International Business

9e

By Charles W.L. Hill

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 1

Globalization
 What Is Globalization?
Globalization - the shift toward a more
integrated and interdependent world
economy
The world is moving away from self-contained
national economies toward an
interdependent, integrated global economic
system

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 What Is The
Globalization of Markets?
Historically distinct and separate national
markets are merging and creating the
“global market”
falling trade barriers make it easier to sell
globally
consumers’ tastes and preferences are
converging on some global norm
firms promote the trend by offering the same
basic products worldwide

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 What Is The
Globalization of Production?
Firms source goods and services from
locations around the globe to capitalize on
national differences in the cost and quality
of factors of production like land, labor,
energy, and capital
Companies can
lower their overall cost structure
improve the quality or functionality of their
product offering

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 Why Do We Need
Global Institutions?
 Global institutions
 manage, regulate, and police the global marketplace
 promote the establishment of multinational treaties to
govern the global business system
 General Agreement on Tariffs and Trade (GATT)
 World Trade Organization (WTO)
 International Monetary Fund (IMF)
 World Bank
 United Nations (UN)
 G20

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 The World Trade Organization
(replacing the GATT before)
 is primarily responsible for policing the world
trading system and making sure nation-states
adhere to the rules laid down in trade treaties
signed by WTO member states.
 is regulating the trade in goods, services and
intellectual property between participating
countries by providing a framework for
negotiating trade agreements and a dispute
resolution process
 As of December 2017, the WTO has 164
member nation-states.
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 International Monetary Fund
and the World Bank
 They were both created in 1944 by 44 nations that met
at Bretton Woods, New Hampshire, USA.
 The IMF was established to maintain order in the
international monetary system. The IMF is often seen
as the lender of last resort to nation-states whose
economies are in turmoil and whose currencies are
losing value against those of other nations.
 The WB was set up to promote economic development.
It has focused on making low-interest loans to cash-
strapped governments in poor nations that wish to
undertake significant infrastructure investments

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 What Is Driving
Globalization?
 Declining barriers to the free flow of goods,
services, and capital
 average tariffs are now at just 4%
 more favorable environment for Foreign Direct
Investment (FDI)
global stock of FDI was $15.5 trillion in 2009
 facilitates global production
 Technological change
 microprocessors and telecommunications
 the Internet and World Wide Web
 transportation technology

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 Terms and Concepts
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.
A tariff is a tax imposed by one country on
the goods and services imported from
another country. It is are also called
custom, import duty, or import fee. 1-10
 Declining Trade And
Investment Barriers
Average Tariff Rates on Manufactured Products as Percent of Value

Tariff rate, applied, simple mean, manufactured

products (%) in Philippines was 4.86 as of 2016. Its
highest value over the past 28 years was 28.09 in
1989, while its lowest value was 3.68 in 2012.
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 How Has World Output And
World Trade Changed?
In 1960, the U.S. accounted for over 40%
of world economic activity, but by 2009,
the U.S. accounted for just 24%
a similar trend occurred in other developed
countries
In contrast, the share of world output
accounted for by developing nations is
rising
expected to account for more than 60% of
world economic activity by 2020

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How Has World Output And
World Trade Changed?
The Changing Demographics of World GDP and Trade

Philippines 0.3 0.4

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 How Has Foreign Direct
Investment Changed?
In the 1960s, U.S. firms accounted for
about two-thirds of worldwide FDI flows
Today, the United States accounts for less
than one-fifth of worldwide FDI flows
Other developed countries have followed a
similar pattern
In contrast, the share of FDI accounted for
by developing countries has risen
Developing countries, especially China, have
also become popular destinations for FDI

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 How Has Foreign Direct
Investment Changed?
Percentage Share of Total FDI Stock 1980-2007

Philippines FDI 2009 – 0.15%

2018 – 0.80%

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How Has Foreign Direct
Investment Changed?
FDI Inflows 1988-2008

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 What Is A
Multinational Enterprise?
Multinational enterprise (MNE) or
Multinational company (MNC) - any
business that has productive activities in
two or more countries

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The 7 Philippine-listed companies which
made it to the Forbes list Global 2000 in
2020
World Company Founder/s
Rank
707 SM Investments Henry Sy, Sr.
937 BDO Unibank Henry Sy, Sr
1170 Top Frontier Investment Holdings Ramon S. Ang
1234 Ayala Corporation Domingo Róxas and
Antonio de Ayala
1388 JG Summit Holdings John L. Gokongwei
1453 Metropolitan Bank & Trust Co. George S. Ty
1873 LT Group Lucio C. Tan
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 The Changing World Order
 Many former Communist nations in Europe and
Asia are now committed to democratic politics
and free market economies
 creates new opportunities for international businesses
 but, there are signs of growing unrest and totalitarian
tendencies in some countries
 China and Latin America are also moving toward
greater free market reforms
 between 1983 and 2010, FDI in China increased from
less than $2 billion to $100 billion annually
 but, China also has many new strong companies that
could threaten Western firms

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 How Will The Global Economy
Of The 21st Century Look?
 The world is moving toward a more global
economic system…
 But globalization is not inevitable
 there are signs of a retreat from liberal economic
ideology in Russia
 Globalization brings risks
 the financial crisis that swept through South East Asia
in the late 1990s
 the recent financial crisis that started in the U.S. in
2007-2008, and moved around the world

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Is An Interdependent Global
Economy A Good Thing?
 Supporters believe that increased trade and
cross-border investment mean
 lower prices for goods and services
 greater economic growth
 higher consumer income, and more jobs
 Critics worry that globalization will cause
 job losses
 environmental degradation
 the cultural imperialism of global media and MNEs
 Anti-globalization protesters now regularly show
up at most major meetings of global institutions

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 How Does The Global
Marketplace Affect Managers?
 Managing an international business differs from
managing a domestic business because
 countries are different
 the range of problems confronted in an international
business is wider and the problems more complex
than those in a domestic business
 firms have to find ways to work within the limits
imposed by government intervention in the
international trade and investment system
 international transactions involve converting money
into different currencies

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