1.chap001 globalization

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Copyright © 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e". McGraw-Hill#Irwin

Global Business

Today 7e

by Charles W.L. Hill



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Chapter 1 Globalization



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Introduction

In the world economy today, we see

fewer self-contained national economies with highbarriers to cross-border trade and investment

a more integrated global economic system with lowerbarriers to trade and investment

over $4 trillion in foreign exchange transactions daily

over $1 million of goods and $!"! trillion of services

being sold across national bordersthe establishment of international institutions



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#hat Is Globalization

%uestion& #hat is globalization

'nswer&

Globalization refers to the trend towards a moreintegrated global economic system

(wo )ey facets of globalization are&

the globalization of mar)ets

the globalization of *roduction



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(he Globalization of +ar)ets

Globalization of mar)ets - the merging ofhistorically distinct and se*arate national mar)etsinto one huge global mar)et*lace

In many mar)ets today, the tastes and*references of consumers in different nations areconverging u*on some global norm

oca ola, tarbuc)s, ony .laytation, and+c/onald0s hamburgers, I2' furniture



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(he Globalization of .roduction

Globalization of *roduction - the sourcing ofgoods and services from locations around theglobe to ta)e advantage of national differences in

the cost and 3uality of factors of *roduction labor energy, land, and ca*ital5

Goal& lower overall cost structure or im*rove the3uality or functionality of their *roduct and gaincom*etitive advantage

6oeing and izio


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(he 2mergence of Global Institutions

Global institutionsmanage, regulate, and *olice the global mar)et *lace*romote the establishment of multinational treaties to

govern the global business systemthe #orld (rade 8rganization #(85 - *olices world

trading system and ensures nations adhere to the rulesestablished in #(8 treatiesIn 919, its 1:4 members accounted for ;7< of world

tradethe International +onetary =und I+=5 - maintains order

in the international monetary system



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(he 2mergence of Global Institutions

the #orld 6an) - *romotes economic develo*ment the >nited ?ations >?5 - maintains international *eace

and security, develo*s friendly relations among nations,coo*erates in solving international *roblems and

*romotes res*ect for human rights, and is a center forharmonizing the actions of nations



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/rivers of Globalization

%uestion& #hat is driving the move toward greaterglobalization

'nswer& 1" declining trade and investment barriers

" technological change



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/eclining (rade and Investment 6arriers

International trade occurs when a firm ex*orts goods orservices to consumers in another country=oreign direct investment =/I5 occurs when a firm

invests resources in business activities outside its home

country/uring the 1;9s and 1;!9s, many nations erected

barriers to international trade and =/I to *rotect domesticindustries from foreign com*etition



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'fter ##II, advanced #estern countries beganremoving trade and investment barriers

>nder G'(( the forerunner of the #(85, over 199nations negotiated further decreases in tariffs and madesignificant *rogress on a number of non-tariff issues

>nder the #(8, a mechanism now exists for dis*uteresolution and the enforcement of trade laws, and thereis a *ush to cut tariffs on industrial goods, services, and

agricultural *roducts



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@ower trade barriers hel* com*anies view the world as asingle mar)et and establish *roduction activities ino*timal locations around the globe

(his has led to an acceleration in the volume of worldtrade and investment since the early 1;A9s



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=igure1"1& Growth in #orld +erchandise (rade and.roduction, 1;:9 - 99A



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(he Bole of (echnological hange

ince #orld #ar II, there have been maCor advances incommunication, information *rocessing, andtrans*ortation

(he micro*rocessor - lowered the cost of globalcommunication and the cost of coordinating andcontrolling a global organization

>"" web-based transactions - $1!! billion in 99A

1"D billion Internet users in 99;

ommercial Cet aircraft and su*er freighters and theintroduction of containerization - sim*lify trans-shi*ment from one mode of trans*ort to another



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%uestion& #hat are the im*lications of technologicalchange for the globalization of *roduction

'nswer& @ower trans*ortation costs ma)e ageogra*hically dis*ersed *roduction system moreeconomical and allow firms to better res*ond tointernational customer demands



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%uestion& #hat are the im*lications of technologicalchange for the globalization of mar)ets

'nswer&@ow cost communications networ)s hel* create

electronic global mar)et*laces

@ow cost trans*ortation enable firms to create global

mar)ets, and facilitate the movement of *eo*le fromcountry to country *romoting a convergence of consumertastes and *references



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hanging /emogra*hics of the Global 2conomy

In the 1;D9s&the >"" dominated the world economy and world trade

and world =/I>"" multinationals dominated the international business

sceneabout half the world-- the centrally *lanned economies of

the communist world-- was off limits to #esterninternational business

(oday, much of this has changed"



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hanging #orld 8ut*ut and #orld (rade .icture

In the early 1;D9s&>"" - dominant industrial *ower accounting for about

49"!< of world manufacturing out*ut6y 99A&

>"" accounted for only 9"7<8ther develo*ed nations ex*erienced a similar

declineBa*id economic growth now in countries li)e hina,

India, and 6razil

=urther relative decline by the >"" is li)elyo com*anies may find both new mar)ets and new

com*etitors in the develo*ing regions of the world



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hanging #orld 8ut*ut and #orld (rade .icture

(able 1"& (he hanging /emogra*hics of #orld G/.

and (rade



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hanging =oreign /irect Investment .icture

