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MA Management International Business Environments

Critically analyse and discuss the view from Professor Karl Moore and

Professor Alan Rugman that although multinational enterprises drive

globalisation, yet only a few actually operate globally, as the vast majority

undertake most of their activities in their home ‘Triad’ of the EU, North

America or advanced Asia; and that in fact in reality Globalisation is

about Regionalisation.

Student Name:Ali Raza Khan

Module tutor:

Terry shelves

Submitted On:

Words Count: 2,580

Table of Contents

Table of Contents............................................................................................................2

Introduction:....................................................................................................................3

Growth of International Business:...................................................................................4

Role of Key Institutions:.................................................................................................5

Business Climate at Global, Regional, and National Level:...........................................5

External Environments:...................................................................................................7

Theoretical Concepts on Internationalisation of Firms:..................................................7

Rugman and Moore Views:.............................................................................................8

Conclusions:..................................................................................................................10

References:....................................................................................................................11

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Introduction:

World is facing new challenges while, undergoing varying international business

environments. Although there has not been a whole sale surge in traditional

protectionism governments have persisted with non-tariff based crisis measures that are

protectionist in nature. Trade finance has been significantly affected. We need to ensure

that trade rules encourage food security, the right balance between the rights of owners

and users of intellectual property, and help the shift to a green economy. Regulatory

barriers can also be protectionist in effect and their domestic sensitivity means they are

not always easy to tackle. Multilateral trade negotiations have become increasingly

complex and harder to bring to a conclusion. Finally, there are interactions between

trade, investment, and national security. The domestic and international environmental

forces integrate in between the two countries give rise to have international

environments business (Deresky, 2008, Morrison, 2009).

In broader perspectives, the businesses cross the national borders expand and face the

challenges and threats, (Ball and McCulloch, Jr, 1993). The International business

attracts the firms towards new markets. Since 1950s, the growth of international trade

and investment has been substantially bigger than the growth of national economies.

The International businesses create an environment of learning new ideas, services, and

resources across the world (Czinkota et al., 1999). Porter’s theory of competitive

advantage accounts for comprehensiveness and relevance to the new trade theories

(Hill, 1994). MNEs must create strategies that are not worldwide, but regional. These

MNEs should focus the local consumers as opposed to being global. There is one

misunderstanding about MNEs that they are global and highly powerful in reference to

political aspects. It is clearly known that almost all the firms are not spreading their

marketing activities across the world, as these MNEs depend on their regions of the

triad.

Keeping in view the importance of business environments, including growth of

international businesses, as well as local, national and regional businesses, the followings

are salient objectives in this assignment to:

Critically underpin the growth of international business.

Assess the role of key institutions that affects a firm’s internationalisation process.

Analyse the business climate at global, regional, and national level.

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Critically examine the external environment on organisations overseas expansion

and effectiveness of respective strategy.

Critically discuss theoretical concepts on internationalisation of firms.

However, the main aim refers to discuss the views of Rugman and Moore.

Growth of International Business:

As people, firms, and other organizations have expanded their access to resources,

goods, services, and markets across wider geographical areas, they have also become

more deeply affected (positively and negatively) by conditions outside their home

countries. Globalization refers to the ongoing social, economic, and political process

that deepens the relationships and broadens the interdependencies amongst nations, their

firms, their organizations, and their governments. International business involves all

commercial transactions privately and governmental between parties of two or more

countries. Global events and competition affect almost all large and small firms.

However, the international environment is more complex and diverse than a firm’s

domestic environment (Hill, 1994).

Currently, about 25 percent of world production is sold outside of its country of origin,

restrictions on imports continue to decline, the foreign ownership of assets as a percent

of world production continues to increase, and world trade continues to grow more

rapidly than world production. There are some interrelated factors that have contributed

to the spiralling growth in globalization (Frankel et al., 1999). Vast improvements in

transportation and communications technology like internet have significantly increased

the effectiveness and efficiency of international business operations. Over time most

governments have lowered restrictions on trade and foreign investment in response to

the expressed desires of their citizens and producers. In addition, the General

Agreement on Tariffs and Trade, the development of economic blocs such as the

European Union, and other such facilitating mechanisms have provided increased

access to many foreign markets. Because of innovations in transportation and

communications technology, consumers are well-informed about and often able to

access foreign products. The pressures of increased foreign competition often persuade

firms to expand internationally in order to gain access to foreign opportunities and to

improve their overall operational flexibility and competitiveness (Rugman and Brewer,

2001).

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In addition, the improvements in national infrastructure and the provision of trade-

related services by governments the world over have further led to substantial increases

in foreign trade and investment levels. Governments have increasingly entered into

cross-national treaties and agreements in order to gain reciprocal advantages for their

own firms. Often, such cooperation occurs within the framework of international

organizations such as the United Nations, the International Monetary Fund, the World

Trade Organization, and the International Bank for Reconstruction and Development

(World Bank, 2013).

