List of Sub-Topics:

• Introduction
• Forms of International Business
• Conclusion
• Related Topics

In an increasingly interconnected world, companies are finding it essential to look beyond their domestic borders for growth and diversification. Engaging in international business allows firms to expand their customer base, gain access to new resources, and increase profitability. However, the methods by which a company enters a foreign market can vary significantly based on its strategic goals, resources, and risk tolerance. This article explores the major forms of international business—exporting, licensing, franchising, joint ventures, foreign direct investment (FDI), and strategic alliances—and examines the advantages and disadvantages of each approach.

Forms of International Business

Exporting

Exporting is often the first step for companies looking to enter the international market. In this model, businesses sell their goods or services directly to foreign customers or through intermediaries.

Direct Exporting involves the company selling directly to a foreign buyer, often with the help of local distributors. This provides more control over pricing and distribution, but requires a deeper understanding of the foreign market. Indirect Exporting, on the other hand, uses third-party companies, such as export management firms, to handle international sales. This approach reduces the risk and complexity associated with market entry, though it offers less control.

Advantages of exporting include minimal investment and lower risk compared to other forms of international business. Exporting is also a flexible approach, allowing companies to test new markets with limited commitment. However, exporting comes with challenges, including logistical issues, tariffs, and a lack of direct market insight, which can hinder responsiveness to local customer needs.

Licensing

Licensing is a low-risk method where a domestic company (the licensor) grants a foreign company (the licensee) the rights to use its intellectual property, such as patents, trademarks, or technology, in exchange for royalties. Licensing allows the licensor to enter a foreign market without the need to invest heavily in physical infrastructure. This approach is particularly common in technology, pharmaceutical, and entertainment industries, where intellectual property is valuable.

For example, British American Tobacco Company (BATS) has given licenses in many countries for the manufacture of their brand of cigarettes “555”. In India, ITC is the licensed producer of “555”. A domestic company can license foreign firms to use the company’s technology or products and distribute the company’s product.

However, licensing can limit the licensor’s control over how the brand or technology is used, which can impact brand reputation if the licensee does not meet quality standards. Additionally, licensing can inadvertently create future competitors if the licensee becomes proficient in the licensed technology. Monitoring licenses and safeguarding the company’s Intellectual Property Rights can prove to be challenging in an international scenario.

Franchising

Franchising is a popular approach for businesses that rely heavily on brand identity and a standardized customer experience, such as in the fast-food, retail, and hospitality industries. In this model, the franchisor grants a franchisee the right to operate under its brand and business model. Franchising enables rapid expansion with relatively low capital investment since franchisees typically cover the costs of setting up and running the local business. This approach allows the franchisor to grow its brand presence globally while leveraging the local knowledge and investment of franchisees. McDonald’s, Domino’s, KFC use franchising model.  

The main challenge of franchising is maintaining consistency across locations, as franchisors need to ensure that franchisees adhere to the brand’s standards. Additionally, franchisors face legal complexities in different markets and must protect their intellectual property to prevent imitation.

Joint Ventures

Joint ventures involve a collaborative effort between two or more companies, often from different countries, to create a new business entity. These partnerships are popular in industries requiring substantial investment, such as automotive, technology, and energy sectors. By forming a joint venture, companies can share both the financial risk and the expertise needed to operate in the foreign market. For example, Sony and Ericsson partnered to create Sony Ericsson, combining Ericsson’s telecommunications expertise with Sony’s consumer electronics know-how. This collaboration allowed both companies to benefit from shared resources and market knowledge.

However, joint ventures can be complex to manage due to differences in organizational culture, decision-making, and profit-sharing arrangements. Conflicts between partners can jeopardize the venture’s success, particularly if one partner’s priorities shift over time.

Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) involves a direct investment by a company in business assets, such as facilities, in a foreign country. FDI provides the investing company with significant control over operations and access to local markets. FDI can take the form of Greenfield Investments, where a company builds new facilities from scratch, or Mergers and Acquisitions, where it acquires or merges with an existing foreign company. Greenfield investments offer complete control and customization but require substantial investment and time to establish. Mergers and acquisitions allow faster market entry and access to established resources, though they can involve complex integration challenges.

