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Global Business Context

A. Global Business

Globalization is an old program advocated by economic countries forward to free international trade around the world through agreement. It also comes to mean the relocation of production activities or services to places that have much lower labor costs. Thus, global business can be interpreted as import-export activities goods and services by two or more countries. Global business consists of transactions designed and implemented across national borders to satisfy individual, corporate and organizational goals. These transactions take various forms, which are often interrelated. The main types of international business are import- export trade and foreign direct investment (FDI). The latter is carried out in various forms, including wholly-owned subsidiaries owned and joint venture. Additional types of international business licenses, franchises, and management contracts. Global business refers to international trade whereas global business can be interpreted as a company doing business around the world. International trade has always had a mixed character in which organizations national and private companies have both participated, in which monopolies have been imposed, often defended by the armed forces, where all kinds of barriers and tariffs have been common and participants have made everything sorts of attempts to counter such interference or to profit from it.


B. Factors driving global business

As we know a country has needs in country that must be met, but the problems faced by all The state is an unlimited domestic need while the state’s production capacity and resources are limited in meeting domestic needs, so that the state needs assistance from other countries which is channeled through global business. Thus, the things that can encourage the creation of a global business are as follows:



1. Limited production and resources of a country. Indonesia is country

agrarian, but in the rice agriculture sector, Indonesian rice production has not been able to meet the rice needs of its people, so that Indonesia is still importing rice from Thailand and several other countries. Global business is one of the country’s efforts to solve the problem of limited limited goods needed for the community.


2. The technological limitations of a country

Countries that are generally still have a number of problems in production goods to meet the needs of the community, one of which is technology which is still low. It is clear that Indonesia is a rich country for petroleum resources, but due to low human resources, Indonesia imports outside technicians to process oil the earth.


3. There are considerations of efficiency in producing an item

Inside a production efficiency is highly considered, both time and capital efficiency are taken into account. This is the reason why Indonesia does not yet have its own petroleum refinery, because the costs that Indonesia will incur are greater than exporting crude oil and then buying finished oil. So that it is not efficient and importing oil is the right choice for Indonesia.


4. There is an aspiration to go international for a company

In the world of international trade, it is a dream for every company, by going international, their products are famous throughout the country and automatically their consumers become bigger along with high profits.


Global business also brings considerable benefits in the world of trade, and becomes the future of the business world in the future. If we look at some of these driving factors, we can see that global business has pros and cons in the business world. As for the pros and cons of business global are as follows:


Pro

  • The global market has 6 billion potential customers for goods and services.
  • Productivity grows when countries produce goods and services where they have a comparative advantage.
  • Global competition and cheaper imports keep prices fixed cheap so that inflation does not reduce economic growth.
  • Free trade inspires new product innovation and makes companies are constantly being challenged competitively.
  • The uninterrupted flow of capital gives the country access to investment foreign exchange which helps in keeping interest rates low.


Counter

  • Domestic workers (especially manufacturing workers) may lose their jobs due to imports or the shift of production to low-paying global markets.
  • Workers may be forced to accept pay cuts from employers which can threaten to move operations overseas due to competitive pressures which often means loss of service jobs and growth in the number of goods and services and growth in the number of white-collar workers.
  • Domestic firms can lose their comparative advantage when competitors build sophisticated production operations in low-paying countries.


C. Theories of Comparative and Absolute advantage

Global trade involves the exchange of goods and services across national borders. However, exchange between countries involves more than goods and services. Countries also exchange arts, sports, cultural events, progress medicine, space exploration and labor. The theory of comparative advantage stated in the early 19th century by the British economist David Ricardo is a guiding principle that supports a free economy.


Theory of Comparative Advantage state that a country must sell a product that it can produce most effective and efficient to other countries and buy from other countries products from other countries products that it cannot produce with effectiveness and the same efficiency. For example, the United States has a comparative advantage in producing goods and services, such as software and technical services, will On the other hand, the United States has a comparative advantage in terms of coffee farming and shoemaking so much of the United States import from other countries. Through specialization and trade The United States and its trading partners can realize exchanges that are win-win solution.


Absolute advantage theory if the country has monopoly in producing a certain product or being able to produce it more efficiently than all other countries. For example, South Africa once had an absolute advantage in diamond production. Currently, there are very few examples of absolute advantage in global market.


Measuring Global Trade In measuring global trade, countries follow two key indicators balance of trade and balance of payments. The balance of trade is the total value of a country’s exports compared to its imports measured over a period of time. A favorable balance of trade (trade surplus) occurs when the value of a country’s exports exceeds its imports. An unfavorable trade balance (deficit) occurs when the value of a country’s imports exceeds the value of its exports.


Balance of payments is the difference between money coming into a country (from exports) and money going out of the country (for imports) plus money flowing into or out of a country from other factors, such as tourism, foreign aid, military spending, and investment. The goal is to always keep more money flowing into a country than money out of the country the. By understanding some of these indicators we can already measure global trade, if the value of exports is higher than imports, the country will have a trade surplus but when the value of its exports falls compared to the value of imports, the country experiences a trade deficit. If the trade deficit continues to occur, a country will experience a currency depression, compared to the dollar which is a medium of world trade exchange.



