Chapter 1 of international business

8/12/2019 Chapter 1 of international business

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International BusinessGlobal Edition

By Charles W.L. Hill

Copyri ght 2013 by The McGraw-H il l Companies, Inc. Al l r ights reserved.


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Chapter 1

Globalization


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What Is Globalization?

Globalization - the shift toward a moreintegrated and interdependent worldeconomy

The world is moving away from self-contained national economies toward aninterdependent, integrated global

economic system


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What Is The

Globalization of Markets?Historically distinct and separate national

markets are merging

It no longer makes sense to talk about the

German market or the American market Instead, there is the global market

falling trade barriers make it easier to sell globally

consumers tastes and preferences are converging onsome global norm

firms promote the trend by offering the same basicproducts worldwide


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What Is The

Globalization of Markets?

Firms of all sizes benefit and contribute tothe globalization of markets

97% of all U.S. exporters have less than 500

employees

98% of all small and mid-sized Germancompanies participate in international markets


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What Is The

Globalization of Production?Firms source goods and services from

locations around the globe to capitalize onnational differences in the cost and quality

of factors of productionlike land, labor,energy, and capital

Companies can

lower their overall cost structureimprove the quality or functionality of their

product offering


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Why Do We NeedGlobal Institutions?

Global institutionshelp manage, regulate, and police the global

marketplace

promote the establishment of multinationaltreaties to govern the global business system


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Why Do We NeedGlobal Institutions?

Examples include

theGeneral Agreement on Tariffs and Trade(GATT)

theWorld Trade Organization (WTO)theInternational Monetary Fund (IMF)

theWorld Bank

theUnited Nations (UN)

theG20


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What Do GlobalInstitutions Do?

The World Trade Organization(like itspredecessor GATT)

polices the world trading system

makes sure that nation-states adhere to therules laid down in trade treaties

promotes lower barriers to trade and

investment154 members in 2011


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The International Monetary Fund(1944)

maintains order in the international monetarysystem

lender of last resort for countries in crisis

Argentina, Indonesia, Mexico, Russia, SouthKorea, Thailand, Turkey, Ireland, and Greece

The World Bank(1944)promotes economic development via low

interest loans for infrastructure projects


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The United Nations(1945)maintains international peace and securitydevelops friendly relations among nations

cooperates in solving international problemsand in promoting respect for human rightsis a center for harmonizing the actions of

nations

The G20forum through which major nations tried to

launch a coordinated policy response to the2008-2009 global financial crisis


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What Is DrivingGlobalization?

Declining barriers to the free flow of goods,services, and capital

average tariffs are now at just 4%

more favorable environment for FDIglobal stock of FDI was $15.5 trillion in 2009

facilitates global production

Technological change

microprocessors and telecommunications

the Internet and World Wide Web

transportation technology


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What Does GlobalizationMean For Firms?

Lower barriers to trade and investmentmean firms can

view the world, rather than a single country,

as their market

base production in the optimal location for thatactivity

But, firms may also find their homemarkets under attack by foreign firms


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Declining Trade AndInvestment Barriers

Average Tariff Rates on Manufactured Products as Percent of Value


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What Does GlobalizationMean For Firms?

Technological change means lower transportation costshelp create global markets and allow firms to

disperse production to economical, geographically

separate locations low cost information processing and communicationfirms can create and manage globally dispersed

production low cost global communications networks

help create an electronic global marketplaceglobal communication networks and global mediacreate a worldwide culture and a global consumer

product market


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The Changing DemographicsOf The Global Economy

Four trends are important:

1. The changing world output and worldtrade picture

2. The changing foreign direct investmentpicture

3. The changing nature of the multinationalenterprise

4. The changing world order


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How Has World Output AndWorld Trade Changed?

In 1960, the U.S. accounted for over 40%of world economic activity, but by 2009,the U.S. accounted for just 24%

a similar trend occurred in other developedcountries

In contrast, the share of world outputaccounted for by developing nations isrisingexpected to account for more than 60% of

world economic activity by 2020


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How Has World Output AndWorld Trade Changed?

