Globalization and

International Linkages
❖ The specific objectives of this chapter are to
1. ASSESS the implications of globalization for
countries, industries, firms, and communities.
2. REVIEW the major trends in global and
regional integration.
3. EXAMINE the changing balance of global
economic power and trade and investment
flows among countries.
4. ANALYZE the major economic systems and recent
developments among countries that reflect those
systems.

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 International Management

❖International management is the process of:

➢ Applying management concepts and techniques in
a multinational environment and
➢ Adapting management practices to different
economic, political, and cultural environments.

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 Multinational Corporations
(MNCs)
❖Firms that have:
➢Operations in more than one country
➢International sales
➢Mix of nationality among managers and
owners
❖Managers are required to develop
international management expertise
❖Increasingly coming from developing
nations like China and India
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Globalization and Internationalization

❖Globalization
➢Process of social, political, economic,
cultural, and technological integration
among countries around the world
➢Evidence can be seen in increased levels of
trade, capital flows, and migration
❖Internationalization
➢Process of a business crossing national and
cultural borders

1-4
Factors That Facilitate Globalization

❖Technological advances in transnational

communications, transport, and travel
❖Offshoring
➢Companies undertake some activities at
offshore locations instead of in their home
countries
❖Outsourcing
➢Subcontracting or contracting out of activities
that had previously been performed by the
firm to external organizations
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 Globalization: Pros and Cons

❖Benefits of Globalization
➢ Wealth
➢ Jobs
➢ Technology
➢ Lower prices
➢ Availability of goods

❖Criticisms of Globalization
➢ off-shoring of business service jobs to lower-wage
countries
➢ growing trade deficits
➢ slow wage growth
➢ environmental and social impacts
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 Global and Regional Integration

❖Global Agreements
➢ World Trade Organization (WTO)
➢ General Agreement on Tariffs and Trade (GATT)

❖Regional Agreements
➢ North American Free Trade Agreement (NAFTA)
➢ U.S.-Central American Free Trade Agreement
(CAFTA)
➢ European Union (EU)
➢ Association of Southeast Asian Nations (ASEAN))
➢ Trans-pacific Partnership (TPP)

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 International Economic Power
in the Global Economy
❖ Shifting landscape due to
➢ Economic integration rapid growth of emerging
markets
➢ Economic potential of emerging markets
❖BRIC countries (Brazil, Russia, India, and China)
could be among the four most dominant
economies by 2050
❖N-11 (the next wave of emerging markets):
Bangladesh, Egypt, Indonesia, Iran, Mexico,
Nigeria, Pakistan, Philippines, Turkey, South
Korea, and Vietnam)

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Changing Global Demographics

❖Factors contributing to the increase in

the median global population age
➢Increase in global life expectancy due to
improvements in technology and healthcare
➢Increase in time spent in retirement due to
increase in life expectancy
➢Decline in global fertility rate

1-9
Changing Demographics: Developing
Countries on the Rise
(ranked by size)

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 Trends in Trade and
International Investments
❖Since the global recession in 2009 , global
trade and investment have continued to grow
❖Foreign direct investment (FDI)
➢Amount invested in property, plant, or
equipment in another country
➢Growing slowly in the years since the global
recession of 2009
➢Reached $1.4 trillion by 2019

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Global Economic Systems

Market Command
economy economy

Mixed
economy

1-12
 Economic Performance
by Major World Region
❖ Established Economies
➢ North America
➢ European Union
➢ Japan
❖ Emerging Economies
➢ Central and Eastern Europe
➢ China
➢ Other Emerging Markets of Asia
➢ India
❖ Developing Economies on the Verge
➢ South America
➢ Middle East and Central Asia
➢ Africa

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 Economic Performance
Established Economies
❖North America
➢ One of the four largest trading blocs in the world
❖Combined purchasing power of U.S., Canada and
Mexico is about $ 20 trillion
➢ Free-market-based economy is attractive to private
firms

❖United States
➢ Foreign MNC’s find U.S. a lucrative expansion market
➢ Foreign firms welcomed as investors in U.S. market
➢ U.S. firms hold global dominance in technology-
intensive industries, telecommunications, media, and
biotechnology
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 Economic Performance
Established Economies
❖Canada
➢ Historically, U.S.’s largest trading partner; China
overtook Canada in 2017 as largest US trade partner
➢ Most of the largest foreign-owned Canadian
companies are totally or heavily U.S.-owned
➢ Legal and business environment in Canada is similar
to that in U.S.