D. Strategy to Reach Global Market

Businesses can use different strategies to compete in the market key global strategies, including licensing, exporting, franchising, contract manufacturing, forming joint ventures and strategic alliances internationally, creating foreign branches, and engaging in global markets, together with certain commitments and risks.


a. Licensing

A company may decide to compete by licensing the right to manufacture its product or use its trademark to a foreign company (the licensee) in exchange for a fee (royalty). A company interested in licensing usually sends a company representative to the manufacturer foreigners to help organize operations. A licensing agreement can be useful for a company in a number of ways. Through giving license, an organization can generate additional revenue that previously could not be produced in its domestic market. In addition, foreign licensees often have to purchase startup supplies, component materials, and consulting services from the licensing company. This agreement is very profitable for companies such as Disney, Coca-Cola and Altria. These companies often enter foreign markets through licensing agreements which are usually extended into long-term contracts long-term services, for example the Oriental Land Company owns and operates Tokyo Disneyland and Tokyo Disney Sea Park under a licensing agreement, Disney also incurs management and consulting fees.


b. Export

As global competition intensifies, the U.S. Department of Commerce created Export Assistance (EAC). EAC provides direct export assistance and trade finance support for small to medium sized businesses that wish to directly export goods and services. The EAC network exists in more than 100 US cities and 80 countries, with plans for further expansion. This activity is very important because it has been estimated that small and medium sized companies represent 98 percent of the growth in the exporting population in the United States.


c. Doing Contract Manufacturing

Contract manufacturing involves a foreign company producing private label goods in which a domestic company then attaches its own brand name or trademark to the goods. For example, Dell entered into a contract with Quanta Computer of Taiwan to manufacture notebook PCs that are branded Dell by the company, Singapore-based Flextronics manufactures cell phones, printers, and telecommunications equipment for many US companies. Or Nike has more than 700 contract factories worldwide that manufacture its footwear and apparel.


d. Joint Ventures and International Strategic alliances

A joint venture is essentially a partnership relationship in which two or more companies (often from different nations) join forces to undertake a major project. Joint ventures are often mandated by governments, such as China as a requirement to do business in their country. Joint ventures are also developed for other business reasons, apart from The venture has several benefits, namely as follows:

  1. share technology and risk.
  2. share marketing and management skills.
  3. to enter a market where foreign companies are often not allowed unless the goods are locally produced.

Global markets are also driving the growth of strategic alliances. A Strategic Alliance is a long-term partnership relationship between two or more companies that is formed to help each company build a competitive market advantage. However, unlike joint ventures, strategic alliances usually do not involve the sharing of costs, risks, management, or even profits. Alliances such as these provide access to markets, capital, and technical expertise that causes global executives and consultants to predict that few companies in the future that will succeed globally will succeed globally by working alone.



e. Foreign Direct Investment

Foreign direct investment is the gift of property and permanent business in foreign countries. The most common form of foreign investment direct is a foreign branch. Foreign branch is company owned in a foreign country by another company (parent company) This branch operates like a domestic company, with production, distribution, promotion, pricing, and other business functions under the control of the parent located in the home country and the foreign country where branch is the host country must be observed. The main advantage of a branch is that it maintains complete control over all its technology or expertise. The main drawback of a branch is that the parent company puts the funds and technology in large numbers outside foreign borders. If the relationship of the host country disconnected company assets can be taken over by the foreign government. This kind of expropriation is called expropriation. A multinational corporation is an organization that manufactures and markets products in many different countries and has multinational shareholding and multinational management. Multinational corporations are usually very large corporations like Netslé, but not all large companies involved in global business are multinationals.


E. Trade Barriers

To succeed in any business requires effort. Unfortunately, the hurdles are higher and complex in global markets. This is especially true in dealing with socio-cultural differences, economic and financial power, legality and regulation, and physical and environmental forces. The forms of trade barriers include:


1. Sociocultural

The word culture refers to the set of values, beliefs, rules, and institutions that held by certain groups. Culture can include social structure, religion, behavior and habits, values ​​and attitudes, language, and personal communication. If we hope to engage in global trade, it is important to realize cultural differences between countries.


2. Economics and finance

The economic condition of a country greatly determines the stability of global business, for example, the exchange rate is influenced by the stability of the country’s economy. The exchange rate is the value of one country’s currency relative to another country’s currency. Changes in a country’s exchange rate can have important implications in global markets. A high dollar value means that a dollar can be exchanged for more foreign currencies than ever before. Global financial markets operate under a system called floating exchange rates in which currencies “float” according to supply and demand in the global market for currencies. This supply and demand was created by a global currency trader who develops a country’s currency market based on the notion of the trade and investment potential of the country the. Devaluation is the act of lowering the value of a country’s currency relative to other currencies. In cases like this due to the weakness of a country’s currency, the only possible trade is through its oldest form; barter. Trade exchange is a complex form of barter involving several countries in it, each each exchanges goods for goods and services for services.


