International Business According to Daniels,

International Business

According to Daniels, Radebaugh, and Sullivan (2007) globalization is "the ongoing social, economic, and political process that deepens and broadens the relationships and inter-dependencies amongst nations -- their people, their firms, their organizations, and their governments." These authors provide their view on why the growth of international business has accelerated. They identify seven globalization drivers: an increase in and expansion of technology; liberalization of cross-border trade and resource movements; development of services that support international business, growing consumer pressures, increased global competition, changing political situations, and expanded cross-national cooperation. This paper discusses these motivations in more detail from an economic theory perspective where possible.

Technology fuels globalization in several ways. In the past, mostly goods were traded across international borders. As such, multinationals focused on low-cost access to unskilled labor used in manufacturing these goods. But technology has changed this scenario. In particular, the Internet and advancements in communications technology are credited with making services the fastest-growing portion of international trade (Schifferes, 2007). Now, access to cheap professional labor that provide business processing outsourcing services such as information technology, accounting and payroll processing are highly sought after by multinationals. For example, India currently exported $25 billion per year of these services in 2006 and this figure is expected to reach $60 billion by 2010 (Schifferes, 2007). Further, communication improvements increase global awareness of the availability of international goods and better, lower-cost transportation makes it feasible to supply these goods anywhere in the world (Daniels, Radebaugh, and Sullivan, 2007).

Previously, one of the major drivers to multinationals was the need to locate to other countries to escape paying trade tariffs that would make them uncompetitive in local markets. Today, however, tariff avoidance has become far less important because trade liberalization has facilitated extensive shipments of goods among international countries unhindered by government imposed restrictions. At the same time, trade liberalization is fueling multinationals because firms are able to more easily pick and choose among competing countries, locating their commercial activities where regulations and their enforcement are the most favorable to the business (Spar and Yoffee, 2000).

Daniels, Radebaugh, and Sullivan (2007) list the importance of services to support international business as another driver on international business. These authors mention payment clearing arrangements to facilitate currency exchange between trading partners in different countries as well as shippers that allow customers to pay for shipments in their own currencies.

Consumer demand is another factor leading to greater international trade. In a global economy, consumers want better and less expensive goods. The most noted international trade theories that support the concept of globalization are the laws of comparative advantage and absolute advantage (Comparative advantage and absolute advantage). Comparative advantage states that mutually beneficial exchange is possible whenever relative production costs differ prior to trade. Nations gain by producing goods at relatively low costs and exchanging their outputs for different goods produced by others at relatively low cost. Thus, consumers can gain enormously through appropriate specialization and exchange. A country has an absolute advantage in producing a good if production of the good absorbs fewer resources than are required in other countries or by other individuals or firms.

Specialization leads to economies of scale (Globalization) where more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs. An increasingly competitive global economy drives companies to gain larger global market shares so that they can exploit the benefits of economies of scale (Daniels, Radebaugh, and Sullivan, 2007).