Impact of globalization on international business
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Globalisation refers to the process of interconnection among firms, people and governments of different countries (Lechner, 2009); economies from every country will become closer and interrelated through globalisation as foreign countries are a source of both production and sales for domestic companies. It is obvious that the globalisation has linked with international business as international business consists of all commercial transactions that take place between two or more countries such as sales, investments and transportation.
Globalisation is very common in today’s world. It enables people to travel around the world by improving the transportation and it also helps people to do business in terms of purchase or sell products and services as well as pursuit of business leads. Moreover, globalisation also allows the international communication by improving the technology and it helps businessman to communicate easier with their business partner from other countries.
Globalisation brings both positive and negative impacts on international business. There are rise in competition and rise in investment levels; whereas, the negative impacts on international business are the culture effect and also create more social problems - child labour and slavery as well as environmental issues.
Firstly, globalisation leads to rise in competition. This is because when companies expand their business to different countries this creates competition for domestic businesses in terms of the price, cost and quality of goods and services. This type of competition act as an opportunity for domestic companies to manufacture good quality of products and services and work effectively and efficiently in order to conduct business on a global scale.
This will not only benefit the international business by increasing its market share but will also benefit the host country (foreign country where the company invests) as now people will have variety of products and services of good quality and affordable price due to rising competition. The domestic market of the country will become strong due to foreign company establishing in the country and contribute to economies GDP rate and growth.
One of the examples of company that establishes and contributes to economies GDP rate and growth is General Motors (GM). GM is a multinational company which produces vehicles in United States. They had expanded their business in more than 120 countries including China (General Motors, 2015). When GM expanded its business to China in 2010 and its sales had grown approximately 50 percent in China and 15 percent in United States (Ketchen & Short, 2012).
Secondly, globalisation also affects the investment level in both host countries and home countries. Foreign Direct Investment which is also known as FDI refers to the long term investment owned by investors which can show the flow of capital between countries (Economic Online Ltd, 2015). According to Graham & Spaulding (2005), the definition of FDI refers to physical investment that made by a firm to another country for building factory purpose. FDI of both host countries and home countries will increase by expanding businesses to other country through globalisation.
FDI gives positive effects to host countries in several ways such as technological effect, employment effect and income effect. With FDI, people able to conduct business with new technologies and management skills; this is because FDI enables technology to transfer from developed countries to developing countries. Besides, training will be provided to the domestic workers for operating business with the new technology which will improve their management skills. Moreover, FDI also contribute in the income of host country as earning of FDI will be counted in the corporate tax (Loungani & Razin, 2001).
Globalisation is very common in today’s world. It enables people to travel around the world by improving the transportation and it also helps people to do business in terms of purchase or sell products and services as well as pursuit of business leads. Moreover, globalisation also allows the international communication by improving the technology and it helps businessman to communicate easier with their business partner from other countries.
Globalisation brings both positive and negative impacts on international business. There are rise in competition and rise in investment levels; whereas, the negative impacts on international business are the culture effect and also create more social problems - child labour and slavery as well as environmental issues.
Firstly, globalisation leads to rise in competition. This is because when companies expand their business to different countries this creates competition for domestic businesses in terms of the price, cost and quality of goods and services. This type of competition act as an opportunity for domestic companies to manufacture good quality of products and services and work effectively and efficiently in order to conduct business on a global scale.
This will not only benefit the international business by increasing its market share but will also benefit the host country (foreign country where the company invests) as now people will have variety of products and services of good quality and affordable price due to rising competition. The domestic market of the country will become strong due to foreign company establishing in the country and contribute to economies GDP rate and growth.
One of the examples of company that establishes and contributes to economies GDP rate and growth is General Motors (GM). GM is a multinational company which produces vehicles in United States. They had expanded their business in more than 120 countries including China (General Motors, 2015). When GM expanded its business to China in 2010 and its sales had grown approximately 50 percent in China and 15 percent in United States (Ketchen & Short, 2012).
Secondly, globalisation also affects the investment level in both host countries and home countries. Foreign Direct Investment which is also known as FDI refers to the long term investment owned by investors which can show the flow of capital between countries (Economic Online Ltd, 2015). According to Graham & Spaulding (2005), the definition of FDI refers to physical investment that made by a firm to another country for building factory purpose. FDI of both host countries and home countries will increase by expanding businesses to other country through globalisation.
FDI gives positive effects to host countries in several ways such as technological effect, employment effect and income effect. With FDI, people able to conduct business with new technologies and management skills; this is because FDI enables technology to transfer from developed countries to developing countries. Besides, training will be provided to the domestic workers for operating business with the new technology which will improve their management skills. Moreover, FDI also contribute in the income of host country as earning of FDI will be counted in the corporate tax (Loungani & Razin, 2001).
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The impact of globalization on international business is causing the trade and investment barriers to decline. International trade occurs when a firm exports goods or services to consumers in other countries. Foreign direct investment (FDI) occurs when a firm invests resources in business activities in other countries.
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