While FDI offers the potential for high returns and market control, it also carries high costs and risks, including regulatory challenges, cultural differences, and potential political instability.

Strategic Alliances

Strategic alliances are partnerships between companies that aim to achieve shared goals without creating a separate legal entity. This form of collaboration is commonly used in technology and pharmaceutical industries, where companies combine resources and expertise to innovate and develop new products. An example of a strategic alliance is the collaboration between Apple and IBM to create business-focused mobile applications for Apple’s devices. Through this alliance, both companies benefited from shared expertise without the need for a formal merger.

Strategic alliances offer flexibility and access to complementary resources while minimizing financial risk. However, companies must carefully manage the relationship to prevent intellectual property leaks and overreliance on the partner’s performance.

Management Contracts:

A management contract is an agreement between two companies whereby one company provides managerial and technical assistance for which proper monetary compensation is given, either as a flat lump sum fee or a percentage on the sales or a share in the profits. 

Contract Manufacturing:

Contract manufacturing is the strategy of identifying a manufacturing unit to produce items at a competitive price in any part of the world. For example, Nike is procuring its athletic footwear in a number of factories in South East Asia. Many international companies with their origin in European countries have selected manufacturing centers in India, China, and South East Asia. All the developed nations are becoming the end user of outsourced products and services of developing nations

Contract Marketing:

All the companies, which are strong in production, may not have equal marketing strengths. However, they may be comfortable dealing with marketing outlets around the world such as Amazon, TESCO, Wal-Mart, and Alibaba. Such manufacturing units enter into a marketing agreement and concentrate more on production at lower costs.

Whole Owned Subsidiary:

This option is viable if a company is willing to take all the risks of all the operations pertaining to its business in a foreign country. A subsidiary can be formed from scratch (greenfield investment) to manufacture and market its products and services in a foreign country. The parents have control through technology, manufacturing expertise, intellectual property rights, and brand name. This method is direct investment, which contributes to the optimization of resources in the host country, generating employment opportunities and enhancing the standard of living in the host country. A firm can also export its products or services to other countries from its subsidiaries.

Merger or Acquisition:

In this case, the company in the host country selects a foreign company merges itself with it or acquires it. The foreign company acquires the control of ownership. This mode of an entry gives a competitive edge over competitors. Such companies strengthen their international manufacturing facilities and marketing network. It saves a lot of time in construction, initial setup, and regulatory approvals and so on. At the same time, the acquiring company can use all the established brand names, distribution networks and so on of the acquired company.
But there are some disadvantages to this method: It is a complex task involving banks, lawyers, bureaucrats, and politicians. The host countries may impose restrictions on acquisitions. The labour problem is a big challenge to acquisitions particularly in developing countries where unemployment is a critical issue.

Strategic Investment:

Any firm can purchase a stake in a foreign company, whereby they are entitled to a share in the profits if any. The shareholding can be a minority stake and maybe without voting rights. Generally, the investing company does not participate in the management of the target company.

Take-overs:

This is a strategy whereby a company identifies a healthy unit with a strong brand name and network and brings it under the management of another unit in order to become a leader in the field and guarantee success. The takeover may be a “hostile take-over”. Well-known examples are the Hinduja brothers who took over Ashok Leyland. Unilever’s take-over of Brook Bond and Lipton enhanced its position as a leader in the tea industry in India.

Turnkey projects:

A turnkey project is a contract under which a company is fully involved from concept to completion. It covers right from supply of manpower, capital, and erection of plant, installation and commissioning up to the trial operation of a project. The turnkey project contractors either get a fixed fee or the cost plus profits are collected over a period of time. At completing of the contract the foreign client handles the ‘key’ of a plant that is ready for full operation. Generally, infrastructure projects like power plants, airports, refineries, railway lines, highways, and dams are undertaken on a turnkey basis. Bechtel, Hyundai, Mitsubishi, L&T, and Daewoo are turnkey contractors for international projects.

Conclusion

The various forms of international business reflect the diverse strategies companies use to engage in global markets, each with its own advantages and challenges. Understanding these forms is crucial for businesses aiming to expand their operations internationally.