❖Mexico
➢ Strongest Latin American economy
➢ Very strong maquiladora industry
➢ Trade with both Europe and Asia has increased
➢ Now competitive with Asia for the U.S. market
➢ Free trade agreements with 46 countries 1-15
 Economic Performance
Established Economies
❖European Union (EU)
❖Eliminate all trade barriers among member countries
❖Follow a single currency (euro) and a regional central bank
❖Firms have the benefit of manufacturing high-quality, low-
cost goods and shipping them across the EU without paying
duties or being subject to quotas

❖Challenges of EU
➢ Absorbing its eastern neighbors that could result in a giant,
single European market
➢ Large deficits faced by several European governments
➢ Maintaining a unified EU in the coming decades

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 Economic Performance
Established Economies
❖Japan
➢ Huge economic success in 1970s and 1980s
➢ Ministry of International Trade and Industry
(MITI)
➢ Keiretsus
❖Vertically integrated industries
❖Holdings provide assistance needed in providing goods
and services to end users
➢ Decade long recession in 1990s
❖More competition from emerging economies
❖Poor management decisions
➢ Remains a formidable competitor in the Pacific Rim,
North America, and Europe 1-17
Emerging and Developing Economies

❖Face relatively low GDP per capita

❖Have an unskilled or semiskilled
workforce
❖Involve considerable government
intervention in economic affairs
❖Can be viewed as developing economies
that exhibit sustained economic reform
and growth

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 Economic Performance
Emerging Economies
❖Central and Eastern Europe
➢Russia
❖Dismantling of price controls and privatization
❖Membership in International Monetary Fund
(IMF) controlling inflation
❖Crime and political uncertainty
➢ Czech Republic, Hungary, Poland
❖Privatization
❖Inflation
❖Political uncertainty
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 Economic Performance
Emerging Economies
❖ China
➢ Rapid economic growth slowing down: 12 % in 2007, 7% in
2015, 6 % in 2019
❖Savings glut in corporate sector
❖Vast developmental needs
❖Unemployment concerns
❖Globalization of manufacturing networks
➢ Attractive to investors despite political risk, but major risks
including:
❖Delicate nature of the one country, two systems balance
(communism and capitalism)
❖Concerns about undervaluation of China’s currency
❖Unpredictable policies toward foreign firms
❖Tense trade relations with developed countries
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 Economic Performance
Emerging Economies
❖South Korea
➢ Chaebols
❖Very large family-held conglomerates
➢ Export surplus
➢ Fairly equal distribution of income
➢ Solid economy, moderate growth and inflation, low
unemployment
❖Hong Kong
➢ Part of People’s Republic of China
➢ Uncertainty about the role the Chinese government

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 Economic Performance
Emerging Economies
❖Singapore
➢ Success story
➢ Leader and financial center for region, Urban-plan
model

❖Taiwan
➢ Progressed from labor-intensive economy to one
dominated by technologically sophisticated
industries
❖banking, electricity generation, petroleum refining and
computers

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 Economic Performance
Emerging Economies
❖Thailand, Malaysia, Indonesia
➢ Large population base
➢ Inexpensive labor
➢ Considerable natural resources
➢ Attractive to outside investors

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 Economic Performance
Emerging Economies
❖India
➢ Large population
➢ Recent trend of locating software and high value-
added services to this country boosting middle- and
upper-class market for goods and services
➢ Government funds for economic development
➢ Attractive to U.S. and British investors
❖well educated, English speaking, technologically
sophisticated workers

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 Economic Performance
Developing Economies on the Verge
❖South America
➢ Hampered by foreign debt and severe inflation
➢ Most have tried to implement economic reforms to
reduce their debt
➢ Experienced periodic economic instability and the
emergence of populist leaders
➢ But, intercountry trade is increasing
❖Countries looking to do business with U.S.
➢ Economy was flourishing and attracting FDI in the
early 2000s. Less so in the last 2-3 yeas
❖Privatization and stable government

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 Economic Performance
Developing Economies on the Verge
❖ Brazil
➢ Attracted considerable foreign investment
❖Through privatization of power, telecom, and
infrastructure sectors
➢ Benefited from one of the most stable governments
throughout Latin America
➢ Long-term prospects are positive due to:
❖Presence of a large and relatively well-educated
population
❖Availability of ample natural resources
❖Existing industrial base
❖Strategic geographic position
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 Economic Performance
Developing Economies on the Verge
❖ Chile
➢ A decade of economic growth
➢ Attracts foreign direct investment
➢ Trade agreements―Mercosur, China, India, the
EU, South Korea, Mexico, among others
❖ Argentina
➢ Overall strong economy
➢ Abundant natural resources, highly literate
population, export-oriented agriculture, diversified
industrial base
➢ Economic problems persist
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 Economic Performance
Developing Economies on the Verge
❖Middle East and Central Asia
➢Large oil reserves
➢Highly unstable geopolitical and religious
forces
➢Rely almost exclusively on oil production
➢Large investments by Arab countries in U.S.
property and businesses
➢Affected by low oil prices since 2015

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 Economic Performance
Developing Economies on the Verge
❖ Africa
➢ Considerable natural resources but remains poor
and undeveloped
➢ International trade is not a major sources of income
➢ Political instability and overwhelming diversity of
populations create risks for foreign investors
➢ Lack of institutions, infrastructure, and economic
capacity to take full advantage of globalization
➢ Economic growth and dynamism have accelerated
in recent years
➢ Rate of return on foreign investment in Africa is
higher than for any other region
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