MNI3701 Latest
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MNI3701 – GLOBAL BUSINESS ENVIRONMENT
STUDY UNIT 1 – GLOBALISATION OF BUSINESS
1.1.1 OVERVIEW
The modern global business environment can best be described as volatle and chaotcc and turbulence can now be seen as the
new normality. Some of the factors contributng to...
The modern global business environment can best be described as volatle and chaotcc and turbulence can now be seen as the
new normality. Some of the factors contributng to this turbulence are:
The global business environment is changing fast for many reasons like:
The emergence of new economic blocs and super powers
Changing consumer preferences and demographics
Increased global instability
The changing nature of competton
Global terrorism
Increased risk of doing internatonal business
New legal and trade frameworks
And the development of new and wireless technologies
The globalisaton of markets refers to the merging of historically distnguishable and separate natonal markets into one global
marketplace. The globalisaton of producton refers to the sourcing of goods and services from locatons around the globe to
gain locatonnspecifc advantages in labourc resources and capital
Global business (an entrepreneurial actvity that cute across internatonal boundaries) involves all commercial actvites
between two countries either by private companies for proft making or government orgs but proft may not be the motve.
Global commercial actvites are defned as the movement of resources (raw materialsc capitalc people and technology)c goods
(halfnfnished and fnished products)c services (accountngc advertsingc communicatonsc computer and advisory servicesc
educaton training) and skills (management and technical) over internatonal borders. Changing consumer preferences is a
major driver of change in global business. Globalisaton refers to the shif tooard a more integrated and inter-dependent
oorld economy including the globalisaton of markets and producton.
Drivers of globalisaton ((gg)
Globalisaton can be defned as the grooing interdependence of countries oorldoide through the increasing volume and
variety of cross-border transactons in goods and services5 as oell as internatonal capital foos.
Developments notable for driving globalisaton are the signifcant changes in two main areasc namely:
1. Changes in the politcal environment
2. Changes in the technological environment
Changes in the politcal environment
The changes in the politcal environment can be credited with two developments:
1. The creaton of global economic/ttrade regulatory bodies n the General Agreement on Tarifs and Trade (GATT) in 194g.
2. The collapse of communism.
The creaton of global economicttrade regulatory bodies
Governments restricted access to their local markets by foreign compettors restrictng business potental. They used tarifs and
quotas to restrict imports and exports. An example was the voluntary export restraints (VER) erected by the United States
against Japanese vehicle exports in 1981.
GATT was established in 1948 to prevent the reoccurrence of the devastaton of orrd ar II and to reduce protectonnss. From
1948 to 1994c GATT served as the conduit through which internatonal trade negotatons and arrangements were conducted.
The kingship of GATT saw a period of unprecedented growth in internatonal trade that translated into an improved standard of
living across the globe. Howeverc one of the inherent problems in the modus operandi of GATT was its inability to enforce trade
rules n it served merely as a negotaton avenue through which trade concessions were sought and obtained.
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,The Uruguay Roundc which lasted from 1986 to 1994c eventually led to the disbandment of GATT and the creaton of its
successorc the World Trade Organizaton (WTO). The WTO ofcially commenced operatons on 1 January 1995 under the
Marrakech Agreement. Established to ameliorate the inherent weaknesses in GATTc the operatonal brief of the WTO now
covers trade in services as well as intellectual property rights. This development has not only aided internatonal trade and
investmentc but has also safeguarded the rights and privileges of entrepreneurshipc innovaton and inventonn all that have
contributed to the realizaton of globalisaton
The collapse of communism.
Communism is an economic system in which the state oons and controls all the resources and assets of a countryc including
the producton and distributon of goods and services. The main goal of communism was to bridge the class gap between the
rich and the poor working class. The essental features of communism were:
1. The aboliton of private property and the confscaton of all privately owned property that would then become public
property
2. Heavy progressive or graduated income tax
3. The aboliton of all rights of inheritance
4. The confscaton of the property of all emigrants and rebels
5. The centralizaton of the capital market under the exclusive control of the state
6. State ownership and control of communicaton and all means of transportaton
g. State ownership of factories and agriculturec and the full utlizaton of state resources
8. Absolute state control of labourc the majority of whom should be deployed to agriculture
9. Economic integraton of agriculture and manufacturingc the equitable distributon of social amenites and the total
eradicaton of rural areas
10. Free educaton for all children in public schools and the aboliton of child labour.
The disintegraton in the communist world began to unfold as (oland elected its frst nonncommunist president in June 1989.
