Impact of Globalisation on International Business Environment - PGBM04

This essay provides a comprehensive analysis of the international business environment, focusing on the impact of globalisation. It begins by defining globalisation and its implications for businesses, followed by an exploration of relevant theories such as the Product Life Cycle and Dunning's Eclectic Paradigm. The essay examines the features of international businesses, the reasons behind multinational enterprises' internationalisation, and various modes of entry into international markets. A critical evaluation of globalisation's influence on international businesses and consumers in both developed and emerging economies is presented, considering factors such as market access, production, and finance. The essay also discusses the pull factors driving internationalisation, such as market expansion and efficiency gains, and concludes by summarising the key findings regarding the challenges and opportunities presented by globalisation.

Running head: INTERNATIONAL BUSINESS ENVIRONMENT
PGBM04 International Business Environment
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1INTERNATIONAL BUSINESS ENVIRONMENT
Table of Contents
Introduction......................................................................................................................................3
Concept of globalisation in business...............................................................................................3
Theories of globalisation and internationalisation...........................................................................4
Globalisation means for societies and for government....................................................................7
Critically evaluate the impact of globalisation on international businesses....................................8
Features of international businesses:...........................................................................................8
Reasons behind the MNEs internationalisation...........................................................................9
Modes of internationalisation....................................................................................................11
Critically evaluating the impact of globalisation on consumers....................................................12
Conclusions....................................................................................................................................14
Reference List................................................................................................................................15

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Introduction
Globalisation has brought greater interconnectedness among the markets and it has also
increased the awareness and communication of business opportunities in foreign countries. As
stated by Law et al. (2015), investors now have the investment opportunities in greater distances
and globalisation has opened up for the profit opportunities for small and large business by
improving the communication technologies. Globalisation has made it possible to make better
international relations to unify the economies through increased trade and investment. The
purpose of the paper is to explore the impact of globalisation on international businesses and
consumers in developed and emerging economies. In the first part of the paper, theories of
globalisation and international business are explained to show the process of doing the business
in foreign markets. In the following part, this paper critically evaluates the influence of
globalisation on international business along with showing the reasons behind business want to
do business in international market and modes of entry in the international market are also
shown. This paper is also discussed about the impact of globalisation on business in both
developed and emerging economies.
Concept of globalisation in business
According to Mowforth and Munt (2015), globalisation is about deepening and
increasing the interactions between the individuals and organisations across the world. Products
and services in previous time were available within just one country; however, the organisations
go new market outside the country. Globalisation has affected the business by increasing the
competition and companies have now broadened the target market by expanding the local areas
apart from the home countries (Coker 2014). Globalisation has made possible to market the

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products and services to different countries and the companies need to fight strong competitors in
the foreign market as well. The companies also do the outsourcing and the companies also seek
for the production locations and the many of the international businesses make partner with new
ventures as well. Globalisation has induced improved technologies and efficiency in the
business. As stated by Wright (2016), globalisation has pushed the business to create the better
system to measure and track the international trade and the businesses. Technological innovation
makes it easier to do the business in an efficient environment and technology empowers global
trade. In the international market, globalisation represents the integration of the investment,
trade, information, cultures and technologies. The international businesses must follow the
government policies which are designed to open the foreign economies to boost the improvement
of the poor economies and raise the standard.
Theories of globalisation and internationalisation
Vernon’s Product lifecycle
Raymond Vernon discussed Product Life Cycle Theory to explain the pattern of
international trade. Product life cycle theory applies mainly on the labour saving and capital
using products which mainly cater to the international market to high-income groups. In product
lifecycle theory, there are five stages and location of production mainly depends on the stage of
the cycle.
In the international market, the company introduces the new product in the foreign
market and the customers are not aware of the products. In order to create demand, the
management promotes the products to stimulate the sale.

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In the growth stage, demand increases for the products, therefore, the production cost
decreases. The companies in the international market start earning a higher profit. In order to
earn more profit margins, the companies start spending more.
The third stage is maturity and the products or services of the companies are widely
known by the customers. In the maturity stage, the demand of the products and services
decreases and the organisations observe the slower level of sales volume (Mark 2015). In the
international market, the companies’ face threat of the competitors and organisations has to
reduce the price of the products.
The fourth stage is of saturation when the sales of the products neither decrease nor
increase in the international market. The organisation does the modification of some of the
attributes of the products in order to attract new customers.
The fifth stage of the product lifecycle is decline level and in this stage, the product is
familiar to the customers and the product has already reached the peak stage.
Product lifecycle starts with home production and from the home market. Then, the
organisations export the products to foreign markets. The products start observing the growth in
the foreign market. The companies sometimes start foreign production and these are subsidiaries
close to market. In addition, production by subsidiaries is followed in less developed countries
for all the marketers (Wiesner et al. 2015). In product life cycle theory, consumer goods
sometimes become standardise the companies want to shift the production from high cost to
lower cost. For example, Nike is a famous athletic wear company and it has it headquarter in the
Beaverton United States. Nike has connected through more than 700 shops across the world in
more than 45 countries. However, it is to be noted that most of the manufacturing centres of Nike

