chapter : chapter Globalization 1
Chapter 1: Globalization: Chapter 1: Globalization
INTRODUCTION
Globalization: the trend towards a more integrated global economic system.
Chapter 1: Globalization: Chapter 1: Globalization
Effects of globalization can be seen everywhere:
the cars people drive
the food people eat
the jobs where people work
the clothes people wear
Chapter 1: Globalization: Chapter 1: Globalization
WHAT IS GLOBALIZATION?
Globalization refers to the shift towards a more integrated and interdependent world economy.
Chapter 1: Globalization: Chapter 1: Globalization The Globalization of Markets
Globalization of markets: the fact that in many industries historically distinct and separate national markets are merging into one huge global marketplace in which the tastes and preferences of consumers in different nations are beginning to converge upon some global norm.
Examples:
Sony Playstation Citicorp credit cards
Coca-Cola McDonald's hamburgers
Chapter 1: Globalization: Chapter 1: Globalization The Globalization of Production
Globalization of production: the tendency among many firms to source goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production (such as land, labor, capital, and energy), thereby allowing them to compete more effectively against their rivals.
Examples:
Boeing Lenovo
Chapter 1: Globalization: Chapter 1: Globalization
THE EMERGENCE OF GLOBAL INSTITUTIONS
Global institutions:
help manage, regulate, and police the global market place
promote the establishment of multinational treaties to govern the global business system
Chapter 1: Globalization: Chapter 1: Globalization Examples of Global Institutions:
World Trade Organization (WTO): responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties
International Monetary Fund (IMF): maintains order in the international monetary system
World Bank: promotes economic development
United Nations (UN): maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations
Chapter 1: Globalization: Chapter 1: Globalization
DRIVERS OF GLOBALIZATION
Two macro factors underlie the trend toward greater globalization:
Declining trade and investment barriers
The role of technological change
Chapter 1: Globalization : Chapter 1: Globalization
Declining Trade and Investment Barriers
After WWII, the industrialized countries of the West began the process of removing barriers to the free flow of goods, services, and capital between nations
Under GATT, over 100 nations negotiated further decreases in tariffs and made significant progress on a number of non-tariff issues
Chapter 1: Globalization: Chapter 1: Globalization
Under the WTO, a mechanism now exists for dispute resolution and the enforcement of trade laws, and there is a push to cut tariffs on industrial goods, services, and agricultural products
Removal of barriers to trade has contributed to increased international trade (the export of goods or services to consumers in another country), world output, and foreign direct investment (the investing of resources and business activities outside a firm’s home country)
Chapter 1: Globalization: Chapter 1: Globalization The volume of world trade and investment has accelerated since the early 1980s.
Chapter 1: Globalization: Chapter 1: Globalization
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.
Chapter 1: Globalization: Chapter 1: Globalization Microprocessors and Telecommunications: Major advances in communications and information processing have lowered the cost of global communication and therefore the cost of coordinating and controlling a global organization
The Internet and the World Wide Web: Web-based transactions have grown from virtually zero in 1994 to nearly $7 trillion in 2004
Transportation Technology: the most important developments are probably development of commercial jet aircraft and super freighters and the introduction of containerization, which greatly simplifies trans-shipment from one mode of transport to another
Chapter 1: Globalization: Chapter 1: Globalization
Implications for the Globalization of Production
Improvements in transportation technology have enabled firms to better respond to international customer demands
Chapter 1: Globalization : Chapter 1: Globalization
Implications for the Globalization of Markets
Managers today operate in an environment that offers more opportunities, but is also more complex and competitive than that of a generation ago
Chapter 1: Globalization: Chapter 1: Globalization THE CHANGING DEMOGRAPHICS OF THE GLOBAL ECONOMY
In the 1960s:
the U.S. dominated the world economy and the world trade picture
U.S. multinationals dominated the international business scene
about half the world-- the centrally planned economies of the communist world-- was off limits to Western international business
Chapter 1: Globalization: Chapter 1: Globalization The changing picture of world output and trade can be seen in Table 1.2.
Chapter 1: Globalization: Chapter 1: Globalization The Changing Foreign Direct Investment Picture
The share of world output generated by developing countries has been steadily increasing since the 1960s
The stock (total cumulative value of foreign investments) generated by rich industrial countries has been on a steady decline
There has been a sustained growth in cross-border flows of foreign direct investment
The flow of foreign direct investment (amounts invested across national borders each year) has been directed at developing nations especially China
Chapter 1: Globalization: Chapter 1: Globalization The stock of FDI by the world’s six most important national sources is shown in Figure 1.2.
Chapter 1: Globalization: Chapter 1: Globalization The sustained growth in cross-border flows of FDI and the emergence of developing nations as important destinations for FDI can be seen in Figure 1.3.
Chapter 1: Globalization: Chapter 1: Globalization
The Changing Nature of Multinational Enterprises
A multinational enterprise is any business that has productive activities in two or more countries.
Chapter 1: Globalization: Chapter 1: Globalization Non-U.S. Multinationals
Expect the growth of new multinational enterprises (any business that has productive activities in two or more countries) from the world's developing nations
The Rise of Mini-Multinationals
The number of mini-multinationals (small and medium-sized companies) is on the rise
Chapter 1: Globalization: Chapter 1: Globalization The Changing World Order
The collapse of communism in Eastern Europe represents a host of export and investment opportunities for Western businesses
The economic development of China presents huge opportunities and risks, in spite of its continued Communist control
Mexico and Latin America also present tremendous new opportunities both as markets and sources of materials and production
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The Global Economy of the 21st Century
Firms must be aware that while the more integrated global economy presents new opportunities, it also could result in political and economic disruptions that may throw plans into disarray
Chapter 1: Globalization: Chapter 1: Globalization THE GLOBALIZATION DEBATE
Is the shift toward a more integrated and interdependent global economy a good thing?
Anti-globalization Protests
Anti-globalization protesters now turn up at almost 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 Incomes
Critics of globalization worry that jobs are being lost to low-wage nations
Supporters of globalization argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently
Chapter 1: Globalization: Chapter 1: Globalization Globalization, Labor Policies, and the Environment
Critics of globalization argue that that free trade encourages firms from advanced nations to move manufacturing facilities offshore to less developed countries with lax environmental and labor regulations
Supporters of free trade point out that tougher environmental regulation and stricter labor standards go hand in hand with economic progress and that foreign investment often helps a country to raise its standards
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Globalization and National Sovereignty
Critics of globalization worry that economic power is shifting away from national governments and toward supranational organizations such as the World Trade Organization (WTO), the European Union (EU), and the United Nations
Chapter 1: Globalization: Chapter 1: Globalization
Globalization and the World’s Poor
Critics of globalization argue that the gap between rich and poor has gotten wider and that the benefits of globalization have not been shared equally
Supporters of free trade suggest that the actions of governments have made limited economic improvement in many countries
Chapter 1: Globalization: Chapter 1: Globalization MANAGING IN THE GLOBAL MARKETPLACE
Managing an international business (any firm that engages in international trade or investment) is different from managing a domestic business because:
countries differ
managers face a greater and more complex range of problems
international companies must work within the limits imposed by governmental intervention and the global trading system
international transactions require converting funds and being susceptible to exchange rate changes