This unit covers globalization and its effects, fundamentals of international management, multinational companies, and digital or cross-border management issues.
Concept of Globalization
Meaning of globalization
Globalization takes place when business transactions expand beyond national boundaries through global production and marketing networks. It views the entire world as a single market and integrates the world into a single economic unit.
It occurs in many ways—business globalization (crossing boundaries through global production), economic globalization (removing trade barriers), structural globalization (a company operating in two or more countries), and competition globalization (worldwide competition).
Notable definition
IMF (International Monetary Fund): Globalization is the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services and international capital flows, along with rapid and widespread diffusion of technology.
Nature of globalization
Expansion in world trade volumes: Globalization promotes world trade, letting countries work interdependently and positively affecting the growth rate of world trade.
Open market economy: It emphasizes free market competition, so governments can't restrict business operations, and private sectors emerge.
Portfolio investment: Also called indirect investment—purchasing foreign securities (stocks or bonds) for dividends, interest, or capital gains, but without managerial control.
Multinational companies: Foreign direct investment gives birth to multinationals that cross national boundaries and market products everywhere.
Free movement of factors of production: Capital, labor, technology, expertise, and goods move without boundaries, making the world a single market.
Forms of Globalization
The main forms
Economic globalization: Integrating national economies with the international economy through removal of trade barriers and liberalization (free market capitalism). It involves international trade, foreign direct investment, and movement of knowledge and technology, with the WTO as its basis.
Political globalization: Integrating the world community in norms, values, and belief systems—common perceptions about democracy, good governance, human rights, and sustainable development, and a means for exchanging ideas on issues like human rights and terrorism.
Cultural globalization: Incorporating cultural values worldwide and turning diverse cultures into a global culture. Communication, television, tourism, and transport unite people and develop mutual respect and understanding.
Environmental globalization: A worldwide effort to protect the global ecology, addressing global warming, ozone depletion, biodiversity loss, and pollution, and stressing international law to protect the environment.
Methods of Globalization
Ways a firm enters the global market
Exporting: Selling goods and services from one country to another—appropriate when production is high. Firms may use agents, brokers, banks, or insurance companies to support the exporting business.
Licensing and franchising: Licensing grants the right to use a brand name in exchange for royalties. Franchising is a form of licensing where a parent company grants independent companies (franchisees) the right to do business—best for service and retailing expansion.
Joint ventures: A partnership with foreign companies combining ownership and management of the parent company with host-country entrepreneurs. Resources and expertise are pooled to develop new products, often through equity, technology transfer, and management know-how.
Strategic alliances: A contractual partnership of two or more firms for a certain period to pursue a common goal, without joint management of assets so it can be separated easily. Popular in airlines, hotels, tourism, and manufacturing.
Direct investment (FDI): Long-term capital investment where foreign companies establish fully owned manufacturing plants that become subsidiaries, with the parent controlling production and quality. Encouraged by trade barriers and high trade costs.
Mergers and acquisitions (M&A): Involves 100% ownership—a merger combines two or more companies of similar nature, while acquisition means acquiring ownership of another company's capital and assets. Both are important strategies for entering foreign markets.
Effects of Globalization
Positive effects
Growth in trade/business: Globalization gives access to the world market, promotes newly industrialized economies, and enables joint ventures and free entry of quality products and services.
Transfer of capital and technology: It eases access to capital and technology from one country to another, letting developing countries benefit from efficient technology.
Develops income, employment, and living standard: It ensures free movement of skilled and unskilled labor, boosts economies through remittances, and creates employment via multinational companies.
Promotion of international cooperation: Liberalized world trade removes trade barriers, with the WTO playing a major role in eliminating unnecessary obstacles.
Negative effects
Threat to national sovereignty and domestic business: Multinationals capture host-country markets, and local industries can't compete against large-scale, technologically advanced foreign producers.
Economic exploitation: Multinationals exploit host countries' human and natural resources, using cheap raw materials and manpower and paying minimal local wages.
Threat to social and cultural values: Globalization can disorder cultural norms, beliefs, and values, and tends to attract crime, drug dealing, terrorism, and trafficking.