The Changing Demographics of World GDP and Trade


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How Has Foreign DirectInvestment Changed Over Time?

In the 1960s, U.S. firms accounted forabout two-thirds of worldwide FDI flowsToday, the United States accounts for less

than one-fifth of worldwide FDI flowsOther developed countries have followed a

similar pattern

In contrast, the share of FDI accounted forby developing countries has risenDeveloping countries, especially China, have

also become popular destinations for FDI


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How Has Foreign DirectInvestment Changed Over Time?

Percentage Share of Total FDI Stock 1980-2007


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Wh t I A


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What Is AMultinational Enterprise?

Multinational enterprise (MNE)- anybusiness that has productive activities intwo or more countries

Since the 1960s

the number of non-U.S. multinationals hasrisen

the number of mini-multinationals has risen


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The Changing World Order

Many former Communist nations in Europe andAsia are now committed to democratic politicsand free market economiescreates new opportunities for international businesses

but, there are signs of growing unrest and totalitariantendencies in some countries

China and Latin America are also moving towardgreater free market reformsbetween 1983 and 2010, FDI in China increased from

less than $2 billion to $100 billion annuallybut, China also has many new strong companies that

could threaten Western firms


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How Will The Global EconomyOf The 21st Century Look?

The world is moving toward a more globaleconomic system

But globalization is not inevitable

there are signs of a retreat from liberal economicideology in Russia

Globalization brings risks

the financial crisis that swept through South East Asia

in the late 1990s

the recent financial crisis that started in the U.S. in2007-2008, and moved around the world

I A I t d d t Gl b l


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Is An Interdependent GlobalEconomy A Good Thing?

Supporters believe that increased trade andcross-border investment mean lower prices for goods and servicesgreater economic growth

higher consumer income, and more jobsCritics worry that globalization will causejob lossesenvironmental degradation

the cultural imperialism of global media and MNEsAnti-globalization protesters now regularly show

up at most major meetings of global institutions

H D Gl b li ti


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How Does GlobalizationAffect Jobs And Income?

Critics argue that falling barriers to tradeare destroying manufacturing jobs inadvanced countries

Supporters contend that the benefits ofthis trend outweigh the costs

countries will specialize in what they do most

efficiently and trade for other goodsand allcountries will benefit


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How Does Globalization Affect LaborPolicies And The Environment?

Critics argue that firms avoid the cost ofadhering to labor and environmental regulationsby moving production to countries where such

regulations do not exist, or are not enforcedSupporters claim that tougher environmental

and labor standards are associated witheconomic progress

as countries get richer from free trade, theyimplement tougher environmental and laborregulations

H D Gl b li ti


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How Does GlobalizationAffect National Sovereignty? Is todays global economy shifting economic power away

from national governments toward supranationalorganizations like the WTO, the EU, and the UN?

Critics argue that unelected bureaucrats have the power

to impose policies on the democratically electedgovernments of nation-states

Supporters claim that the power of these organizations islimited to what nation-states agree to grant

the power of the organizations lies in their ability toget countries to agree to follow certain actions

H I Gl b li ti


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How Is GlobalizationAffecting The Worlds Poor? Is the gap between rich nations and poor nations

getting wider?Critics believe that if globalization was beneficial

there should not be a divergence between rich

and poor nationsSupporters claim that the best way for the poor

nations to improve their situation is to reduce barriers to trade and investment

implement economic policies based on free marketeconomies receive debt forgiveness for debts incurred under

totalitarian regimes


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Group work: Question 1/3

1. Describe the shifts in the worldeconomy over the past thirty years.

What are the implications of these shiftsfor international business based in theSri Lanka? India?


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2. The study of international business isfine if you are going to work in a largemultinational enterprise but it has norelevance for individual who are goingto work in small firms. Evaluate this

statement.


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3. How have changes in technology

contributed to the globalisation ofmarkets and production? Would theglobalisation of productions and

markets have been possible withoutthese technological changes?

Chapter 1 of international business

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