Globalization and

International Linkages
Theme 1
Learning Objectives
• Implications of globalizations
• Major trends in global and regional integration
• Major economic systems and recent developments among
countries.

2
International Management
• International management is the process of:
• Applying management concepts and techniques in a
multinational environment
• Adapting management practices to different economic, political,
and cultural contexts

3
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

4
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

5
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

6
Benefits of Globalization

Wealth

Better jobs

Access to technology

Lower prices

Availability of goods 7
Criticisms of Globalization
• Offshoring of service jobs to lower-wage countries
• Companies and countries place downward pressure on wages and
working conditions
• Growing trade deficits and slow wage growth could lead to
economic collapse
• Concerns over environmental and social impacts

8
Global Agreements
• General Agreement on Tariffs and Trade (GATT)
• Helped in the dramatic reduction of tariff and nontariff barriers
among nations
• World Trade Organization (WTO)
• Oversees rules and regulations for international trade and
investment

9
Regional Agreements
North American Free Trade Agreement (NAFTA)

U.S.–Singapore Free Trade Agreement

U.S.–Central American Free Trade Agreement (CAFTA and

CAFTA-DR)

European Union (EU)

Transatlantic Trade and Investment Partnership (T-TIP)

Association of Southeast Asian Nations (ASEAN)

Trans-Pacific Partnership (TPP) 10

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

11
Changing Global Demographics:
Developing Countries on the Rise

Source: United Nations: Department of Economic and Social Affairs, World Population Prospects: The 2015
Revision. --> --> https://esa.un.org/unpd/wpp/ 12
Shifting Balance of Economic Power in
the Global Economy
• Result of economic integration and rapid growth of emerging
markets
• Emerging and developing nations might play a dominant role
in the global economic system
• BRIC countries - Brazil, Russia, India, and China
• E7 - Seven major emerging economies (Brazil, China, India,
Indonesia, Mexico, Russia, and Turkey)

13
Shifting Balance of Economic Power in
the Global Economy (continued)
• N-11 - Next wave of emerging markets (Bangladesh, Egypt,
Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey,
South Korea, and Vietnam)
• African countries can benefit from the increase in price of
commodities
• Gas and oil, agricultural products, and mineral and mining products

14
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 at a slow but steady rate in the years since the global
recession

15
Global Economic Systems

Market Command
economy economy

Mixed
economy
16
Evaluation of the World’s
Economies
Established Emerging Developing
economies economies economies
• North America • Central and • South America
• European Union Eastern Europe • Middle East and
• Japan • China Central Asia
• Other emerging • Africa
markets of Asia
(South Korea,
Hong Kong,
Singapore, and
Taiwan)
• India
17
North America
• One of the four largest trading blocs in the world
• Combined purchasing power of the United States, Canada, and
Mexico is more than $19 trillion
• Free-market-based economy provides considerable freedom
in decision-making processes
• International firms receive the benefit of greater flexibility and
lower barriers

18
North America (continued )
• The United States
• Firms maintain dominant global positions in technology-intensive
industries
• Considered to be a lucrative market for expansion by foreign
MNCs
• Canada is the largest trading partner
• Most of the largest foreign-owned companies in Canada are totally
or heavily U.S.-owned
• Legal and business environments are similar to that in the U.S.

19
North America (continued )
• Mexico
• Strongest Latin American economy
• Has free-trade agreements with over 46 countries
• Competes with Asia for the U.S. market and has the benefit of
proximity and lower-cost labor
• Increased trade with both Europe and Asia

20
European Union (EU)
• Objectives and goals
• Eliminate all trade barriers among member nations
• Follow a single currency (euro) and a regional central bank
• Firms have the benefit of:
• Manufacturing high-quality, low-cost goods
• Shipping manufactured goods across the EU without paying
duties or being subject to quotas

21
European Union (EU) (continued)
• Challenges
• Absorbing its eastern neighbors that could result in a giant, single
European market
• Large deficits faced by several European governments
• Resulted from structural conditions and shorter-term economic
pressures
• Placed pressure on the euro
• Maintaining a unified EU in the coming decades

22
Japan
• Unprecedented economic success in the 1970s and 1980s
• Huge positive trade balance
• Strong yen
• Gained recognition as the world leader in manufacturing and
consumer goods
• Remains a formidable international competitor and is well
poised in all major economic regions

23
Japan (continued)
• Early success can be attributed to:
• The Ministry of International Trade and Industry (MITI)
• Governmental agency that identifies and ranks national commercial
pursuits and guides the distribution of national resources to meet
these goals
• Keiretsus
• Large, vertically integrated corporations whose holdings supply much
of the assistance needed in providing goods and services to end
users

24
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

25
Russia
• Dismantled price controls
• Privatized businesses previously owned by the government
• Direct investment and membership in International Monetary
Fund (IMF) helped to raise GDP and decrease inflation

26
Russian Economy
• Early economy was boosted by abundant oil and high global
energy prices
• Recent decreases in demand have pushed Russia into a recession
• Likely to undergo many years of economic instability and
recurrent political problems
• Challenges - Persistent crime, corruption, and lack of public
security

27
Central and Eastern Europe
• Hungary
• Privatization of state-owned businesses
• Joint ventures between local and western firms
• Receives direct investments from MNCs
• Poland
• Only economy in the EU to continue to grow during the global
recession of 2008–2009

