chapter 1a globalization

8/4/2019 Chapter 1a Globalization

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Global Business Today6e

by Charles W.L. Hill

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.


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Chapter 1

Globalization


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Introduction

In the world economy today, we see

a shift away from self-contained nationaleconomies with high barriers to cross-border

trade and investmenta move toward a more integrated global

economic system with lower barriers to tradeand investment

about $3 trillion in foreign exchange transactions

taking place everydayover $12 million of goods and some $3 trillion of

services being sold across national borders

the establishment of international institutions


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Introduction

The effects of this trend can be seen

in the cars people drive

in the food people eatin the jobs where people work

in the clothes people wear

in many other ways


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What Is Globalization?

Question:What is globalization?


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Globalization refers to the trend towardsa more integrated global economicsystem


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Question

The trend away from distinct nationaleconomic units and toward one hugeglobal market is known as

a) Internationalization

b) Economic integration

c) Globalization

d) Privatization


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Two key facets of Globalization are:1.the globalization of markets

2.the globalization of production


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The Globalization of Markets

The globalization of markets refers to themerging of historically distinct andseparate national markets into one huge

global marketplaceIn many markets today, the tastes and

preferences of consumers in differentnations are converging upon some global

normExamples of this trend include Coca

Cola, Starbucks, Sony PlayStation, andMcDonalds hamburgers


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The Globalization of Production

The globalization of production refers to thesourcing of goods and services from locationsaround the globe to take advantage of national

differences in the cost and quality of factors ofproduction (land, labor energy, and capital)

The goal for companies is to lower their overallcost structure or improve the quality or

functionality of their product and gaincompetitive advantage

Examples of companies doing this includeBoeing and Vizio


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The Emergenceof Global Institutions

Several global institutions have emerged to

help manage, regulate, and police theglobal market place

promote the establishment ofmultinational treaties to govern the globalbusiness system


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Notable global institutions includetheWorld Trade Organization (WTO)

which is responsible for policing the world

trading system and ensuring that nationsadhere to the rules established in WTOtreatiesIn 2008, 151 nations accounting for 97% of

world trade were members of the WTO

the International Monetary Fund (IMF)which maintains order in the internationalmonetary system


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the World Bank which promoteseconomic development

the United Nations (UN) which maintains

international peace and security,develops friendly relations amongnations, cooperates in solvinginternational problems and promotesrespect for human rights, and is a center

for harmonizing the actions of nations


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Question

Which of the following is not an example ofa global institution?

a)The Federal Reserve

b)The International Monetary Fund

c)The World Bank

d)The World Trade Organization


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Drivers of Globalization

Question: What is driving the movetoward greater globalization?

There are two macro factors underlyingthe trend toward greater globalization

1. declining trade and investment

barriers2. technological change


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Question

Coca-Cola, Sony Playstations, andMcDonalds hamburgers are all examples

of

a) American products

b) Global products

c) Industrial products

d) National products


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Declining Tradeand Investment Barriers

International tradeoccurs when a firmexports goods or services to consumersin another country

Foreign direct investment (FDI)occurswhen a firm invests resources inbusiness activities outside its homecountry

During the 1920s and 1930s, manynations erected barriers to internationaltrade and FDI to protect domesticindustries from foreign competition


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After WWII, advanced Western countries beganremoving trade and investment barriers

Under GATT (the forerunner of the WTO), over

100 nations negotiated further decreases intariffs and made significant progress on anumber of non-tariff issues

Under the WTO, a mechanism now exists for

dispute resolution and the enforcement of tradelaws, and there is a push to cut tariffs onindustrial goods, services, and agriculturalproducts


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Lower trade barriers enable companiesto view the world as a single market andestablish production activities in optimal

locations around the globe

This has led to an acceleration in thevolume of world trade and investment

since the early 1980s


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Growth in World Merchandise Trade andProduction, 1950 - 2006


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Question

Which organization provides a mechanismfor dispute resolution and the enforcementof trade laws?

a) The UN

b) The IMF

c) The WTO

d) The World Bank


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The Role ofTechnological Change

The lowering of trade barriers madeglobalization of markets and production atheoretical possibility, technological

change made it a tangible reality

Since World War II, there have beenmajor advances in communication,

information processing, andtransportation


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The development of the microprocessor haslowered the cost of global communication andtherefore the cost of coordinating and controllinga global organization

Web-based transactions have grown fromvirtually zero in 1994 to $250 billion in 2007 inthe U.S. alone, and Internet usage is up fromfewer than 1 million users in 1990 to 1.3 billion

users in 2007Commercial jet aircraft and super freighters and

the introduction of containerization have greatlysimplified trans-shipment from one mode oftransport to another


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Question: What are the implications oftechnological change for the globalizationof production?

Lower transportation costs make ageographically dispersed production

system more economical and allow firmsto better respond to internationalcustomer demands


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Question: What are the implications of

technological change for the globalization ofmarkets?

Low cost communications networks have helpedcreate electronic global marketplaces

Low cost transportation have enabled firms to

create global markets, and have facilitated themovement of people from country to countrypromoting a convergence of consumer tastesand preferences


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The Changing Demographicsof the Global Economy

In the 1960s:the U.S. dominated the world economy

and the world trade picture

the U.S. dominated world FDIU.S. multinationals dominated the

international business sceneabout half the world-- the centrally

planned economies of the communistworld-- was off limits to Westerninternational business

Today, much of this has changed.


