Module1 in INTERNATIONAL BUSINESS AND TRADE

Title: GLOBALIZATION

Content/Discussion

What is Globalization?

Globalization encompasses the socioeconomic reform process of eliminating trade,

investment, information technology, and cultural and political barriers across countries,
which could lead to increased economic growth and geopolitical integration and
interdependence among nations of the world.

Globalization reaches further. It includes the process of integrating the nations of the world
so that they become more economically efficient and interdependent. That process has
been based upon changes in national policies that aim to promote private enterprises and
reduce or eliminate economic, cultural, and social barriers between countries. These
policies could include:

1. Strengthening the role of the private sector

2. Supporting free-market pricing
3. Eliminating barriers to free movement of goods, services, capital, and information
technology
4. Promoting institutions that enforce transparency, and the rule of law

Globalization has several facets, including the globalization of markets and the globalization
of production

Globalization of markets – refers to the merging of historically distinct and separate

national markets into one huge global marketplace. Falling barriers to cross-border trade
and investment have made it easier to sell internationally. Examples: consumer products as
Citigroup credit cards, Coca-Cola soft drinks, video games, McDonald’s hamburgers,
Starbucks coffee, Apple i Phones. The firms that produce these products are more than just
benefactors of this trend. By offering the same basic product worldwide, they help create a
global market.

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). By doing this, companies hope to
lower their overall cost structure or improve the quality or functionality of their product
offering, thereby allowing them to compete more effectively. Example: Boeing has made
extensive use of outsourcing to foreign suppliers like Italy, Singapore, and Japan.
The Emergence of Global Institutions

As markets globalize and an increasing proportion of business activity transcends national

borders, institutions are needed to help manage, and regulate the global marketplace and to
promote the establishment of multinational treaties to govern the global business system.
Over the past half century, a number of important global institutions have been created to
help perform these functions, including the General Agreement on Tariffs and Trade (GATT)
and its successor, the World Trade Organization (WTO), the International Monetary Fund
(IMF) and its sister institution, the World Bank, and the United Nations. All these
institutions were created by voluntary agreement between individual nation-states, and
their functions are enshrined in international treaties.

The World Trade Organization (WTO) 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. As of 2017, 164 nations that collectively accounted
for 98% of world trade were WTO members. The WTO is also responsible for facilitating
the establishment of additional multinational agreements among WTO member states. Over
its entire history, and that of the GATT before it, the WTO has promoted the lowering of
barriers to cross-border trade and investment. Without an institution such as the WTO, the
globalization of markets and production is unlikely to have proceeded as far as it has.

The WTO’s objective helps global trade to flow smoothly, freely, fairly, and predictably. It
does this by:

1. Administering trade agreements

2. Acting as a forum for trade negotiations
3. Settling trade disputes
4. Reviewing national trade policies
5. Assisting developing countries with trade policy issues, through technical assistance
and training programs
6. Cooperating with other international organizations like the IMF and World Bank

The International Monetary Fund (IMF) and the World Bank were both created in 1944
by 44 nations that met at Bretton Woods, New Hampshire. The IMF was established to
maintain order in the international monetary system; the World Bank was set up to
promote economic development. It has focused on making low-interest loans to poor
nations that wish to undertake significant infrastructure investments (such as building
dams or roads). The World Bank’s initial primary role was to aid the reconstruction of
Europe after World War II; its first loan of $250 million was to France in 1947 for post-war
reconstruction. Today, reconstruction and restructuring of economies remain a major role
of the Bank.

