1.
1 Globalization and Facets of Globalization
Introduction
          Globalization is a great phenomenon. It has influenced the lives of people
and the way business is conducted. People of the current generations live the
life of global citizens. They were influenced by how other people in other parts of
the world live.  People emulate fashion,  entertainment, and even the likes for
food from other countries.  According to Hill (2011), the world has started to be
similar concerning material culture. The photographs you see below are
examples of the way of life of people in the age of globalization. It reflects the
fad in entertainment, food, leisure, and socialization.
Globalization and International Business  World View
         Globalization is the integration of world markets and where the global
economy is linked and dependent on each market (Hill, 2011). Globalization was
observed both in manufacturing and service operations. Business operations
became globalized as firms continue to explore new markets and sources of raw
materials.  Manufacturing plants were located strategically in countries were
resources used are available and abundant. Service-oriented operations were
also outsourced in countries were talents are numerous and inexpensive. These
cross border service sector operations are serving foreign clients and dealing
with global customers also. Customers' support in the Philippines and
Information Technology support operations in India is a concrete example of
this.   
Globalization has indeed brought changes in the lives of people and the way
business operates. Globalization relative to business operations was able to
break physical boundaries as well as time and distance. Things that are difficult
to access due to physical distance were made available thru online selling.
Customer Service Representatives were able to attend to customers and
interact with them at different time zones and locations. Firms established
different manufacturing, industrial and service sites across the globe to capture
new markets and resources. It also enhances global value chains to come up
with a valuable product.
Facets of Globalization
          The aspect of globalization according to Hill (2011) are many. However, in
this lesson, we will try to focus on the two facets namely "globalization of
markets" and "globalization of production".
1.2 Drivers of Globalization
Introduction
           Now you already have gainful knowledge of globalization. The previous
lesson taught you the concepts of globalization including its dimension, the
globalization of business, and how it relates to other concepts like strategy,
value chains, and business networks. Lastly, you learned the reason why the
world has moved towards globalization.
          It is now time to move on to a new lesson that deals on the drivers of
globalization. There are numerous identified drivers of globalization. However, in
this lesson, we will only tackle three of them. These the first two are known in
the literature and the third involves philosophical ideas popular in time. The first
is the decline in trade barriers among countries. Second is technological
change (Hill, 2011). The third driver is the "paradigm shift in managing the global
economy" (Johnson & Turner, 2003). These drivers seem to be the cogent force
that led towards the trend of globalization.
         The protectionist policy was the dominant policy of most countries of the
world after the war. The aim of the protectionist policy is to favor domestic
industry especially infant industries against foreign competition. Tariffs and
import quotas of commodities which enter the countries were used as a tool to
conduct the said policy. However, raising trade barriers (in a form of high tariffs
on imported goods) produced negative consequences like retaliation between
trading countries whose exports these countries are blocking (Hill, 2011)
(Rapley, 2002) . This experience led to the commitment of countries to remove
trade restrictions so that goods and services will be trading freely (Hill,2011).
The result is the eventual decline in trade barriers internationally. 
 The lowering of trade barriers by countries was a strong impetus to the
theoretical realization of the globalization of markets and productions.
Technology, on the other hand, was the force that made the globalization of
markets and production a tangible reality according to Hill (2011). He stressed
further that the technological changes observed in the areas of
telecommunications and transportation are the significant ones.
Telecommunications creates a global audience and transportation creates a
global village.   
       The inventions of the microprocessor, satellite, wireless
technologies,internet, and the World Wide Web have revolutionized global
communications (Hill,2011).  You will read below some brief descriptions of the
technological inventions which help improve telecommunications.
A microprocessor is an electronic component which is a chip found in a
computer. It is the Central Processing Unit (CPU) of the computer which
functions as the brain. This chip performs a variety of tasks coming from input
and output devices as well as the software of the computer (Miller,2003). This
task conducted by the microprocessor is arithmetic and logical operations. The
microprocessor was able to improve the numerous tasks of computers in a split
second and help improve the movement of data in different memory locations
(Microprocessor Advantages and Disadvantages, n.d.)
 The photo that you see on the left are examples of satellites both natural and
artificial.  According to NASA (2014), a "satellite refers to a machine that is
launched into space and moves around Earth or another body in space". 
Telecommunication signals were improved because of the satellite. The signals
of televisions and mobile devices according to NASA can be sent upward to the
satellite and these signals when sent back down to Earth can be spread to
different locations. The utilization of satellite help improves the reach and
distribution of signals. The signal was able to travel far and evade some possible
blocking from mountains and tall buildings.
The internet in a simple context is a large computer network where one
computer network is connected to other computer networks. Hence the term is
said to be a "network of networks"(Miller,2003). The ability of one computer to
connect with other multiple computers led to its ability to access internet
services. These services can be utilized by the user. Among these services
include receiving email, community chats, and information services through the
World Wide Web.
        The World Wide Web is a simplified information dissemination platform
used for information sharing on the internet. The proliferation of information was
also disseminated through the provision of free  Uniform Resource Locator
(URL) and hypertext to the general public (Giandomenico,2017). The World
Wide Web facilitated the presentation of information in a highly visual format like
multimedia (Miller,2003)
The technological changes in telecommunications have improved connections
globally. Information was processed quickly using a computer which contains a
processor. The processed information when shared can be accessed by people
in the internet through email, chat, and file sharing through a web address. The
access of people to the internet and information facilitated the exchange of
