International Business

Finance

By Meka F.
 Chapter One
Globalization
Points should be covered:
 Introduction about International business
finance
 What is globalization?
 Drivers of globalization
 The changing demographics of the global
economy
 Advantages and dis advantages of globalization
 Introduction

 International business finance is the study of the

institutions, policies, and practices that govern
global financial management and/or financial
aspects of global business with the primary goal
of wealth maximization.
 It deals with international firms and multinational
companies that operate in different economic,
political, legal, cultural and tax environments.
 Cont’d
Special need for study of for international
finance course
• Financial Exchange Rate
• Inflation rates (with good and service trades
in/cross-boarder )
• Investment in Financial Markets( foreign
direct investment: choosing right time)
• Eco-political landscape
• Global Economic Conditions (it is impacts)
 Firms
International Firm Multinational firm
• It is the firm involves :- • Expanding of domestic
Importing and business operation in other
Exporting. countries (over cross boarder)
• Parent –subsidiaries integration
• Financial management deals
with payment process • Objectives of firms:-
between the foreign buyer  Closer to the consumer,
(seller) and domestic seller  closer to cheaper sources of
(buyer). inputs, or
 closer to other producers of
the same product.
 MNCs can also be classified as:
 Raw Material Seekers
 First type of MNCs
 Exploit raw materials found overseas
 Trading, mining and oil companies
 Market Seekers
 Post-WWII MNCs
 Expand production and sales into foreign markets
 Big name companies – IBM, McDonalds etc.
 Cost Minimisers
 More recent MNCs and labour intensive
 Seek out lowest production cost countries
 Manufacturing and service companies
 Why Companies Go Global?
Globalization Driver
In general companies may go global for the following reasons:
1. To seek new markets (customer, competition,
unsatisfied market etc)
2. To seek raw materials (cost-resource)
3. To seek new technology (cost)
4. To seek production efficiency (cost minimization)
5. To avoid political and regulatory hurdles.

6. To diversify it business.
 GLOBALY BUSINESS OPERTED IN INTERNATIONAL THROUGH THE
FOLLOWING METHODS
 
1. Licensing

2. Franchising

3. Joint ventures

4. Management contracts

5. Establishing new foreign subsidiaries etc….

 Meaning of Globalization
Globalization: The shift toward a more
integrated and interdependent world economy
The world is moving away from self-
contained national economies toward an
interdependent and integrated global
economic system
 Cont’d
 IMF defines globalization as, “the growing
economic interdependence of countries
worldwide through increasing volume and
variety of cross border transactions in goods
and services and of international capital
flows and also through the more rapid and
widespread diffusion of technology”
 Cont’d

• Globalization, is the process of interaction

and integration among people, companies,
and governments worldwide. 
• According to Martin Albrow and Elizabeth
King globalization is "all those processes by
which the people of the world are
incorporated into a single world society."
 Cont’d
• Globalization is the spread of products,
technology, information, and jobs across
national borders and cultures.
• In essence, globalization is about the world
becoming increasingly interconnected.
• In economic terms, it describes an
interdependence of nations around the
globe fostered through  free trades.
 Cont’d
• Globalization has brought the world
together by encouraging more trade among
nations, more open financial institutions
and a greater flow of investment capital
across international borders.
• The global integration of financial markets
has dramatically lowered barriers to
international investment. 
 Cont’d

• The flow of information over the Internet

enables companies and business people to
share knowledge about products, production
processes and pricing in real time.
• Countries today are more connected than
ever before, due to factors such as air travel,
containerized sea shipping, international
trade agreements and legal treaties, and the
Internet
 KEY TAKEAWAYS

Globalization is an economic, social,

cultural, political, technological and legal
phenomenon.
• Economic globalization: is the development
of trade systems within transnational actors
such as corporations or NGOs;
• Socially, it leads to greater interaction
among various populations.
 Cont’d
• Cultural globalization: refers to the penetration of
cultures which, as a consequence, means nations
adopt principles, beliefs, and costumes of other
nations, losing their unique culture to a unique,
globalized supra-culture;. 
• Financial globalization: can be linked with the rise
of a global financial system with international
financial exchanges and monetary exchanges.
Stock markets, for instance, are a great example of
the financially connected global world.
 Cont’d
• Political globalization: the development and
growing influence of international
organizations such as the UN or WHO means
governmental action takes place at an
international level. There are other bodies
operating a global level such as NGOs like 
Doctors without borders or Oxfam;
• Legally, globalization has altered how
international law is created and enforced
 Cont’d
• Technological globalization: the
phenomenon by which millions of people are
interconnected thanks to the power of the
digital world via platforms such as Facebook,
Instagram, Skype or Youtube…etc
• Ecological globalization: Accounts for the
idea of considering planet Earth as a single
global entity – a common good all societies
should protect since the weather affects
everyone and we are all protected by the
same atmosphere.
Is globalization a blessing or a curse
for developing countries ? Debate
 Drivers of Globalization