The World Bank Group’s Developmental Institutions

International Bank for Reconstruction and Supports reconstruction and restructuring

Development (IBRD) of member countries using funds raised in
international capital markets
International Development Association Provides long-term low-interest social
(IDA) sector and infrastructure loans to the
poorest members using foreign aid funds
provided by the rich nation members
International Finance Corporation (IFC) Provides loans and takes equity position in
private companies of developing countries
Multilateral Investment Guarantee Agency Provides political risk coverage for private
(MIGA) investments made in developing countries
International Center for the Settlement of Works on issues related to foreign
Investment Disputes (ICSID) investment disputes

Companies Active in International Business

Apple’s Global Impact

Globalization allows Apple to produce and sell many of its models worldwide with little or
no modification. This approach reduces Apple’s production and marketing costs while
supporting its global brand strategy. Apple retails its products through more than 400
outlets in 16 countries and from its online store available in 40 countries. When Apple
entered South America in February of 2014 it opened its first store in Rio de Janeiro, Brazil.
Brazil is the largest consumer market across the region and in the top five markets
worldwide for smart phone sales. Despite the benefits of globalization, Apple still
encounters issues in other markets that complicate pricing. For instance, smart phone that
costs $700 in the United States will cost $1,076 in Brazil. The higher price is due to the
custo Brasil (Brazil cost), which arises from import tariffs and state sale taxes. Prices of
older Apple products that are made in Brazil reflect the higher cost of labor and more
expensive rent there.

Each of us experiences the results of international business transactions as we go about our

daily routines. You slip on your Adidas sandals that were made in Indonesia, and your
American Eagle jeans made in Mexico. As you head out the door, you pull the battery
charger off your Apple iPhone, which was designed in the United States and assembled in
China with parts in Japan, South Korea, Taiwan, and several other nations. You hop into
your Korean Hyundai that was made in Alabama. You drive to the local Starbucks to charge
your own batteries with coffee brewed from beans harvested in Colombia. Your day is just
one hour old, but in a way, you have already taken a virtual trip around the world. A quick
glance at the “Made in” tags on your jacket, backpack, watch, wallet, or other items with you
right now will demonstrate international business transactions.

What is international business?

- Any commercial transaction that crosses the borders of two or more nations. You
don’t have to set foot outside a small town to find evidence of international business.
No matter where you live, you will be surrounded by imports – goods and services
purchased abroad and brought into a country. Your counterparts around the world
will undoubtedly spend some part of their day using your nation’s exports – goods
and services sold abroad and sent out of a country.

People can view the role of international business in society very differently from each
other.

● A business person may see globalization as an opportunity to source goods and

services from lower-cost location and open new markets.
● An economist may see it as an opportunity to examine the impact of globalization
on jobs and standards of living.
● An environmentalist may be concerned with how globalization affects our ecology.
● An anthropologist may want to examine the influence of globalization on the
culture of a group of people.
● A political scientist may be concerned with the impact of globalization on the
power of governments relative to that of multinational companies.
● An employee may view globalization either as an opportunity for new work or as a
threat to his current job.

Key Players in International Business

Companies of all types and sizes and in all sorts of industries become involved in
international business, yet they vary in the extent of their involvement. A small shop owner
might only import supplies from abroad, where as a large company may have dozens of
factories located around the world. Large companies from the wealthiest nations still
dominate international business. But firms from emerging markets (such as Brazil, China,
India, and South Africa) now vigorously compete for global market share. Small and
medium-sized companies are also increasingly active in international business, largely
because of advances in technology.
 ● Multinational Corporations (MNC) is a business that has direct investments (in the
form of marketing and manufacturing subsidiaries) abroad in multiple countries.
Multinationals generate significant jobs, investment, and tax revenue for the regions
and nations they enter. Likewise, they can leave thousands of people out of work
when they close operations. Mergers and acquisitions between multinationals are
commonly worth billions of dollars and increasingly involve companies based in
emerging markets.

● Entrepreneurs and small Businesses. International business competition gives

rise to a new entity, the born global firm – a company that adopts a global
perspective and engages in international business from or near its inception. Born
global firms tend to have innovative cultures and knowledge-based organizational
capabilities. And this age of globalization, companies are exporting earlier and
growing faster, often with help from technology.

