The document discusses several key topics related to globalization and international business: 1. It defines globalization as the integration of world economies through reduced barriers to trade, capital, technology, and labor movement. This includes the globalization of markets and production. 2. Factors driving increased globalization include advances in technology, trade liberalization, economic reforms, growing consumerism, and global competition. 3. International business refers to commercial transactions between two or more countries, including exports, imports, and transportation. Firms engage in international business to access new markets and take advantage of factors like lower costs and skilled labor in other countries. 4. Barriers to international trade include cultural differences, political risks

1. Chapterone – (Extension)
What is Globalization
The broadening set of interdependent relationships among people from different parts of a
world that happens to be divided into nations.
It refers to the integration of world economies through the reduction of barriers to the
movement of trade, capital, technology and people.
Globalization has two main components:
The Globalization of Markets
refers to the merging of historically distinct and separate national
markets into one huge global marketplace. Falling barriers to cross-bordertrade have
made it easier to sell internationally. It has been argued for some time that the tastes and
preferences of consumers in different nations are beginning to converge on some global
norm, thereby helping to create a global market.
The Globalization of Production
refers to sourcing goods and services from locations around the globe to take advantage of
national differences in the cost and quality of factors of production (such as labor, energy,
land, and capital) . By using global sourcing, companies hope to lower their overall cost
structure or improve the quality or functionality of their product offering, thereby allowing
them to compete more effectively.
Factors in increased Globalization
1. Increase in and expansion of technology
2. Liberalization of cross border trade and resource movement
3. Development of services that support international business
4. Growing consumer pressures
5. Increased global competition
6. Changing political situations
7. Expanded cross national cooperation
What is International Business?
All commercial transactions—including sales, investments, and transportation—that take
place between two or more countries.
John D Daniels and Lee H Radebaugh in their book, ‘International Business’, define
international business as, ‘all commercial transactions- private and governmental between two

2. or more countries. Private companies undertake such transactions for profit; governments may
or may not do the same in their transactions. These transactions include sales, investments and
transportation’.
According to Harcourt Brace & Company, Orlando, Florida, ‘International business consists of
transactions that are devised and carried out across national borders to satisfy the objectives of
individuals and organizations’.
According to International Business Journal, ‘International business is a commercial enterprise
that performs economical activity beyond the bounds of its location, has branches in two or
more foreign countries and makes use of economic, cultural, political, legal and other
differences between countries’.
Why Firms Go International?
Several factors underlie the growth of international business. These could be put as:
Facilitators, Drivers, Attractions and Compulsions.
Facilitators, Drivers, Attractions and Compulsions of International Business

3. Facilitators Of International Business
The facilitators include, increasing factor mobility, economic reforms, opening up of command
economics, the Bretton Woods system / WTO regime and developments in communication and
transportation technology spheres.
First, factor mobility is the most important of all factors that has contributed to growth of
international business. Cross-border movement of factors of production was not envisaged.
Now capital, technology, brands, labor management and intellectual property just move from
anywhere to anywhere. Technical collaborations, overseas job market expansion and overseas
management consultancy are all on the increase. MNCs play a vital role in this factor mobility
contributing to the growth.
Second, the economic reforms undertaken in the most of the developing and under developed
economics are another cause for the growth of international business. Globalization, as a part
of such reforms process, has opened their economies to international players on an equal
footing with domestic operators.
Third, opening up of command economies is another factor behind, recent growth in
international business. China, Russia, etc are no longer command economies. Socialismand
communism have given big welcome to capitalismin their very place of origin and growth.
Fourth, the Bretton Woods organizations and WTO – the World Bank and International
Monetary Fund and their subsidiaries like the International Development Association,
International Finance Corporation, Multilateral Investment Guarantee Agency and other
multilateral bodies especially the World Trade Organization (WTO) generally insist on member

