sppt chap001 globalization

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Global Business Today 8e

by Charles W.L. Hill


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Chapter 1

Globalization


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What Is Globalization?

Question: What is globalization?

• Globalization - the trend towards a more integrated global economic system

• Globalization of markets - the merging of historically distinct and separate national markets into one huge global marketplace

• Globalization of production - 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 (labor energy, land, and capital)


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The Emergence of Global Institutions

Global institutions:Manage, regulate, and police the global

market placePromote the establishment of multinational

treaties to govern the global business system

Notable global institutions include the:World Trade Organization (WTO) International Monetary Fund (IMF)World Bank United Nations (UN)


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Drivers of Globalization

Question: What is driving the move toward greater globalization?

• Two macro factors:

1. Declining trade and investment barriers2. Technological change

• International trade occurs when a firm exports goods or services to consumers in another country

• Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country


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Drivers of Globalization

Average Annual Percentage Growth in Volume of Exports and World GDP, 1950-2010


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Changing World Output and World Trade

Question: How has world output and world trade changed over the last 50 years?

• In the 1960s: • The U.S. dominated the world economy and the

world trade picture• The U.S. dominated world FDI • U.S. multinationals dominated the international

business scene • About half the world-- the centrally planned

economies of the communist world-- was off limits to Western international business

• Today, much of this has changed


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Changing World Output and World Trade Picture

The Changing Demographics of World GDP and Trade


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Changing Foreign Direct Investment

Question: How has the foreign direct investment picture changed over the last 50 years?

• The share of world output generated by developing countries has been steadily increasing since the 1960s

• The stock of foreign direct investment (total cumulative value of foreign investments) generated by rich industrial countries is declining

• Cross-border flows of foreign direct investment are rising

• The largest recipient of FDI is China


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Changing FDI Picture

Percentage Share of Total FDI Stock, 1980 - 2010


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Changing FDI Picture

FDI Inflows, 1988 - 2010


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The Changing Multinational Enterprise

Question: What is a multinational enterprise?

• A multinational enterprise is any business that has productive activities in two or more countries

• Since the 1960s: • There has been a rise in non-U.S.

multinationals• There has been a rise in mini-multinationals


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The Changing World Order

Question: Why is the changing world order important for firms?

• The collapse of communism in Eastern Europe• New export and investment opportunities

• Economic development in China• Huge opportunities despite continued Communist control

• Free market reforms and democracy in Latin America

• New markets and new sources of materials and production


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The Global Economy in the 21st Century

Question: What will the global economy look like in the 21st century

A more integrated global economy: New opportunities for firms But, political and economic disruptions

can throw plans into disarray


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The Globalization Debate

Question: Is the shift toward a more integrated and interdependent global economy a good thing?

• Many believe that globalization is promoting greater prosperity in the global economy, more jobs, and lower prices for goods and services

• Others feel that globalization is not beneficial


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Managing in the Global Marketplace

Question: What does the shift toward a global economy mean for managers within an international business?

Managing an international business (any firm that engages in international trade or investment) differs from managing a domestic business in four key ways


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Managing in the Global Marketplace

1.Country differences require companies to vary their practices country by country

2.Managers face a greater and more complex range of problems

3.International companies must work within the limits imposed by governmental intervention and the global trading system

4.International transactions require converting funds and being susceptible to exchange rate changes