Essentally the fall of the Berlin Wall in November 1989 and the collapse of the USSR under communist (resident Gorbachev in
1991. It is litle surprisec thenc that the collapse of the Soviet Unionc the largest communist protagonistc acted as a catalyst for
the spread of capitalism and the realizaton of trade liberalisaton across the globe
Changes in the technological environment
Evidence suggests that four main components of technological innovaton have contributed immensely to the global exchange
of ideas and opinionsc trade and investmentsc research and educatonc as well as the movement of peoplec products and
services. These main components of technological innovaton are
1. E-mail and videoconferencing - the inventon of electronic mail (enmail) has made it much easier for multnatonal
enterprises to communicatec transmit and share large volumes of informaton. Apart from the costs saved in the
processc the speed at which these operatons are carried out also saves much productve travel tme.
2. The internet and the oorld oide oeb - the facilites enable a wider coverage for advertsers and shopping at reduced
prices
3. Company intranets and extranets - this facility enables the fast distributon of a large volume of informaton
throughout the organizaton saving tmec cost and more efciency of the supply chain.
4. The advances in transportaton technology - these innovatons facilitate longndistance travel in a very short period of
tmec while guaranteeing comfort and a reasonable level of safety
1.1.2 THE ROLE OF MNE’s IN GLOBALISATION (4.2-Pg13)
Firms begin their overseas adventure through diferent strategic entry modes. These entry modes range from contractual
modes of entryc such as direct exports and licensingc through to equity modes such as strategic alliancesc joint ventures or
wholly owned foreign subsidiaries.
The choice of foreign entry mode is one of the core consideratons of the investng frm as it should adopt an optmum strategy
that is capable of ensuring the maximum realisaton of locatonnspecifc advantages.
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, The evoluton from a local enterprise into a multnatonal one is in seven phases:
1. Internatonal enquiries and netoorking oith regard to expansions abroad - begins when a company receives an
enquiry about one of its products directly from a foreign business person or from an independent domestc exporter
and importer
2. The appointment of an export manage - As a company's exports contnue to expandc the executves decide that the
tme is ripe to take export management into their own hands so that they no longer have to rely on unsolicited
enquiries from abroad. They may decide to assume a proactve rather than a reactve approach
3. The establishment of an export department or direct overseas sales - As export sales contnuec the company has
difculty operatng with only an export manager and small staf. A fully eedged export department is established at the
same level as the domestc sales department
4. The establishment of branches andtor subsidiaries - Further growth in export sales requires the establishment of sales
branches abroad to handle sales and promotonal work
5. Overseas assembly of components and fnal products - Assembly occurs abroad for three major reasons: cheaper
shipping costs for disassembled productsc lower tarifs and cheaper labour.
6. Overseas manufacturing - the company has a wellndeveloped export programme supported by country market studiesc
promoton and distributon programmes tailored to the needs of each country marketc and research aimed at identfyn
ing new foreign markets.
7. Integraton of overseas subsidiaries - The company's executves begin to view the entre world as their theatre of
operatons; they planc organisec staf and control the company's internatonal operatons from a global perspectve
1.1.3 BORN GLOBAL FIRMS ((g16)
Going global on business startnup is mostly justfed on the basis that the longer a frm waits to initate internatonal actvitesc
the more difcult it will be to grow internatonally
Some of the main factors in the success of bornnglobal frms in internatonal markets are the same factors that have elided the
increasing internatonalisaton of contemporary business ventures. The vanguard of this new internatonalisaton process is
purported to be
Increasingly encouraging global market conditons
Neo developments in transportaton and communicaton technologies
The rising number of people oith internatonal business experience and expertse.
The bornnglobal phenomenon can be atributed to the gains of the globalisaton process as well as the positve efects of the
agencies of globalisaton on trade liberalisaton.
1.1.4 MOTIVATION FOR EX(ANDING ABROAD ((g1g)
Some of the reasons why frms expand abroad include the following:
The strategic intent of frms to achieve objectves such as increasing their sales volumes through penetraton of
overseas markets.
Firms also venture abroad to reap locaton-specifc advantages. Firms improve proft margins by taking advantage of
locatonnspecifc advantages such as relatve cost structures and atractve demand levels in foreign markets.
The theory of multpoint competton states that compettors imitate each other wherever they encounter one
another in the world market this is intended to outmanoeuvre other enterprises.
The theory of strategic behaviour reinforces the argument in support of frms following their compettors abroad.
(layers in an oligopolistc industry are highly dependent on the strategic actons of compettors to formulate their
response paterns. If a compettor ventures abroadc others will follow suit lest they risk losing business.
A supplier-company follooing its clients when they expand abroadc especially in the case of service provision. Global
pressure dictates that suppliers should be closely located to their buyers or risk being substtuted with a compettor.
A stagnant or saturated natonal marketc or an atempt to reduce the frm's absolute dependence on the home
marketc coupled with the unique risk associated with the natonal marketc are other motvators leading to internatonal
expansion
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