4. countries to open their economies. This paves the way for growth of international business
vastly through the MNCs.
Fifth, developments in communication and transportation technology spheres facilitated the
growth of international business is ably. Seamless communication, real-time communication,
containerization, third-party logistics, life cycle logistics, supply-chain management, etc enabled
internationalization of businesses.
Compulsions for International Business
The compelling reasons for firms going global business are limitations of domestic market and
need for risk minimization by diversification.
First, the limitations of domestic market are a major compelling factor for business to go
global. However big the domestic market, it is but a fraction of world market. There is a limit for
growth. Further, when your competitor is out-sourcing growth, you cannot get confined to
domestic market. Tasting the foreign market is a test of your strengths as well.
Second, businesses have long back realized the need for risk-minimizing. Threats from
oligopolistic competitors are always there. Further country-risk is always there. Meeting both
the risks is facilitated by geographical spread. By being close to market, better orientation is
easily facilitated. Global geographical spread is risk-minimizing strategy. And there is growth.
Japanese competition affects the American Auto Industry. So, American Auto firms go out to
the third world in search of strategic alliance partnership.
The globalizationofmarkets meansthat the expansionandaccessof businessestoall overthe worldto
reach the needsof the customers internationally.Now due tothe advancementof technology andIT
revolutionthere islessproblemsof boundaries.The mainreasonisdue tothe adventof the internet
that has facilitatedtothe customersandcompaniestointeractata common place byjustsittingit
home and itdecreasesthe costof productand othercosts as well whichisthe benefitforthe both
parties.Now the companies are able tosell itsproductand services internationally.Itiscommonly
believedthatthe taste of the consumerslivinginthe differentpartsof the worldsare now emerging
nowMTV hasbecome local channel,ordinarypeople wearlevisJeansandthe accesstothe McDonald
pizzaisveryeasy.
Nownot onlybigmultinationalsbutalsosmall companieswhowere lackof resourcescannow reachthe
customersinternationally.Thisall happeneddue tothe globalizationof markets.Manybigmarketshave
emergedintoone singlemarketdue tothe customer'sneedsanddemands.Sothisgivesbenefitstothe
consumersandthe producersas well.

5. The globalizationofproduction meansthatthe worldhasbecome the global villageandnow the
producerscan getthe benefitfromthe differentculture andcheaplaborsall aroundthe world.Now the
companies move tootherpartsof the worldwhere theygetthe productat lost cost.There isanother
reasonfor thisisthisis happeneddue tothe natural resourcesthe countries have andhow muchthey
facilitate the foreigninvestment tocome totheircountiesand investtheirmoneyinthose countries.By
keepingvariousactionthe companycan reduce overcostof the production,canproduce innovative
produce and can compete inthe marketinthe betterway.
Nowthe whole scenariohaschangedthe companieswhoare makinganythingtheyare producingthing
indifferentcountrieslikewe cantake the example of the Hondawhoismakingthe spare parts in china,
assemblingthe productsinPakistananddesigningthe engine inthe Japansothe productionis
distributedintothree commonplaces.Thistermismore widelyusedasthe globalizationsof products
the thingswhichneedhightechnological knowledgeare giventothose countieswherethe people are
highlyskilled.
The Bretton Woods Organizations.
INTRODUCTION:
The name, World Bank, is somewhat misleading. It is not a bank, or even a single organization. The World Bank is the
overarching name for a group of organizations that works together to promote the welfare, e.g. reduce poverty and to
improve the living standards of people in developing countries. Each piece of the World Bank structure plays a role in
working toward this goal. Generally World Bank is an international organization dedicated to providing financing, advice
and research todeveloping nations to aid their economic advancement.As membership grew,and needs change,the World
Bank expanded and nowcomprises five different institutions that together make up the World Bank Group:
 InternationalBank for Reconstruction and Development (IBRD)
 InternationalDevelopment Association (IDA)
 InternationalFinance Corporation (IFC)
 Multilateral Investment Guarantee Agency (MIGA)
 InternationalCentre for Settlement of Investment Disputes (ICSID)

6. Basic concept of international business
1. Exporting and Importing: Exporting is concerned with the selling of
domestic goods in another country. Importing is concerned with purchasing
goods made in another country.
 Balance of Trade: The Balance of trade represents the difference between the
visible export and import. It may be shown in the following way.
 Balance of Trade= Visible export-Visible import.
 Favorable balance of trade: Favorable balance of trade indicates that a
country’s export is higher that its import.
 Unfavorable balance of trade: When a country’s imports are higher than its
exports, then it is called unfavorable balance of trade.
 Balance of Payment: A Balance of payment represents the difference between visible plus
invisible export and visible plus invisible import. It may be shown in the following equation.
 Balance of payment = (Visible export + invisible export)-(Visible import
+invisible import)