Exporting and importing are among the simplest forms of international business, allowing companies to sell goods across borders. This approach offers a relatively low-risk entry into foreign markets and helps businesses gauge demand without significant investment. However, it can also expose companies to tariffs, transportation costs, and potential trade barriers. Licensing and franchising provide another effective way to enter international markets. By granting rights to foreign entities to produce or sell products, companies can expand their reach with minimal capital investment. While this strategy allows for rapid growth and local market expertise, it also risks diluting brand control and quality. Joint ventures and strategic alliances enable businesses to share resources, knowledge, and risks with local partners. This collaborative approach can enhance market penetration and operational efficiency, leveraging local insights. However, it requires careful partner selection and alignment of goals to avoid conflicts. Foreign direct investment (FDI) represents a more substantial commitment, where companies establish operations in foreign markets. This form allows for greater control over business activities and the potential for higher returns. Nevertheless, it comes with increased exposure to political and economic risks, as well as significant capital requirements. Multinational enterprises (MNEs) operate across multiple countries with a centralized management structure, allowing for coordinated strategies and economies of scale. This model can drive significant innovation and competitive advantage, but managing diverse operations can be complex and resource-intensive.

In conclusion, the forms of international business—exporting, licensing, joint ventures, foreign direct investment, and multinational operations—each offer unique pathways for global engagement. Companies must carefully evaluate their objectives, resources, and risk tolerance to choose the most suitable approach. By understanding these forms, businesses can develop effective strategies to navigate the complexities of international markets, fostering growth and sustainability in an increasingly interconnected world.

Related Topics:

Introduction to International Business

• Need of Study of International Business
• Scope of International Business
• Objectives of International Business
• Features of International Business
• Comparison of Domestic Business and International Business
• Advantages of International Business
• Disadvantages of International Business
• Factors Affecting International Business
• Drivers of International Business
• Transformation of Business: Domestic to Global

For More Articles on International Business Management Click Here

The post Forms of International Business appeared first on The Fact Factor.

List of Sub-Topics:

• Introduction
• Drivers of International Business
• Conclusion
• Related Topics

International business has become a cornerstone of the global economy, as companies increasingly look to expand beyond domestic borders to reach new customers and tap into diverse resources. This trend is fuelled by several key drivers that make international markets attractive to companies of all sizes. Understanding these drivers allows companies to make strategic decisions about global expansion and navigate the complex landscape of international trade. This article delves into the primary drivers of international business, highlighting why companies pursue opportunities across borders and how these factors impact their success.

Drivers of International Business

Limited Home Market: 

When the size of the home market is limited either due to the smaller size of the population or due to the lower purchasing power of all people or both, the companies internationalize their operations. Similarly, a company, which is mature in its domestic market, is driven to sell in more than one country because the sales volume achieved in its own domestic market is not large enough to fully capture the manufacturing economies of scale. For example, ITC Indian cigarette major captured the European market.

Market Expansion and Revenue Growth

One of the primary drivers of international business is the desire to expand into new markets and capture a larger share of the global customer base. By entering foreign markets, companies can significantly increase sales and diversify their revenue streams. When companies operate in multiple regions, they are less dependent on any one economy, reducing the risk associated with economic downturns in specific countries. For example, Starbucks’ global presence has allowed it to spread risk and benefit from demand across regions, even when one market experiences fluctuations. Expanding into international markets provides companies with additional revenue sources and mitigates the risks associated with single-market dependency.

Emerging Markets:

Compared to developed countries, developing countries are growing at a healthy pace, thus reducing the barriers of trade. Emerging markets provide an unexplored marketplace with unlimited potential and scope for business. Any company with good or innovative products and services cannot afford to ignore the opportunities provided by these emerging markets. Car manufacturers like Toyota, Suzuki, Mercedes, etc. have set the production facilities in India.

