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Business in a Global Context
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Lecture notes of 21 pages for the course Global Business at UNAV (Class notes)
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Marta Mata España5º Derecho y RRII
Chapter 1: Perspectives on globalisation and internacional business
1. What is globalisation?
Guillén: A process leading to greater interdepend and mutual awareness (reflexivity) among
economics, political and social units in the world, and among actors in general.
2. Trends towards globalisation
Changes in world output and world trade.
Foreign direct investment -FDI: Purchase of an interest in a company by a company or an
investor located outside its borders. Investment in foreign facilities to produce/market bys in
foreign country.
Types of companies:
- A multinational enterprise is any business that has productive activities in 2/+ countries.
- Changes since 1960: (i) More non US-MNE: MNEs from EU, Japan, China… (ii) growth in
the nº of mini-multinationals. Ex: Lenovo.
Changes in world order:
- Collapse of eastern communism + China’s economic development and population: Field of
opportunities for companies.
- Mexico and Latam are new markets and locations of production.
- China and India are home of new companies MNE.
Evolution in sectors of Economy
Liberalization: The removal of regulatory restrictions on business. The message behind
liberalisation is: “Let the best company wins. Reduce protection to foster competition”.
Perceived vs intrinsic quality
Perceived: The quality we give to the product, even though it may be higher or lower than real
quality. Ex: The quality we give to a Starbucks coffee, just because it has your name on it that
makes you feel special because of the personalisation they make of it, or just because of the nº of
choices they lead you make when you order your coffee. Another example may be Apple, whose
phones are perceived as much better than any other even though most people don’t even use the
20% of the capacity and capabilities of the phone. Although intrinsic quality can be measured,
perceived one cannot.
Prices have nothing to do with cost, they have to do with competition + how the customer perceives
the product/service (perceived quality > intrinsic quality) + relation between supply and demand.
,3. The globalisation debates
4. What does globalisation means for companies?
Companies can work with the forces for globalisation and improve their global performance. Such
forces include:
Low barriers to trade and investment: The world is the market. Companies can locate
production facilities in the optimal location.
Technological change: The cost of global communication has fallen. The microprocessor that
facilitates high-power, low-cost computing is perhaps the most important of these
developments. The internet has made it possible for even small companies to play a role in the
global economy.
Transportation improvements: Containerisation and the development of super freighters have
also facilitates the growth of globalisation.
5. Does distance still matters?
Friedman: “Globalisation is accelerating and is flattening the world so that every nation eventually
be part of the global marketplace and production process”. Flatteners:
• The fall of the Berlin Wall (liberalisation)
• The development of internet protocols
• The increased use of outsourcing* and offshoring
• The development of global supply chains
• The increased use of specialised companies to carry out internal functions
• The development of search engines, and, latterly, of wireless digital, mobile, personal and
virtual technologies.
*Outsourcing: When some parts of the value chain of a product is ordered to a company other
than the one that is producing said product.
, Chapter 2: Formal institutions: Political, economic and legal systems
1. An institution-based view of international business
A country’s institutions establish the formal and informal rules for operating in the country.
Companies operating internationally need to know these because: (a) These rules differ between
countries, and (b) They shape greatly what can be achieved and what is not possible in a country.
Institutions can be formal or informal (not all customs are regulated by law: siesta, opening times).
Formal institutions: Include laws, regulations and rules that are set by authorised bodies. It has a
coercive/regulatory nature.
Informal institutions: Rules not formalised but exists in. Norms, ethics, cultures and values.
Behaviours that are morally right or wrong. They change with time. It has a cognitive nature.
At the heart of an institution-based view there are 2 core propositions:
a) Managers and firms rationally pursue their interests and make choices within the formal and
informal constraints in a given institutional framework.
b) Although formal and informal institutions combine to govern firm behaviour, in situations
where formal constraints are unclear or fail, informal constraints will play a larger role in
reducing uncertainty and providing constancy to managers and firms.
2. Political systems
Political systems matter for international business because they: (i) Set the rules, and (ii)
Determine whether and how businesses can influence legislative processes through lobbying
(mostly legal, but not in Spain) or corruption (illegal).
Democracy: Based in the belief that people should be directly involved in decision making.
Today the most common is representative democracy. Main characteristics: freedom of
expression, free media, free access information, regular elections, fair court system, political
system is governed by institutions, rules are usually laid down in a Constitution…
Representation methods:
- Proportional representation (Spain) vs first-past-the-post (Pros: Easier to make gov. Cons:
Less representative of the people’s will. USA)
- Direct vs indirect (Spain: we choose the parlament, and they choose the President) elections
- Representative vs direct democracy
- Centralisation of power (Spain is almost a Federal system due to the CCAA)
Totalitarianism: One person/political party exercises absolute control over all spheres of life.
Opposing political parties are forbidden. 4 major forms of totalitarianism:
• Communist: Tries to achieve socialism through totalitarian dictatorship (Cuba, NK…).
• Theocratic: Governs according to religious principles (SA, Iran…). Laws are religious ones.
• Tribal: Monopolisation of power by a political party that represents a tribe (Tanzania).
• Right-wing: May allow individual economic freedom, but political one is restricted to avoid
forms of socialism. Nation’s military often backs this type of system (Germany, Italy 1930s).
Three pillars:
• Regulatory: The coercive power of governments.
• Normative: Refers as how norms, values, beliefs and actions of other players influence the
behaviour of individuals/groups.
• Cognitive: Refers to the internalised taked-for-granted assumptions of how the world works
that guide individual/firm behaviour.
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