globalization (the glory of the world)

Salman Akram

Umair Arshad M Mohsin

Iqbal

Israr Ahmad M Shahryar

Hailey college of commerce

GLOBALIZATION


GLOBALIZATIONthe glory of the world

• “Processes by which goods, services,

capital, people, information, and ideas

flow across national borders.”(Grewal/Levy)


Globalization is a process of interaction and integration among the

people, companies, and governments of different nations, a process

driven by international trade and investment and aided by information

technology.

Age of Globalization


http://www.globalization101.org/category/issues-in-depth/trade/

http://www.globalization101.org/category/issues-in-depth/investment/

http://www.globalization101.org/category/issues-in-depth/technology/

Although ninety-third on the Fortune 500 list for the year 2000,

Coca-Cola brand has the highest name recognition in the world.

Only 30 percent of the unit case volume of the company is sold in

North America. Twenty-six percent is sold in Latin America while

Europe (including Eurasia), Asia Pacific, and Africa/Middle East

account for 21, 16, and 7 percent, respectively. In 1999, Coca-Cola

acquired the beverage brands of U.K.-based Cadbury Schweppes

that sell in 155 countries.


Its 2000 annual report states: "We have to maintain our special

place in local cultures, recognizing the differences between

countries and regions.“

." The company's famous slogan "think globally and act locally"

Continue…..

Most of the telecommunication companies have gone global. For

some of these companies global operations are a key for success.

Nokia is a global telecommunications company that is delivering

almost 30 percent annual compound growth in revenues during the

turn of the century while changing most of its product lines.

Nokia had the highest margins in the cell phone industry, a negative

debt—equity ratio, the most recognized non US brand in the world.


During the last part of the 20th century, telecommunications

national markets around the world were highly centralized.

In most nations, there was a dominant telecommunications

provider ¬AT&T in the United States, British Telecom in

Britain, Deutsche Telekom in Germany, NTT in Japan, and

Telegrams in Brazil.

The transformation by the turn of the century, most

telecommunications markets around the world had already

been de-regulated.

The Old Landscape


The New Landscape

New wireless technologies have facilitated the emergence of new

competitors, such as Orange and Vodafone in Britain, which now

compete head-to-head with British Telecom, the former state

monopoly.

. Much of this data traffic is being transmitted over new digital

networks that utilize fiber optics, Internet protocols, and digital

switches to send data around the world at the speed of light.

Furthermore, in 1997, the World Trade Organization initiated an

agreement among almost 70 countries to open their

telecommunications markets to foreign competition and to abide by

common rules for fair competition in telecommunications.


The Globalized Landscape…

A global market for telecommunications services is the current

reality.

Telecommunications companies are starting to penetrate each other's

markets.

As competition intensifies, national telecommunications companies

are entering into marketing alliances and joint ventures with each

other to offer multinational companies a single global

telecommunications provider for all their international voice and data

needs.


International and Global Business

As the opening case on

telecommunication indicates, the

effects of internationalization and

globalization are all around. These

effects pervade our lives as

individuals and professionals and

materialize in numerous instances.


AN AGE OF GLOBALIZATION

"Globalization" has become one of the key buzzwords of

modern times. While globalization means different things to

different people, its manifestations are found all around us. You

can buy a Coke in almost every country of the world.

Globalization is a fascinating spectacle that can be understood

as global systems of competition and connectivity. These man-

made systems provide transport, communication, governance,

and entertainment on a global scale. International crime

networks are outgrowths of the same systems.


• “Processes by which goods, services, capital,

people, information, and ideas flow across national

borders.” (Grewal/Levy)


Globalization came into existence after the second world war. One of the main factors for this was the plan by the world leaders to break down the borders for fostering trade relations between nations.


The Bretton Woods Conference was held in 1944 to restore the economic activity which was shattered by the World War II. International organizations such as the World Bank, IMF and GATT were set up to revive the global economy.

A trade pact and an organization, was founded in Geneva in 1948 to pursue the objective of free trade in order to encourage the growth and development of all member countries.

It sets out the world trade rules to ensure competition in commodity trade by bringing down tariff levels.

