Introduction

Economies across the world are going through a deep change in the way they make and sell goods and services. Nations that once chased the goal of self-reliance — trying to produce everything they needed on their own — now depend heavily on one another, both for buying and for supplying a wide range of products and services. Because cross-border trade and investment have grown so much, countries are no longer isolated islands.

What brought the world closer

• The main trigger has been rapid progress in communication, technology and infrastructure.
• Newer modes of communication and faster, more efficient means of transportation have shrunk distances between nations.
• Countries that were earlier cut off from one another by geography and by social and economic differences now interact with each other constantly.
• The World Trade Organisation (WTO) and the economic reforms carried out by governments of different countries have further boosted interaction and business relations among nations.

As a result, obstacles to the movement of goods and people across borders have come down sharply. National economies are becoming borderless and getting woven into one world economy — which is why the planet is now often called a "global village."

Why firms go global

Business today is no longer confined within a country's own boundaries. More and more firms are stepping into international business because it opens up numerous opportunities for growth and higher profits. India, which has traded with other countries for a very long time, has of late sharply speeded up its integration with the world economy, increasing both its foreign trade and foreign investment.

Box A — India embarks on the path to globalisation

• India did not stay untouched by the global wave of reforms. In the early 1990s it was caught in a severe debt trap and a crippling balance of payments crisis.
• In 1991, India approached the International Monetary Fund (IMF) for funds to cover its balance-of-payment deficits.
• The IMF agreed to lend, but on the condition that India carry out structural changes to be able to repay the borrowed money. With no real alternative, India accepted — and these very conditions more or less forced it to liberalise its economic policies.
• Since then, a large amount of liberalisation has taken place. Though the pace of reform has slowed at times, India remains firmly on the path to globalisation. Today, many multinational corporations (MNCs) have entered the Indian market, and many Indian companies have gone abroad to sell their products and services.

A manager's dilemma (an illustration)

Consider a small manufacturer of automobile components whose factory employs about 55 workers with a modest investment in plant and machinery. Facing a slowdown at home, he sees a substantial market for automobile components in South-East Asia and the Middle East. A friend in the tyre business warns him that "doing business internationally is not the same as carrying out business within the home country — international business is more complex, because you operate under market conditions different from those at home." The manufacturer is unsure whether to contact overseas customers and export directly, to route his products through export houses, or — as his foreign-educated son suggests — to set up a fully owned factory abroad to save on transport and get closer to customers. His confusion captures the two big questions this chapter answers: should a firm enter global business at all, and if so, through which mode?