Unequal partnership / income distribution: It causes inequitable distribution of benefits, letting developed countries expand while large portions of income flow to parent countries.
Multinational Companies (MNCs)
Meaning of multinational company
Multinational companies maintain a headquarters in one country and perform business activities in two or more countries, with management, ownership, and control spread across countries but regulated by the head office for technology, patents, and copyright.
They assume the world market is a single market and use foreign currency, global advertising, and international transportation. Coca-Cola, Pepsi, and Honda are examples operating in Nepal.
Notable definition
United Nations: Multinational companies own or control production or service facilities outside the country in which they are based.
Types of multinational companies
Raw material seekers: They spread worldwide to buy the best raw materials cheaply from local markets and deliver them home for production—common in crude oil, gas, and mining.
Market seekers: They enter foreign markets to produce and sell products, aiming to expand internationally—like US and Japanese firms investing in India and China for their huge markets.
Cost minimizers: They invest where production, labor, and energy costs are low—like Sony, Toyota, and Honda setting up plants in China, India, Malaysia, and Thailand.
Advantages of multinational companies
Increase in employment opportunities: MNCs need many people for marketing, production, and distribution, giving host-country people jobs.
Increase in government revenue: They pay excise duty, income tax, sales tax, and profit tax, raising government income.
Mass and qualitative products: Latest technology, mass production, and distribution let them offer quality goods at nominal per-unit rates.
Industrial development and export promotion: They produce to international standards, not just for the host country but also for export, meeting high worldwide demand.
Earning foreign currency: Exporting goods and services earns foreign currency for the host country.
Disadvantages of multinational companies
Economic consumer exploitation: They buy cheap labor and raw materials at low rates while charging high prices for their products.
Outflow of capital: They take profits back to their own countries and pay minimal local wages, reducing the host country's foreign currency.
Effect on local industries and market: Large-scale, technologically advanced MNCs capture host markets, threatening local industries.
Challenge to social and cultural values: They can disorder cultural norms, prefer serving the rich, run anti-cultural advertisements, and attract social ills.
Why Nepal cannot take expected benefits from MNCs
Economic consumer exploitation: Cheap local labor and low-priced raw materials mean producers don't get reasonable rates while MNCs charge high prices.
Outflow of capital: Profits return to parent countries and local employees get minimal wages, lowering foreign currency levels.
Effect on local industries and market: Local industries can't compete with large-scale, advanced-technology MNCs.
Challenge to social and cultural values: MNCs create cultural disorder and run undesirable, anti-cultural advertisements in the host country.
Fundamentals of International Management
The key factors
Social and cultural conditions: Understanding the host country's language, religion, regional values, demographics, traditions, customs, and labor mobility, since these determine the value system.
Economic conditions: Considering GDP, per-capita income, class structure, supply and demand, inflation, banking facilities, and import-export volumes before entering a market.
Political and legal conditions: Complying with laws, licensing, permits, taxes, tariffs, and currency risks, plus investment and operational restrictions and quota systems.
Physical / geographical conditions: Studying how geography affects climate, transportation, communication, water, and electricity supply before entering a business.
Technological conditions: Considering ever-changing technology and the availability of skilled manpower in the host country to operate adopted technology.
Organizational capacity: Ensuring the organization has the capability and resources to operate internationally.
Digital Dimensioning in Management
Meaning of digital dimensioning
Digital dimensioning is the process of determining, designing, and implementing the digital (online / e-business) characteristics and activities of an organization. It focuses not on whether to implement e-business but on finding and implementing the right e-business characteristics.
It has become important as it improves the effectiveness and efficiency of business activities, with entrepreneurs investing more resources in online activities and digital channels.
Application of digital dimensioning in international management
Planning: Digital tools help managers collect and analyze information systematically and on time, supporting effective execution of plans.
Organizing: Digital dimensions provide structured information that helps managers divide work, assign jobs, and determine roles, authority, and responsibility for global business.
Leading: Information technology and networks help leaders learn how the organization is performing and influence subordinates' behavior toward common goals.
Controlling: Digital dimensioning helps identify reasons for deficiencies in actual performance and take timely corrective measures.
Changing Global Business Scenario
Factors indicating the changing scenario
Global production: Trade and investment are rising worldwide, with more production shifting to developing countries whose cheap labor gives a potential advantage.