The first seven GATT rounds sought to stimulate the international trade through reduction in tariff levels

The eighth round of GATT was launched in Punta Del Este, Uruguay, in September 1986 and it concluded in 1994


Many influential economists, politicians, and business leaders argue that falling barriers to international trade and investment are the twin engines driving the global economy toward greater prosperity.

increased international trade and investment will result in lower prices for goods and services.


Advantages & disadvantages of globalization

Advantages of Globalization It opens the borders between the nations and increases the awareness about the differences

between us (racial, religious, traditions) and how they can be managed in our favor.

It also provides poor countries, through infusions of foreign capital and technology, with the chance to develop economically and by spreading prosperity..

Free movement. This is a big advantage - people can travel and the labor force can move. Yet, we can see immigration, culture clashes, and other negative sides of this.

Disadvantages of globalization

Free trade simply kills competition by letting the developed countries surpass the poor ones. It is namely the globalization which lead to an even wider discrepancy in wealth distribution.


To the consumer, globalization

means_

• more choices,

• lower prices,

• and an increasingly blurred

national identity for

products and services

DIMENSIONS OF GLOBALIZATION

ECONOMIC DEVELOPMENT NATURALLY DEPENDS UPON EFFICIENT

MANAGEMENT OF ECONOMIC FACTORS.

Natural resources

For example: coal, gas gold copper iron etc.

Adequate, trained, skilled and motivated human resources

For example : Qualified, well experienced & highly motivated workforce

Adequate financial and real savings, capital and investment

Entrepreneurial drive and innovations

Who Benefits from Globalization? Globalization has its winners and losers

While globalization is higher among the G-7 nations than among the developing and

emerging economies

Canada, France, Germany, Italy, Japan, United Kingdom, United States, European Union

In 2000, the share of developing countries in world merchandise trade rose to its highest

level in 50 years. The trade growth of the 49 least developed countries (LDCs) exceeded

the global average. many of the expression of globalization in wealthy nations end up

helping poorer economies.


https://en.wikipedia.org/wiki/Canada

https://en.wikipedia.org/wiki/France

https://en.wikipedia.org/wiki/Germany

https://en.wikipedia.org/wiki/Italy

https://en.wikipedia.org/wiki/Japan

https://en.wikipedia.org/wiki/United_Kingdom

https://en.wikipedia.org/wiki/United_States

https://en.wikipedia.org/wiki/European_Union

WORLD TRADE ORGANIZATION (WTO)

the world Trade Organization (WTO) whose officials are not elected by popular

vote, and because to some people, globalization simply means Americanization

and hence a threat to their identity and values. Related to this argument is the

complaint that globalization enhances the monopoly power of large multinational

corporations.

The WTO may have assumed a conflict resolution role that was previously the

domain of bilateral negotiations, but international trade remains very much a

government-to-government domain


Globalization and Environment

Globalization is altering the global

environment. Some perceive the net

ecological impact of globalization as

positive, as a force of progress and better

lives. It fosters economic growth and

cooperative institutions. Others see the net

impact as negative, i.e. ecological decay. It

is accelerating the destructive process of too

many people consuming too many natural

resources without any concern for equality or

justice.


Globalization: The Social BalancePros and Cons of Globalization

Pro’s

Now there is a worldwide market

for the companies and for the

people there is more access to

products of different countries.

globalization is correlated with

higher overall economic growth.

Con’s

little support to an employee who

loses his job as a result of foreign

competition.

Corporations are building up units

in other countries that causes

environment issues .

Globalization: The Social Balance

A balanced view

It is best to understand globalization in a balanced light, recognizing

its positive and negative aspects, so as to focus attention on

constructive solutions to the foreign trade and investment debate.


Globalization challenges

Globalization poses the following two challenges:

Free flow of imports and exports.

Heavy competition and influx of new technology

In order to face successfully these two challenges

organizations have to update their technology

as well as face competitive challenge.

