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Chapter 02 Meaning and Rationale for Globalization

a. What do you understand by Globalization? Globalization: Globalization describes a process by which regional economies,
societies, and cultures have become integrated through a globe-spanning network of communication and trade. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. However, globalization is usually recognized as being driven by a combination of economic, technological, sociocultural, political, and biological factors. The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation.

Tom J. Palmer of the Cato Institute defines globalization as "the diminution or elimination of state-enforced restrictions on exchanges across borders and the increasingly integrated and complex global system of production and exchange that has emerged as a result." Thomas L. Friedman has examined the impact of the "flattening" of the world, and argues that globalized trade, outsourcing, supply-chaining, and political forces have changed the world permanently, for both better and worse. He also argues that the pace of globalization is quickening and will continue to have a growing impact on business organization and practice. Noam Chomsky argues that the word globalization is also used, in a doctrinal sense, to describe the neoliberal form of economic globalization. Herman E. Daly argues that sometimes the terms internationalization and globalization are used interchangeably but there is a significant formal difference. The term "internationalization" refers to the importance of international trade, relations, treaties etc. owing to the (hypothetical) immobility of labor and capital between or among nations.

Chapter 02 Meaning and Rationale for Globalization

b. How do companies go international?


It may be stated that globalization not take place overnight. It proceeds through several stages of internationalization. There are at least four stages in the globalization process.

Table: Four Degree of Internationalization.


Nature of Contact with foreign markets Locus of international operations Orientations of company Type of international activity Organizational structure First degree of internationalization Indirect, passive Domestic Domestic Foreign trade in goods and service Traditional domestic Second degree of internationalization Direct, active Domestic Domestic Foreign trade in goods and service International department Third degree of internationalization Direct, active Domestic and international Primary Domestic Foreign trade, foreign assistance contracts, foreign direct investment International division Fourth degree of internationalization Direct, active Domestic and international Multinational Foreign trade, foreign assistance contracts, foreign direct investment Global structure

Companies at the first stage of globalization have only passive dealings with foreign individuals and organizations.
1. Third parties such as agents, bank and brokers, often act as middleman for companies at

the first stage of internationalization. If needs no emphasis that most of our companies are in this stages of Globalization.
2. By the second stages, companies deal directly with their overseas interests through they

may continue to use third parties also. At this point, most companies do not have employee based abroad, but domestic employees would regularly travel abroad on business. The company might decide to set up an import or export department at this stage.
3. In the third stage, a companys international interests shape its overall makeup in an

important way. Although steel essentially domestic in nature, the company has a direct hand in importing exporting perhaps producing goods and services abroad.
4. In the final stage, the companys sees its activities as essentially multinational as

opposed to domestic. Seldom do companies reach this stage, and even if they do they recede later as chrysle did in the early 1980s, when it sold much of its overseas manufacturing capacity.

Chapter 02 Meaning and Rationale for Globalization

c. Discuss the various benefits from MNCs, to the host countries and home countries.

Benefits from MNCs: The various benefits from MNCs: Benefits of MNCs can
be studied under two board hands: 1. Benefits to the host countries 2. Benefits to the home countries T e a d u db lo : h y re isc sse e w
1.

Benefits to the host countries: To the host countries, MNCs are likely to bring the following benefits:

Transfer of technology, capital entrepreneurship to the host country.

Improvement of the host countrys balance of payments. Creation of Local Job and Career opportunities. Improved competition in the local economy and better utilization of available resource. Greater availability of products for local consumers. Greater access to high quality managerial talent thats tends to be scarce in host countries particularly the developing ones.

Encouragement to world economic unity and through that, political and economic integration all resulting in world harmony.

2.

Benefits to the home countries: Following benefits are likely to accrue to the home countries:

Acquisition of raw materials from abroad, often from a studier supply and at lower prices than can be found domestically.

Chapter 02 Meaning and Rationale for Globalization

Technology and management expertise acquired from competing in global markets. Exports of components and finished goods for assembly or distribution in foreign markets. Inflow of income from overseas profits, royalties, licensing fees and management contracts. Job and career opportunities at home and abroad in connection with overseas operations.