Global outsourcing: Subcontracting materials and supplies to efficient organizations worldwide lowers production cost and improves product quality.
Moving toward service sectors: Business is shifting from manufacturing to services in developed countries, with growing investment in telecommunication, transport, hotels, hospitals, and education.
Global competition: Globalization brings competition everywhere—domestic and foreign—in brand, class, and quality, with the WTO opening liberal markets.
Rapid technological development: Computer technology, automation, robotics, and biotechnology bring rapid change to production and distribution, driving globalization.
Important Questions and Solutions
Exam-style questions with solutions for this unit.
1. Horizontal approach is commonly used while developing organizational structure in the Nepalese organizations. However, flat structure is considered as a good organizational structure in the current literatures of management. Discuss over the statement. (2081)
Organizational structure is the formal framework by which jobs are divided, grouped, and coordinated, and the statement contrasts two views of it — the horizontal/vertical practice common in Nepal versus the flat structure favoured in modern management literature. The statement can be discussed as follows:
- Meaning of tall (vertical) structure: a tall structure has many hierarchical levels between top management and the lowest employee, with a narrow span of control at each level.
- Practice in Nepalese organizations: most Nepalese organizations, especially public enterprises, adopt traditional vertical structures divided by function, with centralized and unclear authority and poor coordination.
- Meaning of flat structure: a flat structure has few hierarchical levels and a wide span of control, so authority is more decentralized and employees are closer to top management.
- Faster communication in flat structures: with fewer levels, information flows quickly up and down, reducing distortion and delay in decision-making.
- Better decision-making: decentralization in a flat structure empowers lower-level managers to make timely decisions suited to local conditions.
- Higher motivation and morale: employees enjoy more autonomy, responsibility, and recognition, which raises motivation and job satisfaction.
- Lower administrative cost: fewer managerial layers mean lower overhead and salary costs for supervision.
- Encourages teamwork: flat structures promote horizontal coordination and teamwork rather than rigid top-down control.
- Suited to modern business: in a fast-changing, competitive, and globalized environment, flat structures allow the flexibility and speed that modern management literature values.
- Problems with tall structures in Nepal: the vertical practice creates delays, communication blocks, over-centralization, and weak coordination, which the notes identify as weaknesses of Nepalese organizations.
- Limitations of flat structures: a very wide span of control can overburden managers and weaken close supervision, so flat structures are not always ideal.
- Suitability depends on situation: the right structure depends on organization size, nature of work, technology, and workforce skill — flat structures suit dynamic, knowledge-based firms best.
- Trend in joint ventures and MNCs: joint-venture companies and MNCs in Nepal are gradually adopting flatter, more participative structures, showing a shift toward modern practice.
- Need for professionalism: moving from vertical to flat requires professional management, clear job design, and trust in subordinates, which many Nepalese firms still lack.
- Overall assessment: while Nepalese organizations still rely on traditional vertical structures, the flat structure is better aligned with modern management thinking, and a gradual shift toward flatter, decentralized structures would improve Nepalese organizational effectiveness.
In conclusion, the statement is largely valid — Nepalese organizations traditionally follow vertical structures, but flat structures offer faster communication, better decisions, and higher morale, making them the preferred model in current management literature, provided the organization has the professionalism to support them.
2. Show the relations of digital dimension and planning. (2081)
Digital dimensioning is the process of determining, designing, and implementing the digital (online/e-business) characteristics and activities of an organization, and it has a close relation with the planning function of management.
- Systematic information collection: digital tools help managers collect and analyze information systematically and on time, which is the foundation of any good plan.
- Support for effective execution: the timely, well-analyzed information from digital channels supports managers in preparing realistic plans and executing them effectively.
3. Write the meaning of multinational company. Why is Nepal nota bale to take expected advantages from multinational companies? Explain. (2081)
A multinational company (MNC) is a company that maintains a headquarters in one country and performs business activities in two or more countries, with its management, ownership, and control spread across countries but regulated by the head office for technology, patents, and copyright. According to the United Nations, multinational companies own or control production or service facilities outside the country in which they are based. They treat the world market as a single market and use foreign currency, global advertising, and international transportation — Coca-Cola, Pepsi, and Honda are examples operating in Nepal.
