What Is International Business, and How Has It Transformed the World Economy?
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Question 1: What is international business, and how has it transformed the world economy? (6 marks)
International Business is a term that relates to trade and interactions that occur between different countries, companies and individuals on a global scale. Firms conduct business on an international scale in order to maximise profit by expanding their industry across borders. They can do this in the form of manufacturing, selling, organising, sourcing and hiring in other global markets. The concept of international business has been around for many years with ancient civilisations trading and interacting in order to progress and survive. However, the term International Business has become even more relevant in the last century and with interactions through the World Wars even more pertinent in the last three decades with the notion of market globalisation. Market globalisation sees the integration of global economies and a growing reliance of countries on each other for stimulus (Cavusgil et al, 2011, pg 4). Some of the main factors of the recent complexity and rapid expansion of market globalisation is through the transformation and ease of communication. Where it was previously very difficult to communicate around the world is now in the palm of our hands.
International business has immensely changed the world economy in a number of ways, both positive and negative. Globalisation of businesses has led to the increase of information and technology transferred across cultures as well as leading to the creation of complex economic arrangements that allow the cross-border flow of monetary products and investment across a wide range of industries. International business was broadly regarded as the domain for bigger, transnational corporations. Globalisation has made smaller businesses more accessible which has led to products, services and markets across a number of industries becoming more competitive which in turn has positively affected consumers (Cavusgil et al, 2011, pg 169). Another way globalisation of business has positively affected economies is through the moving of sectors into nations that specialise in the creation of that product, whether that be a product, service or resource. This stimulates the world economy but on the other hand can lead to a loss of national sovereignty and flight of jobs.
Global connectivity has had some draw backs towards the economy. The prime example could be found in 2009 when the interconnectedness of economies led to wider global recession as a result of poor financial management in one nation. Jobs were lost all around the world due to a lack of trade between nations; this has a snowball effect on a number of social and economic issues. (Cavusgil et al, 2011, pg 5) This is known as contagion. This is described as the propensity of a financial crisis in one nation to leak to other nations due to global economic dependency. Another example is the Greek debt crisis. This has been of direct result of the global financial crisis of 2009 and the subsequent global recession. International business has also led to society economic and social issues in relation to the widening gap between the classes. The rich are getting richer and the poor are not so much getting poorer, the gap is getting larger. International businesses regularly push their manufacturing sectors offshore to countries that have lower wages proportionately to other countries. This creates an imbalance of wage rates and often leaves impoverished nations with a lack of economic stability. (Weis, 2008)
Question 2: In a short essay, explain how market globalisation both responds to and promotes the convergence of consumer lifestyles around the world. Provide examples to illustrate your answer. (4 marks)
Globalisation affects every part of daily life. This can include interactions, lifestyle habits, popular culture and even the food and drink we consume. This has exponentially grown in the last 30 years through the saturation of the ever increasing complexity of technology. Popular culture can become very addictive and the internet has created an easy portal for consumers to access different consumer lifestyles from around the world. A major influence of these consumer lifestyles is through the use of idols, such as sports stars, singers, models and actors. Consumers idolise their heros and pinups in a way that they want to replicate and will spend a lot of money in order to simulate their lives. International businesses recognise this and use this obsession to attract uneducated consumers to buy their products through brand recognition and advertising. Young children look up to their idols and will do anything to replicate what they wear, carry or use. For example, Roger Federer and Tiger Woods are very closely associated with Nike. The brand recognition associated with these athletes will stay with the children and will form a special bond with them, so even when Federer and Woods are retired, people will still associate them with the brand and Nike have reliable and trusting consumers into the future. This theory could not be possible without the effects of globalisation where consumers are saturated with advertisements from all sources of technology.
One culture, is slowly taking over the world due to globalisation and that is western culture. National identities are being lost, particularly in Asia and less developed nation. Big American transnational corporations take their manufacturing industries to countries where it is cheaper to produce. On the other hand, due to the ease of taking operations overseas and economic reasons, some brands that are a symbol of a nation are forced or choose to take jobs offshore. Qantas and Telstra are examples of this. Both are ways in which nations can lose some aspects of identity.
Standardisation is another phenomenon