Globalization II

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Chapter # 01

Globalization


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What to study in this chapter

1. Introduction

2. What is Globalization?

3. The

eme

rge

ncy of global institutions4. Drives of globalization

5. The changing demographics of theglobal economy

6. The globalization debate

7. Managing in the global marketplace


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1. Introduction

How we can understand Globalization

Interdependent Global Economy

Opportunities for businesses emerged byGlobalization.

Threats to domestic markets


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2.What is Globalization?

The Globalization of Markets

The Globalization of Production


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3.Theemergency of global institutions

WTO

IMF

WB

UN


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4.Drivers of Globalization

Declining traded and investment barriers

The role of Technological change

Microprocessors and Telecommunications The internet and worldwide web

Transportation technology

Implications for the globalization production

Implications for the globalization of markets


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4.Drivers of Globalization

Question: What is driving the move towardgreater globalization?

There are two macro factors underlying thetrend toward greater globalization

1. declining trade and investment barriers

2. technological change


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Declining Tradeand Investment Barriers

International trade occurs when a firm exportsgoods or services to consumers in another country

Foreign direct investment (FDI) occurs when a firminvests resources in business activities outside itshome country

During the 1920s and 1930s, many nations erected

barriers to international trade and FDI to protectdomestic industries from foreign competition.(Beggar thy neighbor)


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AfterWW

II, advancedW

estern countries beganremoving trade and investment barriers

Under GATT (the forerunner of theWTO), over 100nations negotiated further decreases in tariffs and

made significant progress on a number of non-tariffissues

Under theWTO, a mechanism now exists for disputeresolution and the enforcement of trade laws, and

there is a push to cut tariffs on industrial goods,services, and agricultural products


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Lower trade barriers enable companies to viewthe world as a single market and establishproduction activities in optimal locations around

the globe

This has led to an acceleration in the volume of

world trade and investment since the early 1980s


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The Role of

Technological Change The lowering of trade barriers made globalization of

markets and production a theoretical possibility,

technological change made it a tangible reality

SinceWorldWar II, there have been major advances

in communication, information processing, andtransportation


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The development of the microprocessorhas

lowered the cost ofglobal comm

unication andtherefore the cost of coordinating and controllinga global organization

Web-based transactions have grown from

virtually zero in 1994 to $250 billion in 2007 in theU.S. alone, and Internet usage is up from fewerthan 1 million users in 1990 to 1.3 billion users in2007

Commercial jet aircraft and super freighters andthe introduction of containerization have greatlysimplified trans-shipment from one mode oftransport to another


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What are the implications of technological

change for the globalization of production?

Lower transportation costs make ageographically dispersed production systemmore economical and allow firms to better

respond to international customer demands


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What are the implications of technological

change for the globalization of markets?

E-media driving the tastes and preferences

of customers all over the world and thuspaving the way towards globalization ofmarkets

Low cost transportation and fast deliveryhave enabled firms to create globalmarkets.


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5.The Changing Demographics

of the

Global Econom

y The changing world output and world trade

picture

The changing foreign direct investmentpicture

The changing nature of the multinationalenterprises

The changing world order

The global economy of 21st Century


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The Changing Demographics

of the Global EconomyIn the 1960s:

the U.S. dominated the world economy and the

world trade picture

U.S. multinationals dominated the internationalbusiness scene

Today, much of this has changed.


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The Changing World Output

andW

orld Trade Picture In the early 1960s, the U.S. was the world'sdominant industrial power accounting for about40.3% of world manufacturing output

By 2007, the U.S. accounted for only 20.7%

Other developed nations experienced a similardecline


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Rapid economic growth is now being

experienced by countries such as China,Thailand, and Malaysia Further relative decline in the U.S. share of

world output and world exports seems likely Forecasts predict a rapid rise in the share of

world outpt accounted for by developing nationssuch as China, India, Indonesia, Thailand, andSouth Korea, and a decline in the share byindustrialized countries such as Britain, Japan,and the United States

So companies may find both new markets andnew competitors in the developing regions ofthe world


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The Changing Demographics ofWorld GDP andTrade


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The Changing ForeignDirect Investment Picture

The share of world output generated bydeveloping countries has been steadily increasingsince the 1960sThe stock of foreign direct investment (totalcumulative value of foreign investments)generated by rich industrial countries has been ona steady declineThere has been a sustained growth in cross-

border flows of foreign direct investmentThe largest recipient of FDI has been China