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are located near Indonesia, Taiwan, India, Thailand and China; all these countries have cheap
labour.
Dunning’s Eclectic Paradigm
Eclectic paradigm theory provides the three-angled framework for the company
determining the benefits to continue foreign direct investment. As stated by Cantwell (2015), the
eclectic paradigm is based on the beliefs that all the companies avoid the transaction in the open
market when transactions through internal carry low. For an organisation, FDI is beneficial to
have a comparative advantage, internalise advantage and ownership advantage. Eclectic
paradigm provides a holistic framework based on investigating entire relationships and
interactions of the different components (Dunning 2015).
Ownership-specific-advantages of an organisation are the trademark, production
technique, entrepreneurial skills and returns to scale. As stated by Dunning (2015), in an
international market, proprietary information and ownership rights of an organisation are some
of the important factors. International businesses consider the ownership advantage as intangible.
In addition, location-specific advantages of the organisation are the existence of raw materials,
low wages, special taxes and tariffs. This factor is associated with the cost of resources when
working one just one location and compared to other. In addition, internalisations advantages of
an organisation are the advantages by own production rather than producing through the
partnership arrangement. Internalisation technique asks the companies to be cost-effective and to
operate in different locations.

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Globalisation means for societies and for government
Globalisation has influenced differently for various countries. Developed countries are
mainly industrialised and these countries are economically advanced with a high level of
prosperity. In addition, developing countries are changing from agricultural economy to the
natural resource-based economy with the progress of industrial production (Rupert and Smith
2016). In addition, emerging economies or markets are fast-growing developing and the
transition economies.
Market: In market wise, globalisation has influenced the business regarding the targeting
the consumers in all markets. Globalisation has impacted the societies to access to products
across the globe. The consumers now can access the products of their choices for the emerging
concept of globalisation. In addition, globalisation has influenced in lowering the barriers to
imports and it encourages the domestic exports as well.
Production: In business aspect, globalisation helps to scan worldwide for production
capacity and in societies; globalisation provides the benefits in employment and technology
which form Foreign Direct Investment. The government provides incentives to attract the FDI
(Robertson 2017).
Finance: In emerging countries, businesses seek the source of capital on a worldwide
basis which creates openness to outside capital and the societies integrate into the global capital
markets. The government has the interdependence with regional and global financial systems.

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Critically evaluate the impact of globalisation on international businesses
Features of international businesses:
International businesses are mainly dominated by some of the developed countries and
these developed countries have their MNC. In most of the cases, the multinational companies
from the USA, Japan and from the UK dominate the foreign trade. MNCs have a large financial
resource, R&D, technology and human resource. The MNCs have highly skilled employees. In
addition, international businesses provide the benefit of participating countries and from the
developed countries, international businesses get the maximum profit. Developing countries get
the technology and foreign capital and the developing countries get the rapid technological
development. Moreover, as opined by Intrilligator (2017), international businesses face keen
competition across the world and in some of the cases; keen competition is seen between the
unequal partners. The international business provides a lot of significance to science and
technology which assists the business to produce a large number of products and generate
services. Developed countries use improved technology-friendly machines and they dominate in
global businesses (Hopper et al. 2017). Most importantly, an international business may face the
restriction on inflow and outflow of technology, capital and goods. In some of the countries, the
government does not allow the international business to enter the countries by having some trade
barriers, trade blocks and foreign exchange restrictions. As stated by Permutter (2017),
globalisation is an umbrella term for the international businesses for a complex series of social,
economic, technological, political and cultural changes seen as increasingly interdependence,
interaction and integration between companies and people in disparate locations.
At the international level, MNCs face both opportunities and challenges from the
diversified economies. Historically, the globalisation in political, social and economic has been

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observed during the 1970s getting the particular emergence after the Cold War. Globalisation
brought key trends in the economy across the globe (Doz 2017). The international businesses
wanted to have the lower wages for the employees and the businesses from the Western
countries wanted to get a higher profit margin. In some of the countries, international businesses
observe the flood of migrants to cities and some of the economies observe the low inflation and
low-interest rate despite the strong growth. Due to the globalisation, international businesses
have flourished rapidly and world exports as a share of GDP increased from under 20% in 1994
in over 32% in 2010 (Penrose 2017). It has also been observed the increase rate of Foreign Direct
Investment. The companies want to have the foreign ownership of the foreign factories, land and
mines. In industrialised countries, foreign investment occurs in large inflows. Of late, in the UK,
the countries in home countries are mainly exposed to the global factors and the companies have
to compete with the global forces of international market competition, demand and supply. The
companies have to take the consideration of demographics, political development and for the
companies’ stakeholders’ importance is significant. As observed by Forsgren and Johanson
(2014), globalisation is causing nuclear family and consequently, the fall of the value system in
emerging countries just like the developed countries. MNC's are set up in metro cities in
emerging countries. Nuclear families are more based on utilitarianism, therefore, in case of any
dispute relations ends. Dissatisfied and stressed people go to prostitutes and ultimately causing
damage to the family structure.
Reasons behind the MNEs internationalisation
Pull factors in internationalisation are those factors in a country which attract foreign
investors. Foreign investors sometimes like the new markets to expand the business for the
growth of the company (Sharma 2015). Most of the MNEs in recent time want to expand the

