Globalization and International Business Strategy

Posted on Mar 8, 2025 in International Trade

Globalization: An In-Depth Look

Globalization can be viewed from several perspectives:

World Scale

• Shift from national economies with borders (autarchies).
• Convergence of economic dimensions and variables across many countries (consumer preferences, standardized products, new markets, economic policies, etc.).

Country Level

The intensity of an economy’s interactions with the rest of the world:

• Exports + Imports as a percentage of GNP.
• Inflows and outflows of Foreign Direct Investment (FDI).

Industry Level

• Industries dominated by the same group of companies globally.
• Different effects in different industries.
• Globalized industry: Main competitors have a high percentage of world trade (e.g., aeronautics, tires).

Company Level

• The extent to which a firm has extended its sales and assets to other countries and generates international flows of products, capital, and knowledge.
• Globalized firm: Multinational firm (MNE) with a significant presence in the main world markets.
• Sales and assets are scattered globally, including investors.
• The firm may have multiple head offices.

Driving Factors of Globalization

Economic Liberalization

• Liberalization of trade interchanges:
  • 1947: GATT; 1995: WTO. Duty reduction, anti-dumping agreements (China joined in 2002).
  • Priority: Liberalize world trade. Accused of enhancing inter-country differences.
  • Other regional agreements (economic and/or political integration): EU, NAFTA, ASEAN, Mercosur.
• Liberalization of financial flows:
  • 1944: IMF: Monetary and Financial Conference UNO (Bretton Woods system).
  • 1973: 1st oil crisis: Abandonment of fixed parity USD vs. gold.
  • 1980s: More liberalized approach (imposing tight budget policies and further liberalization of capital markets to help troubled countries).
• Liberalization of Foreign Direct Investment flows:
  • Following the same footsteps as the other two, but governments are reluctant to allow foreign access to national firms.
  • FDI enhances countries’ interdependence. Higher impact on development (In the period 1992-2002, India 60% increase in GNP, China 210%) (China allowed FDI in 1979, India in 1991).
  • In the last decade, growth of FDI vs. Exports has been 5 to 2.

Technological Development

• IT and telecommunications (Fax: 1985, email: 1995, Internet: 1996).
• Evolution of transport means (Sea Container). http://ed.ted.com/lessons/how-containerization-shaped-the-modernworld

Internationalization of Firms

• Firms’ actions are not neutral in this process (New Markets – Export- FDI).
• Role open also to SMEs, not only big MNEs.
• Delocalization, Competitive advantage of nations.

International Strategy

It refers to the management processes used to evaluate the changing conditions of the international environment and to formulate an organizational response fit to their resources. This response involves crossing international boundaries, which is far more complicated than the national environment. It does not suffice with just the mere will to internationalize.

Push Factors for Internationalization

• Domestic market mature or saturated.
• Legal restrictions.
• Increasing costs.
• Unfavorable economic conditions.
• Unfavorable demographic changes.

Pull Factors for Internationalization

• Corporate philosophy.
• Perception of growth opportunities.
• Niche opportunities.
• Imitation of competitors.
• Following the customers.
• Technology acquisition.

Facilitating Factors for Internationalization

• Accumulation of experience.
• Decreasing barriers to international trade.
• Enhanced communication technologies.
• Managers’ drive and vision.
• Learning from other firms’ experience.