• Establishment of the world trade organization:

• Declining trade and investment barriers

• Growth in foreign direct investment

• Strides in technology

• Growth of multinational companies

 What Is Driving Globalization?
• Declining barriers to the free flow of goods,
services, and capital
average tariffs are now at just 4%
more favorable environment for FDI
facilitates global production
• Technological change
microprocessors and telecommunications
the Internet and World Wide Web
transportation technology
 Declining Trade And
Investment Barriers
Average Tariff Rates on Manufactured Products as Percent of Value
 How Has World Output And
World Trade Changed?
• In 1960, the U.S. accounted for over 40% of world economic
activity, but by 2009, the U.S. accounted for just 24%
– a similar trend occurred in other developed countries
– Currently U.S accounted only around 20% of world
economy.
• In contrast, the share of world output accounted for by
developing nations is rising
– expected to account for more than 60% of world
economic activity by 2020
– According Organization for Economic Co-operation
(OECD) , the above expectation is postponed 2030
because of different reasons
How Has World Output And
World Trade Changed?
The Changing Demographics of World GDP and Trade
 How Has Foreign Direct
Investment Changed?
• In the 1960s, U.S. firms accounted for about
two-thirds of worldwide FDI flows
Today, the United States accounts for less
than one-fifth of worldwide FDI flows
Other developed countries have followed a
similar pattern
• In contrast, the share of FDI accounted for by
developing countries has risen
Developing countries, especially China, have
also become popular destinations for FDI
 Effect of globalization
• On one hand, globalization has created new
jobs and economic growth through the cross-
border flow of goods, capital, and labor.
• On the other hand, this growth and job
creation are not distributed evenly across
industries or countries.
• Specific local industries suffered severe
disruption or outright collapse as a result of
increased international competition.
 Cont’d
• Globalization's motives are idealistic, as well
as opportunistic, but the development of a
global free market has benefited large
corporations based in the Western world.
• Its impact remains mixed for workers,
cultures, and small businesses around the
globe, in both developed and Emerging
nations
 Cont’d

• The benefits of globalization have been

questioned as the positive effects are not
necessarily distributed equally.
• One clear result of globalization is that an
economic downturn in one country can
create a domino effect through its trade
partners.
 Advantages and Disadvantages of Globalization

Advantages
• Proponents of globalization believe
it allows developing countries to catch up to
industrialized nations through increased
manufacturing, diversification, economic
expansion, and improvements in  standard of
living.
• Trade initiatives increase cross-border trading by
removing supply-side and trade-related
constraints
 Cont’d
• Globalization has advanced Social justice on
an international scale as well, and advocates
report that it has focused attention on
human rights worldwide that might have
otherwise been ignored on a large scale.
 Disadvantages

• One clear result of globalization is that an

economic downturn in one country can
create a domino effect through its trade
partners.
• For example, the 2008 financial crisis had a
severe impact on Portugal, Ireland, Greece,
and Spain. All these countries were
members of the European Union, which had
to step in to bail out debt-laden nations.
 Cont’d
• Globalization detractors argue that it has
created a concentration of wealth and
power in the hands of a small corporate
eliminate smaller competitors around the
globe
 The Negative Effects of Globalization on Cultural Loss

• Apart from all the benefits globalization has had on

allowing cultural exchanges it also homogenized
the world’s cultures.
• That’s why specific cultural characteristics from
some countries are disappearing. From languages
 to traditions or even specific industries. That’s why
according to UNESCO, the mix between the
benefits of globalization and the protection of local
culture’s uniqueness requires a careful approach.
 The Negative Effects of Globalization on the Environment

• Many critics have also pointed out that

globalization has negative effects on the
environment. Thus, the massive
development of transport that has been the
basis of globalization is also responsible for
serious environmental problems such as
greenhouse gas emissions, global warming
or air pollution.
 Cont’d
• Globalization has become a polarizing issue in
the U.S. with the disappearance of entire
industries to new locations abroad. It's seen as
a major factor in the economic squeeze on the
middle class.
• For better and worse, globalization has also
increased homogenization. Starbucks, Nike,
and Gap dominate commercial space in many
nations. The sheer size and reach of the U.S.
have made the cultural exchange among
nations largely a one-sided affair.
End of chapter one