International Business: Challenges in a Changing World
International Business
Lecture 2:
Perspectives on globalization
International Business: Challenges in a Changing World
Aims of the lectureAims of the lecture
• To define and contrast globalization of markets and globalization of production
• To identify methods of internationalizing operations
• To apply theories of internationalization and foreign direct investment (FDI)
• To follow trends in FDI outflows and inflows, highlighting the growing influence of emerging economies
• To outline the impacts of globalization on societies, together with the roles (actual and potential) of MNEs
International Business: Challenges in a Changing World
What is globalization?What is globalization?
• Definition: Increasing and deepening interactions between individuals and organizations across the globe.
• Processes are ongoing, at varying pace between countries and between sectors.
• Globalization of markets, implying growing uniformity, has been partially realized, but local preferences predominate in many sectors.
• Globalization of production, implying co-ordination of operations across borders, has transformed manufacturing, but country differences are important.
International Business: Challenges in a Changing World
Classifying countries in terms of Classifying countries in terms of economic developmenteconomic development
• Developed countries – Industrialized and economically advanced countries, with high levels of prosperity.
• Developing countries – Countries changing from mainly agricultural or natural resource-based economy to industrial production.
• Transition economies – Countries moving from communist or state-planned systems to market-based systems. (They overlap with developing countries, as modernization of their industries is a priority.)
• Emerging economies or markets – Fast-growing developing and transition economies.
International Business: Challenges in a Changing World
Table 2.1: What does globalization mean for business, society and government?
International Business: Challenges in a Changing World
Methods of Methods of internationalizing operationsinternationalizing operations
• Outsourcing – contracting with another company to carry out operations, usually more cheaply than the firm can do ‘in-house’. Includes:
– Business process outsourcing (BPO)
– Offshoring (contracting out of a function to a low-cost location)
• FDI – ownership and control of foreign assets. Includes:
– Greenfield investment
– Acquisition of an existing business
– Joint venture
International Business: Challenges in a Changing World
Figure 2.2: Methods of internationalizing operations
International Business: Challenges in a Changing World
Theories of internationalizationTheories of internationalization
• Early theories of FDI were based on location and ownership advantages
• Product life cycle theory
• Theory of incremental internationalization
– Concept of ‘psychic distance’
• Dunning’s eclectic paradigm, known as the OLI paradigm – configuring ownership, location and internalization advantages
International Business: Challenges in a Changing World
Export
Sales subsidiaries
Production/ manufacturing
Psychic distanceMarket knowledgeExperiential knowledgeSize of market
Incremental internationalization
International Business: Challenges in a Changing World
GLOBALIZATION THEORIES
1. World-System Theory: Synopsis and Analysis
2. World Polity Theory: Synopsis and Analysis
3. World Culture Theory: Synopsis and AnalysisGlobalization and Its Discontents - Wikipedia, the free encyclopediaGlobalization and Its Discontents is a book published in 2002 by the 2001 Nobel ..... Still Discontent with Globalization, article by Stiglitz in Aspenia ... http://en.wikipedia.org/wiki/Globalization_and_Its_Discontents - 51k - Cached - Similar pages
International Business: Challenges in a Changing World
Changing patterns of FDIChanging patterns of FDI
• FDI has been a driver of globalization.
• FDI inflows …
– into developed countries have focused on proximity to large markets.
– into to developing and emerging economies are growing, due to the benefits of globalized production and growth in emerging markets.
• Outward investors have been predominantly from the developed countries, but emerging MNEs are now rapidly internationalizing – investing in both developed and developing countries.
International Business: Challenges in a Changing World
Figure 2.6: Growth in value of FDI stock
Source: UN, World Investment Reports 2005 and 2007 (Geneva: UN)
International Business: Challenges in a Changing World
Figure 2.7: FDI inflows, 1994-2006
Source UN, World Investment Reports
2005 and 2007 (Geneva: UN)
International Business: Challenges in a Changing World
Figure 2.8: Number of MNEs based in developed, developing and transition economies
Source UN, World Investment Report 2007 (Geneva: UN)
International Business: Challenges in a Changing World
Figure 2.9: FDI outflows from developing and transition countries
Source UN, World Investment Reports 2005, 2006 and 2007 (Geneva: UN)
International Business: Challenges in a Changing World
Flow
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Stock
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2.7%0.9%2.3%1.7%0.7%2.3%
69.6%29.0%42.0%45.3%
1.5%17.6%20.6%
2.2%
% of 2009
World FDI
2000 2009
Major FDI Indicators (WIR 2010)
WorldDeveloping economies
China:India:Brazil
MexicoSouth Africa
Commonwealth of Independent States (CIS)Developed economies
Euro areaEuropean Union (EU)
Developed economies: EuropeDeveloped economies: Asia
United StatesDeveloped economies: AmericaDeveloped economies: Oceania
http://stats.unctad.org/FDI/TableViewer/tableView.aspx
US Dollars at current prices and current
exchange rates in millions
International Business: Challenges in a Changing World
Impacts of globalization Impacts of globalization on societieson societies
Economic impacts:
• For host societies, FDI and outsourcing bring jobs and prosperity in favoured sectors but, especially in low-skill sectors, work is insecure as investors may shift production to another country
• Loss of low-skill jobs in home countries of investors
• Widening inequality – both within and between countries.
Diffusion of technology:
• Host societies benefit from technology transfer and spillover effects, but risk of stifling local innovative capacity.
International Business: Challenges in a Changing World
Figure 2.10: Share of the top 1% of earners in gross income in selected industrialized countries
Source ILO (2004) A Fair Globalization (Geneva : ILO)
International Business: Challenges in a Changing World
Figure 2.11: Number of internet users per thousand people
Source UNDP (2007) Human Development Report 2007-2008 (Basingstoke: Palgrave Macmillan)
International Business: Challenges in a Changing World
Figure 2.12: Globalized production and social impacts
International Business: Challenges in a Changing World
Global financial marketsGlobal financial markets
• Global finance is often cited as at the forefront of globalization, facilitated by:
– The revolution in IT and the internet
– Liberalization of national financial systems, opening up to outside investors.
• The benefits for emerging economies have been rapid economic integration, capital investment and economic growth.
• However, risks of global financial volatility have grown.
International Business: Challenges in a Changing World
Cultural and environmental impacts Cultural and environmental impacts of globalizationof globalization
Cultural
• Culture change through industrialization and urbanization.
• Convergence in lifestyles as consumer societies grow.
• On the other hand, cultural differences persist.
Environmental
• Industrialization, power generation and extraction of natural resources have gathered pace, bringing environmental degradation and hastening climate change.
• Developed and emerging countries have differing perspectives of on the need to promote environmental protection
International Business: Challenges in a Changing World
ConclusionsConclusions
• Globalization has ‘shrunk’ the world – due to IT, communications and modern transport, combined with opening up of countries to outside investors.
• Globalization of production has transformed manufacturing, but markets, especially in consumer products, remain localized.
• MNEs have been at the forefront of internationalization of production, especially through FDI, now increasingly encompassing emerging MNEs and markets.
• New jobs and greater consumer choice have resulted, but negative social impacts represent the ‘dark’ side of globalization.