Week 01 Globalization(1)

CGE25101 CGE25101 Globalization and BusinessGlobalization and Business

Week 1 Week 1 GlobalizationGlobalization

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall


International Business 5e Chapter 1 - 2

• Describe the process of globalization

• Explain how globalization affects markets and production

• Identify two drivers of globalization

• Summarize the globalization debate

• List types of firms in international business

• Describe the global business environment

Chapter PreviewChapter Preview



Globalization Involves Us AllGlobalization Involves Us All

We experience internationaltransactions daily

Imports and exports reacheven remote areas

Technology and e-businesspromote trade

Consumers and companiespull markets closer



All commercial transactions between parties in two or more countries– Private firms are profit-oriented.

– Government organizations may or may not be profit-oriented.

International BusinessInternational Business

The international business environment is more complex and diverse than the domestic business environment.

The international business environment is more complex and diverse than the domestic business environment.



GlobalizationGlobalization

Trend toward greater political, economic, socio-cultural, and technological (PEST)

interdependence among national institutions and economies

Business Area I Business Area II Globalization of

markets

Convergence in buyer preferences in

markets around the world

Globalization of production

Dispersal of production activities

worldwide to minimize costs or maximize quality



Global Products and Global Global Products and Global CompetitionCompetition



Benefits of GlobalizationBenefits of Globalization

GlobalizationGlobalizationof marketsof markets

GlobalizationGlobalizationof productionof production

• Reduces marketing costs

• New market opportunities

• Levels income stream

• Reduces marketing costs

• New market opportunities

• Levels income stream

• Access lower-cost labor

• Access technical expertise

• Access production inputs

• Access lower-cost labor

• Access technical expertise

• Access production inputs



Challenges to BusinessChallenges to Business

Physicalsecurity

Digitalsecurity

Reputationalrisk

Examine companyvulnerability andcreate a disaster

recovery plan

Guard proprietaryinformation and

confidentialcommunications

Require ethical andlawful behavior from

all employees andbusiness partners



Globalization Drivers IGlobalization Drivers I

Regional TradeRegional TradeAgreementsAgreements(NAFTA, EU, APEC)(NAFTA, EU, APEC)

GATTGATT(General Agreement on (General Agreement on Tariffs and Trade, 1947)Tariffs and Trade, 1947)

WTOWTO(World Trade Organization(World Trade Organization,,

1994: The successor of GATT)1994: The successor of GATT)

Driver I:Remove barriers to trade

and investment



Trade Exceeds OutputTrade Exceeds Output

International trade and world output usually moves

in a lockstep fashion. However, trade has

consistently grown faster than output.

International trade and world output usually moves

in a lockstep fashion. However, trade has

consistently grown faster than output.

Trade in goods has grown by an average 6% a year in real terms, whereas world

merchandise outputhas increased by 3.9% a

year

Trade in goods has grown by an average 6% a year in real terms, whereas world

merchandise outputhas increased by 3.9% a

year

Ind

ex

(1950:

100)



Declining Trade And Declining Trade And Investment BarriersInvestment Barriers

Average Tariff Rates on Manufactured Products as Percent of Value



How Has World Output And How Has World Output And World Trade Changed?World Trade Changed?

The Changing Demographics of World GDP and Trade



How Has Foreign Direct How Has Foreign Direct Investment Changed Over Investment Changed Over

Time?Time?Percentage Share of Total FDI Stock 1980-2007



Globalization Drivers IIGlobalization Drivers II

Email and videoconferencing

Internet, intranets,and extranets

Transportationadvancements

Better coordination and control

Improved communications and management

More efficient, dependable

shipping

Driver II: Technological InnovationDriver II: Technological Innovation

Implications of technological Implications of technological change for the globalization of change for the globalization of

marketsmarkets• Low-cost communications

networks have helped creating electronic global marketplaces

• Low-cost transportation have:– enabled firms to create

global markets – facilitated the movement of

people from country to country promoting a convergence of consumer tastes and preferences

Chapter 1 - 15

Implications of technological Implications of technological change for the globalization of change for the globalization of

productionproduction• Lower transportation

costs make a geographically dispersed production system more economical and allow firms to better respond to international customer demands

Chapter 1 - 16



Measuring GlobalizationMeasuring Globalization



Globalization Then Globalization Then andand Now Now

Highly mobileHighly mobilelabor marketlabor market

Highly mobileHighly mobilelabor marketlabor market

Fear of jobs Fear of jobs moving abroadmoving abroad

Fear of jobs Fear of jobs moving abroadmoving abroad

Backlash amongBacklash amongthe disaffectedthe disaffected

Backlash amongBacklash amongthe disaffectedthe disaffected

Free-flowing Free-flowing capital and tradecapital and trade

Free-flowing Free-flowing capital and tradecapital and trade

First Stage of Globalization: mid-1800s to 1920sFirst Stage of Globalization: mid-1800s to 1920s



From Anarchy to DebateFrom Anarchy to Debate

ViolenceViolenceViolenceViolence

Rage Rage Rage Rage

CarnageCarnageCarnageCarnage

ExclusionExclusionExclusionExclusion

LegitimacyLegitimacyLegitimacyLegitimacy

ReasonReasonReasonReason

CivilityCivilityCivilityCivility

DebateDebateDebateDebate

Rebirth of the global economy: From 1990sRebirth of the global economy: From 1990sFirst stage of globalization: mid-1800s to 1920sFirst stage of globalization: mid-1800s to 1920s