By this, Companies may increase the potential market for their sales by pursuing

international consumer and industrial markets. Foreign-sourced goods, services,

components, capital, technology, and information can make a firm more competitive

both at home and abroad. Firms seek foreign markets in order to minimize cyclical

effects on sales and profits. Defensively, they may also wish to counter the potential

advantages that competitors might gain from participating in foreign market

opportunities.

Role of Key Institutions:

According to Rose, A (2003), the key institutions that increased the international

business are the World Trade Organization (WTO) and its predecessor the General

Agreement on Tariffs and Trade (GATT), the International Monetary Fund (IMF)

interested in trade creation and has the power of lending with conditionality, but might

be expected to have a smaller effect on trade since it has a number of other worries; and

the Organization for Economic Cooperation and Development (OECD) and its

predecessor the Organization for European Economic Cooperation (OEEC) and

NAFTA is also a key institution in term of laws and regulation.

The WTO describes itself in WTO in Brief, the first sentence of which states

“In brief, the World Trade Organization (WTO) is the only international organization

dealing with the global rules of trade between nations. Its main function is to ensure that

trade flows as smoothly, predictably and freely as possible”.

The Articles of Agreement of the International Monetary Fund clearly states that “The

purposes of the International Monetary Fund are: To facilitate the expansion and

balanced growth of international trade”. The IMF seems to take this objective seriously.

For instance, in 2001 the Fund’s key Policy Development and Review Department

issued Trade Policy Conditionality in Fund-Supported Programs, which begins “Trade

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liberalization has been a key element of Fund-supported programs over the past twenty

years”.

The Fund has the ability to put its desires into practice since it lends with conditionality,

and program conditions often involve trade liberalization (as summarized in PDR’s

document).

Of course the IMF has numerous competing objectives, including: promoting monetary

and exchange stability, encouraging current account and exchange liberalization, and

reducing payments imbalances. And the Fund may indirectly promote trade by

stabilizing income without increasing the ratio of trade to income. For these reasons, the

estimate of Fund membership on trade might be expected to be moderate.

“The Convention on the Organisation for Economic Co-operation and Development

includes that The aims of the Organization for Economic Co-operation and

Development shall be to promote policies designed to contribute to the expansion of

world trade on a multilateral, non-discriminatory basis in accordance with international

obligations.” Furthermore, states that In the pursuit of these aims, the Members agree

that they will, both individually and jointly and pursue their efforts to reduce or abolish

obstacles to the exchange of goods and services. Indeed, the history of the organization

makes the point clearly, as shown by DeLong and Eichengreen (1991). The OEEC,

forerunner of the OECD, was formed to administer American and Canadian aid under

the Marshall Plan for reconstruction of Europe after World War II.

The OECD has a number of “legal instruments” and “acts” to back up its determination

to liberalize trade. Consistent with this, the accession process for joining the OECD

involves trade liberalization. Nevertheless, membership in the OECD comes with no

visible sanctions or rewards that can be used to encourage trade liberalization. Further,

the OECD has broad interests; for instance trade is one of over thirty “themes” on its

homepage

Business Climate at Global, Regional, and National Level:

At global levels, the analysis can be conducted as: First of all choice of target countries,

and which segment in the market, and then devise a competitive strategy, this then gives

rise to have in hand a global program, and it leads to the implementation stage, where

organisational structure and control matters very much, Czinkota, et al. (1999). However,

at global levels, the choice of markets to enter, and to conduct SWOT and Porter’s Five

Forces model are the ways to move forward. The importance recognition of the global

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strategy can be seen since 1990s in reference to globalisation. Whereas, at national levels,

the business climate can be analysed through the organisational resources, and then, its

capability can be assess in moving across the borders. In addition, with the resources

available whether or not satisfy to expand regionally.

While, Ball and McCulloch, J (1993) presented the analysis of domestic, international and

foreign environments and stressed that managers must understand the values of forces

and where these forces can be headed. This commonly suggests a one open question to

the management, whether or not they had the staff meant for planning at each levels with

at least its advantages. In each case, does the organisation have its mission statement?

Despite the fact that Bennett (1996) revealing about international business management

stressed for having international HRM. Furthermore, the role of employees at the

international level is quite different when compared to regional and national levels.

Though, it is accepted that diversity brings talents to the organisations. Therefore, HRM

aspect is highly important to understand and its management at the international level

businesses.

Morrison (2009) offered that some of the issues believed to be national can be global, and

hence these implications required being resolved. Markusen cited Rugman and Brewer

(2001) testified the application of models, as a model carries horizontal and vertical

motives. Whereas, horizontal refers to firm level economies, while vertical motive

derives from differences in factor intensity among processes of production and when this

promotes, as the business goes beyond the cross country.

Rugman and Brewer (2001) also showed the agreements are signed within the contexts of

regional /multinational environmental policy perspectives. Particularly, wherein, there

exits the regional or multinational agreements, the role of a government is clearly known

or not, is a leading question what are the needs to judge? It can be noted that

regionalisation is a driver that forces the functioning of trading agreements such as RU

and NAFTA. It means that MNEs can develop their regional core networks. It further

means that the tax systems can be of different types and hence complicated. Globalisation

has caused many threats to the firms; for instance, poor performance and low

productivity.