7.  Favorable balance of payment: If more money is flowing in the country than flowing out
of the country.
 Unfavorable balance of payment: An unfavorable balance of payment exists when more
money is flowing out of the country than flowing in.
 Exchange Rate: It is the rate at which one country can exchange its currency with other
country’s currency. Exchange rate is of four types:
 Devaluation: Reducing the value of nation’s currency in relation to currencies of other
nations.
 Revaluation: revaluation increased the value of a country’s currency in relation to that
of the other countries.
 Fixed exchange rate: It is an unvarying exchange rate, which is set by the government.
 Floating exchange rate: An exchange rate that fluctuates with market conditions
Reasons for International Business
There are some certaincausesinour dailylife thatwhywe needinternational business.So,here we
describe some reasonsforinternational businessbelow:
 No nation in the world can produce all of the products that its people need and want.
 Some nations have an abundance of natural resources and lack of technological know-how,
like Saudi Arabia and some there countries have sufficient technology but few natural
resources, like Japan.
 If a country becomes self sufficient then other nations would like to trade with that country
in order to meet their people’s want.
Other two (2) main reasons for international business are:
1. Absolute advantage
2. Comparative advantage
1. Absolute advantage: When a country has a monopoly in producing specific products or
when the country produces a product more cheaply than all other nations of the world it is
called absolute advantage. Absolute products are mainly given by the nature. For example-
South Africa produces diamond, Saudi Arabia and some Middle Eastern Countries produce
oil, gold etc.
2. Comparative advantage: A country should produce and sell those types of goods and
services in which it enjoys more advantages than any other country and exchanged the
surplus with that country. For example, USA produces aircraft, computer, etc. and
exchanges their surplus with Bangladesh.

8. Advantages and Disadvantages of International Business
Thoughinternational businessare mostimportantfora country’seconomybutthere are some
advantagesand disadvantagesof internationalbusinesswhichare describedindetail below:
Following are the advantages of international business:
1. Earning valuable foreign currency: A country is able to earn valuable foreign currency
by exporting its goods to other countries.
2. Division of labor: International business leads to specialization in the production of goods.
Thus, quality goods for which it has maximum advantage.
3. Optimum utilization of available resources: International business reduces waste of
national resources. It helps each country to make optimum use of its natural resources.
Every country produces those goods for which it has maximum advantage.
4. Increase in the standard of living of people: Sale of surplus production of one country
to another country leads to increase in the incomes and savings of the people of the former
country. This raises the standard of living of the people of the exporting country.
5. Benefits to consumers: Consumers are also benefited from international business. A
variety of goods of better quality is available to them at reasonable prices. Hence,
consumers of importing countries are benefited as they have a good scope of choice of
products.
6. Encouragement to industrialization: Exchange of technological know-how enables
underdeveloped and developing countries to establish new industries with the assistance of
foreign aid. Thus, international business helps in the development of industry.
7. International peace and harmony: International business removes rivalry between
different countries and promotes international peace and harmony. It creates dependence
on each other, improves mutual confidence and good faith.
8. Cultural development: International business fosters exchange of culture and ideas
between countries having greater diversities. A better way of life, dress, food, etc. can be
adopted form other countries.

9. Advantages of International Business
9. Economies of large-scale production: International business leads to production on a
large scale because of extensive demand. All the countries of the world can obtain the
advantages of large-scale production.
10. Stability in prices of products: International business irons out wide fluctuations in the
prices of products. It leads to stabilization of prices of products throughout the world.
11. Widening the market for products: International business widens the market for
products all over the world. With the increase in the scale of operation, the profit of the
business increases.
12. Advantageous in emergencies: International business enables us to face emergencies. In
case of natural calamity, goods can be imported to meet necessaries.

10. 13. Creating employment opportunities: International business boosts employment
opportunities in an export-oriented market. It raises the standard of living of the countries
dealing international business.
14. Increase in Government revenue: The Government imposes import and export duties for
this trade. Thus, Government is able to earn a great deal of revenue from international
business.
15. Other advantages:
 Effective business education
 Improvement in production systems.
 Elimination of monopolies, etc.
A flowchart given below will give at a glance idea about advantages of international business.
Disadvantages of international business are as follows:
1. Adverse effects on economy: One country affects the economy of another country through
international business. Moreover, large-scale exports discourage the industrial
development of importing country. Consequently, the economy of the importing country
suffers.
2. Competition with developed countries: Developing countries are unable to compete with
developed countries. It hampers the growth and development of developing countries,
unless international business is controlled.
3. Rivalry among nations: Intense competition and eagerness to export more commodities
may lead rivalry among nations. As a consequence, international peace may be hampered.
4. Colonization: Sometimes, the importing country is reduced to a colony due to economic
and political dependence and industrial backwardness.
5. Exploitation: International business leads to exploitation of developing countries the
developed countries. The prosperous and dominant countries regulate the economy poor
nations.
6. Legal problems: Varied laws regulations and customs formalities followed different
countries, have a direct b earring on their export and import trade.
7. Publicity of undesirable fashions: Cultural values and heritages are not identical in all
the countries. There are many aspects, which may not be suitable for our atmosphere,
culture, tradition, etc. This, indecency is often found to be created in the name of cultural
exchange.

