Globalization And Worldwide Development

Chapters 1 and 2, Hodgetts, Luthans and Doh, International Management: Culture, Strategy and Behavior , 6th edition (New York: McGraw-Hill Irwin, 2006)

OVERVIEWOVERVIEW

1. International Management and Globalization

2. What is Globalization?

3. Environmental Forces4. Class Debate: The Pros and

Cons of Globalization

5. Implications for Managers

International Management International Management and Globalizationand GlobalizationWhat is international management?

◦ “the process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments” (HLD, p. 6)

Why is globalization important?◦ International management is rapidly

gaining in importance in tandem with the quickening pace of globalization

WHAT IS WHAT IS GLOBALIZATION?GLOBALIZATION?

1. Definitions

2. Roots of Globalization

3. Drivers of Globalization4. Globalization from a Regional

Perspective

5. Convergence or Divergence

Globalization: DefinitionsGlobalization: DefinitionsHodgetts, Luthans and Doh,

◦ Globalization is “the process of social, political, economic, cultural, and technological integration among countries around the world” (p. 7)

The Roots of GlobalizationThe Roots of GlobalizationWhen did globalization begin?

◦Ancient trade routes – barter trade◦Standard weights and measures◦Mercantilism – the highways of the sea◦Post WWII – institutions of global

governance◦Past 1980s – ICT, globalization defined

Hodgetts, Luthans, and Doh,◦“Contemporary globalization is a new

branch of a very old tree whose roots were planted in antiquity” (p. 8)

The Drivers of The Drivers of GlobalizationGlobalizationWhat drives globalization?

◦ Individual and social needs and aspirations◦ Technological innovation◦ Reduced technological and economic barriers to

trade Sustaining forces

◦ Greater policy liberalization

◦ Greater efficiency of business

◦ Greater market access◦ Increased flows of

goods, services, and people

Globalization from a Globalization from a Regional PerspectiveRegional PerspectiveDeveloped Economies

U.S. the European Union and Japan account for one-half of world trade

Emerging and Transition Economies Economies in Latin America and Asia are

increasingly important global players BRIC, economic powers with large internal markets Eastward expansion of the EU

Less Developed Countries (LDCs) Some fast growing and increasingly open to the

global system Others, notably in Africa, struggle to compete

globally

North AmericaNorth AmericaImportant global market

Combined purchasing power of the U.S., Canada and Mexico is $12 trillion

United States U.S. outbound FDI $1.8 billion (2003) U.S. inbound FDI $1.4 billion (2003)

Canada Largest U.S. trading partner Legal and business environment similar to the

U.S.Mexico

Strong maquiladora industry Competitive with Asia for the U.S. market Emergence of Mexican MNCs

South AmericaSouth AmericaEconomic challenges

High inflation Heavy foreign debt Entrenched interests (crony capitalism) Political instability

Economic opportunities Important emerging markets

Brazil, Argentina, Venezuela, Columbia, Chile, Peru

Prevalence of free market policies Expanding regional and international trade

Mercosur and Asia-Pacific Economic Cooperation (APEC)

EuropeEuropeMarket factors

Operational integration of the EU Privatization of traditionally nationalized

industries Expanded ties to Central and Eastern Europe

Social factors Maintaining social cohesion Adjusting to local tastes – “Plan globally, act

locally”

Economic challenges For foreign MNCs, gaining a foothold in the EU

Strategies include: acquisitions, alliances, and cooperative R&D

Absorbing the former communist-bloc countries 550 million middle-class consumers across 25 countries Largest economic market in the world

Central and Eastern Central and Eastern EuropeEuropeCollapse of the Soviet Union (1991)

Glasnost (openness) and perestroika (economic and political restructuring)

The fall of the Berlin Wall and German reunification

Russia Dismantling of price controls and privatization Crime, political uncertainty, and inflation Membership in International Monetary Fund (IMF)

Successful transition economies Czech Republic, Hungary, Poland, the Baltic states

Economies caught in transition Albania, Bulgaria, Romania, former Soviet republics

East AsiaEast AsiaJapan

In the 1970s and 1980s Strong government role Vertically integrated industries (keiretsus)

In the 1990s Economic recession Collapse of the real estate bubble Banks reluctant to write-off uncollectible loans Still the world’s second largest economy

China Economic opportunities

High rates of growth (8-10% per year) Large internal market (> 1.3 billion consumers)

Economic challenges Inflation and political instability Regulatory reform and compliance Complex and unpredictable economic

environment

East Asia – The Four TigersEast Asia – The Four TigersSouth Korea

Dominated by family-held conglomerates (chaebols)

Impacted by the Asian financial crisis (1997)Hong Kong

Part of the PRC (one country, two systems) Risk of radical change in business environment

Singapore Corporatist model From entrepot to global city

Taiwan From cheap producer to technology leader Managing relations with the PRC – the 3 Chinas

South and Southeast AsiaSouth and Southeast AsiaSoutheast Asia

The Baby Tigers (TH, MY, IN, VN) Large population base Inexpensive labor Considerable natural resources Attractive to outside investors

Other Southeast Asian nations Philippines, Cambodia, Laos, Myanmar

South Asia India

Large population (300 million middle class consumers)

Increasingly open markets, technology leader Attractive to US and British investors

Other South Asian nations Pakistan, Bangladesh, Nepal, Sri Lanka, Bhutan

Developing and Emerging Developing and Emerging Economies (1)Economies (1)Economic characteristics

Low per capita GDP, low (or negative) GDP growth High unemployment - semiskilled or unskilled

workforce Considerable government intervention in the

economy Political instability, weak infrastructure, corruption

LDCs in Asia and Latin America Include important regional economic powers (e.g.

