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MGMT1101 - Global Business Environment Notes

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MGMT1101 Global Business Environment
MGMT1101: Global business environment
International business - what is it?
Why is IB different?
- Costs of distance
- Operating in an unfamiliar environment
- Political, social, cultural, legal and economic differences
- Protectionism of gvm
- Different currencies used
Outsourcing tasks that were previously performed in-house are now purchased (done by) from another firm
Offshoring (a form of outsourcing) a task previously performed in one country is now undertaken abroad
Globalisation- the shift towards a more integrated and interdependent world economy
Globalisation of markets the merging of separate and distinct national markets into one huge global
Globalisation of production the sourcing of G&S from locations around the globe to take advantage of
national differences in the cost and quality of factors of productions (e.g. labour, energy, land and capitol)
Global institutions
Such institutions are needed to help manage, regulate and police the global marketplace and to promote the
establishment of multinational treaties to govern the global business system.
General Agreement on
Tariffs and Trade (GATT)
An international treaty that committed signatories to
lowering barriers to the free flow of goods across
national borders
World Trade Organisation
Primarily responsible for policing the world trade system
and making sure nation-states adhere to the rules laid
down in trade treaties
International Monetary Fund
To maintain order in the international monetary system
World Bank
To promote economic development by (primarily)
offering low-interest loans to gvm. of poorer nations
United Nations (UN)
Made up of 192 countries whom are committed to
preserving peace through international cooperation and
collective security and promoting human rights
UN Conference on Trade and
Development (UNCTAD)
A UN body that promotes the integration of developing
countries into the world economy as a means of
attaining sustainable economic development
Brazil, Russia, India and China; a group of emerging
economic power
FDI when a firm invests resources in business activities outside its home country, giving it some control
over those activities
Drivers of globalisation
1. Declining trade and investment barriers

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MGMT1101 Global Business Environment
2. Technological change: microprocessors (high power, low costing computing) and telecommunications,
the internet and the world wide web (WWW) and transportation technology
Implications for the:
Globalisation of production
Globalisation of markets
As transportation costs are reduced,
dispersal of production to
geographically separate locations
become more economical
Technological innovations have led
to real costs of info processing and
communications to fall dramatically
Low-cost global communication (WWW)
are creating e-global marketplaces
Faster, low-cost transportation has made
it more economical to ship products
around the world
It has also resulted in mass movement of
people between countries
This has led to reduced cultural distance
between countries and brings
convergence of consumer tastes and
Globalisation of production refers to the sourcing of G&S from locations around the globe to take advantage
of national differences in the cost and quality of factors of production
Globalisation of markets merging of separate national markets into one huge global marketplace
Multinational enterprise (MNE) a business that has productive activities in two/more countries. Trend: rise of
non-US MNE and the growth of mini-MNE
Globalisation the shift towards a more integrated and interdependent world economy
Leads to ‘exporting jobs’ overseas resulting in a ‘hollowing out’ of the domestic economy
Job losses in industries under attack from foreign competition
Downward pressure on the wage rates of unskilled workers
Environmental degradation
Cultural imperialism of global media and MNE
Significance of borders
1. State boundaries
2. Cultural boundaries
3. Economic boundaries
4. Boundaries of ‘minds and habits
PEST framework
1. Political environment: gvm intervention (gvm support, incentives, legalisation, gvm stability,
corruption, trade barriers, war)
2. Economic environment: export market, FOREX, pricing (inflation), GDP, disposable income, PPP, wealth
stance, currency used, recent economic trends, real estate prices (land), flow of capitol

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MGMT1101 Global Business Environment
3. Sociocultural environment: language, taste and preferences, culture, lifestyle, demographics, religious
days, beliefs and customs, CB, education, attitude to debt, HR mgmt. and PR
4. Technological environment: cash method, internet, speed of technological advancement, general
technological advancement and IP (illegal download)
Role of technological change
1. Microprocessors and telecommunications: enabled explosive growth of high-power, low-cost
computing, vastly increasing the amount of info that can be processed by individuals and firms
2. Internet and the world wide web: it is the information backbone of the global economy where it rolls
back some of the constraints of location, scale and time zones
3. Transport technology: most important is the development of commercial jet aircraft and super freights
and the intro of containerisation which simplifies trans-shipment from one mode of transport to
another; reliability of delivery is important to firm
Group of eight Canada, France, Germany, Italy, japan, US, UK and Russia
Sovereign wealth fund s gvm-controlled fund that manages and invests gvm savings
Multinational firms in a globalised world
Multinational enterprise (MNE):
a. a business that has productive activities in two/more countries
b. any firm that engages in international trade and investment
Not all MNE are equal in terms of:
- size/resources
- geographical scope/diversification
- experience; process of internationalisation
- mgmt. attitude and structure
- degree of control over foreign operations
- foreign/assets
- foreign/sales
- foreign/employment
Importance of MNE: 29 out of 100 largest economies were corporations (2000)
MNE’s environment:
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