Cost Efficiency and Economies of Scale

Achieving cost efficiency is another powerful motivator for companies to expand internationally. Many companies establish production facilities in countries with lower labour costs, which helps reduce overall production expenses. For instance, Nike outsources much of its manufacturing to countries in Asia where labour costs are lower, resulting in more cost-effective production. International business also enables companies to achieve economies of scale by increasing production volume and spreading fixed costs over a larger output. As production increases, per-unit costs decline, enhancing profitability. Global expansion allows companies to optimize production processes, reduce costs, and become more competitive.

Excess of Production:

Some of the domestic companies expand their production capacities more than the demand for the product in the domestic market. In such cases, these companies are forced to sell their extra production in foreign developed countries. For example, Nokia is an international company based in Finland whose production capabilities were very large compared to the population of Finland. Similarly, Toyota of Japan has a large export market.

Access to Resources and Talent

Another major driver of international business is the need for specific resources and skilled labour that may be more accessible or cost-effective in certain countries. Some regions offer abundant natural resources that are essential for production, such as minerals, metals, or agricultural products. For example, oil companies often establish operations in the Middle East to access natural reserves, while tech companies may set up in regions with skilled engineers and technical talent. International markets also provide companies with access to skilled labour, technical expertise, and specialized knowledge. Tesla, for example, has established operations in Germany to access a highly skilled workforce and leverage the country’s automotive engineering expertise.

Competitive Advantage and Innovation

Many companies enter international markets to gain a competitive edge and foster innovation. By establishing a presence in new regions, businesses can become early movers and secure a foothold before competitors enter the market. This first-mover advantage can lead to brand recognition, customer loyalty, and favorable positioning in the market. Additionally, companies can access innovation and emerging technologies by investing in research and development (R&D) hubs worldwide. Pharmaceutical companies, for example, often establish R&D centers in different countries to leverage local expertise and drive innovation in drug development. Being present in multiple markets allows companies to diversify their knowledge sources and stay competitive.

Growth in Market Share: 

Some companies would like to enhance their market share in the global market by expanding & intensifying their operations in various foreign countries. The Smaller companies expand internationally for survival while the larger companies expand to increase their market share. For example,Coca Cola has bottling plants almost all over the world.

Technology and Digital Transformation

Advancements in technology and digital connectivity have significantly reduced the barriers to international expansion. Digital platforms and e-commerce have enabled businesses to reach customers globally with ease, reducing the need for physical stores in every country. Companies like Amazon leverage digital tools to manage international operations and optimize logistics across multiple regions. Through digital marketing, companies can target customers in foreign markets with localized advertisements, creating personalized shopping experiences. Technology has not only simplified the process of international business but also made it more cost-effective, allowing companies to reach new markets efficiently.

Transportation

We live in a ‘global village’.  Improvement in transportation technology in air, sea and rail systems helped in the growth of the international business. The transport system has reduced the travelling time and increase the efficiency of transferring goods. A businessman from Mumbai can go to Dubai to do his ‘business’ and come back to Mumbai on the same day. Similarly, goods can be transported beyond the national border on the same day.  The costs of ocean shipping have come down, due to containerization, bulk shipping, and other efficiencies. The lower unit cost of shipping products around the global economy helps to bring prices in the country of manufacture closer to those in export markets.

Improved Communication:

Advanced communication technology, such as the internet allowed the customer to get information for new goods and services easily. Besides, falling communication costs allow information move quickly and inexpensively, For example, American & European companies, in recent years, have been depended on Indian companies for the software products & the services through their business process outsourcing (BPO).

Changing Demographics:

Most developed countries face challenges in sourcing workforce as the average age of the population is getting older. In the next 10 years, most of the industrialized nations will have to depend on sourcing its workforce from countries like India, China and other countries, where the population is young, with an abundance of skilled labour. India is the chief source of workforce with English speaking graduates and other diploma holders.

Trade Liberalization and Globalization

Most of the countries around the globe liberalized their economies &opened their countries to the rest of the globe. Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled. Borders have opened, and average import tariff levels have fallen. These change in the policies attracted multinational companies to the extent their operations to these countries. Many of the world trades are currently done through free trade, bilateral, and multilateral agreements. Trade liberalization, including the reduction of tariffs and trade barriers, has facilitated international business growth. Free trade agreements (FTAs) between countries reduce import/export taxes, making it easier and more profitable for companies to operate internationally. For example, the North American Free Trade Agreement (NAFTA) has enabled smoother trade and investment flows between the United States, Canada, and Mexico. FTAs encourage foreign investment by creating a favourable business environment, and countries with liberal trade policies often attract multinational companies seeking easier access to local markets. Globalization and trade liberalization have made it easier for businesses to expand across borders and access new opportunities.