Despite hosting such companies, Nepal is not able to take the expected advantages from MNCs due to the following reasons:
- Economic and consumer exploitation: MNCs buy cheap local labor and low-priced raw materials, so local producers do not get reasonable rates, while the MNCs charge high prices for their finished products.
- Outflow of capital: profits are taken back to the parent countries and local employees are paid minimal wages, which lowers the level of foreign currency retained within Nepal.
- Effect on local industries and market: local Nepalese industries cannot compete with large-scale, technologically advanced MNCs, and are gradually pushed out of the market.
- Challenge to social and cultural values: MNCs create cultural disorder, prefer serving the rich, and run undesirable, anti-cultural advertisements in the host country.
- Small market size: Nepal's limited market and low purchasing power mean MNCs invest cautiously, so the country gains little in employment and revenue.
- Weak infrastructure and policy: poor infrastructure and unstable government policy discourage large MNC investment, further limiting the benefits Nepal can capture. (not in your notes — standard addition, please verify)
In conclusion, although MNCs can bring capital, technology, and employment, factors like exploitation, capital outflow, threat to local industries, and cultural disorder prevent Nepal from gaining the full expected benefits from them.
4. Define multinational company. (2080)
A multinational company (MNC) is a company that maintains its headquarters in one country and performs its business activities in two or more countries, with management, ownership, and control spread across countries but regulated by the head office for matters like technology, patents, and copyright. According to the United Nations, MNCs own or control production or service facilities outside the country in which they are based. Coca-Cola, Pepsi, and Honda are examples operating in Nepal.
5. What is globalization? Explain the various methods of globalization. (2080)
Globalization takes place when business transactions expand beyond national boundaries through global production and marketing networks, viewing the entire world as a single market and integrating the world into a single economic unit. According to the IMF, globalization is the growing economic interdependence of countries worldwide through increasing cross-border transactions in goods and services, international capital flows, and rapid diffusion of technology. It occurs in many ways — business, economic, structural, and competition globalization.
The various methods by which a firm enters the global market are explained below:
- Exporting: selling goods and services from one country to another, suitable when production is high, often supported by agents, brokers, banks, or insurance companies.
- Licensing and franchising: licensing grants the right to use a brand name in exchange for royalties, while franchising — a form of licensing — lets a parent company grant independent franchisees the right to do business, best for service and retail expansion.
- Joint ventures: a partnership with foreign companies that combines the parent company's ownership and management with host-country entrepreneurs, pooling resources and expertise through equity, technology transfer, and management know-how.
- Strategic alliances: a contractual partnership of two or more firms for a certain period to pursue a common goal, without joint management of assets so it can be separated easily — popular in airlines, hotels, tourism, and manufacturing.
- Direct investment (FDI): long-term capital investment where a foreign company establishes a fully owned manufacturing plant that becomes a subsidiary, with the parent controlling production and quality; encouraged by trade barriers and high trade costs.
- Mergers and acquisitions (M&A): involving 100% ownership, where a merger combines two or more companies of similar nature and an acquisition means acquiring ownership of another company's capital and assets.
In short, globalization integrates the world into a single market, and firms can enter that market through exporting, licensing and franchising, joint ventures, strategic alliances, FDI, and mergers and acquisitions.
6. List out any two disadvantages of multi-national company. (2078)
Multinational companies, despite their benefits, carry certain disadvantages for the host country. Two of them are:
- Economic and consumer exploitation: they buy cheap labor and raw materials at low rates while charging high prices for their products.
- Outflow of capital: they take profits back to their own countries and pay minimal local wages, reducing the host country's foreign currency.
7. List any two reasons for the incompatibility of multinational companies to the least developed economy like Nepal. (2077)
A least developed economy like Nepal often cannot fully benefit from MNCs. Two reasons for this incompatibility are:
- Effect on local industries and market: local Nepalese industries cannot compete with large-scale, technologically advanced MNCs, and are pushed out of the market.
- Outflow of capital: MNCs send their profits back to parent countries while paying minimal local wages, lowering the host country's foreign currency levels.