GLOBALIZATION

Globalization Definition

The process by which different parts of

the world interact economically,
politically, and culturally.
What is globalisation?
• Spread of; manufacturing, services, markets, culture, lifestyle,
capital, technology and ideas across national boundaries and
around the world. Also the integration of these geographically
dispersed economic and social activities. Huge impacts on
people and nations. The whole world is affected by
globalisation
Globalization Defined
• Globalization: “…(the) integration of
national economies into the international
economy through trade, direct foreign
investment…short-term capital flows,
international flows of workers and
humanity generally, and flows of
technology…”.
Globalization encompasses:

• Internationalization (trade & investment)

• Liberalization (freeing markets)
• Universalization (cultural interchange)…or…
• Westernization (Western cultural dominance)
Globalization – what’s really new?
New Trade and Production Patterns
New trade pattern: developing countries
• don't just have to trade their raw materials to the
West and get finished products in return;
• can become big-time producers as well.
New production pattern: global product
network
• companies can locate different parts of their
production, research and marketing in different
countries
 Globalization – what’s really new?
New markets
Growing global markets in services
people can now offer and trade services globally -- from medical
advice to software writing to data processing -- that could never
really be traded before.

W-2, W-4, 1099

bonuses & stock
statements

Indian accountant
US tax payers
Globalization – what’s really new?
New rules and norms
Market economic policies spreading around the world,
with greater privatization and liberalization than in earlier
decades.
ex: BRIC
Widespread adoption of democracy as the choice of
political regime.
Globalization – what’s really new?
New rules and norms
Multilateral agreements in trade, taking on such new
agendas as environmental and social conditions.
New multilateral agreements – for services, intellectual
property , communications – more binding on national
governments than any previous agreements.
History of Globalization
• Sharing between world cultures began 1000s of years ago.
• In the 19th century cultural sharing exploded.
19 Century
th

• Europeans discover the Americas

• European Imperialism
• Industrial Revolution
• Inventions
• Transportation
• Telephone
• Telegraph
20 Century
th

• Free market capitalism

• End of the Cold War
• THE INTERNET
• Exchange ideas
• Transfer $$
• Share culture
• 24/7
.
Levels of Globalization
• ►A. Eras of Globalization
• First Era of Globalization (about 1850-1914)
• Interwar Period (1920-1939)
• Cold War Era (1945-1989)
• Second Era of Globalization (1989-Present)
• ►Differences of Current Era of Globalization
• Trade
• Finance
• Technology
Globalisation

Globalisation
could involve
all these
things!
• IMPACT OF GLOBALIZATION ON INDIA
• We have everything by
globalization, we have
nothing by globalization.
• Cultural Changes In India:
• Cultural Changes Access to television grew
from 10% of the urban population (1991) to
75% of the urban population (1999). Cable
television and foreign movies became
widely available for the first time and have
acted as a catalyst in bulldozing the cultural
boundaries Indian youths leaving education
in mid-way and joining MNC's There has
been a increase in the violence, particularly
against women.
• Extension of internet facilities even to rural
areas. In place of old cinema halls, multiplex
theatre are coming up. Old restaurants are
now replaced by Mc. Donald’s. Fast food and
Chinese dishes have replaced juice corners
and Parathas. More availability of cheap and
filthy material (CD's or DVD's of Hollywood
movies, porn movies, sex toys, foreign
channels like MTV) in the name of
liberalization. Scientific and technological
innovations have made life quite
comfortable, fast and enjoyable.
• More inflow of money has aggravated
deep rooted problem of corruption.
More scandals and scams compared to
pre-globalization era. In India, land-line
or basic phone was a prestige symbol
few years back but now you find
people riding bicycle with a mobile in
hand, talking or listening music.
• Economic Changes :
• Economic Changes A country of
savers has become spenders. Greater
employment opportunities for the
masses. Companies and government
have changed the way they do
business to cut the red tapisum. The
rupee has gained on the dollars so it
is less advantage for Indians to live
overseas and send money back
home..
• The Bright Side of Globalization :
• The Bright Side of Globalization The rate
of growth of the GDP of India has been on
the increase from 5.6 % during 1980-90 to
7% in the 1993-2001 period. In the last
four years, the annual growth rate of the
GDP was impressive at 7.5% (2003-04),
8.5% (2004-05),9% (2005-06) and 9.2%
(2006-07). The foreign exchange reserves
were $ 39 bn (2000-01), $107 bn (2003-
04),$145 bn (2005-06) and $180 bn (in
February 2007).
• India’s trade deficit during 1990-1991 to
2006-2007 ranged between 3.6% to 6.9% of
GDP. The fluctuation in Foreign portfolio
Investment were much sharper then FDI,
The FPI rate decreases by 36% from period
1990-00 and again shows upward growth
rate in period 00-07 was 22.1%. FDI (net)
shows a gradual upward growth from $97
million in 1990-1991 to $3272 million in
2000-2001 and again rising and touching
the peak of $8779 million in 2006-2007.
• Share in world exports raise from
0.52% in 1990 to 1% in 2007. In the
rate of growth of per capita income
there has been a sharp acceleration
in the growth of per capita income,
almost doubling to an average of
7.2% p.a. (2003-04 to 2007-08).
• Darker Side of Globalisation :
• Darker Side of Globalisation
Industrialisation did not take place as
per expectation. Share of agriculture
in the GDP went down drastically to
24 per cent and further to 22 per cent
in 2006-07. The number of rural
landless families increased from 35
per cent in 1987 to 45 per cent in
1999, further to 55 per cent in 2005.
• Corruption, lack of efficiency in work
and ineffective management became
the common features of public sector.
Decreased FDI: The data of FDI shows
50% (approx) gradual upward growth
from 90-00. The FDI growth
decreased by 20% from period 2000-
07.
• Our progress in education has been
slow and superficial , without depth
and quality, to compete the
international standards. People
depending on agriculture in India is
about 60% where as the same for
U.K. Is 2% and U.S. Is 2%.
Globalization
of Markets
and
Production
Case: Wal-Mart's global
expansion
• Largest retailer in the world –Over 4500 stores
• International expansion in 1991begins with
Mexico in response to market saturation in the
US.
• Localization strategy adopted after trial and error
• Global buying power has allowed it to reap
economies of scale
• Wal-Mart faces significant competition from
other global retailers, but has the first mover
advantage in some markets
What is globalization?
• The shift towards a more
integrated and interdependent
world economy
• Two components:
• The globalization of markets
• The globalization of production
1. The Globalization of Market