information in a fast-paced manner. This led to the interaction of people globally
in different time zones unhampered by geographical boundaries and physical
presence. These global interactions created networks and communities that
facilitated globalization.
Transportation Technology
         Innovation in transportation technology has contributed to globalization.
According to Hill (2011), the inventions which gave a major contribution are the
development of commercial jet aircraft, super freighters, and the introduction of
containerization. Commercial jet travel reduced the travel time from one location
to another. The world becomes accessible in hours and days compared to many
months through maritime navigation. Japan, for example, can be traversed in
just 4 hours and 14 minutes assuming the flight speed of the commercial airline
is 805 km/h (Flight time from the Philippines to Japan, n.d, s.1 and 2).  Managing the Global Marketplace
       The introduction of containerization revolutionized the transportation
business. Prior to the period when containerization is not yet existing, moving
goods are said to be costly, lengthy, and very labor-intensive. After
containerization was introduced the container ship fleet has grown intensively
and became the preferred mode of transportation for goods. The volume of
international trade has grown also. Containerization also yielded efficiency gains
like reduction in transportation cost and cheaper payments in shipping goods
around the globe. These efficiency gains helped drive the globalization of
markets and production (Hill,2011).
1.3 The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct  Investment
Introduction
         The globalization of the market and production has influenced the global
economy. A look at some global statistics revealed the importance of economic
relations. The world output from 1960 to the present has grown more than 50
times historically based on the World Bank (Links to an external site.) data. In
the early years of 1960, the world output is about 1.2 trillion US Dollars and has
grown to more than 80 trillion US Dollars. The United States was the dominant
industrial power in the decades of the 1960s. The country's output was almost
40 percent of the world output. This dominance was shared with European
countries like Germany, France, and Britain, countries that are first to
industrialize. However, as the years go by, the dominance of the United States
has waned as its shares in world trade has reduced. The decline of the United
States' shares in world output was attributed to the increase in the share of
world output by emerging economies like China, India, and Brazil (Hill, 2011).  business operations. The business operations must conform to the cultural taste
International Trade
        The long time upward trend of world output was paralleled by the growth in
international trade and foreign direct investment.  World Export and Import data
showed an upward trend based on World Bank data. The insight that can be
gleaned from the above sources is that gains from trade have helped the
countries to be better off economically. The changing demographics data of
world output according to Hill (2011)  showed that China's output will exceed
that of the United States' output on a  Purchasing Power Parity (PPP) basis
under a continuous trend assumption. He also took cognizance of the forecast of
the World Bank a decade ago which projected that 60 percent of the world's
economic activity is accounted for the developing nations and 38 percent to the
rich nations in the current year.
Foreign Direct Investment
       The decline in trade barriers globally and the increase in the share of world
output of emerging and developing countries motivated non-US firms to engage
in cross border business sometime in the 1970s. It was said that the main
motivations of these firms on their foreign direct investment were to spread
production to optimal location and to establish a direct presence on major
foreign markets. Labor-intensive manufacturing operations were established in
developing nations where labor costs are cheaper than that of the home market.
In the case of Japanese firms, it was said that these firms took cognizance of
the hedge against unfavorable currency movements and possible imposition of
trade barriers (Hill,2011).
 The recent statistics on world FDI inflows showed an increase. Positive percent
growth inflows were observed in Developed Economies, Europe, Latin America,
and the Caribbean and Transition Economies. Negative growth in percent was
observed in Developing Economies, Africa, and Asia. No growth was observed
for North America. The inward investment growth and decline are caused by
multi-factor determinants like economic performance, demand for goods, and
non-economic factors. The advantage or spillover effects of FDI inflows are
technology transfers and the improvement of human resources. It is perceived
as well that sustained FDI inflows are a sign of an improving or stable
investment climate.
       It was already established that there are gains and opportunities when firms
decide to engage in cross border business. Expanding production and capturing
directly foreign markets also introduces a new and perhaps additional problems
for managers. Managers need to recognize that managing the domestic market
is totally different from managing international business. Managing an
international business has greater complexity than managing the domestic
business. The basic problem with IB operation is the fact that countries are
totally different from each other. In this sense, the conduct of business must
have variations and also country-specific. 
     According to Hill (2011,p.87), there are four reasons for the difference in
managing international business compared to domestic business.
1. "countries are different"
2. the range of problems confronted by the managers of international
business is wider and more complex
3. "international business need to look for ways to work within the
limits imposed by government intervention in the international trade and
investment system"
4. "international transaction involves converting money into different
currencies"
    The reasons for the difference in managing IB vs domestic business indicate
the sources of complexities. The level of difficulty in managing IB is wider
because of the differences in countries with respect to culture, political system,
economic system, and legal system. Firms that wish to conduct business
operations in foreign countries must adhere to the host's country policies in
and regulatory framework set by the government of the host country in order to
avoid sanctions. Last, the financial aspect of business operations must also be
considered. The operation must meet the financial and monetary requirements
as it involves different currency conversions.
Chapter 1 : Globalization
What Is Globalization?
v
The world is toward an interdependent, integrated global economic system
v
Globalization refers to the shift toward a more integrated and interdependent
world economy, including two facets:
v
Globalization of markets
v
Globalization of production
v v
Globalization of markets refers to the merging of historically distinct and develops friendly relations among nations
separate national markets into one huge global marketplace.
v
cooperates in solving international problems and in promoting respect for
v
Instead, there is the “global market” human rights