Jobs and WagesJobs and Wages

Eliminates jobs in developed nations

Lowers wages in developed nations

Exploits workers in developing nations

Increases wealth and efficiency everywhere

Generates labor market flexibility in developed countries

Advances economies of developing nations

SupportersSupportersOpponentsOpponents



Labor, Environment & Labor, Environment & MarketsMarkets

– Globalization lowers labor standards

– Weakens protection of the environment

– Exploits workers in poor nations

+ Investment raises labor standards

+ Open economies most environment friendly

+ Companies concerned for future markets

Opponents Supporters



Global Manager’s Briefcase:Global Manager’s Briefcase:Keys to Global SuccessKeys to Global Success

Communicate effectively

Know the customer

Emphasize global awareness

Market effectively

Monitor Global Markets

Analyze problems correctly

Income Inequality Income Inequality debate debate

Poor people in developing

nations benefit most froman open economy

Income Inequality within Income Inequality within NationsNations

1 - 23


Nations open to world trade and investment grow faster than rich

nations

Income Inequality between Income Inequality between NationsNations

1 - 24


Inequality has fallen, but experts disagree on the

extent of the decline

Global Income InequalityGlobal Income Inequality

1 - 25




• The process of globalization will lower wages in the U.S. In the poor countries that the U.S. is trading with it will have the opposite effect:– Workers in the U.S. make more

than workers in places like India and Mexico because the U.S. has a higher capital to labor ratio.

– Free trade will tend to equalize wages internationally, which means Mexican and Indian wages will rise as U.S. wages will fall.

Income InequalityIncome Inequality



National SovereigntyNational Sovereignty

SupportersSupporters

Globalization has Globalization has benefited societies by benefited societies by

helping to spread helping to spread democracy worldwidedemocracy worldwide

OpponentsOpponents

Supranational Supranational institutions reduce institutions reduce

autonomy of national, autonomy of national, regional, and local regional, and local

governmentsgovernments



Supranational InstitutionsSupranational Institutions

Agency created to provide financing for national

economic development effort

Agency created to regulate fixed exchange rates and

enforce rules of international monetary

system

International International Monetary Fund Monetary Fund

(IMF)(IMF)

The World BankThe World Bank



Impact on CultureImpact on Culture

Opponents

• Destroys cultural diversity

• Homogenizes our world

• Bankrupts local small businesses

Supporters

• Specialize and trade to obtain other

goods

• Import cultural goods from other nations

• Protects deeper moral and cultural norms



Culture Matters:Culture Matters:The Global ConsumerThe Global Consumer

Culture Matters:Culture Matters:The Global ConsumerThe Global Consumer

Material DesireMaterial Desire(Coca-colonization)

Material DesireMaterial Desire(Coca-colonization)

A Force for GoodA Force for Good(Tolerance and Diversity)

A Force for GoodA Force for Good(Tolerance and Diversity)

Artistic InfluenceArtistic Influence(Cultures of developing nations are thriving)

Artistic InfluenceArtistic Influence(Cultures of developing nations are thriving)

Deeper ValuesDeeper Values(The true essence of cultures may be resistant to a global consumer culture)

Deeper ValuesDeeper Values(The true essence of cultures may be resistant to a global consumer culture)

Western ValuesWestern Values(Replacement of local values and traditions)

Western ValuesWestern Values(Replacement of local values and traditions)



International Business PlayersInternational Business Players

Business that has direct investments abroad in multiple

countries

Small companies and individuals becoming increasingly active in

international trade and investment

Adopts a global perspective and

engages in international business from or near

its inception

MultinationalCorporation

Small Businesses

and Entrepreneurs

Born Global Firm



How They Stack UpHow They Stack Up

Comparing revenue of the world's 10 most global firms to the gross domestic product of nations

Sources: Data obtained from “Global 500,” Fortune, July 21, 2008, pp. 156–182; World Development Indicators 2008 (Washington, D.C.: World Bank, April 2008), (www.worldbank.org).



FactsFacts of Small Biz Exporting of Small Biz Exporting

Most exporters haveMost exporters havefewer than 50 employeesfewer than 50 employees

Most exporters haveMost exporters havefewer than 50 employeesfewer than 50 employees

Comprehensive help Comprehensive help is availableis available

Comprehensive help Comprehensive help is availableis available

Most products do notMost products do notneed an export licenseneed an export licenseMost products do notMost products do notneed an export licenseneed an export license

Export financingExport financingis availableis available

Export financingExport financingis availableis available



The Changing World OrderThe Changing World Order

• Many former Communist nations in Europe and Asia are now committed to democratic politics and free market economies– so, there are new opportunities

for international businesses– but, there are signs of growing

unrest and totalitarian tendencies in some countries like Russia



The Changing World OrderThe Changing World Order

• China and Latin America are also moving toward greater free market reforms– between 1983 and 2008,

FDI in China increased from less than $2 billion to $90 billion annually

– but, China also has many new strong companies that could threaten Western firms



How Will The Global Economy How Will The Global Economy Of The 21st Century Look?Of The 21st Century Look?

• The world is moving toward a more global economic system…

• But globalization is not inevitable– there are signs of a retreat from

liberal economic ideology 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. in 2008, and moved around the world



Global Business EnvironmentGlobal Business Environment

Week 01 Globalization(1)

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