Are they everywhere in Indian market?

The globalization of markets refers to
the merging of historically distinct
and separate national markets into
one huge global marketplace.
 1. The Globalization of Market
1) definition
The globalization of markets refers to the merging of
historically distinct and separate national markets into one
huge global marketplace.
-----------------------------------------------
national markets

one huge global marketplace

1. The Globalization of Market
2) The cause of globalization of market
﹟global norms
same tastes and preference of consumers
e.g. Coca-Cola
﹟ global products
accepted by almost all people in the world
eg. Computers and cell phones.
# firms: big and small
benefactors and facilitators of the globalization
 1. The Globalization of Market
3) market differences
﹟ between national and global markets
e.g. Promoting cars:
the factors to be considered:
--- fuel costs
--- income levels
--- traffic congestion
--- cultural values
﹟ best marketing:
matching conditions in a country
4) products in the global market:
industrial goods and materials
 1. The Globalization of Market
5) companies competing in the market
operating
strategies

products
marketing

brand names
??
Globalization of markets
• Significant differences still exist between
national markets on many relevant
dimensions.

• These differences require that marketing

and operating strategies and product
features be customized to best match
conditions in a country.
Globalization of markets
• Countries are different
• Range of problems are wider and more
complex
• Government intervention in trade and
investment creates problems
• International investment is impacted by
different currencies
2. the globalization of production
 2. The Globalization of Production

1) definition
* the sourcing of goods and services

around the globe to take advantage of

national differences.
2. The Globalization of Production

2) reasons of global production:

* lowering cost
* improving quality
* competing effectively
(having best suppliers)
3) examples:
Boeing, IBM
2. The Globalization of Production
Is the Boeing’s jet airliner an American product?
 2. The Globalization of Production
Suppliers of Boeing’s airliner:
Japan: the fuselage, doors, wings;
Singapore: doors for nose landing gear;
Italy: wing flaps

total: 65% of the 777 by value

built by foreign companies
 2. The Globalization of Production
IBM ThinkPad X31 laptop computer:
The U.S.: designing, marketing
Thailand: keyboard
South Korea: display screen
Malaysia: built-in wireless card
Mexico: assembling
In 2005: IBM’s personal computer business was
pruchased by the Chinese company Lenovo.