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The Changing World Outputand World Trade Picture

In the early 1960s, the U.S. was theworld's dominant industrial poweraccounting for about 40.3% of world

manufacturing output

By 2007, the U.S. accounted for only20.7%

Other developed nations experienced asimilar decline


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The Changing World Outputand World Trade Picture

Rapid economic growth is now beingexperienced by countries such as China,Thailand, and MalaysiaFurther relative decline in the U.S. share of

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

world output accounted for by developingnations such as China, India, Indonesia,Thailand, and South Korea, and a decline in the

share by industrialized countries such as Britain,Japan, and the United StatesSo companies may find both new markets and

new competitors in the developing regions of theworld


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The Changing World Output andWorld Trade Picture

The Changing Demographics of WorldGDPand Trade


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The Changing ForeignDirect Investment Picture

The share of world output generated bydeveloping countries has been steadilyincreasing since the 1960s

The stock of foreign direct investment(total cumulative value of foreigninvestments) generated by rich industrialcountries has been on a steady declineThere has been a sustained growth in

cross-border flows of foreign directinvestmentThe largest recipient of FDI has beenChina


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Percentage Share of Total FDI Stock, 1980- 2006


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FDI Inflows, 1988 - 2007


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Question

Which of the following statements is true?

a)The U.S. has been accounting for an increasingshare of world trade in recent years

b)The U.S. has been accounting for an increasingshare of world foreign direct investment in recentyears

c)The U.S. has been accounting for an increasingshare of world output in recent years

d)The share of world trade accounted for by Chinahas been increasing in recent years


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The Changing Nature ofthe Multinational Enterprise

A multinational enterprise is anybusiness that has productive activitiesintwo 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 hasresulted in a decline in the dominance of U.S.firms in the global marketplace

In 1973, 48.5 % of the worlds 260 largestMNEs were U.S. firms

By 2006, just 24 of the worlds 100 largest

non-financial MNEs were from the U.S., 13

were from France, 12 from Germany, 12were from Britain, and 9 were from Japan,and 7 of the worlds largest 100 MNEs were

from developing economies


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While most international trade andinvestment is conducted by large MNEs,many small and medium-size firms are

expanding internationallyThe Internet has made it easier for

many smaller companies to build

international sales


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The Changing World Order

Today, many markets that had been closed toWestern firms are open

The collapse of communism in EasternEurope has created a host of export andinvestment opportunities

Economic development in China has createdhuge opportunities despite continuedCommunist control

Free market reforms and democracy in LatinAmerica have created opportunities for newmarkets and new sources of materials andproduction


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The Global Economyof the Twenty-First Century

A more integrated global economypresents new opportunities for firms, butit can also result in political and economic

disruptions that may throw plans intodisarray


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The Globalization Debate

Question: Is the shift toward a moreintegrated and interdependent globaleconomy a good thing?

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

goods and servicesOthers feel that globalization is not

beneficial


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Antiglobalization Protests

Question: What are the concerns of criticsof globalization?

Anti-globalization protesters now turn upat almost every major meeting of a globalinstitution

Protesters fear that globalization isforever changing the world in a negativeway


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Globalization, Jobs, and Income

Critics of globalization worry that jobs inadvanced economies are being lost to low-wagenations

Supporters of globalization disagree, claimingthat the benefits of free trade outweigh its costsWhile some jobs may be lost, the economy

as a whole is better off

Supporters argue that free trade will result in

countries specializing in the production of thosegoods and services that they can produce mostefficiently, while importing goods and servicesthat they cannot produce as efficiently, and thatin doing so, allcountries will gain


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Globalization, Labor Policies,and the Environment

Critics of globalization argue that that freetrade encourages firms from advancednations to move manufacturing facilitiesoffshore to less developed countries with lax

environmental and labor regulationsSupporters of free trade point out thattougher environmental regulation and stricterlabor standards go hand in hand witheconomic progress and that as countries getricher as a result of globalization, they raisetheir environmental and labor standards

Free trade does not lead to more pollutionand labor exploitation, it leads to less


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Globalization andNational Sovereignty

Critics of globalization worry that economicpower is shifting away from nationalgovernments and toward supranationalorganizations such as the WTO, the European

Union (EU), and the UNSupporters of globalization argue that the power

of these organizations is limited to what nation-states collectively agree to grant

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

Without the support of members, theorganizations have no power


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Globalization and the Worlds Poor

Critics of globalization argue that the gapbetween rich and poor has gotten wider andthat the benefits of globalization have not beenshared equally

Supporters of free trade suggest that theactions of governments have made limitedeconomic improvement in many countries

Many of the worlds poorest nations are

under totalitarian regimes, suffer fromendemic corruption, have few property rights,are involved in war, and are burdened byhigh debt


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Managing in the Global Marketplace

Question: What does the shift toward aglobal economy mean for managerswithin an international business?

Managing an international business (anyfirm that engages in international trade orinvestment) differs from managing adomestic business in four key ways


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Managing in the Global Marketplace

1. Countries differences require companiesto vary their practices country by country

2. Managers face a greater and morecomplex range of problems

3. International companies must workwithin the limits imposed bygovernmental intervention and the globaltrading system

4. International transactions requireconverting funds and being susceptibleto exchange rate changes


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International Business Resource

http://globaledge.msu.edu/about_globaledge.asp
http://globaledge.msu.edu/about_globaledge.asphttp://globaledge.msu.edu/about_globaledge.asp

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