Risk Mitigation and Economic Stability

Expanding internationally provides companies with a means to manage and mitigate economic risks. By diversifying revenue streams across multiple markets, companies can protect themselves against downturns in any single economy. This diversification helps stabilize earnings and enables companies to maintain steady growth, even during economic turbulence in specific regions. Additionally, some companies use currency hedging strategies to benefit from currency fluctuations. For example, an exporter can offset losses in one currency by gaining from another. By operating internationally, companies gain more financial flexibility and greater resilience to local economic changes.

Trading Blocs:

Formation of various regional and international trading blocs like the European Union, World Trade Organisation, South Asian Free Trade Agreement and the North American Free Trade Agreement have resulted in increased regional cooperation. These trading blocs promote business within their scope by facilitating free trade zones, which literally eliminates any trade or investment barriers. Trading blocs like BRICS also facilitate easy movement of goods, services, and human resources within the region, thus providing a uniform opportunity to all the countries (in the region) for proper allocation of resources.

Differences in Tax System:

The desire of businesses to benefit from lower unit labour costs and other favourable production factors abroad has encouraged countries to adjust their tax systems to attract foreign direct investment (FDI). Many countries have started tax holiday schemes for foreign investment projects.

Higher Rate of Profits: 

The main objective of any business is to achieve profits. When the domestic markets don’t promise a higher rate of profits, business firms search for foreign markets where there is a scope for a higher rate of the profits. TCS of India earns more profit through its global operations than through the domestic operations.

Political Stability: 

The Political stability means that continuation of the same policies of the Government for a quite long period. Business firms prefer to enter the politically stable countries & are restrained from locating their own business operations in politically unstable countries.

Global Marketplace:

International business has become easier since the advent of the internet and the emergence of e-business. In order to do business internationally, a company must have a good product, the right strategy, and an appetite to take a risk at the global marketplace.

Cultural Exchange

People travel to different countries and share their cultural beliefs and practices with each other. Through this process, cultural assimilation takes place which drives globalization and international business. McDonald’s and KFC were unknown to India a few years back, now they have become part of India’s life.

Growing Middle-Class and Consumer Demand

Emerging markets offer promising opportunities due to rapid urbanization and rising income levels among the middle class. As more people enter the middle class, demand for a broader range of products and services grows. Companies like Unilever have capitalized on the growing consumer base in developing economies by tailoring products to meet local needs and price points. Urbanization and lifestyle changes in countries across Asia, Africa, and Latin America have led to increased demand for consumer goods, healthcare, and technology. Companies are attracted to these regions to capture new demand and establish a presence in high-growth areas.

Conclusion

The drivers of international business are essential forces that propel companies to expand beyond their domestic markets, shaping the landscape of global commerce. Understanding these drivers is crucial for organizations aiming to thrive in an increasingly interconnected world. One of the primary drivers is globalization. The growing interconnectedness of economies has facilitated the movement of goods, services, and capital across borders. This trend has opened up new markets for businesses, allowing them to reach a broader customer base and diversify their revenue streams. Technological advancements also play a pivotal role. Innovations in communication, transportation, and information technology have significantly reduced barriers to entry in international markets. Companies can now operate more efficiently and connect with customers and suppliers worldwide, enabling quicker responses to market demands.

Market demand is another critical driver. As consumers become more sophisticated and exposed to global trends, the demand for diverse products and services increases. Companies are motivated to enter international markets to satisfy these evolving consumer preferences and capture new growth opportunities. Furthermore, competitive pressures drive businesses to look beyond their borders. To remain competitive, companies often seek new markets to sustain growth, reduce costs through economies of scale, and enhance their product offerings. This drive for competitiveness pushes firms to innovate and adapt to various international environments. Resource availability is also a significant factor. Businesses may seek international expansion to access raw materials, labour, or technology that may be scarce or costly in their home markets. By tapping into global resources, companies can optimize their operations and enhance their supply chains. Finally, government policies and trade agreements serve as important enablers of international business. Favourable trade agreements, reduced tariffs, and supportive regulations can incentivize companies to enter foreign markets, providing a more favourable environment for business operations.

