International Business
INBUSIN
Module 3: Globalization Part 1
Learning Outcomes
1. Understand what is meant by the term globalization.
2. Recognize the main drivers of globalization.
3. Describe the changing nature of the global economy.
4. Explain the main arguments in the debate over the impact of
globalization.
5. Understand how the process of globalization is creating opportunities
and challenges for management practice.
GLOBALIZATION
Why Study Global Business?
Global business is one of the most exciting,
challenging, and relevant subjects offered by
business schools.
1. You don’t want to be loser. Mastering global business
knowledge helps advance your employability and career
in an increasingly competitive global economy.
2. Expertise in global business is often prerequisite to join
top ranks of large firms, something many ambitions
students aspire to.
What Is Globalization?
The socioeconomic reform process of eliminating
trade, investment, information technology, and
cultural and political barriers across countries,
which in turn can lead to increased economic
growth and geopolitical integration and
interdependence among nations of the world.
What Is Globalization?
Globalization, generally speaking, is the close
integration of countries and people of the world.
This abstract five-syllable word is now frequently
heard and debated.
What Is Globalization?
Globalization refers to the shift
toward a more integrated and
interdependent world economy,
including two facets:
Globalization of Market
Globalization of Production
Globalization of Markets
Globalization of markets refers to the merging of
historically distinct and separate national markets into one
huge global marketplace.
Instead, there is the “global market”
▪ falling trade barriers make it easier to sell globally
▪ consumers’ tastes and preferences are converging
▪ firms promote the trend by offering the same basic
products worldwide
Globalization of Production
Globalization of production refers to the sourcing of
goods and services from locations around the globe to take
advantage of national differences in the cost and quality of
factors of production like land, labor, and capital.
Companies can
▪ lower their overall cost structure
▪ improve the quality or functionality of their product
offering
Institutions are needed to
▪ help manage, regulate, and police the global marketplace
▪ promote the establishment of multinational treaties to govern
the global business system
These are:
▪ General Agreement on Tariffs and Trade (GATT)
▪ World Trade Organization (WTO)
▪ International Monetary Fund (IMF)
▪ World Bank
▪ United Nations (UN)
The World Trade Organization
(WTO)
▪ Commenced operation on
January 1, 1945, but its trading
system began in 1948 under the
GATT.
▪ Polices the world trading system.
▪ Makes sure that nation-states
adhere to the rules laid down in
trade treaties.
▪ Promotes lower barriers to trade
and investment.
▪ WTO is based in Geneva, Geneva, Switzerland
Switzerland, has no branch
offices in anywhere else in the
world.
▪ As of 26 June 2014, 160
member nations collectively
accounted for 97% of world
trade in goods and services.
▪ Another 23 countries are in the
process of negotiating
membership to join the
organization.
The International Monetary
Fund (IMF) (1944) maintains
order in the international
monetary system – the global
system of exchange rates and
international payments that
enables countries and their
citizens to buy goods and
services from each other.
▪ Conceived in July 1944, shortly after World War II in
Bretton Woods, New Hampshire in the United States, but
came into formal existence in December 1945, when the
first 29 member countries signed its Articles of
Agreement.
▪ Began operations on March 1, 1947, in Washington, DC.
▪ As of September 18, 2014, 188 countries were members
of the IMF, a part of the United Nations family of 192.
▪ The World Bank (1944)
▪ Conceived at Bretton Woods
Conference 1944. Its initial primary
role was to aid the reconstruction of
Europe after World War II; its first
loan of $ 250 million was to France
in 1947 for post war reconstruction.
▪ Today, reconstruction and
restructuring economies to make
them efficient remain a major role of
the Bank, along with poverty
reduction.
▪ It sees globalization as an
opportunity to reach global solutions
too national challenges.
The United Nations (1945)
▪ Maintains international peace
and security.
▪ Develops friendly relations
among nations.
▪ Cooperates in solving
international problems and in
promoting respect for human
rights.
▪ A center for harmonizing the
actions of nations.
Drivers of Globalization
Two macro factors underlie the trend toward
greater globalization:
▪ Declining trade and investment barriers
▪ since 1950, average tariffs have fallen significantly
and are now at about 4%
▪ countries have opened their markets to FDI
▪ Technological change
▪ microprocessors and telecommunications
▪ the Internet and World Wide Web
▪ transportation technology
Average Tariff Rates on Manufactured
Products as Percent of Value
1931 1950 1990 2008
France 21% 18% 5.9% 3.9%
Germany 20 26 5.9 3.9 3.9%
Italy 18 25 5.9 3.9 3.9%
Japan 30 ----- 5.3 2.3 3.9%
Holland 5 11 5.9 3.9 3.9%
Sweden 20 9 4.4 3.9 3.9%
Great ---- 23 5.9 3.9 3.9%
Britain
United 44 14 4.8 3.2 3.9%
States
Implications of Business
Lower barriers to trade & investment mean firms can
▪ view the world as their market
▪ base production in the optimal location for that activity
Technological change means
▪ lower transportation costs - help create global markets
▪ lower information and communication costs
▪ low-cost global communications networks - help
create an electronic global marketplace
▪ global communication networks and global media -
create a worldwide culture, and a global market for
consumer products
References:
1. Hill, Charles W. and Hult, Tomas G. (2019) International Business Competing in the Global
Marketplace 12Edition, Publisher: McGraw Hill Education, New York, USA.
2. Peng, Mike W. (2018) Global Business 4th Edition, Publisher: Cengage Learning, Boston, MA,
USA.
3. Jeong, Luz Suplico, Ph.D. and Garcia Jr., Leonardo, DBA, CPM, AMed (2016) International
Marketing (2nd Edition), Publisher: C & E Publishing Inc., Quezon City, Philippines.