3. Legal and regulatory powers

In any economy, the conduct and direction of business are tightly bound to the legal and regulatory environment. In the United States, federal, state, and local laws, and other government regulations have a profound impact on practice business. Some forms of government policies towards global business as following:

  • tariffs or customs. Tariffs are taxes on imported products.
  • Quotas. Quotas limit the number of units that can be imported to limit quantity of the good in the market and raise the price.
  • Subsidies. Subsidies are government assistance to local producers. Subsidy generated from taxes. The forms of subsidies include financial assistance, low interest loans and others.
  • Local content
  • Administrative regulations
  • Anti-dumping regulations

4. Physical and environmental strength

Certain physical and environmental forces can also have an impact on a company’s ability to do business in conducting global markets. In fact, technological limitations can make it difficult or even impossible to build a large global market. For example, some countries developed to have transport and storage systems so primitive that international distribution is no longer effective, if not impossible. This is especially the case when it comes to food that often goes bad by the time it reaches the market in a certain country.


F. Trade Protection

Like money we discussed in the previous section, power sociocultural, economic in financial, legal and regulatory, and physical and environmental are all challenges to trade global. But what is often the bigger hurdle to the global is trade protectionism. Trade protection is the use of government regulations to restrict imports of goods and services. Advocates of trade protectionism believe these measures allow domestic producers to survive and grow, and generate more jobs. Countries often use action protectionism to guard against dumping practices while those who others to be wary of foreign competition in general. To understand more let’s review a brief history of economic history global. Business, economics and politics have always been closely linked. What are we now call the economy formerly referred to as political economy which shows the close ties between politics (government) and the economy. In the century The 17th and 18th business people and government leaders espouse the faith economy called mercantilism. Idea from mercantalism is for a country to sell more goods to other countries than what he bought from them, i.e. always had favorable trade balance. According to the mercantalists this activity generates a flow of money into the country that sells the most globally. This philosophy makes the government impose tariffs which are basically taxes levied on imported goods, thereby making imported goods more expensive to buy. In general, there are two different types of protective and income tariffs. Rates protection (import taxes) designed to increase the retail price of imported products, so that the price of domestic goods becomes more competitive. In addition a Countries protect their trade with a policy including quotas, subsidies, the purpose of which is to influence the price and number of foreign-made products circulating in their national market. Quotas aim to limit the total number of certain types of goods that can be imported into a country, the highest form of quota is an embargo, namely a government instruction that prohibits the export and/or import of certain products and even all products from certain countries. Subsidies are a way for the government to increase the export value for domestic companies in order to be able to compete with foreign companies. Subsidy In indirect tariffs, this is applied to lower the prices of goods. domestic goods. Local biological regulations are also one of the ways the State secure their markets from free trade, namely the law that demands that products sold in certain countries are at least partly produced domestically.



G. Global Business Impact

The impact caused by global business can be both bad and good depending on how we look at it. Some things can be considered as impact of globalized business activities. The phenomenon of globalization within the field of transportation which increasingly eliminates the meaning and role of distance demographic. For example, it can be seen that the stronger the role “global door-to-door through international freight system”, which uses container system in relation to the increasingly the implementation of a “just in time inventory” system globally. Revolution in the field of communication that increasingly eliminates the role of time. Long-distance communication can be done directly via telephone and internet, thus saving time, effort and cost. Bilateral negotiations and approaches region has made the flow of goods and services capital flows globally, thereby reducing differences in prices and interest rates such that the profit margin within trade and capital transactions are dwindling. The impact in This trade increases the competition is getting bigger. Business state The global market is also characterized by doubled foreign direct investment and a more competitive world market than usually. Direct investment is an investment method in which the company establishing a new business or buying an existing business overseas, so FDI is a common method used by global businesses. Other signs of increased competition in world markets are the presence of a number of multinational companies (Multinational Company, MNC) and where the MNC is headquartered. Multinational Companies (MNCs) are companies that have business in two or more countries.


International Trade Agreement

Generally, trade is regulated through bilateral agreements between two parties country. For centuries under belief in Mercantilism Most Countries have high tariffs and many restrictions in international trade. in the 19th century, especially in Britain, there were belief in free trade is paramount and this view dominated thinking among western countries for some time since then which led them to the great decline of Britain. In the year of- years since World War II, controversial multilateral treaties such as the GATT and the WTO provide efforts to make global regulations on trade international. These trade agreements sometimes result in protests and dissatisfaction with claims of unfair trade that not mutually beneficial. Free trade is usually strongly supported by most countries who have a strong economy, even though they sometimes do protection selective for strategically important industries such as tariff protection for agriculture by the United States and Europe. Netherlands and United Kingdom both fully support free trade where they are economically dominant, now the United States, Britain, Australia and Japan are biggest supporter. However, many other countries (such as India, Russia, and China) became proponents of free trade because it has become strong economically. As tariff rates fall there is also a desire to negotiate non-tariff ventures, including foreign direct investment, purchasing, and trade facilitation. Other forms of transaction fees associated with meeting trade and excise procedures.