crucial role in expanding business globally
  • Options include exporting, licensing, franchising, joint ventures, and wholly-owned subsidiaries
• Global supply chain management is essential for efficient operations across borders
  • Involves coordinating suppliers, manufacturers, and distributors worldwide
  • Requires balancing cost efficiency with risk management and sustainability
• International business ethics are critical for maintaining reputation and compliance
  • Addressing issues such as labor practices, environmental standards, and anti-corruption measures
  • Adapting ethical practices to different cultural and legal contexts while maintaining core values