World Trade Organization

Was formed in 1995 , with the General

Agreement on Trade and Tariffs

(GATT) as its basis

WTO is the only global international

organization dealing with the rules of trade

between nations

The objective is to help producers of goods

and services, exporters and importers

conduct their business



The eight arguments for WTO are:

1. The system helps promote peace.

2. Disputes are handled constructively.

3. Rules make life easier for all.

4. Freer trade cuts the costs of living.

5. It provides more choice of products and qualities.

6. Trade raises incomes.

7. Trade stimulates economic growth.

8. The basic principles make life more efficient



The eight criticisms against WTO are:

1. The WTO dictates policy.

2. The WTO is for free trade at any cost.

3. Commercial interests take priority over development.

4. Commercial interests take priority over the environment.

5. Commercial interests take priority over health and safety.

6. The WTO destroys jobs, worsens poverty.

7. Small countries are powerless in the WTO.

8. The WTO is the tool of powerful lobbies


International Business

International business is defined as all business

activities, including the creation and transfer of

resources, goods, services, know-how, skills, and

information, which go beyond national

boundaries

Their activities crossing national boundaries are

often called international transactions


International trade

&

International investment

International trade International trade occurs when a company exports goods or

services to buyers (importers) in another country

for example, IKEA (IKEA.com), the producer of household

furniture and fixtures. IKEA may purchase wood, kilned and

dried in Norway. It then produces furniture parts and assemblies

in Sweden, which may have been designed in Denmark.

Following shipping to the USA, it is put on display in the stores,

to be purchased and assembled by customers. Each of these

activities adds value to the final piece of furniture by IKEA and

constitutes part of international trade when it crosses

international boundaries.


International investment occurs when the company investsresources in business activities outside its home country

Motorola has 1,100 facilities in 45 countries, employing 140,000people worldwide. In 1999, 57 percent of its revenues came fromforeign operations

International investment

Risk in International Business

Commercial Risk

Weak partner, operational problems

Currency ( Financial ) Risk

Currency exposure, inflation, taxation

Cross-cultural Risk

cultural differences, Ethical practices

Country Risk

Govt. interventions, political instability, corruption, trade barriers.


A MNE is any business that has productive activities in

two or more countries.

Since the 1960s, two notable trends in the demographics

of the MNE:

The rise of non-U.S multinational – a relative decline in

the dominance of U.S firms in the global marketplace.

The growth of mini-multinational – international business

(IB) is conducted not just by large firms but also by

medium-size and small enterprises.

Multinational Enterprises


What MNEs Have To Offer

International versus Domestic Business

Competition

More severe competition in international market than in

domestic market because of various similar products from different

countries

Infrastructure

Financial, institutional and physical infrastructure

More important is physical infrastructure in the form of roads,

telecommunication, ports, etc.

Technology

Opportunity for knowing and getting highly cost- effective,

technologies, especially for

developing countries


Differences ……..

Difference in Currencies

Difference in Natural and Geographical Conditions

Mobility of Factors of Production

Sovereign Political Entities

- Imposition of tariffs and customs duties on imports and exports;

- Quantitative restrictions like quotas;

- Exchange control;

- Imposition of more local taxes etc.

Different Legal Systems


Why Do Firms Expand Internationally?

Market Motives:

To expand their sales

Seize market opportunities in foreign countries through trade or

investment

Economic motives:

For higher returns (profitability) through higher revenues and/or

lower costs by obtaining cheap resources

Achieving economies of scale

Spreading R&D cost


Why Do Firms Expand Internationally?

Strategic Motives:

To capitalize on their distinctive resources or capabilities already developed at home

- Technological leadership, brand image, customer loyalty, andcompetitive position

To take first mover advantage

Vertical integration involving different countries

To follow the major customer’s abroad (proximity to customer)


International Trade

o International trade is the exchange of capital, goods, and services

across international borders or territories. It is the exchange of goods

and services among nations of the world. In most countries, such trade

represents a significant share of gross domestic product (GDP).

o In the 21st century, China, the European Union and the United

States are the three largest trading markets in the world


https://en.wikipedia.org/wiki/China

https://en.wikipedia.org/wiki/European_Union

https://en.wikipedia.org/wiki/United_States

The Banana Wars

A trade dispute about Bananas that was one of the most technically

complex, politically sensitive and commercially meaningful legal

disputes that has produced one of the longest trade discussions in

modern history.