External environment

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Environmental factors for international business comprise the external relations a firm

will face in going global. These include, most importantly, the economic, political and

legal environments, each of these always entangled with the others. The central issues

for the decision to go global are concerned with minimizing risk. A company, when

considering the environment that it will deal with when entering a new market, has to

deal with certain variables. This concern, for example, the cultural barriers to

investment, the ability to reach a competitive edge with new investments and the

strategic use of new technologies and natural resources that international investment

might bring. Economic environment comprises the nature of the economic system and

institutions of a particular country or region. It also takes into account the nature of

human and natural resources within the target market. A firm will function very

differently in a libertarian environment than within a highly statist one. Here, the

activities and functions of local economic elites are also very important (Czinkota et al.

1999).

Closely tied to the economic environment is the political one, itself also dealing with the

nature of systems and institutions. Many variables to consider here are the stability of

the political system, the existence of local or international conflict, the role of state

enterprises and the nature of the bureaucracy. The existence of bureaucratic systems and

cultures is central in making the decision to invest globally. The nature of corruption,

local values and assumptions that are built into national ideologies are major variables

in this field. A great concern is the extent to which there is a culture of law or a culture

of personal patronage, where negotiations are done on a personal rather than a legal

basis. The impact of international lending agencies such as the International Monetary

Fund or the World Bank is also important in creating a legal culture that a business will

have to take seriously (Czinkota et al. 1999).

Experts such as Robert Brown and Alan Gutterman hold that social structure comprises

the basic values of a people and transcends the institutions mentioned above. Issues

such as the relation between the individual and the collective, religion, family life and

even time concepts and gender roles are all significant in terms of dealing with a new

population. Being sensitive to these might be the difference between success and failure.

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Theoretical Concepts on Internationalisation of Firms:

Ball and McCulloch, Jr (1993) while, discussing international trade theory presented that

mercantilism is an economic philosophy that basis upon a nation’s wealth. This is based

upon the accumulated treasures, preferably gold. Therefore, governments must have

policy to increase the wealth, which is hidden in the layers of export and visibly should

discourage imports. Whilst highlighting the importance of “Theory of Absolute

Advantage, the scholars presented Adam Smith’s claim about market forces must

determine the direction, volume, and composition of internalisation.

In addition, Beamish et al. (2003) analysed internationalisation of firms and indicated that

ethics is the most burning issue. In broader perspectives, ethics means morals, and moral

choices, including behaviours. The ethical behaviour in one culture might not fit in

another culture. Therefore, the international managers should play a quite positive role in

making their organisations as successful. In addition, there are number of reasons that

make the firms international for instance, a desire for continued growth, an unsolicited

foreign order, domestic market saturation, the potential to exploit a new technological

advantage. The most promising and dominant reason refers to performance of the firms.

Internationalisation has an impact from an inward perspective. Hence, the force the

domestic firms to compete. There is such as importing/sourcing, acting as a licensee for a

foreign company, establishing joint ventures, and fully owned subsidiary of a foreign

firm.

However, there contrasting views for example, a licensor can have a risk of losing

technological advantage, reputation, and profits. Moreover, for the licensee, the risks can

be technology did not work as expected, and above all, costs of certain situations can be

increased. Inkpen (cited in Rugman, 2009) pointed out that each partner should get some

benefit for an alliance. Therefore, the companies at the internal scenarios can take the

advantage and achieve the benefits. The alliance of local and foreign firms can of many

types such as industry consortium, technical training, supplier arrangement, franchising,

management of marketing services and etc.

Rugman and Moore Views:

Rugman (2006) recognised the importance of MNEs and further indicated that key

drivers for globalisation are in fact MNEs. He also presented that though there, 500

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MNEs that are known as biggest, but only 9 in total function globally, while rest of the

MNEs function in their respective domains, which is triad. It means either the MNEs

work in the EU, North America or Asia. It can be seen that 320 MNEs focused at the

regional levels. Concerning assets, the MNEs own in the respective countries or regions.

In an inference, Rugman inferred that 500 firms are not global but regional. Therefore,

it can be concluded that that these firms practice triad strategy instead of global strategy.

In addition, this is the validation of Rugman and Verbeke (2004), wherein they found

that this is more regionalism not globalisation strategy.

Finally, Rugman postulated that there is an urgent need to understand the regional

dimension of international strategy and for this new approach is needed. The managers

were suggested to bring the regional strategies instead of global. However, there are the

sectors such as electronics where global strategy fits well. Rugman and Moore (2007)

pointed out that the products developed by the world’s leading software company are

entering in the global market without restrictions. The researchers noted that the

business world is divided with a triad, and is facing quite un-bearable barriers in the

regional markets. It is known fact that regional markets are as, EU, North America and

Asia. They found that though the Microsoft is classed as the very biggest MNEs but still

cannot be called as global.

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