The Process of Globalization in Supporting International Business
The development of globalization has encouraged many countries to
conduct international trade. Currently, almost all countries are involved in
international business activities, both exports, imports, and other forms. Various
parties involved in international business certainly play an important role for
economic growth in certain countries. This chapter begins with a discussion of
the globalization process that supports international business activities. The
discussion in this chapter also covers the basic concepts of international business,
including important aspects and types.
A. The Process of Globalization in Supporting International Business
Globalization is a trend that leads to interdependence between national
institutions in the fields of economy, culture, politics and technology. In contrast
to the process of inter-nationalization, globalization is characterized by the
increasingly irrelevant borders between countries (denationalization). For an
entrepreneur, globalization can be an opportunity to obtain production raw
materials at lower prices. In addition, globalization also provides great
opportunities in market expansion in various developing countries. The
globalization process has also given rise to various international institutions and
organizations that help encourage international business activities. The impact of
globalization can be seen in several business fields as follows.
1. Market Globalization
Market globalization is characterized by the similarity of buyer preferences
from various countries. This trend can occur in various product categories
such as consumer products, industrial products and various service fields.
This globalization of the market has several benefits for companies that sell
their products in the global market.
The first benefit can be in the form of standardization of certain marketing
activities so that it can reduce marketing costs. Second, if the domestic market
becomes saturated, then companies can take advantage of opportunities to
open new markets in other countries. Third, by combining domestic sales with
international sales, the company can maintain the stability of revenue streams.
This benefit is mainly felt by companies that have products with seasonal
appeal. In addition, there are other benefits in the form of ease in adjusting
the company's products to the needs of local buyers to maintain product
sustainability in the long term.
2. Production Globalization
Production globalization is the activity of transferring production activities
to a certain country or location with the aim of minimizing costs or
maximizing the quality of certain products or services. This activity can
include the search for production raw materials and international outsourcing
services. Thus, the globalization of production provides benefits in the form
of access to production factors, including labor at a lower cost. The
globalization of production allows companies to access production factors
that are not available or have more expensive prices in the local market. In
addition, companies that shift their production activities to other countries
also benefit in the form of access to technical expertise.
B. Basic Definition and Concepts of International Business
International business can be interpreted as a commercial transaction that
is carried out across countries. Companies of different types of industries and
business scales can engage in international business activities.
Nevertheless, the level of engagement between these companies varies
widely. For small entrepreneurs, they can be involved in international business
activities by only importing goods from abroad so that they have a low level of
involvement. On the other hand, manufacturing companies with large scales can
have a higher level of involvement by carrying out export, import, and even
mergers and acquisitions between international companies. Here is an
explanation of some of the key players that can be involved in international
business activities.
1. Multinational Company
Multinational corporations (MNCs) are businesses that have direct
investment in several different countries. The investment in question can be
in the form of the establishment of a subsidiary to carry out production,
marketing and other activities The presence of a multinational company in a
country can provide great benefits for the economy. These benefits can be in
the form of new job creation, investment, and tax revenue. The opposite
happens if multinational companies stop their production activities. If this
happens, there will be many people who will lose their jobs. Generally,
multinational companies conduct mergers and acquisitions with other
multinational companies centered in emerging markets.
2. Entrepreneurs and Small Businesses
International business competition has given rise to a new entity known as
a born global firm, which is a company that has adopted a global perspective
and been involved in international business activities since the beginning of
its establishment. Many of these companies became competitors in the global
market in less than three years. This is because born global firms tend to have
an innovative culture and knowledge-based organizational capabilities. In the
current era of globalization, technological developments have helped many
companies to carry out export activities earlier so that they can grow faster.
Small-scale companies can also take advantage of technological
developments to reduce costs and barriers in global communication.
C. Important Aspects of International Business
There are three important aspects that can affect international business
activities. The three aspects are cultural aspects, legal and political aspects, and
economic aspects.