Countries involved

European Union (EU)

Latin America

United States

Caribbean

Africa

Pacific States


Why do Nations Trade?

(i) Nations are different

- Unequal distribution of natural resources

- Difference in Technology

- Cost Advantages:

Cost of production for the same product differs among different locations

- Different Preferences:

Americans prefer Basmati rice grown in India

(taste differences)

Due to different income levels

(ii) To achieve economies of scale in production- The New Trade Theory

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Evolution of trade theories

Early thinking: Theory of Mercantilism

Adam Smith: The theory of absolute advantage, 1776

Ricardo: The theory of comparative advantage, 1817

Heckscher-Ohlin theory: 20th century

“New” trade theory based on economies of scale

Product Life Cycle theory

Porter’s Competitive Advantage Theory


Theory of Mercantilism

A trade theory prevailed during 16th to 19th centuries

The wealth of a nation is measured based on its accumulatedwealth in terms of gold and silver

Nations should accumulate wealth by encouraging exports anddiscouraging imports

Theory of mercantilism aims at creating trade surplus and inturn accumulate nation’s wealth


Absolute Advantage Theory

Adam Smith FRSA was a Scottish

economist, philosopher, and author. He

was a moral philosopher, a pioneer of

political economy, and was a key figure

during the Scottish Enlightenment era. He

is best known for two classic works: The

Theory of Moral Sentiments (1759),

and An Inquiry into the Nature and

Causes of the Wealth of Nations (1776).

The latter, usually abbreviated as The

Wealth of Nations, is considered his

magnum opus and the first modern work

of economics.



Adam Smith, ‘An Enquiry into the Nature and Causes of theWealth of Nations’, 1776

There is international benefit from trade

Everyone better off without making anyone worse off

When one country can produce a unit of good with less cost thananother country, the first country has an absolute (cost)advantage in producing that good

Cost is considered based on number of labor units used



Assumptions:

Two countries (A&B), both producing two products (x&y)

Labor is the only factor of production and its productivity remains the

same

Perfect mobility of labor between the sectors within a country

No mobility of labor between the countries

Assumes perfect competition

No transportation cost

No restrictions on the movement of goods between the countries

(free trade)


Example…..

Assume, two countries, country A and country B producing

only two commodities, x and y

Suppose, A can produce x cheaper than B, and B can

produce y cheaper than A

Means, A has an absolute advantage in the production of x

and B in the production of y

Thus, A will be better off concentrating on the production

of x and B on the production of y

A will export x to B, and B will export y to A


Theory of Absolute Advantage

Limitations

Explains the causes of trade only when both the countries

enjoy absolute advantage in the production of at least one

product

Assumes that transportation costs are either non-existent or

insignificant, which may not always hold good

Assumes that prices are comparable across countries,

implying stability of exchange rate

Perfect mobility of labor between sectors – labor may be

mobile but to an extent


Comparative Advantage Theory

David Ricardo, ‘The Principles of

Political Economy & Taxation’, 1817.

Nations can still gain from trade even

without an absolute advantage.

Facilitator – Difference in opportunity

cost (the loss of other alternatives when one alternative

is chosen)

o A country has a Comparative Advantage in producing a good if

the opportunity cost of producing that good in terms of other

goods is lower in that country compared to other countries.


The Comparative Advantage Theory

Even if countries do not have an absolute advantage, they can

gain from trade by allocating resources based on their

comparative advantage and trade with each other

Assumptions:

Mostly same as that of absolute advantage theory

Cotton has comparative advantage in WTO regime

Pakistan is one of the ancient homes of cultivated cotton,

4th largest producer of cotton , the 3rd largest exporterof raw cotton and a leading exporter of yarn in the world.

Pakistan has signed the WTO and will enter in free trade

era with the dawn of year 2005.

cotton contributes nearly 10 per cent in the agriculture

GDP and a source of 60 per cent foreign exchange

earnings.

Example….

globalization (the glory of the world)

Economy & Finance