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International Business And Globalisation

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Question:

Discuss about the International Business and Globalisation.
 
 

Answer:

Introduction

In the age of globalisation most of the companies in the world are emphasising on expanding their business to the international market to reap the benefit of the global market. Only operating the business in the domestic market will not give the company competitive edge in the market. Operating in the international market gives scope to the company to expand their market & getting access to the new market in order to introduce their products. International business helps an organisation to take the help of cheap labour & capital to produce their products at cheaper rate. This increases the profitability of the company. Expanding the company in the international market helps the company in incorporating different values & ideas of the country in the organisational culture (Peng et al., 2008). International business is also helpful in earning reputation in the international market & increasing the brand image. Most of the large business organisations are trying to reap the advantage of the globalisation. Globalisation has made the business process in the international market smooth & easy. Different restrictions imposed earlier on different organisations to do business in other countries have been diluted after the globalisation. If the organisation is restricted only to the domestic country, it reduces the scope to sustain in the market in the competitive market. Those organisations which are operating across the globe are able to gain various experiences from the work culture or organisational culture of other organisations. In the age of globalisation most of the large business organisations are competing with other business organisations across the world (Ball et al., 2012). On the other hand to operate the business in other countries it is imperative for the organisation to follow the rules, regulations & government policies in that country.  

 

Background of the Company

In case of Australia there are large numbers of retail organisations which are operating in the international market. These organisations are operating successfully in different overseas market. One of the retail giant in the Australian market is the Woolworths Limited. It operates its business in the Australia & New Zealand markets. In terms of the retail ranking in the Australian market, Woolworths Limited is second largest retail organisation. The world ranking of the organisation is 19th. Though this company has huge market share in the domestic country, it has shown interest in expanding the market in international market & in particular in emerging nations. Among few emerging nations India is one of the rapidly growing & emerging markets in the world. The Woolworths Limited has taken the decision to expand the business in the Indian market. The main objective of the Woolworths Limited is to take advantage of the emerging economy. Since the Indian economy has large market area, it will give huge opportunity to Woolworths Limited to expand the market base. Beside this the setting unit in the Indian market, the organisation would be in a position to take the advantage of cheap labour & capital (Daniels et al., 2009). This will help the organisation to increase its profit structure. 

Brief introduction to chosen country

India is one of the emerging markets in the world. The Indian economy is growing at a rapid pace due to the increase in the per capita income of people of the country. Due to the increase in the income level people their purchasing power has increased significantly. The economic condition of the country is comfortable now in comparison to the other emerging nations. One of the biggest advantages of the Indian market is the demographic factor. The Indian labour market is young compared to other world economies. This is a positive factor for the Indian economy in the sense that the productivity level of young employees is high. This helps an economy to grow at a rapid pace. The projected growth rate of the Indian economy is 7.7% in the year 2017. This signifies that the Indian economy is fastest growing emerging economy in the world. The main reason behind the increase in the growth rate of the Indian economy is the high private consumption rate (Dunning, 2012). Hence the Indian market is very attractive market for the foreign investors. The incumbent Indian government is emphasising more on the foreign direct investment. This gives large opportunity to international companies to expand their business in the Indian market. Different domestic policies are also helpful for the Indian economy to become the fastest growing emerging market in the world.

 

Economic Analysis

The Indian economy is the most lucrative destination in terms of investment for most of the international companies. Since the Indian economy is experiencing largest growth rate, investing in the Indian market is beneficial for any business organisation to reap the benefit of the consumer as well as the labour market (Johnson et al., 2006). Since, in terms of size the Indian market is large enough & there are varieties of customers in the country. Tastes & preferences of people also differ significantly. Hence, there is wide scope for organisations to introduce large varieties of products in the country. As mentioned above the Indian economy is growing at the fastest rate among all emerging economies & the growth rate is expected to be 7.7 % in the year 2017. There are different macro economic factors which determine the performance of the economy. These are the GDP growth rate, the unemployment rate, the inflation rate, the fiscal position etc. these factors determine the economic position of any country in the world. The economic analysis of any country is very essential for different international organisations in taking decisions regarding investment. No organisation would want to invest in a market where the per capita income is very low; unemployment rate is very high or monetary policies of the respective country are unfavourable in nature. These factors demotivate any originations to invest in any country. In case of the Woolworths Limited, it has shown interest to expand the business to the Indian market. The main reason behind this decision is the economic factors of the country (Rugman & Collinson, 2009 ). Since macro economic factors of any nation play an important role in attracting any international company to invest in the nation, hence proper analysis of the economic factors is necessary. The unemployment rate of the economy is 4.7%. In terms of population this is a high percentage. The Woolworths Limited has to take the opportunity of this unemployment rate. If the unemployment rate is high, the demand for labour in the economy is low & this makes the labour less expensive & cheap. If the Woolworths Limited can utilise this opportunity to produce their products at low cost, it will help the organisation to reduce their price of their product in the market & this will act as the competitive advantage for the company. Lowering the price of the product helps the organisation to attract more customers & increase the customer base. Globalisation has changed the choice & preferences of customers. Customers have now wider options in terms of varieties of the products & introducing new products in the market will help the organisation to attract new customers. In case of the inflation rate, it is stable in nature. The current inflation rate of the economy is 3.65%. This helps in keeping the price structure of different products stable. Hence, people would have enough income in the hand to spend in varieties of products. If Woolworths Limited invests in the Indian market, it will be beneficial for the company to take advantage of these macro economic variables.