1. Cultural Aspects
The cultural aspect is related to the norms, values, beliefs, and behaviors
of the people in a particular country. Each country has a different culture from
the others. These differences are reflected in products, marketing methods,
work and relationships between people. In addition, these cultural differences
are also reflected in the types of products accepted by people in certain
countries. Not all products are well received in all countries. Thus, it is
important for foreign companies to make various adjustments to the products
offered. Companies must ensure that their products are well received by the
community and do not conflict with the culture of the community. If a
company fails to adapt their products, then there is a possibility that the
company will not be able to survive in the long term
2. Legal and Political Aspects
Each country is a sovereign entity that has different laws, regulations and
political systems. The applicable regulations are guidelines in carrying out
economic activities in each country. Each country has different provisions
regarding the type of business that can be built, including organizational
systems, tax obligations, minimum wage limits, pricing, and other operational
factors of the business being run. Thus, for foreign companies operating
internationally in several countries at once, it is important to pay attention to
the regulations that apply in each of those countries. If there is a significant
difference with the regulations applicable in the country of origin, then the
company needs to make adjustments in their operational activities. This is
because the company has an obligation to comply with all applicable
regulations. In addition, the company's operational activities can also be
affected by political relations between countries. The political system that
prevails in a particular country will affect the way foreign companies conduct
their business in that country
3. Economic Aspects
Residents in developed countries have a much higher average income than
in developing countries. In general, developing countries have populations
with low quality education, high unemployment and poverty rates, high
political risks and various other problems. Thus, foreign companies carrying
out production activities in developing countries must make various
adjustments such as providing additional training programs for local
employees, conducting stricter work supervision and providing simpler work
instructions. Various situations in these developing countries certainly affect
the procedures of foreign companies in doing their business.
D. Types of International Business
There are many different types of international business activities. Types
of international business can be in the form of import-export activities, licensing
and franchising, business alliance partners, and foreign investment.
1. Export and Import
Export is the activity of selling products produced domestically
(domestically) to other countries. Companies that carry out export
activities can benefit in the form of a larger buyer base. Thus, if there is a
decrease in sales in the domestic market, it can be balanced with income
from export activities. On the other hand, imports can be interpreted as the
purchase of goods or services produced in other countries for use or resale
domestically. The company can import to meet the need for production raw
materials. This is because production raw materials are not available in the
local market or are available at a higher price.
2. License and Franchise
A license is a contract agreement between a company in a certain
country to grant a license to use intellectual property rights to a company
in another country. The intellectual property rights in question can be in the
form of copyrights, patents, trademarks, brand names or trade secrets. The
company that grants the license receives a reward in the form of royalty
payments from the company that receives the license. One form of
licensing is franchising. Franchising occurs when a company in a particular
country authorizes a company in another country to use its operating
system, including brand names, trademarks, and logos. The company that
provides the franchise is called the franchisee and the company that
receives the franchise is called the franchisee. Similar to the license, the
franchising company will receive a reward in the form of royalty payments.
3. Management Contracts
A management contract is an agreement between a company in a
country to operate a facility or provide other management services to a
company in another country. In this case, the service provider company
will receive a reward with a mutually agreed amount. This form of
management contract is most commonly found in the public utility sector
in developed and developing countries. There are two types of knowledge
that can be transferred through management contracts, namely technical
management knowledge and business and management expertise.
4. Strategic Alliance Partner
A strategic alliance can be defined as a cooperative relationship
between two or more entities to achieve certain strategic goals. The
relationship between these entities is only limited to alliance partners
without forming a new company. Business alliance partners can be formed
and last for a certain period of time depending on the goals to be achieved.
Strategic alliance partners can be formed between companies with
suppliers, buyers, or with their competitors. In forming this alliance
partner, sometimes each company buys a certain number of shares from
each other from the company that is its alliance partner.
5. Penanaman Modal Asing (Foreign Direct Investment)
Foreign investment can be interpreted as the activity of purchasing
a number of assets or ownership (shares) from a company in another
country with the aim of obtaining management power from that company.
Foreign investment can be driven by various factors such as globalization
and mergers and acquisitions. This foreign investment is different from a
form of portfolio investment that does not involve the management of a
particular company.
E. Cultural Significance in International Business
Culture is a set of values, beliefs, norms and institutions held by a certain
group of people. Each country has different cultural characteristics. Not only
that, the culture of a particular country can also be broken down into sub-cultures
that represent a certain group of people within the country. Every country has a
high tendency to support and protect their national culture. One of the steps taken
is to intervene in business activities in various sectors to protect national cultural
assets. Some sectors of the economy, such as the filmmaking sector, receive
special attention in many countries because they are considered culturally
sensitive sectors.
The various regulations set in these business sectors further affect the
business activities carried out. certainly. Each country has different cultural
characteristics. Not only that, the culture of a particular country can also be
broken down into sub-cultures that represent a certain group of people within the
country. Every country has a high tendency to support and protect their national
culture. One of the steps taken is to intervene in business activities in various
sectors to protect national cultural assets. Some sectors of the economy, such as
the filmmaking sector, receive special attention in many countries because they
are considered culturally sensitive sectors.
The various regulations set in these business sectors further affect the
business activities carried out. The physical environment, including the climate
in an area, also affects the needs of community products in that area. For
example, people who live in areas with tropical climates will need sunblock
products more than people who live in colder climates.