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businesses in Asian countries as Asian economies are growing along with it has maximum
numbers of customers. In addition, foreign investors also check the greater efficiency of the
country (Picciotto and Mayne 2016). For example, Italy is energy efficient country and Italy
observed the development in the transport sector and it has slowed the industrial sector which
may account to almost 25% of the GDP. Sweden based company Volvo Group, which is in
transportation and in heavy equipment production businesses entered Italy. Italy provides the
facility of doing businesses efficiently and it would produce the buses, truck, marine and
industrial engines. Till date, Volvo manufactured the products in Sweden, Belgium and in China.
The investors also observe the proximity to the resources while doing the businesses in foreign
countries. Volvo did not do well in business. Geely, the Chinese car marker was interested to
purchase Volvo and they made the business separate. Geely's takeover of Volvo signals the
ambition of China's car companies to expand the business (Businessstandard.com 2018). In
addition, the companies want to access to technologies and skills from the countries and from the
skilled employees. In India, most of the MNEs want to expand the businesses because it has
skilled employees and it has been working to develop the technologies. Most importantly,
investors also judge the proximity to customers. For example, Xiaomi Corporation is China-
based Electronics Company and it expands the businesses to India, Singapore and Malaysia to
sell the electronic gadgets. Xiaomi wants to sell the products where the company will have a
large number of customers. Xiomi chose India as it can provide the access of 1.2 billion
populations and the midscale market segment can easily be captured.
Push factors in the international market are those factors in a company's home country
which persuade it to seek growth in abroad. According to Richter et al. (2016), the investors may
found that the home country's market becomes saturated and it has nowhere to expand the

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business. The home country can face the economic downturn and the business may face the
issue. The investors may face the issue of regulatory changes and taxation issue also. For
example, Tata Group started the business in India before the dawn of independence in India. Tata
Group of India expanded the business internationally in a defensive mode after 2004 anticipating
Indian economy would attract the foreign investment and the competition in the Indian market
would be soaring high (Cravino and Levechenko 2017). Many Tata Group companies are now
global forces and these businesses reflect the international ambitions. Tata Motors purchased
Land Rover and Jaguar to expand the business in international market.
Modes of internationalisation
The companies can internationalise the businesses in mainly four ways.
Export: Direct export means the company can sell the products to the consumers directly
without using another organisation or arrangement in another country. Indirect exporting is
associated with selling to intermediary and they can sell the products to the wholesalers and from
the wholesalers, the products reach to the customers (Cumming and Zahra 2016).
Foreign Direct Investment: In international businesses, the companies can start a
subsidiary in the foreign market. In subsidiary business, the parent company controls the
business. Lamborghini automobile has its parent company is Audi and Audi is owned by
Volkswagen. In addition, the companies can choose to expand the business through a joint
venture where two companies can join to develop the market. Moreover, the acquisition is
another example of foreign investment where a company can make acquisition of foreign
business to expand the market (Mok et al. 2014).

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Portfolio investment: The companies can do ownership stake as it is a shared ownership
in the company by the founders. As stated by Neelankavil (2015), ownership stake is also called
the controlling interest by taking 50% of the ownership.
Outsourced production: The companies can take the option of international licensing
which allows foreign firms to manufacture a proprietary's product in a specific market in fixed
term. Licensor in a home country can make a limited product with limited rights. In addition, the
companies can provide the franchising to expand the business. Subway, an US-based company
expands the business using the franchising strategy in more than 112 countries. In the franchising
relationship, a business owner makes the relationship in which the franchisor assigns to the
independent business owner the right to make the business (Robertson and Dale 2015).
Critically evaluate the impact of globalisation on consumers
Globalisation impacts on the correlated economic stability and political movement. As
stated by Dolphin (2015), globalisation is of two types; elite globalisation represents minority
forces and other globalisation is making money. In Southeast Asia, globalisation creates the free-
market system with trade barriers and free trade allows competition also. Therefore, the
consumers get the chance to savour different types of products and consumers also get the
chance to taste the international products and services (Yu et al. 2014). Today's economy is
consumer driven and consumers accept the foreign-made products. However, some of the
consumers do not like to purchase foreign products. Some of the consumers arise the questions
of working condition in a foreign market. The countries start the fair-trade movement through
which the workers receive the fair and large compensation for what the workers produce (Gilpin
2018).