v v
falling trade barriers make it easier to sell globally is a center for harmonizing the actions of nations

v
consumers’ tastes and preferences are converging Drivers of Globalization

v
firms promote the trend by offering the same basic products worldwide Two macro factors underlie the trend toward greater globalization:

v v
Globalization of production refers to the sourcing of goods and services from Declining trade and investment barriers
locations around the globe to take advantage of national differences in the cost
v
and quality of factors of production like land, labor, and capital. since 1950, average tariffs have fallen significantly and are now at about
4%
v
Companies can
v
countries have opened their markets to FDI
v
lower their overall cost structure
v
Technological change
v
improve the quality or functionality of their product offering
v
microprocessors and telecommunications
Global Institutions
v
the Internet and World Wide Web
v
Institutions are needed to
v
transportation technology
v
help manage, regulate, and police the global marketplace
Implications for Business
v
promote the establishment of multinational treaties to govern the global
v
business system Lower barriers to trade & investment mean firms can

v
v
Examples include view the world as their market

v
v
General Agreement on Tariffs and Trade (GATT) base production in the optimal location for that activity

v
v
World Trade Organization (WTO) Technological change means

v
v
International Monetary Fund (IMF) lower transportation costs - help create global markets

v
v
World Bank lower information and communication costs

v
v
United Nations (UN) low-cost global communications networks - help create an electronic global
marketplace
v
The World Trade Organization (WTO) (like its predecessor GATT)
v
global communication networks and global media - create a worldwide
v
polices the world trading system culture, and a global market for consumer products

v
makes sure that nation-states adhere to the rules laid down in trade treaties The Changing Demographics of the Global Economy

v
promotes lower barriers to trade and investment There has been a drastic change in the demographics of the world economy in
the last 30 years
v
As of 2009, 153 member nations collectively accounted for 97% of world
trade Four trends are important:

v
The International Monetary Fund (IMF) (1944) maintains order in the 1. Changing World Output and World Trade Picture
international monetary system
2. Changing Foreign Direct Investment (FDI) Picture
v
The World Bank (1944) promotes economic development, focusing on
making low- interest loans governments in poor nations 3. Changing Nature of the Multinational Enterprise (MNE)

v
The United Nations (1945) 4. Changing World Order

v
maintains international peace and security Changing World Output & World Trade Picture
In 1960, the US accounted for over 40% of world economic activity; by 2008, it Global Economy of 21st Century
accounted for just over 20% of world economic activity
v
The world is moving toward a more global economic system…
v
A similar trend occurred in other developed countries
v
But globalization is not inevitable
The share of world output accounted for by developing nations is rising and is
v
expected to account for more than 60% of world economic activity by 2020 there are signs of a retreat from liberal economic ideology in Russia

v
v
From 1963 to 2008, China’s share of world GDP increased to 11.2% Globalization brings risks

v
Has FDI Changed Over Time? the financial crisis that swept through Southeast Asia in the late 1990s