Therefore, companies operating on an international scale must also pay
attention to various conditions and characteristics of the community in order to
be able to adjust the products offered to the needs and desires of consumers in
certain regions. This is important because if the product offered is not in
accordance with the needs and desires of consumers, then there is a possibility
that the product will not be purchased.
F. Cultural Components and Their Impact on International BusinessCultural
Components and Their Impact on International Business
In the previous section, the meaning of culture and its role in international
business activities have been explained. Furthermore, various cultural
components and the influence of each component on international business
practices will be discussed. In the previous section, the meaning of culture and
its role in international business activities have been explained. Furthermore,
various cultural components and the influence of each component on
international business practices will be discussed.
1. Values
Values are a set of ideas, beliefs and customs that are closely held by a
certain group of people. Not only that, but people are also emotionally
attached to the values held. These values include the concepts of honesty,
freedom and responsibility. Values play an important role in international
business because they affect work ethics as well as employee motivation. For
example, Singaporeans value hard work and materialist success, while Greeks
value leisure time and a simple lifestyle.
2. Attitudes
Behavior reflects the basic values of a person. Behavior is a form of
positive or negative evaluation, feelings, and tendencies that a person has
towards certain objects or concepts. Similar to values, behavior can also be
learned from various role models such as parents, teachers and religious
leaders. The behavior of a country is also different from the behavior of other
countries because it is formed in a certain cultural context. In contrast to
values that only include certain important aspects, behavior encompasses
various aspects of life, both important and unimportant. In addition, in
contrast to values that tend to be solid, behaviors have a more flexible nature
over time.
3. Aesthetics
Aesthetics is what is considered "good taste" in art, the image evoked by a
certain expression and the symbol of a certain color. In other words, this
aesthetic includes art, images, symbols, colors and other things that are
upheld by a certain culture. Aesthetics play an important role when a company
runs a business in a different culture. In this case, the selection of colors in
marketing media, product packaging design, and even worker uniforms must
pay attention to the aesthetic value of the local community.
4. Sopan Santun (Appropriate Behavior)
When conducting business activities in countries or regions with different
cultures, it is important to understand the characteristics of those cultures and
behave accordingly. At the very least, entrepreneurs who carry out
international business activities must understand the basic types of
appropriate behaviors (manners) and customs of the local culture (customs).
Manners are appropriate procedures in behaving, speaking and dressing in a
certain culture. For example, having business discussions over meals is
common in America, but it is described as bad behavior in Mexico. On the
other hand, customs that are passed down from generation to generation are
known as customs. Customs is different from manners where customs
describe habits or behaviors that are appropriate in a certain situation.
G. Cultures and Multinational Corporations: Influencing Each Other
International companies are often agents of cultural change. With the
easing of barriers to trade and investment, many international companies are
starting to expand their business in developing countries. Some parties say that
exporting from these companies has the potential to result in cultural
imperialism, namely the replacement of the traditions and culture of one country
with the culture of another country.
Sensitivity to the culture in which the company operates can help them
avoid the demands of cultural imperialism. This means that the company should
not only focus on meeting the needs of the community, but also the influence of
the company's activities and products on the life and habits of the local
community. International companies can avoid cultural imperialism by slowly
introducing distinctive cultural policies and practices. In addition, companies can
also ask for advice from locals in fulfilling their social roles.
In the previous section, we discussed how international companies can
influence the culture of a particular country. But in reality, culture can also
influence international companies. It is not uncommon for companies to be
required to adapt their practices and policies to the local culture. Company
managers sometimes use situational management, which is a system where
employees are supervised at each stage of the performance of their duties. This
technique assists employees in understanding the scope of their work as well as
the limits and responsibilities that must be maintained. The cultural differences
between one country and another require companies to make various changes to
adapt to the local culture.
H. Corporate Environment and Technology in Influencing Culture
The corporate environment consisting of social, economic, legal/political
environments, including technological developments can greatly affect the
company culture. It is important for international companies to understand the
various business environments that vary between countries. This is because the
complexity of the business environment, globalization, technological
advancements, and multiculturalism can cause a shift in the cultural values
embraced by the company. Technological developments have a significant
influence on various aspects of life, including in the way of communication.
Globalization and technological innovation can accelerate the process of
diffusion and cultural change. Cultural diffusion can be interpreted as the process
of spreading values and characteristics from one culture to another. Currently,
the process of spreading these cultural values is greatly driven by the
development of the internet and social media platforms such as Instagram,
Youtube, Facebook, Twitter, Tiktok and so on.
