Chapter One
Globalization

. 6/e © 2007 The McGraw-Hill Companies.. All Rights Reserved. Inc.1-3 Opening Case: The Globalization of Health Care • There is a shortage of radiologists in the United States and demand for their services is growing twice as fast as the rate of graduation • Solution to the problem: Send images over the Internet to be interpreted by radiologists in India McGraw-Hill/Irwin International Business.

the number is expected to grow at 15% for the next several years • Question: Will demand for American health services soon collapse as work moves offshore to places like India? McGraw-Hill/Irwin International Business. Inc.1-4 Opening Case: The Globalization of Health Care • Outsourcing health care is not only limited to radiology. we are beginning to see patients travel internationally for treatments as well as surgery • In 2004 some 170.. All Rights Reserved. . 6/e © 2007 The McGraw-Hill Companies.000 foreigners visited India for medical treatments.

. Inc.1-5 What is Globalization? • The shift toward a more integrated and interdependent world economy • Two components: . All Rights Reserved.The globalization of markets .The globalization of production McGraw-Hill/Irwin International Business. 6/e © 2007 The McGraw-Hill Companies. .

All Rights Reserved.. 6/e © 2007 The McGraw-Hill Companies. .Tastes and preferences converge onto a global norm .1-6 Globalization of Markets • The merging of distinctly separate national markets into a global marketplace .Firms offer standardized products worldwide creating a world market McGraw-Hill/Irwin International Business. Inc.Falling barriers to cross-border trade have made it easier to sell internationally .

1-7 Globalization of Markets • Difficulties that arise from the globalization of markets .Significant differences still exist among national markets . Inc.. .Varied product mix McGraw-Hill/Irwin International Business. All Rights Reserved.Country-specific marketing strategies . 6/e © 2007 The McGraw-Hill Companies.

All Rights Reserved.1-8 Globalization of Markets • The most global markets are not consumer markets • The most global markets are for industrial goods and materials that serve a universal need the world over McGraw-Hill/Irwin International Business.. 6/e © 2007 The McGraw-Hill Companies. Inc. .

All Rights Reserved. 6/e © 2007 The McGraw-Hill Companies.1-9 Globalization of Production • Refers to sourcing of goods and services from locations around the world to take advantage of . Inc.. .Differences in cost or quality of the factors of production • Labor • Land • Capital McGraw-Hill/Irwin International Business.

6/e © 2007 The McGraw-Hill Companies. Inc.. to outsource service activities to low-cost producers in other nations McGraw-Hill/Irwin International Business. and particularly the Internet.1 . All Rights Reserved. .10 Globalization of Production • Historically this has been primarily confined to manufacturing enterprises • Increasingly companies are taking advantage of modern communications technology.

All Rights Reserved.. .1 .11 Globalization of Production • Outsourcing of productive activities to different suppliers results in the creation of products that are global in nature • Impediments to the globalization of production include Formal and informal barriers to trade Barriers to foreign direct investment Transportation costs Issues associated with economic risk Issues associated with political risk McGraw-Hill/Irwin International Business. 6/e © 2007 The McGraw-Hill Companies. Inc.

regulate and police the global marketplace GATT WTO IMF World bank United Nations McGraw-Hill/Irwin International Business. 6/e © 2007 The McGraw-Hill Companies. .12 The Emergence of Global Institutions • Globalization has created the need for institutions to help manage.1 . All Rights Reserved. Inc..

Inc.. . and capital that has occurred since the end of World War II .Technological change McGraw-Hill/Irwin International Business. services.1 . All Rights Reserved.Decline in barriers to the free flow of goods. 6/e © 2007 The McGraw-Hill Companies.13 Drivers of Globalization • Two macro factors seem to underlie the trend toward greater globalization .

All Rights Reserved. services.1 . McGraw-Hill/Irwin International Business. . many of the nation-states of the world erected formidable barriers to international trade and foreign direct investment • Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods..14 Declining Trade and Investment Barriers • During the 1920s and ‘30s. and capital between nations. 6/e © 2007 The McGraw-Hill Companies. Inc.