v
v
In the 1960s, U.S. firms accounted for about two-thirds of worldwide FDI flows; the recent financial crisis that started in the U.S. in 2008, and moved around
today, the US accounts for less than one-fifth of worldwide FDI flows the world

v
Other developed countries have followed a similar pattern The Globalization Debate

v
v
In contrast, the share of FDI accounted for by developing countries has risen Supporters believe that increased trade and cross- border investment mean

v
v
Developing countries, especially China, have also become popular destinations lower prices for goods and services
for FDI
v
greater economic growth
Multinational Enterprise (MNE)
v
higher consumer income, and more jobs
v
A MNE is any business that has productive activities in two or more countries
v
Critics worry that globalization will cause
v
Since the 1960s, two notable trends in the demographics of the MNE:
v
job losses
1. The rise of non-U.S. multinationals – a relative decline in the dominance
v
of U.S. firms in the global marketplace environmental degradation

v
2. The growth of mini-multinationals – international business (IB) is the cultural imperialism of global media and MNEs
conducted not just by large firms but also by medium-size and small
v
enterprises Anti-globalization protesters now regularly show up at most major meetings of
global institutions
v
MNE or MNC
Globalization, Jobs and Income
v
TNC(translational corporation)managed and owned by Two different countries.
v
Critics argue that falling barriers to trade are destroying manufacturing jobs in
v
Global company: integrates its operations that are located from different advanced countries
countries. (owned and managed by two different countries)
v
Supporters contend that the benefits of this trend outweigh the costs
v
Multidomestic company: allow each of its foreign company to act fairly
v
independntly.packaging and producing products according to country(coca countries will specialize in what they do most efficiently and trade for other
cola) goods—and all countries will benefit

The Changing World Order Globalization, Labor Policies and the Environment

v
v
Soviet union,Yugoslavia Critics argue that firms avoid costly efforts to adhere to labor and
environmental regulations by moving production to countries where such
v
Many former Communist nations in Europe and Asia are now committed to regulations do not exist, or are not enforced
democratic politics and free market economies
v
Supporters claim that tougher environmental and labor standards are
v
so, there are new opportunities for IB associated with economic progress

v
v
China and Latin America are also moving toward greater free market reforms as countries get richer from free trade, they implement tougher
environmental and labor regulations
v
between 1983 and 2008, FDI in China increased from less than $2 billion to
$90 billion annually

v
but, China also has many new strong companies that could threaten
Western firms
Globalization and National Sovereignty 5. The sourcing of good and services from around the world to take
advantage of national differences in the cost and quality of factors
v
Is today’s interdependent global economy shifting economic power away from of production is called
national governments toward supranational organizations like the WTO, the
EU, and the UN? 6. Which organization is responsible for policing the world trading
system?
v
Critics argue that unelected bureaucrats have the power to impose policies on
the democratically elected governments of nation-states 7. What is the single most important innovation to the globalization of
markets and production?
v
Supporters claim that the power of these organizations is limited to what
nation-states agree to grant 8. Which of the following trends is true?

v
the power of the organizations lies in their ability to get countries to agree to a. The US is accounting for a greater percentage of world trade
follow certain actions than ever before
b. The US is accounting for a greater percentage of foreign direct
Globalization & the World’s Poor investment than ever before
c. The share of world trade accounted for by developing
v
Is the gap between rich nations and poor nations is getting wider? countries is rising
d. The share of foreign direct investment by developing countries
v
Critics believe that if globalization was beneficial there should not be a is declining
divergence between rich and poor nations
9. Which of these is not a concern of anti- globalization protesters?
v
Supporters claim that the best way for the poor nations to improve their
situation is to a. globalization raises consumer income

v
reduce barriers to trade and investment b. globalization contributes to environmental degradation

v
implement economic policies based on free market economies c. globalization is causing a loss of manufacturing jobs in developed
countries
v
receive debt forgiveness for debts incurred under totalitarian regimes
d. globalization implies a loss of national sovereignty
Managing in the Global Marketplace

v
Managing IB differs from managing a domestic business because

v
countries are different

v
the range of problems confronted in IB is wider and the problems more
complex than those in a domestic business

v
firms have to find ways to work within the limits imposed by government
intervention in the international trade and investment system

v
international transactions involve converting money into different currencies

Review Questions

1. The shift toward a more integrated and interdependent world economy

is referred to as .

2. The merging of historically distinct and separate national markets into

one huge global marketplace is known as .

3. Firms that are involved in international business tend to be .

4. Which is not a factor of production?

a) Trade b) Land

c) Capital d) Energy