Copyright 2014 by McGraw Hill Education (India) Private Limited.
All rights
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International Business 10e
Charles W.L. Hill | Arun
Kumar Jain
Globalization
Copyright 2014 by McGraw Hill Education (India) Private Limited. All rights
reserved.
Chapter 1
Globalization - the shift toward a
more integrated and interdependent
world economy
The world is moving away from selfcontained national economies toward
an interdependent, integrated global
economic system
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What Is Globalization?
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 on some global norm
firms promote the trend by offering the same
basic products worldwide
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What Is The
Globalization of Markets?
Firms of all sizes benefit and
contribute to the globalization of
markets
97% of all U.S. exporters have less than
500 employees
98% of all small and mid-sized German
companies participate in international
markets
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What Is The
Globalization of Markets?
Firms source goods and services from
locations around the globe to
capitalize on national differences in
the cost and quality of factors of
production like land, labor, energy,
and capital
Companies can
lower their overall cost structure
improve the quality or functionality of
their product offering
Copyright 2014 by McGraw Hill Education (India) Private Limited. All rights
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What Is The
Globalization of Production?
Global Institutions
help manage, regulate, and police the
global marketplace
promote the establishment of
multinational treaties to govern the
global business system
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Why Do We Need
Global Institutions?
Examples include
the General Agreement on Tariffs and
Trade (GATT)
the World Trade Organization (WTO)
the International Monetary Fund (IMF)
the World Bank
the United Nations (UN)
the G20
Copyright 2014 by McGraw Hill Education (India) Private Limited. All rights
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Why Do We Need
Global Institutions?
The World Trade Organization (like its
predecessor 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
159 members in 2013
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What Do Global
Institutions Do?
The International Monetary Fund
(1944)
maintains order in the international
monetary system
lender of last resort for countries in
crisis
Argentina, Indonesia, Mexico, Russia, South
Korea, Thailand, Turkey, Ireland, and Greece
The World Bank (1944)
promotes economic development via
low interest loans for infrastructure
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What Do Global
Institutions Do?
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
is a center for harmonizing the actions
of nations
The G20
forum through which major nations tried
to launch a coordinated policy response
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What Do Global
Institutions Do?
Declining barriers to the free flow of goods,
services, and capital
average tariffs are now at just 4%
more favorable environment for FDI
global stock of FDI was $20.4 trillion in 2011
facilitates global production
Technological change
microprocessors and telecommunications
Internet: information backbone of the global
economy
transportation technology
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What Is Driving Globalization?
Lower barriers to trade and
investment mean firms can
view the world, rather than a single
country, as their market
base production in the optimal location
for that activity
But, firms may also find their home
markets under attack by foreign
firms
Copyright 2014 by McGraw Hill Education (India) Private Limited. All rights
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What Does Globalization
Mean For Firms?
Average Tariff Rates on Manufactured Products as Percent of Value
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Declining Trade And
Investment Barriers
Technological change means
lower transportation costs
help create global markets and allow firms to
disperse production to economical,
geographically separate locations
low cost information processing and
communication
firms can create and manage globally dispersed
production
low cost global communications networks
help create an electronic global marketplace
global communication networks and global media
create a worldwide culture and a global
consumer product market
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What Does Globalization
Mean For Firms?
Four trends are important:
1. The changing world output and
world trade picture
2. The changing foreign direct
investment picture
3. The changing nature of the
multinational enterprise
4. The changing world order
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The Changing Demographics
Of The Global Economy
In 1960, the U.S. accounted for
almost 40% of world economic
activity, but by 2012, the U.S.
accounted for just 23%
a similar trend occurred in other
developed countries
In contrast, the share of world output
accounted for by developing nations
is rising
expected to account for more than 60%
of world economic activity by 2020
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How Has World Output And
World Trade Changed?
The Changing Demographics of World Output and Trade
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How Has World Output And
World Trade Changed?
In the 1960s, U.S. firms accounted
for about two-thirds of worldwide FDI
flows
Today, the United States accounts for
less than one-fifth of worldwide FDI
flows
Other developed countries have
followed a similar pattern
In contrast, the share of FDI
accounted for by developing
countries has risen
Developing countries, especially China,
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How Has Foreign Direct
Investment Changed Over Time?
Percentage Share of Total FDI Stock 1980-2011
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How Has Foreign Direct
Investment Changed Over Time?
FDI Inflows 1988-2011
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How Has Foreign Direct
Investment Changed Over Time?
Multinational enterprise (MNE) - any
business that has productive
activities in two or more countries
Since the 1960s
the number of non-U.S. multinationals
has risen
the number of mini-multinationals has
risen
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What Is A
Multinational Enterprise?
Many former Communist nations in Europe and
Asia are now committed to democratic politics
and free market economies
creates new opportunities for international businesses
but, there are signs of growing unrest and totalitarian
tendencies in some countries
China and Latin America are also moving toward
greater free market reforms
between 1983 and 2010, FDI in China increased from
less than $2 billion to $100 billion annually
but, China also has many new strong companies that
could threaten Western firms
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The Changing World Order
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 2008-2009, and moved around the
world
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How Will The Global Economy Of
The 21st Century Look?
Supporters believe that increased trade
and cross-border investment mean
lower prices for goods and services
greater economic growth
higher consumer income, and more jobs
Critics worry that globalization will cause
job losses
environmental degradation
the cultural imperialism of global media and
MNEs
Anti-globalization protesters now regularly
show up at most major meetings of global
institutions
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Is An Interdependent Global
Economy A Good Thing?
Critics argue that falling barriers to
trade are destroying manufacturing
jobs in advanced countries
Supporters contend that the benefits
of this trend outweigh the costs
countries will specialize in what they do
most efficiently and trade for other
goodsand all countries will benefit
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How Does Globalization Affect
Jobs And Income?
Critics argue that firms avoid the cost of
adhering to labor and environmental
regulations by moving production to
countries where such regulations do not
exist, or are not enforced
Supporters claim that tougher
environmental and labor standards are
associated with economic progress
as countries get richer from free trade, they
implement tougher environmental and labor
regulations
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How Does Globalization Affect Labor
Policies And The Environment?
Is todays global economy shifting economic
power away from national governments toward
supranational organizations like the WTO, the EU,
and the UN?
Critics argue that unelected bureaucrats have the
power to impose policies on the democratically
elected governments of nation-states
Supporters claim that the power of these
organizations is limited to what nation-states
agree to grant
the power of the organizations lies in their
ability to get countries to agree to follow
certain actions
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How Does Globalization Affect
National Sovereignty?
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 nations
Supporters 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
market economies
receive debt forgiveness for debts incurred
under totalitarian regimes
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How Is Globalization
Affecting The Worlds Poor?
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
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How Does The Global Marketplace
Affect Managers?