China
4) taking advantage of internet
software companies

5) definition of global product:

outsourcing; different supplier; global in nature

Global Products

Outsourcing Different Suppliers

 2. The Globalization of Production

6) be aware of substantial impediments:

* trade barriers
* transportation costs
* culture differences
* government regulations
The 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 (such as labor, energy, land, and
capital).
Increasingly, according to Reich, the
outsourcing of productive activities to
different suppliers results in the creation
of products that are global in nature: that
is, “global products”.
 Globalisation by Industry

Automobile Finance

Beverages Food

Chemical Insurance

Clothing Petroleum

Computer Retail
 Ford Motor Co.
 Components Sources of Supply
 Design Germany, UK, US
 Engineering Germany, UK, US
 Brake systems Germany, UK, US
 Engines US, UK, Mexico
 Electronics Germany, US
 Radios Brazil
 Suspension Germany, US
 Transmission Germany, US, Brazil
 Wheels Italy, US
II. Drivers of globalization
 II. Drivers of globalization
Two macro factors of the globalization:

☆Declining trade and investment

barriers
☆ technological change
 II. Drivers of globalization
1. Declining trade and investment barriers
1) Lessons in history:
(1) international trade and foreign direct
investment
(2) aim of tariff:
protecting domestic industry
(3) result:
Great Depression of the 1930s
 II. Drivers of globalization
2) efforts in removing trade barriers:
(1) GATT 1947, WTO1995
---- tariff rate: down: 2000: 3.9
(developed countries)
---- sectors: goods and services
---- Uruguay Round: 1986-1994
---- Doha Round: Nov.2001: service:
tariffs, agriculture: subsidies
 II. Drivers of globalization

2) efforts in removing trade barriers:

(2) removing restriction to FDI:
---- laws: more favorable to FDI
---- bilateral investment treaties:
1,856 till 2000
The lowering of barriers to international trade
enables firms to view the world, rather than a
single country, as their market.

The lowering of trade and investment barriers also

allows firms to base production at the optimal
location for that activity.
3) Summary
(1) More firms in the globalization
(2) The world has become wealthier.
(3) Faster growth of trade in service
(4) the importance of FDI
(5) Home markets under competition
(6) Uncertainty of barriers
World Output & Trade Picture
 II. Drivers of globalization
2. The role of technological change

1) microprocessors and telecommunications

2) the internet and world wide web
3) transportation technology
III. The changing world order
1. The Soviet Union:
communist collapsed
2. Indian & China: greater free market,
moving from third world to industrial
superpower status
3. Latin America: both democracy and
free market reforms
IV. the global economy of the 21st century
IV. the global economy of the 21st century

 more developed nations: More nations are

joining the ranks of the world
 Market-oriented economies: Indian, China,
and other countries may build powerful
market-oriented economies
 Not inevitable globalization: Countries may
pull back from the recent commitment to
liberal economic ideology.
 risks: Greater globalization brings with risks
of its own. Globalization is not all good.
V. Anti-globalization Protests
 V. Anti-globalization Protests
Seattle, US: December 1999: Against WTO
 V. Anti-globalization Protests
 Davos, Switzerland:
February 2000:
Against global capitalism

Canada, Sweden, France

The Globalization Debate

What are some PROs and

CONs of globalisation?
 Globalisation - PRO
 Lower prices for goods and services
 Economic growth stimulation
 Increase in consumer income
 Creates jobs
 countries specialize in production
of goods and services that are
produced most efficiently
 Globalisation - CON
 Destroys manufacturing jobs in wealthy,
advanced countries
 Wage rates of unskilled workers in
advanced countries decline
 Companies move to countries with fewer
labour and environment regulations
 Loss of sovereignty and growth of
influential bodies such as WTO or UN
 So what is Globalisation?
 Increased market integration
through
 Freer trade in goods and services
 Freer movement of firms, capital and
labour
 More rapid diffusion （ spread) of
technology
 Integration between countries
which differ
 Factor endowments and factor prices
 Productivity and technology
 Political and market systems
 Stronger distributional effects
between
 Skilled and unskilled labour
 Capital and labour
 Regions and countries
 Management Focus

China’s Lenovo
Acquires IBM’s PC
Operations
China’s Lenovo Acquires IBM’s PC Operation

Who started Lenovo?

a group of young
Chinese scientists

LIU CHUANGZHI
--FATHER OF
LENOVO
 Who’s he?

Yang Yuanqing
When?
1984
What did they do then?
Distributing computers and printers

Distributing ？
What happened in the late 1980s?
manufacturing computers

Why must Lenovo

enlarge its business?
Because of the
competition from
foreign competitors
What were the two things that Lenovo needed to do?
--- attaining greater scale economies
--- matching Western companies

value
Customer service
Innovative and entrepreneurial spirit
Accuracy and truth-seeking
Trustworthiness and integrity
What can Lenovo get after it acquires IBM’s
PC business?
--- potential scale economies
--- renowned (well-known) engineering
skills
--- extensive sales force
--- long established customers
What managerial strategy has Lenovo taken
after the acquisition?
--- global headquarters: to New York
--- maintaining former leaders
--- English: business language
The road ahead---diversity

Handheld devices
1

2
IT services

3
Mobil phone
What do you think of Lenovo’s acqusition?