 

Political & Legal Analysis

Political factors of an economy also play an important role in the decision making process of an organisation regarding the investment in any oversees country. Political factors most of the time act as the barrier for different organisations (Czinkota et al., 2009). Political factors are dependent on the ideology of the incumbent government of the nation. It is very volatile in nature. The political decisions of one political party may not suit the ideology of the other political party. These factors have to be taken in to consideration while making the investment decision. Other than this the political stability is another determinant factor in this case. If the internal condition of the country is favourable for any organisation to invest, then it attracts other international organisations. If any country experiences different political turmoil on a regular basis, it restrains an organisation from investing in that country. In case of India the political stability is another positive factor for attracting foreign investment. The Indian government has shown large interest in attracting foreign investment. Foreign investment will help the Indian economy to expand further.  Another important factor in this case is the geopolitical factors. The relation of any nation with other nations also determines the amount of the foreign investment in the host nation. If the relation between two nations is good, one country facilitates business expansion of the other nation. In this specific case the Woolworths Limited is an Australian company & it wants to invest in the Indian economy (Kolk & Van Tulder, 2010). Hence, if the political relation between India & Australia is stable, it will facilitate the expansion of the business. Now the political relation between both the nations is stable & this will provide huge scope to Woolworths Limited to establish their unit in India.

On the other hand the legal factors are also responsible for the expansion of the international business. In India different acts & legislations are present, which have to be taken into account by any company before investing in the country. Legal aspects of the country act as a hindrance in many cases. In case of India few acts have been enacted to make the business process smooth & at the same time to reduce the intensity of the illegal aspects attached to the business process. These acts are Foreign Exchange Management Act, 1999 (FEMA) and Regulations, Foreign Trade (Development and Regulation) Act, 1992, Companies Act, 1956, Arbitration and Conciliation Act, 1996, Foreign Direct Investment Policy (FDI Policy), Competition Act, 2002 etc. Different regulatory boards are responsible in handling these policies & facilitating the foreign investments. These are the Foreign Investment Promotion Board of India (FIPB), Government of India, Securities and Exchange Board of India (SEBI), Directorate General of Foreign Trade (DGFT), Government of India, Department of Industrial Policy and Promotion (DIPP), Government of India.

 

Culture and Ethics

Another important factor in this respect is the cultural & ethical issues of a nation. Culture can be defined as sharing the common value & norms among different group of people in a society. The culture & tradition of a nation is different from other nation. In India large section of people still believe in the traditional lifestyle. It is important to provide respect to the culture & tradition of a nation (Wild et al., 2014). When an organisation invests in any country, it is the responsibility of the organisation to take care of the interests of the people of the nation. If in case of introducing any product in any market hurts the interest of the people in the society, it affects the reputation of the organisation in a negative manner. Since India is a multicultural & multi religious country, hence it is difficult to take care of interests of different sections of the society. Hence, in case of the Woolworths Limited it has to keep in mind that they have to safeguard the interests of people of the nation. On the other hand it will be able to successfully run the business in Indian market, if it launches product on the basis of the choice & preferences of the people.

Similarly, the ethical issues are also vital to be taken care of in case of the expanding market in the world market. In case of any country there are different socio-cultural barriers & the responsibility of the organisation is to take care of these issues. In case of India there are different cultural issues those the organisation must consider while taking the business decisions. Showing respect to customers’ tastes & preferences help in earning customer loyalty. The organisation has also to provide support to the society in which it is doing the business operation & this is a part of the corporate social responsibilities. In case of Woolworths Limited it has to consider different ethical issues to successfully run the business operation in the Indian market (Audi, 2009). Other than this another ethical issue is the competition in the market. The organisation should not adopt any illegal strategies to expand the market. Any policy adopted by the Woolworths Limited should not violate policy decisions or acts of the country.

Conclusion

From the above discussion it can be said that the importance of the international business has increased multiple times after the globalisation. Only operating the business in the domestic market is not sufficient for the organisation to expand the business & gain brand loyalty, business in the international market helps the organisation to reap the benefit of the large market, large number customer base & cheap factors of production. Hence, the Woolworths Limited has taken the decision to expand the market in an emerging nation. Since India is a fastest growing emerging nation in the world, it is the best place to expand the business & take the advantage of large market base (Czinkota et al., 2009). To establish business in India it has to take care of the cultural, political, economical & ethical factors in order to operate the business successfully.

 

References

Audi, R. (2009). Business ethics and ethical business (p. 21). New York: Oxford University Press.

Ball, D., Geringer, M., Minor, M., & McNett, J. (2012). International business. McGraw-Hill Higher Education.

Czinkota, M. R., Ronkainen, I., Moffett, M. H., Marinova, S., & Marinov, M. (2009). International business. Wiley.

Daniels, J. D., Radebaugh, L. H., Sullivan, D. P., & Salwan, P. (2009). International business. Pearson Education India.

Dunning, J. H. (2012). International Production and the Multinational Enterprise (RLE International Business). Routledge.

Johnson, J. P., Lenartowicz, T., & Apud, S. (2006). Cross-cultural competence in international business: Toward a definition and a model. Journal of International Business Studies, 37(4), 525-543.

Kolk, A., & Van Tulder, R. (2010). International business, corporate social responsibility and sustainable development. International business review, 19(2), 119-125.

Peng, M. W., Wang, D. Y., & Jiang, Y. (2008). An institution-based view of international business strategy: A focus on emerging economies. Journal of international business studies, 39(5), 920-936.

Rugman, A. M., & Collinson, S. (2009). International business. Pearson Education.

Wild, J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited.

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