0 % 4.0 % 3..0 % 4.9 % 4.8 % 4.1 .0 % 4.8 % 2002 4. Inc. All Rights Reserved. .0 % 4.0 % 21 % 20 % 18 % 30 % 5% 20 % -44 % © 2007 The McGraw-Hill Companies.15 Average Tariff Rates on Manufactured Products 1913 France Germany Italy Japan Holland Sweden Great Britain United States McGraw-Hill/Irwin International Business.9 % 5.3 % 5.4 % 5. 6/e 1950 18 % 26 % 25 % -1% 9% % 14 % 1990 5.9 % 4.0 % 4.9 % 5.9 % 5.

. .1 .16 Growth Trends Figure 1. 6/e 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 World Trade World Production FDI Outflows © 2007 The McGraw-Hill Companies. All Rights Reserved. Production and FDI.2: Growth of World Trade. Inc. 1992-2004 800 700 Index 1992=100 600 500 400 300 200 100 0 McGraw-Hill/Irwin International Business.

1950-2004 3100 2600 Index 1950=100 2100 1600 1100 600 100 McGraw-Hill/Irwin International Business. 6/e 19 50 19 54 19 58 19 62 19 66 19 70 19 74 19 78 19 82 19 86 19 90 19 94 19 98 20 02 Total Merchandise Exports World Production © 2007 The McGraw-Hill Companies.1 . .17 Affects of Lowering Trade Barriers Figure 1.1: Volume of World Trade and World Production.. All Rights Reserved. Inc.

Transportation technology McGraw-Hill/Irwin International Business. Inc.Information processing . ..1 . All Rights Reserved. technology has made it a reality • Since the end of World War II the world has seen advances in .Communication . 6/e © 2007 The McGraw-Hill Companies.18 The Role of Technology • Lowering of trade barriers made globalization possible.

00 200. All Rights Reserved.00 300. Inc.00 0.00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 World Japan United States European Monetary Union McGraw-Hill/Irwin International Business.00 600. .19 Internet Usage Growth Figure 1.00 Internet U sers per 1000 people 500.00 400.3: Internet Users per 1000 People.00 100.. 19902003 700. 6/e © 2007 The McGraw-Hill Companies.1 .

. All Rights Reserved.1 . . 6/e © 2007 The McGraw-Hill Companies. Inc.20 The Changing Demographics of the Global Economy • World output and trade • Changing foreign direct investment • Changing nature of multinationals McGraw-Hill/Irwin International Business.

Creates jobs .1 .Increase in consumer income . .Countries specialize in production of goods and services that are produced most efficiently • Con Factors .Lower prices for goods and services . Inc.21 The Globalization Debate • Pro Factors .Economic growth stimulation .Loss of sovereignty McGraw-Hill/Irwin International Business. 6/e © 2007 The McGraw-Hill Companies.. advanced countries .Companies move to countries with fewer labor and environment regulations . All Rights Reserved.Wage rates of unskilled workers in advanced countries declines .Destroys manufacturing jobs in wealthy.

International transactions involve converting money into different currencies McGraw-Hill/Irwin International Business.Countries are different .Range of problems confronted by a manager in an international business is wider and the problems themselves are more complex than those confronted by a manager in a domestic business . Inc.22 Managing in the Global Marketplace • Much of this book is concerned with the challenges of managing an international business (any firm that engages in international trade or investment) • Managing an international business is different from managing a purely domestic business in four areas: .. 6/e © 2007 The McGraw-Hill Companies.1 . All Rights Reserved. .An international business must find ways to work within the limits imposed by government intervention in the international trade and investment system .

.23 Looking Ahead • Chapter 2: National Differences in Political Economy Political Systems Economic Systems Legal Systems The Determinates of Economic Development Development States in Transition Managerial Implications McGraw-Hill/Irwin International Business. Inc. 6/e © 2007 The McGraw-Hill Companies.1 . . All Rights Reserved.