In conclusion, the drivers of international business—including globalization, technological advancements, market demand, competitive pressures, resource availability, and government policies—are interconnected and dynamic. Companies that effectively leverage these drivers can enhance their international strategies, adapt to changing market conditions, and achieve sustainable growth in the global arena. By understanding these forces, businesses can better position themselves for success in an ever-evolving international landscape.

Related Topics:

Introduction to International Business

• Need of Study of International Business
• Scope of International Business
• Objectives of International Business
• Features of International Business
• Comparison of Domestic Business and International Business
• Advantages of International Business
• Disadvantages of International Business
• Factors Affecting International Business
• Forms of International Business
• Transformation of Business: Domestic to Global

For More Articles on International Business Management Click Here

The post Drivers of International Business appeared first on The Fact Factor.

Benefits of International Finance:

• International finance integrates world economies and thus facilitates easy flow of capital across countries worldwide. For a developing country, with high return on domestic capital, investment can be financed more cheaply by borrowing from abroad than out of domestic saving alone.
• International finance moderates domestic regulations through global financial institutions
• International finance leads to healthy competition among domestic financial sector and hence, results in more effective banking and financing services. Letting foreign financial institutions into the country improves the efficiency of domestic financial markets.
• International finance promotes domestic growth and investment through capital import.  Investors in richer countries can earn a higher return on their saving by investing in the emerging market than they could domestically.
• International finance leads to effective capital allocation by providing information on vital areas of investment
• International finance gives countries access to capital markets across the world and,  thus, enables a country to lend in good times and borrow in bad times. Everyone benefits from the opportunity to smooth out disturbances and by diversifying the risks.
• Governments face the discipline of the international capital markets in the event they make policy mistakes.

The Scope of International Finance:

• Multinational corporations have subsidiaries or joint ventures in different countries. Their operations, organizational structures and lines of business depend on the global, political, socio-cultural, economic and legal environment of the countries in which they do the business. For this purpose, international treaties like Basel norms, Kyoto Protocol and WTO guidelines lay down a uniform framework for how business should be conducted between different countries.
• The economics of international trade and international finance are much the same except that international finance involves greater risks and uncertainties as the assets being traded are claimed to flow of returns that extend for many years in the future. Besides, the markets of financial assets are more volatile as compared to the market in goods and services as financial decisions in financial assets are more rapidly revised and implemented.
• International finance has two functions namely, treasury and control. The treasurer is responsible for financial planning analysis, fund acquisition, investment financing, cash management, investment decision and risk management. While, controller deals with the functions related to external reporting, tax planning and management, management information system, financial and management accounting, budget planning and control, and accounts receivables etc.
• To maximize the returns from investment and to minimise the cost of finance, the organization has to make portfolio decisions. A wide variety of financial instruments, products, funding options and investment vehicles are available for corporate finance hence decision making in international finance is complex. Understanding of economic theories and principles is required.
• Due to changing nature of environment at international level, the knowledge of latest changes in forex rates, volatility in capital market, interest rate fluctuations, macro-level charges, micro-level economic indicators, savings, consumption pattern, interest preference, investment behaviour of investors, export and import trends, competition, banking sector performance, inflationary trends, demand and supply conditions etc. is required by the practitioners of international financial management.

The Impact of Globalization:

• Globalization is defined as a concept which connects countries across the world through information, trade and technology.
• Globalization has many dimensions as social, political, cultural and of course economic. Globalization integrates economies and societies through the flow of ideas, information, technologies, capital, finance, goods, services and people from one country to another. This integration is also called as ‘cross-border integration’.
• This integration can take place through movement of capital, the flow of finance, trade in goods and services and through movement of human resources

Characteristics of Globalization:

• Globalization provided advanced and faster transportation system (road, sea, and air), and communication system between countries,
• Due to globalization, there is a movement of capital between countries in the form of investments from countries abundant in finances to the possible profitable destination worldwide.
• It increased cross-border and large scale transaction of finance, goods (raw/ semi-finished/ finished), resources (material/ human) and services,
• Due to it, there is easy migration, movement and settling up of people in foreign countries and exchange of skilled and unskilled labours increased.
• It uses modern technologies like the internet and there are a huge sharing and exchange of knowledge between countries.