Benefits of globalization which are important to international business

1. Reduces marketing costs. Companies that sell global products can reduce costs by
standardizing certain marketing activities. For example, a company selling global
consumer goods, such as shampoo, can make an identical product for the global
market and then simply design different packaging to account for the language
spoken in each market.
2. Creates new market opportunities. A company that sells a global product can
explore opportunities abroad if its home market is small or becomes saturated. For
example, China holds enormous potential for online business with more than 500
million Internet users, which is greater than the population of the entire United
States. But while more than 70% of people in the U.S. actively surf the web, only
around 38% of people in China do. So, as time goes on, more and more Chinese
citizens will go online to research and purchase products.
3. Local buyers’ needs. Managers must constantly monitor the match between the
firm’s products and markets in order to not overlook the needs of buyers. The
benefit of serving customer with an adapted product may outweigh the benefit of a
standardized one. For instance, soft drinks, fast food, and other consumer goods are
global products that continue to penetrate markets around the world. But
sometimes, these products require small modification to better suits local tastes. In
 Southern Japan, Coca-cola sweetens its traditional formula to compete with the
sweeter-tasting Pepsi.

Progress Check: To be submitted in our Google classroom.

Answer the following questions:

1. Discuss the nature of globalization and the policies that aim to promote private
enterprises and eliminate barriers between countries. (20 points)

2. Identify the global institutions which are needed to help manage and regulate the
global marketplace and to promote the establishment of multinational treaties to
govern the global business system. (30 points)

3. How do multinational corporations generate jobs, investment, and tax revenue for
the nations they enter? (20 points)

Self-evaluation (short quiz)

Multiple choices (2 points each)

1. It has focused on making low-interest loans to poor nations.

a. World Bank
b. IDA
c. IMF
d. None of the above
2. it provides political risk coverage for private investments made in developing
countries.
a. MIGA
b. IDA
c. IBRD
d. IFC
3. The merging of distinct and separate national markets into one huge global
marketplace.
a. Globalization of production
b. Global institutions
c. Multinational corporations
d. Globalization of markets
4. Without this institution, the globalization of markets and production is unlikely to
have proceeded as far as it has.
a. IMF
b. WTO
c. IFC
d. World Bank
5. It encompasses the socioeconomic reform process of eliminating barriers.
a. International business
b. Globalization
c. Multinational corporations
d. None of the above
6. He may want to examine the influence of globalization on the culture of a group of
people.
a. Economist
b. Environmentalist
c. Political scientist
d. Anthropologist
7. Which of the following is not part of the group?
a. Reduces marketing cost
b. Strengthening the role of the private sector
c. Supporting the free-market pricing
d. Eliminating barriers to free movement of goods.
8. They generate significant jobs, investment, and tax revenue for the nations they
enter.
a. Born global firms
b. Multinational corporations
c. Key players in international business
d. None of the above
9. They tend to have innovative cultures and knowledge-based organizational
capabilities.
a. Key players in international business
b. Born global firms
c. Multinational corporations
d. None of the above
10.Which of the following is not part of the group?
a. Local buyers’ needs
b. Reduces marketing costs
c. Promoting transparency among institutions
d. Creates new market opportunities
Rubrics for essay

Assessment For 20 points For 30 points

Present ideas in an original 5 8
manner
Organization of thoughts 5 7
Writing shows clear 4 7
understanding
Use of nouns and verbs make 3 4
the essay very informative
Sentence structure is evident 3 4
Total 20 30

Online Sources/References:

https://www.piie.com/microsites/globalization/what-is-globalization

https://www.investopedia.com/terms/e/economic-integration.asp

https://youmatter.world/en/definition/definitions-globalization-definition-benefits-effect
s-examples/

Wild, J.W., (2016), International Business: The Challenges of Globalization, U.S.A: Pearson

Jeong, Luz Suplico, Leonardo Jr. (2016) International Marketing Second Edition

Keegan, Warren, Mark C. (2015), Global Marketing Eight Edition