China, India, Indonesia, Brazil, Argentina) Generally well integrated into the global economy

Developing and Emerging Developing and Emerging Economies (2)Economies (2)LDCs in the Middle East and Central

Asia Large oil reserves Highly unstable geopolitical and religious forces Plagued by continuing economic problems

LDCs in Africa Considerable natural resources Diverse populations Weak and unstable governments Economies negatively impacted by social and

environmental factors (poverty, starvation, illiteracy, corruption, environmental degradation)

Poorly integrated into the global economy

Convergence or Convergence or DivergenceDivergence

ENVIRONMENTAL ENVIRONMENTAL FORCESFORCES

1. Economic environment

2. Political environmental

3. Legal/regulatory environment

4. Socio-cultural environment

5. Technological environment

Economic EnvironmentEconomic EnvironmentGlobal and regional integration

◦International agreements (GATT, WTO)◦Regional agreements (EU, ASEAN,

NAFTA, CAFTA, FTAA, Mercosur)World trade and investment

◦80% of FDI contributed by developed economies

◦U.S. exports/imports increased by 550% from 1983 to 2003 (to $1.3 and $1.8 trillion)

◦Trade within the EU increased sharply, to > $2 trillion annually

Political EnvironmentPolitical EnvironmentRapid and uncertain change

◦ China’s transition to a market economy◦ European expansion and integration◦ Russia’s unstable political institutions◦ The emergence of political Islam in the

Middle EastSignificant differences across countries

◦ Less stable governments increase political risk

◦ Uncertain responses to democratizationChange in government policies

◦ Adjusting to adjust to new perspectives and changing requirements

◦ Assessing political risks (Chapter 10)

Legal/Regulatory Legal/Regulatory EnvironmentEnvironmentComplex and confusing

◦MNCs must Conform to national laws and standards Abide by the laws of their own countries Be aware of international treaties and obligations

◦Differences in regulatory regimes Increase transaction costs Restrict and distort trade Can result in retaliatory practices or sanctions

Four main legal traditions Common law Civil law Islamic law (theocratic law) Socialist law

Socio-Cultural Socio-Cultural EnvironmentEnvironmentEthics and social responsibility

(Chapter 3)◦Business practices◦Labor standards and workers rights◦Corporate governance◦Intellectual property rights

Values and culture (Part II)◦Responses to authority◦ Individual vs. group recognition and

responsibility◦Balance of work and family obligations◦Managing and resolving conflict

Technological EnvironmentTechnological EnvironmentChanging at “lightning speed”Internet and telecommunications

◦ Increasing bandwidth/high-speed access◦ Reduced costs of entry/leapfrogging

E-business◦ Customization (“the long end of the tail”)◦ E-retailing and financial services

Movement of money across borders “E-cash” – a currency without a country

Outsourcing and offshoring◦ Information as a commodity◦ The 24-hour office – increased productivity/lower

cost

THE PROS AND THE PROS AND CONS OF CONS OF GLOBALIZATIONGLOBALIZATION

1. Where do you stand?

2. Key themes to consider

a. Impact on Labor

b. Impact on Equality

c. Impact on Government

d. Impact on the Environment

e. Impact on Culture and Community

Impact on LaborImpact on LaborPositive effects

Increased job opportunities

Upgraded education system

Increased training

Negative effects Job displacement Loss of industries or

economic groups Lowered labor

standards Downward wage

pressure Decreased union

power Diminished social

contract

Impact on EqualityImpact on Equality

Positive effects Increased income /

reduced poverty Increased wages for

education or technically skilled

Improved economic conditions

Rich become richer Greater access to

goods Lower cost of goods Increased food

supply (in some countries)

Negative effects Greater disparity

between haves and have-nots within and across countries

Some downward pressure on wages for the poorly educated or unskilled

Worsened economic conditions in marginalized countries

Poor become poorer

Impact on GovernmentImpact on Government

Positive effects Increased economic

development Expanded

infrastructure Transfer of modern

management techniques

Greater interdependence among business partners

Negative effects MNC power increased MNCs externalize cost

to countries Competition results in

too many concessions MNCs influence local

policies Companies

incorporate in low tax countries

Pressure to reduce social benefits

Impact on the Impact on the EnvironmentEnvironmentPositive effects

More efficient use of resources

Increased demand for and transfer of more efficient technologies

Increased incomes lead to greater concern for environmental protection

Negative effects Increased consumption Advertising creates

artificial needs Greater use of fossil

fuels (increased travel) Increased surplus and

scarcity Increased degradation

from unregulated businesses

More factories require more infrastructure

Impact on Impact on Culture/CommunityCulture/CommunityPositive effects

Increased cultural exposure and understanding

Closer cross-border ties

Negative effects More mobility

disrupts social life, particularly in remote or rural communities

Disintegration of local communities

Cultural homogenization and monoculture / reduced cultural diversity

Globalization: Pros and Globalization: Pros and ConsConsGlobalization as “moral conflict”Impacts of Globalization

◦Increases economic interdependence◦Creates winners and losers

Implications of the debate◦For academics

Need for more objective research Need to question assumptions and be open to

alternatives◦For companies

Be aware of multiple stakeholder interests Follow the guidelines of the UN Global Compact Consider the “triple bottom line”

ConclusionConclusionImplications for Managers

◦Lifelong learning the “most valuable asset is the ability to learn how

to learn” (Thomas Friedman, The World is Flat)

◦Responsiveness be alert for changes and quick to respond

◦Adaptability knowing how to work with others being comfortable with uncertainty and ambiguity

◦Both a local and global perspective see the big picture (global economy/whole

organization) understand the details of operating at the local level