CHAPTER 1 GLOBALIZATION
Learning Objectives
01 Understand what is meant by the term
Globalization
02 Recognize the main drivers of globalization
03 Describe the changing nature of the global
economy
04 Explain the main arguments in the debate over the
impact of globalization
WHAT IS GLOBALIZATION?
Globalization refers
to the shift toward a
more integrated and
interdependent world
economy
Two facets of globalization
Globalization of
production
Dispersal production
activities to:
• Reduce cost
• Increase quality
Globalization
of markets
Convergence of
buyer preferences
around the globe
What is 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” or the “Vietnam market”
• Moving away from an economic system
in which nation markets are distinct
entities, isolated by trade barriers of
distance, time and culture, and toward a
system in which national markets are
merging into one global market
Reasons for globalization of markets
01 02 03
Falling trade Consumer Firms
barriers tastes and promote the
make it preferences trend by
easier to sell are offering the
globally converging same basic
on some products
global norm worldwide
Benefits of globalization of markets
Create new market opportunities
Great competition, reduce
marketing costs
For consumers
Economies of scale through Lower prices/ higher quality goods
being able to specialize in Greater choices of goods
certain goods
For enterprises
Small modifications may
suffice for local buyers’ needs
WHAT IS GLOBALIZATION OF PRODUCTION?
What is globalization of production?
Firms source goods and services from locations around the globe
to capitalize on national differences in the cost and quality of
factors of production
REASONS FOR GLOBALIZATION OF
PRODUCTION?
WHO MAKES
APPLE IPHONE?
GLOBALIZATION DRIVERS
FALLING TRADE BARRIERS
GATT, WTO, regional trade agreements
reduces barriers to international trade and
investments
TECHNOLOGICAL INNOVATION
§ Modern information and
communications technology
§ Reduction in transport cost
LOWER BARRIERS TO TRADE AND INVESTMENT
§ International trade: occurs when a firm exports goods or
services to consumers in other countries
§ Foreign direct investment (FDI): occurs when a firm
invests resources in business activities outside its home
country
LOWER BARRIERS TO TRADE AND INVESTMENT
04 The WTO launched to aim for
Under GATT: more than 100 03 further liberalizing the global
countries agreed to trade and investment
lower trade and investment framework.
barriers
02 After WWII, the advanced
industrial nations of the West
1920s – 1930s: Trade and 01 committed themselves to
investment barriers were very removing barriers to the free
high in order to protect domestic flow of goods, services and
industries from foreign capitals.
competition
.
LOWER BARRIERS TO TRADE AND INVESTMENT
§ view the world, rather than a § Domestic businesses have
single country, as their to face up with
market competition pressures
§ base production in the from foreign companies
optimal location for that
activity
TECHNOLOGICAL INNOVATION
Microprocessors and The Internet and Transportation
Telecommunications: World Wide Web: Technology
The explosive growth of high WWW => develop the The development of
power and low cost information backbone of the commercial jet aircraft and
computing global economy super freighters and
Development of satellite, It allows businesses to expand containerization => reducing
their global presence at a time and costs of shipping
optical fiber, and wireless
lower cost than ever before. goods over long distance.
technologies.
THE CHANGING OF DEMOGRAPHICS OF THE
GLOBAL ECONOMY
THE CHANGING OF DEMOGRAPHICS OF THE
GLOBAL ECONOMY
The changing world output The changing foreign direct
and world trade picture investment picture
The changing nature of the The changing world order
multinational enterprises
The Global Economy Of The
21st Century
(1) The changing world output and world trade picture
Source: Hill, 2022
(2) The changing foreign direct investment picture
Figure: FDI outward stock as a percentage of GDP
(2) The changing foreign direct investment picture
Figure: FDI inflow (in million dollars) 1990-2020
(3) The changing nature of the multinational enterprises
MNE – multinational enterprises: a firm that
owns business operations in more than one
country
(3) The changing nature of the multinational enterprises
Figure: National share of the largest 2,000 multinational corporations in 2019
(4) The changing world order
§ Between 1989 and 1991, a series
of democratic revolutions swept
§ Before, many former
the Communist World. Many of
communist nations were
the former Communist nations of
essentially closed to Western
international business. Europe and Asia seem to share a
commitment to democratic
politics and free market
economics.
(5) The Global Economy Of The 21st Century
§ The US is no longer be the dominant in the global economy like before
§ The world witness rapid change in developing countries like China, South Korea
and Taiwan
§ The world is moving toward a more global economic system
§ The changing in the geopolitical positions of the countries: US-China relations,
Russia, ...
§ Covid-19 and the disruptions of the global value chain
§ Digital transformation
THE GLOBALIZATION DEBATE
Jobs And Income
Debate .
Is An Interdependent
Global Economy A Labor Policies And The
Good Thing? Environment
Globalization National Sovereignty
The World’s Poor
Jobs And Income
Critics argue that
Supporters contend
falling barriers to trade
that the benefits of
are destroying
this trend outweigh
manufacturing jobs in
the costs
advanced countries
Labor Policies And The Environment
Critics argue that firms
avoid costly efforts to Supporters claim that
adhere to labor and tougher environmental
environmental regulations and labor standards are
by moving production to associated with economic
countries where such progress
regulations do not exist, or
are not enforced
National Sovereignty
Critics argue that
unelected bureaucrats Supporters claim that the
have the power to impose power of these
policies on the organizations is limited to
democratically elected what nation-states agree
governments of nation- to grant
states
The World’s Poor
Supporters: Many of the
world’s poorest countries
Critics believe that if have suffered from
globalization was totalitarian governments,
beneficial there should not economic policies that
be a divergence between destroyed wealth rather
rich and poor nations than facilitated its creation,
endemic corruption, scant
protection for property
rights, and war
How Does The Global Marketplace Affect
Managers?
Managing an international business differs from managing a domestic business
because:
§ countries are different
§ the range of problems confronted in an international business is wider and
§ the problems more complex than those in a domestic business
§ firms have to find ways to work within the limits imposed by government intervention in the
international trade and investment system
§ international transactions involve converting money into different currencies
Thank You!