Growth and Importance of International business Business is increasingly becoming international or global in its competitive environment, content and strategic intent. This is manifested by the number of facts. The competition a firm – local, national or foreign – now encounters, in many cases, is global, i.e., besides the competition from the domestic firms it has to compete with products manufactured in India by foreign firms and imports. Because of the liberalization, a firm has the challenging opportunity to improve its competitiveness and scope of business by global sourcing of technology, materials, finance, human resource, etc. Globalization is facilitating globalization of operations management to optimize operations and to improve competitiveness. Global value chain management is indeed a key factor of success. The universal liberalization and the resultant global market opportunities are take advantage of by firms to consolidate and expand the business. The growing competition at home is pushing many companies overseas. For example, at the Annual General meeting of MRF, held on March 20,2003, its CMD stated that although the company is market leader in India, the increasing competition in the domestic market, from both Indian firms and MNCs, has prompted the company to give greater thrust to exports and the company, which already was exporting to 65 countries, might export 50 percent of its production. The global orientation of an increasing number of companies is evident from their mission statements and corporate strategies. In short, the sweeping political and consequent economic policy changes in the erstwhile communist and socialist countries, dramatic shifts in the economic policies in a large number of countries as diverse as communist countries like China to democratic countries like India, privatization in a number of market economies and the liveralisation of trade and investment fostered by the GATT/WTO has set in motion several forces of globalization which is defined, by IMF, 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”. And globalization seems to be irreversible and unstoppable so that and globalization is not an optional; it is reality. If it is an option, it is an inevitable option. If it is an evil, it is an inevitable evil. The challenge, therefore, to the individuals, businesses and nations is to endeavour to take advantage of the benefits of globalization and mitigate the adverse effects. The growing importance of international business is reflected in several macroeconomic and micor indicators. 1. The foreign trade – GDP ratio (i.e., the value of foreign trade expressed as percentage of the GDP) has been rising significantly, indicating that national economies are becoming more and more export and import dependent. In other words a rowing proportion of the national output is meant for sale abroad and a growing share of the national consumption is met by imports. In the last twenty five years or so, world merchandise exports have doubled from 10 percent to 20 percent of the world GDP. That is, about 25 years ago on an average about one-tenth of the domestic product of a nation was meant to be sold and consumed in foreign countries; today about one-fifth of the domestic product is destined to the foreign markets. Similarly, the proportion of the domestic consumption met by goods and services produced abroad has been on the increase. Even in respect of a communist country like china, the export GDP ratio rose from about 6 percent in 1980 to nearly 25 percent by the beginning of the present decade. 2. International investments, both direct and portfolio have been growing rapidly. International investment, in fact, has been growing much faster than international trade which has been growing faster than world output. The expansion of international investment, facilitated by the almost universal liberalization, has resulted in a substantial increase in their role in global production, employment generation and trade. In the decade since 1986, foreign direct investment inflows increased six fold whereas world exports increased less than one and a half times. The ratio of world FDI inflows to global gross domestic capital formation was 14 percent in1999, compared with 2 percent twenty years ago. Similarly, the ratio of world FDI stock to world GDP increased from 5 percent to 16 percent during the same period. 3. A corollary of the rapidly growing international investment is the fast growing international production, i.e., production arising out of international investment. For example, the gross product of foreign affiliates of the MNCs grew at an average annual rate of 6.7 percent during 1991-95 and 12.9 percent during 1996-2000. 4. A connotation of the growing export – GDP ratio is that the export intensity (i.e., exports as a share of the total sales) of companies in general is rising. Rising export intensity means that the foreign business is growing faster than the domestic business. This is true of several Indian industries. For example, a number of pharmaceutical firms have grown at much higher rates in the foreign markets than in India. The auto components industry recently registered a higher growth in the foreign market than the domestic growth. 5. Many firms make most of their business, like the leading IT firms such as TCS, Infosys, Wipro etc. and pharmaceutical firms such as Ranbaxy, Dr.Reddy’s etc,. from foreign markets. There are companies which do 100 percent of their business abroad.
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