11. Disadvantages of International Business
8. Language problems: Different languages in different countries create barriers to establish
trade relations between various countries.
9. Dumping policy: Developed countries often sell their products to developing countries
below the cost of production. As a result, industries in developing countries of the close
down.
10. Complicated technical procedure: International business in highly technical and it has
complicated procedure. It involves various uses of important documents. It required expert
services to cope with complicate procedures at different stages.
11. Shortage of goods in the exporting country: Sometimes, traders prefer to sell their goods
to other countries instate of in their own country in order to earn more profits. This results
in the shortage of goods within the home country.
12. Adverse effects onhome industry: International business poses a threat to the survival of
infant and nascent industries. Due to foreign competition and unrestricted imports
upcoming industries in the home country may collapse.

12. 7 Major Barriers to International Trade
International trade is the most important and most profitable business now a days but there are
some barriers to international trade. For desiring to enter into international trade, we face some
obstacles and those are discussed below:
Barriers to international trade
1. Cultural and social barriers: A nation’s cultural and social forces can restrict
international business. Culture consists of a country’s general concept and values and
tangible items such as food, clothing, building etc. Social forces include family, education,
religion and custom. Selling products from one country to another country is sometimes
difficult when the culture of two countries differ significantly.
2. Political barriers: The political climate of a country plays a major impact on international
trade. Political violence may change the attitudes towards the foreign firms at any time.
And this impact can create an unfavorable atmosphere for international business.
3. Tariffs and trade restrictions: Tariffs and trade restrictions are also the barriers of
international trade. They are discussed below:
o Tariffs: A duty or tax, levied against goods brought into a country. Tariffs can be
used to discourage foreign competitors from entering a digestive market. Import
tariffs are of two types-protective tariffs and revenue Tariffs.
o Quotas: A limit on the amount of a product that can leave or enter a
country.
o Embargoes: A total ban on certain imports or exports.
Barriers to international trade
4. Boycotts: A government boycott is an absolute prohibition on the purchase and
importation of certain goods from other countries. For example: Nestle products were
boycotted y a certain group that considered the way nestle promoted baby milk formula to
be misleading to mothers and harmful to their babies in less development counties.

13. 5. Standards: Non-tariff barriers of this category include standers to protect health, safety
and product quality. The standards are sometimes used in an unduly stringent or
discriminating way to restrict trade.
6. Anti dumping Penalties: It is one kind of practice whereby a producer intentionally sells
its products for less than the cost of product in order to undermine the competition and take
control of the market.
7. Monetary Barriers: There are three such barriers to consider:
o Blocked currency: Blocked currency is used as a political weapon is response to
difficult balance payments situation. Blockage is accomplished by refusing to allow
importers to exchange their national currency for the seller’s currency.
o Differential exchange rate: The differential exchange rate is a particularly
ingenious method of controlling imports. It encourages the importance of goods the
government deems desirable and discourage importation of goods the government
does not want. The essential mechanism requires the importer to pay varying
amount of domestic currency for foreign currency with which to purchase products
indifferent categories. Such as desirable and less desirable products.
o Government approval for securing foreign exchange: Countries experiencing
severe shortages of foreign exchange often use it. At one time or another, most
Latin American and East European countries have required all foreign exchange
transactions to be approved by central bank. Thus importers who want to by foreign
goods must apply of ran exchange permit that is permission to exchange an amount
of local currency for foreign currency.
Forms of international business
1. Exporting: Exporting means producing/procuring in the home market and selling
in the foreign market. Exporting is not an activity just for large multinationa l
enterprises; small firms can also make money by exporting. In recent days,
exporting has become easier though it remains a challenge for many firms.
2. Licensing: A licensing is an agreement whereby a licencor grants the rights to
intangible property (patents, intentions, formulas, processes, designs, copyrights
and trademarks) to another entity (licensee) for a specified period and in return
the licencor receives a royalty/fee from the licensee.
3. Franchising: Franchising is basically o specialized form of licensing in which
the franchiser not only sells intangible property to the franchisee but also insists
that the franchisee agrees to abide by strict rules as to how it does business.
4. Joint venture: A joint venture entails establishing a firm that is jointly owned
by two or more independent firms.

14. Forms of International Business
5. Management Contracts: A firm in one country agrees to operate facilities or
provide other management services to a firm in another country for an agreed
upon fees.
6. Turnkey projects: In a turnkey project, the contractor agrees to handle every
details of the project for a foreign client, including the training of operating
personnel. At completing of the contract the foreign client handles the ‘key’ of a
plant that is ready for full operation
7. Strategic international alliances : A strategic international alliance is a business
relationship established by two or more companies to cooperate out of mutual
need and to share risk in achieving a common objective.
8. Direct foreign investment: Direct foreign investment is another important form
of international business. Companies may manufacture locally to capitalize on
low cost labor, to avoid high import taxes, to reduce the high cost of
transportation to market, to gain access to raw materials or gaining market entry.