28
Central and Eastern Europe
(continued)

• Key for Albania and other Eastern European countries is to

make themselves less risky and more attractive for
international business
• Maintain social order
• Establish rule of law
• Rebuild collapsed infrastructure
• Get factories and other value-added, job-producing firms up and
running

29
China
• Considerable decline in GDP
• Current challenges
• Massive savings glut in corporate sector
• Globalization of manufacturing networks
• Vast developmental needs
• Unemployment (15–20 million new jobs required annually)
• Social unrest

30
China: Major Risk for Investors
• Caused due to:
• Delicate nature of the one country, two systems balance
(communism and capitalism)
• Unpredictable and fluid nature of policies toward foreign firms
• Trade relations with developed nations remain tense

31
Economic Performance in Emerging
Markets of Asia
• South Korea
• Chaebols: Large, family-held conglomerates that have
considerable economic and political power
• Has a solid economy with moderate growth and inflation, low
unemployment, an export surplus, and fairly equal distribution of
income
• Hong Kong
• Headquarters for some of the most successful multinational
operations in Asia

32
Economic Performance in Emerging
Markets of Asia (continued )
• Singapore
• Emerged as an urban planner’s model and the leader and
financial center for Southeast Asia
• Taiwan
• Progressed from a labor-intensive economy to one dominated by
technologically sophisticated industries

33
Economic Performance in Emerging
Markets of Asia (continued )
• Thailand, Malaysia, Indonesia, and Vietnam
• Have a large population base with inexpensive labor despite lack
of natural resources
• Known to have social stability but have suffered from turmoil in
the aftermath of recent economic crisis

34
India
• Recent trend of locating software and higher value-added
services has bolstered middle- and upper-class market for
goods and services
• Attractive to U.S. and British investors
• Presence of English-speaking, well-educated, and technologically
sophisticated workers
• Availability of government funds for economic development

35
South America
• Faced many economic problems
• Accumulated heavy foreign debt obligations
• Experienced severe inflation
• Implemented economic reforms to reduce debt
• Periodic economic instability and the emergence of populist
leaders have had an impact on the attractiveness of countries in
this region

36
South America: Brazil
• Attracted considerable foreign investment
• Through privatization of power, telecommunications, and other
infrastructure sectors
• Benefited from one of the most stable governments
throughout Latin America
• Undisputed economic leader of South America

37
South America: Brazil (continued)
• Long-term prospects are still potentially positive due to:
• Presence of a large and relatively well-educated population
• Availability of ample natural resources
• Existing industrial base
• Strategic geographic position

38
Chile
• Economic growth has fluctuated between three and six
percent since the 2000s
• Attracts FDI, mainly dealing with gas, water, electricity, and
mining
• Continues to participate in globalization
• Engages in trade agreements with Mercosur, China, India, the EU,
South Korea, and Mexico

39
Argentina
• Has an overall strong economy
• Due to abundance of natural resources, highly literate population,
export-oriented agriculture, and diversified industrial base
• Has suffered recurring economic problems
• Inflation, external debt, capital flight, and budget deficits
• Economic growth has slowed since the global recession

40
Middle East and Central Asia
• Possess large oil reserves
• Have highly unstable geopolitical and religious forces
• Try to balance these forces with economic viability and activity in
the international business arena
• Rely almost exclusively on oil production
• Have made large investments in U.S. property and businesses

41
Africa
• Has considerable natural resources but remains very poor and
undeveloped
• International trade is only beginning to serve as a major source of
income
• Risk for foreign investors arises from:
• Overwhelming diversity of the population
• Major political instability

42
Africa (continued)
• Economic setbacks are caused due to:
• Tragic tribal wars
• Spread of diseases such as AIDS, malaria, and Ebola
• Lack of institutions, infrastructure, and economic capacity to take
full advantage of globalization
• Poverty, malnutrition, illiteracy, corruption, social breakdown,
vanishing resources, overcrowded cities, drought, and homeless
refugees

43
Africa (continued)
• Economic growth and dynamism have accelerated in recent
years
• Rise in GDP
• Growth in telecommunications, banking, and retailing
• Rate of return on foreign investment in Africa is higher than
for any other region

44
Review and Discuss
• How has globalization affected different world regions?
• What are some of the benefits and costs of globalization for
different sectors of society (companies, workers, communities)?

45
Review and Discuss (continued)
• How has NAFTA affected the economies of North America and
how has the EU affected Europe?
• What importance do these economic pacts have for international
managers in North America, Europe, and Asia?

46
Review and Discuss (continued )
• Why are Russia and Eastern Europe of interest to international
managers?
• Identify and describe some reasons for such interest and also
risks associated with doing business in these regions

47
Review and Discuss (continued )
• Many MNCs have secured a foothold in Asia, and many more
are looking to develop business relations there
• Why does this region of the world hold such interest for
international management?
• Identify and describe some reasons for such interest

48
Review and Discuss (continued )
• Why would MNCs be interested in South America, India, the
Middle East and Central Asia, and Africa, the less developed
and emerging countries of the world?
• Would MNCs be better off focusing their efforts on more
industrialized regions? Explain

49
Review and Discuss (continued )
• MNCs from emerging markets (India, China, Brazil) are
beginning to challenge the dominance of developed country
MNCs
• How might MNCs from North America, Europe, and Japan
respond to these challenges?

50