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Percentage Share of Total FDI Stock, 1980 - 2006


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FDI Inflows, 1988 - 2007


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The Changing Nature ofthe Multinational Enterprise

A multinational enterprise is any business thathas productive activities in two or more countries

Since the 1960s,

there has been a rise in non-U.S.multinationals

there has been a rise in mini-multinationals


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The globalization of the world economy has resulted in adecline in the dominance of U.S. firms in the globalmarketplace

In 1973, 48.5 % of the worlds 260 largest MNEs wereU.S. firms

By 2006, just 24 of the worlds 100 largest non-financial MNEs were from the U.S., 13 were fromFrance, 12 from Germany, 12 were from Britain, and

9 were from Japan, and 7 of the worlds largest 100MNEs were from developing economies


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The Changing Nature ofthe Multinational Enterprise

While most international trade and investment isconducted by large MNEs, many small andmedium-size firms are expanding internationally

The Internet has made it easier for manysmaller companies to build international sales


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The ChangingWorld Order

Today, many markets that had been closed toWesternfirms are open

The collapse of communism in Eastern Europe hascreated a host of export and investment opportunities

Economic development in China has created hugeopportunities despite continued to developed nations


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The Global Economyof the Twenty-First Century

A more integrated global economy presents newopportunities for firms, but it can also result inpolitical and economic disruptions that may throw

plans into disarray


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6.The Globalization Debate

Anti-globalization protests

Globalization, Jobs and Income

Globalization, Labour policies and theenvironment

Globalization and national sovereignty

Globalization and the worlds poor


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The Globalization Debate

Question: Is the shift toward a more integratedand interdependent global economy a goodthing?

Many experts believe that globalization ispromoting greater prosperity in the globaleconomy, more jobs, and lower prices for goods

and services Others feel that globalization is not beneficial


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Antiglobalization Protests

Question: What are the concerns of critics ofglobalization?

Anti-globalization protesters now turn up atalmost every major meeting of a global institution

Protesters fear that globalization is forever

changing the world in a negative way


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Globalization, Jobs, and Income

Critics of globalization worry that jobs in advancedeconomies are being lost to low-wage nations

Supporters of globalization disagree, claiming that thebenefits of free trade outweigh its costs

While some jobs may be lost, the economy as awhole is better off

Supporters argue that free trade will result in countriesspecializing in the production of those goods andservices that they can produce most efficiently, whileimporting goods and services that they cannot produceas efficiently, and that in doing so, allcountries will gain


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Globalization, Labor Policies,and the Environment

Critics of globalization argue that that free tradeencourages firms from advanced nations to movemanufacturing facilities offshore to less developedcountries with relax environmental and labor

regulationsSupporters of free trade point out that tougherenvironmental regulation and stricter labor standardsgo hand in hand with economic progress and that ascountries get richer as a result of globalization, they

raise their environmental and labor standards Free trade does not lead to more pollution and labor

exploitation, it leads to less


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Globalization andNational Sovereignty

Critics of globalization worry that economic power isshifting away from national governments and towardsupranational organizations such as the WTO, theEuropean Union (EU), and the UN

Supporters of globalization argue that the power of theseorganizations is limited to what nation-states collectivelyagree to grant

The organizations must be able to persuademembers states to follow certain actions

Without the support of members, the organizationshave no power


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Globalization and theWorlds Poor

Critics of globalization argue that the gap between richand poor has gotten wider and that the benefits ofglobalization have not been shared equally

Supporters of free trade suggest that the actions of

governments have made limited economic improvementin many countries

Many of the worlds poorest nations are undertotalitarian regimes, suffer from endemic corruption,have few property rights, are involved in war, and are

burdened by high debt


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7.Managing the Global

MarketplaceQuestion: What does the shift toward a globaleconomy mean for managers within aninternational business?

Managing an international business (any firmthat engages in international trade or investment)differs from managing a domestic business infour key ways


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Managing in the GlobalMarketplace

1. Countries differences require companies to varytheir practices country by country

2. Managers face a greater and more complexrange of problems

3. International companies must work within thelimits imposed by governmental intervention andthe global trading system

4. International transactions require converting

funds and being susceptible to exchange ratechanges

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Globalization II

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