Chapter 1

Globalization

What is Globalization?
The shift toward a more integrated and interdependent world economy Two components:
 The globalization of markets  The globalization of production

S.Globalization of Production  Toyota Etios  designed in a small office in Japan  assembled in India  From  panels made in South Korea  electronic components made in China  microprocessors made in the U. .

Not just manufacturing…  Globalization of production has historically been about manufacturing  Increasingly companies are using modern communications to outsource service activities to low-cost nations .

Globalization of markets  In the past. each country had its own companies in many industries and its own products .

Today everyone knows…  Nintendo  Starbucks  Coca-Cola  McDonald’s  Samsung .

huge differences still exist among national markets  Food. entertainment . clothing.But the most global markets are for standard goods  Aluminum  Wheat  Microprocessors  Aircraft  For many consumer end-products.

Drivers of Globalization Two factors underlie globalization  “Decline in barriers to the free flow of goods. services. and capital” that has occurred since the end of World War II  Technological change .

Declining Trade and Investment Barriers  During the 1920s and ‘30s. and capital between nations. . many of nations erected formidable barriers to international trade and foreign direct investment  Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods. services.

9 % 4.Average Tariff Rates on Manufactured Products France Germany Italy Japan Holland Sweden UK US 1913 21 % 20 % 18 % 30 % 5% 20 % -44 % 1950 18 % 26 % 25 % -1% 9% 4% 14 % 1990 5.3 % 5.9 % 5.0 % 4.0 % 3.0 % 4.4 % 5.8 % 2002 4.9 % 5.0 % 4.0 % .0 % 4.9 % 5.0 % 4.9 % 4.8 % 4.

1950-2004 3100 2600 Index 1950=100 2100 1600 1100 600 100 19 50 19 54 19 58 19 62 19 66 19 70 19 74 19 78 19 82 19 86 19 90 19 94 19 98 Total Merchandise Exports World Production 20 02 .Affects of Lowering Trade Barriers Figure 1.1: Volume of World Trade and World Production.

 technology has made it a transforming movement .The Role of Technology  Lowering of trade barriers made globalization possible.

19902003 700.00 600.00 0.00 Internet Users per 1000 people 500.00 300.00 200.00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Japan United States European Monetary Union World 2003 .00 100.Internet Usage Growth Figure 1.3: Internet Users per 1000 People.00 400.

The Emergence of Global Institutions Notable global institutions include  the World Trade Organization (WTO) which is responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties  the International Monetary Fund (IMF) which maintains order in the international monetary system  In 2008. 151 nations accounting for 97% of world trade were members of the WTO .

and is a center for harmonizing the actions of nations . develops friendly relations among nations. cooperates in solving international problems and promotes respect for human rights.The Emergence of Global Institutions  the World Bank which promotes economic development  the United Nations (UN) which maintains international peace and security.

dominated the world economy and the world trade picture  U. multinationals dominated the international business scene  about half the world-.The Changing Roles of Countries in the Global Economy In the 1960s:  the U.was off limits to Western international business Today. much of this has changed.S.S. .the centrally planned economies of the communist world-.

3% of world manufacturing output  By 2007.The Changing World Output and World Trade Picture  In the early 1960s. the U. the U. accounted for only 20. was the world's dominant industrial power accounting for about 40.S.7%  Other developed nations experienced a similar decline .S.

multinationals  there has been a rise in mini-multinationals .The Changing Nature of the Multinational Enterprise  Since the 1960s.  there has been a rise in non-U.S.

The Globalization Debate Pro  Lower prices for goods and services  Economic growth  Increase in consumer income  Creates jobs (for many)  Countries specialize in production of goods and services that are produced most efficiently Con  Destroys manufacturing jobs in wealthy nations  Wage rates of unskilled in advanced countries decline  Companies move to countries with fewer labor and environment regulations  Loss of sovereignty  Homogenized cultures .

 sourcing.. any business with international  sales.e. or  Investment .Managing in the Global Marketplace  Much of this course is concerned with managing an international business  i.

Managing an international business is different  Countries are different  International transactions involve converting money into different currencies  Range of problems in an international business is wider and problems are more complex  International business must cope with different. conflicting government rules and systems  Different strategic approaches required .

or investment  A multinational business – any business with productive activities in 2 or more countries  A global business – a business that takes a global approach to production and sourcing (Coca-Cola.Key terms  An international business – any business with international sales. Intel) . sourcing.

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