Impact of Globalization on Society:

• Globalization broadened our mind and gave the concept of the global village.
• It helps people to understand manners, habits, and customs of different countries. It helped in the exchange of cultures between different countries.
•  It helped to compare the nation with developed nations and help to fight illiteracy and to improve the level of education and standard of living of people.
• It helped to compact social issues like hunger, poverty, and give away bad practices of child labour, child marriages etc.
• Students can go to different countries for higher education.

Impact of Globalization on Commerce:

Movement of capital:

• It has been seen that foreign capital flows in the form of Foreign Direct Investment (FDI) and Foreign Institutional/Portfolio Investments (FIIs)
• It plays a very important role in the development of an economy by enhancing the production base of a developing economy by the trade in goods and services and financial flows: It develops the capital market.
• Developing countries have more opportunities such as better access to developed markets, technology transfer
  leading to improved standards of living and better productivity.

Production of Quality Goods and Services:

• It helps people to understand manners, habits, and customs of different countries. Hence a merchant can gather valuable information about different commodities produced and required in different countries and can shape his business strategy according to the needs.
• Sometimes it is better to import than to produce locally. In such cases, the country which can source such products economically can be found very easily.

Impact of Globalization on World Politics:

• Due to globalization, the government can obtain useful knowledge of the people, the forms of government around the world and their aspirations.
• It contributes to improving international relations and friendliness among different nations which have a clear vision of future developments.

Disadvantages of Globalization:

• It has increased the disparities between the developed and developing nations, thus increasing the gap between the rich and the poor. Rich and wealthy people are able to exercise more control over the national resources through the application of science and technology.
• The local industries which are based on traditional methods of production could not compete with their global counterpart using mass production and high-end, specialized automatic methods.
• The economies of the world are now interconnected. Hence the economic downfall of one major economic nation adversely affects the entire global community.
• Globalization requires skilled labours hence there is a chance of unemployment of unskilled labour.
• Less developed nations become dependent on developed nations.
• It leads to pollution of soil, water and air. Developed countries have shifted their polluting industries to less developed countries.
• There is exploitation of natural resources.  Some places on earth, which was once rich in minerals and forests can no longer claim their richness. Forests have been cut for setting up large industries. The industrial discharges have widely contributed towards environmental degradation.
• Globalization has a homogenising effect on the society hence old tradition, custom, and cultures are on the verge of extinction. Less developed nations have shed their traditional dress, food, and rituals.
• Unequal distribution of international trade gains is another main disadvantage of globalization.
• There is a cost to this globalization.
• Developing countries have underdeveloped capital markets and high-risk premiums, they cannot fully participate in this growth and increased investment brought about by globalization. The country getting foreign investment can get into a debt trap.
• Developing nations have to face problems in international trade due to rising tariff and trade barriers.
• It leads to volatility in the financial markets, inequalities within and across different nations, and slow participation of Third World countries due to trade, investment and financial barriers.
• Due to easier migration and movement of people, there is a possibility of the spread of some diseases.
• Profit is the buzzword for companies in the era of globalization due to which many companies do not provide a good working condition to the workers.

The Impact of Globalization on India:

• Increased GDP and increase in the rate of growth of GDP
• Increased foreign exchange reserves
• More investment in the form of FDI and FII investment in the capital market.
• Rise in the share in the world’s export. Increase in import to cope with development.
• Broadening trade deficits
• Greater volatility in foreign portfolio investment than FDI
• The slow pace of industrialization due to the easy availability of the product in the international market.
• The decrease in the share of agriculture in the GDP
• The increase in the number of rural, landless families.

The post Globalization and its Impact on Commerce and Society appeared first on The Fact Factor.