(he share of world out*ut generated by develo*ingcountries has been steadily increasing since the 1;D9s(he stoc) of foreign direct investment total cumulativevalue of foreign investments5 generated by rich industrial

countries is decliningross-border flows of foreign direct investment are rising(he largest reci*ient of =/I is hina



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=igure 1"& .ercentage hare of (otal =/I toc),1;A9 - 99A



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=igure 1"!& =/I Inflows, 1;AA - 99A



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(he hanging +ultinational 2nter*rise

' multinational enter*rise is any business that has*roductive activities in two or more countries

ince the 1;D9s&

there has been a rise in non->"" multinationalsthere has been a rise in mini-multinationals



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(he hanging +ultinational 2nter*rise

Globalization has resulted in a decline in the dominanceof >"" firms in the global mar)et*lace

In 1;7!, 4A": < of the world0s D9 largest +?2s were>"" firms

6y 99A, Cust 1; of the world0s 199 largest non-financial +?2s were from the >"", 1! were from=rance, 1! from Germany, 14 were from 6ritain, and19 were from Ea*an

mall and medium-size firms are now ex*andinginternationally

easier to build international sales via the Internet



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(he hanging #orld 8rder

(he colla*se of communism in 2astern 2uro*eex*ort and investment o**ortunities

2conomic develo*ment in hinahuge o**ortunities des*ite continued ommunist

control=ree mar)et reforms and democracy in @atin 'mericanew mar)ets and new sources of materials and

*roduction



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(he Global 2conomy in the 1st entury

' more integrated global economy

new o**ortunities for firms

but, *olitical and economic disru*tions can throw

*lans into disarray



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(he Globalization /ebate

%uestion& Is the shift toward a more integrated andinterde*endent global economy a good thing

'nswer&+any ex*erts believe that globalization is *romoting

greater *ros*erity in the global economy, more Cobs, andlower *rices for goods and services8thers feel that globalization is not beneficial



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'ntiglobalization .rotests

%uestion& #hat are the concerns of critics ofglobalization

'nswer& 'nti-globalization *rotesters now turn u* at almost every

maCor meeting of a global institution

.rotesters fear that globalization is forever changing the

world in a negative way



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Globalization, Eobs, and Income

ritics claim Cobs in advanced economies are being lostto low-wage nationsu**orters claim while some Cobs may be lost, the

economy as a whole is better off

free trade will result in countries s*ecializing in the*roduction of those goods and services that they can*roduce most efficiently, while im*orting goods andservices that they cannot *roduce as efficiently, andthat in doing so, all countries will gain



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Globalization, @abor .olicies, and the 2nvironment

ritics argue free trade encourages firms fromadvanced nations to move manufacturing facilitiesoffshore to less develo*ed countries with laxenvironmental and labor regulations

u**orters claim tougher environmental regulationand stricter labor standards reflect economic *rogress

as countries get richer as a result of globalization,they raise their environmental and labor standards

free trade does not lead to more *ollution and laborex*loitation, it leads to less



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Globalization and ?ational overeignty

ritics worry economic *ower is shifting away fromnational governments and toward su*ranationalorganizations such as the #(8, the 2uro*ean >nion2>5, and the >?

u**orters argue that the *ower of these organizations islimited to what nation-states collectively agree to grantthe organizations must be able to *ersuade members

states to follow certain actions

without the su**ort of members, the organizationshave no *ower



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Globalization and the #orld0s .oor

ritics argue the ga* between rich and *oor has gottenwider and the benefits of globalization have not beenshared e3ually

u**orters suggest that the actions of governments

have made limited economic im*rovement in manycountriesmany of the world0s *oorest nations are under

totalitarian regimes, suffer from endemic corru*tion,have few *ro*erty rights, are involved in war, and areburdened by high debt



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+anaging in the Global +ar)et*lace

%uestion& #hat does the shift toward a global economymean for managers within an international business

'nswer&

+anaging an international business any firm thatengages in international trade or investment5 differs frommanaging a domestic business in four )ey ways



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+anaging in the Global +ar)et*lace

1" ountries differences re3uire com*anies to vary their*ractices country by country

" +anagers face a greater and more com*lex range of*roblems

!" International com*anies must wor) within the limitsim*osed by governmental intervention and the globaltrading system

4" International transactions re3uire converting funds andbeing susce*tible to exchange rate changes



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lassroom .erformance ystem

(he trend away from distinct national economic units andtoward one huge global mar)et is )nown as

a5 Internationalization

b5 2conomic integration

c5 Globalization

d5 .rivatization



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#hich of the following is not an exam*le of a globalinstitution

a5(he =ederal Beserve

b5(he International +onetary =und

c5(he #orld 6an)

d5(he #orld (rade 8rganization



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oca-ola, ony .laystations, and +c/onald0shamburgers are all exam*les of

a5 'merican *roducts

b5 Global *roducts

c5 Industrial *roducts

d5 ?ational *roducts



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#hich organization *rovides a mechanism for dis*uteresolution and the enforcement of trade laws

a5 (he >?

b5 (he I+=

c5 (he #(8

d5 (he #orld 6an)




#hich of the following statements is true

a5(he >"" has been accounting for an increasing share ofworld trade in recent years

b5(he >"" has been accounting for an increasing share of

world foreign direct investment in recent yearsc5(he >"" has been accounting for an increasing share ofworld out*ut in recent years

d5(he share of world trade accounted for by hina has

been increasing in recent years

1.chap001 globalization

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