Chapter 12

Globalization
This chapter: 

 

Explains globalization in more depth. Discusses its impact on culture, the growth of trade agreements, the erosion of nation-state sovereignty, and protectionism. Describes corruption and efforts to combat corruption
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

 McDonald¶s does transfer cultural values and practices.McDonald¶s Corporation Opening Case  More than half of McDonald¶s restaurants are outside of the U.  As a prominent global brand McDonald¶s symbolizes perceived evils of globalization. run as local businesses. accounting for 62% of company revenues.S. 12-3 . the arrival of a McDonald¶s is regarded as a sign of modernization. The story of McDonald¶s illustrates the complexity of globalization. most of McDonald¶s international restaurants are franchises. However..  In developing nations. The entrepreneurs who run these businesses adapt them to local custom.

social.  Economic globalization refers to the development of an increasingly integrated commercial system based on free markets in which nations are open to foreign trade and investment. scientific. military.What is Globalization?  Globalization occurs when networks of economic. or environmental interdependence grow to span worldwide differences. political. 12-4 .

Major Forces in Expanding Globalization         Ideas Capital Labor MNCs Governments Technology Multilateral organizations NGOs 12-5 .

 Improved working conditions for millions of workers. 12-6 .Pros of Globalization  Has lifted millions of people out of poverty.  Human rights have improved. lower costs. and higher quality of products.  Consumer benefits of more variety.

Trends in World Development Example of modern data visualization Hans Rosling at the TED Talks .

 Tens of millions of manufacturing jobs have been lost in the U.S. 12-7 .Flaws and Problems in Globalization  In some countries the financial systems.  The Western countries have pushed poor countries to eliminate trade barriers. and institutions did not keep pace with the rapid spread of globalization. laws. ideas. and Europe because of global competition.  Politicians and their constituents have become increasingly protectionist. but kept up their own barriers.

Expanding Trade Agreements  Rapid increase in the number of trade agreements has been a major force in globalization.  The largest of these in terms of population are:  European Union (EU)  North American Free Trade Agreement (NAFTA)  The Asia-Pacific Economic Cooperation (APEC) forum 12-8 .  Trade agreements have helped to increase global competition and have accelerated world trade.

The European Union  On January 1.000 pages of EU laws.  A milestone was reached in 2004 when leaders of the 25 European nations then in the Union signed the 50-article EU constitution. a survey said 44 percent believe life has become worse since their nation joined the EU.  Many individuals in the Union are unhappy. 1993.  On January 1. the EU became a unified regional market and by 2007 there were 27 member states. 1999. 12-9 . the EU adopted the euro.  Many businesses in newly joined nations face serious problems in complying with the rules and requirements found in some 80.

S. opposed NAFTA from its beginning. and Mexico.The North American Free Trade Agreement  Created a free trade block consisting of the United States.  Labor unions in the U.  Expanding trade has opened new opportunities.  Workers on both sides of the border have seen individual losses and gains. Canada. 12-10 .  Important problems have arisen in the operation of NAFTA.

Other Trade Agreements  Mercado Comun del Sur (Mercosur)  Asia-Pacific Economic Cooperation (APEC)  Association of South East Asian Nations (ASEAN) 12-11 .

 Nation-state sovereignty has not been seriously eroded  All nations have the authority and power to block the entrance of a large global company or to deny demands of an MNC for concessions. 12-12 .Globalization and the Erosion of State Sovereignty  Disagreement exists regarding whether globalization has eroded the sovereignty of nations.  The competitiveness imperative amounts to an infringement on state authority. cultural.  Nation-state sovereignty has been eroded  Market forces overwhelm the economic powers of nationstates to determine economic. political. and social affairs.

and films and technology but dislike the spread of American ideas.  Throughout the world there is resentment about the transmission of certain Western cultural values. 12-13 . television.  Majorities of people in Europe like American music.  Economic forces of globalization have encouraged massive migrations of peoples.Erosion of Cultures  The rapid and explosive spread of American culture throughout the world is one significant trend within globalization.

12-14 . increase productivity. reward individual initiative. and a wider variety of goods and services at minimum prices and with higher quality.  It is argued that free trade will stimulate competition.  Job opportunities. and improve national well-being.  The law of comparative advantage.Why Free Trade?  Some nations have an advantage over others in the production of particular goods.  Resources will be used most efficiently when each country produces that for which it enjoys a cost advantage.

feel pressures from foreign competitors with better products and lower prices.  The U.  Three justifications are often given for protectionist measures.  Trade barriers in foreign countries restrict American imports to them.Pressures for Protectionism  Most domestic businesses. whether engaged in foreign trade or not. 12-15 .S. has large trade deficits that must be reduced.  Protectionists want to shield industries from foreign competition.

12-16 .  The cause of the exceptional rise in world trade.Free Trader Responses to Protectionists  One main argument is the logic for free trade. say antiprotectionists.  Some argue that rich countries should reduce tariff barriers and poor ones should be allowed to maintain them since the underdeveloped countries do not have the infrastructure and institutions to open their markets to free trade. has been in no small measure the world¶s reduction in tariff barriers.

S. but there are many exceptions. 12-17 .U. the United States protects industries from foreign competition.  The Federal Buy American Act  The Merchant Marine Act  The Passenger Vessel Services Act  U.S. tariffs have declined significantly in recent years. Deviation from Free Trade Policy  Despite strong free trade rhetoric and the steady lowering of tariff and other trade barriers.

 Taiwan restricts imports of rice.  Mexico still retains substantial trade restrictions on products such as meat. steel. vegetables.Tariff Barriers in Other Countries  China still imposes substantial barriers on imports such as watches. vegetables.  Brazil still retains high tariffs on technology products. poultry. imports of meat. poultry. and fruit products. and many food products.  Japanese restricts U. 12-18 . textiles.  Korea imposes high duties maintains a broad range of trade restrictions and nontariff barriers on agricultural and fishery products.S.  Various restrictions among European Union countries are applied to genetically engineered commodities. automobiles. and fruit.

 The reality is that the global economy is a mixture of free trade and protectionism. innovative. 12-19 .  Porter argues that ³industrial clusters´ help a nation achieve global superiority in one industry. and committed to meeting demanding consumer tastes.  Classical free trade theory based on comparative advantage has lost much validity for a large part of world trade. low-cost producers. competitive.  These clusters are composed of firms and industries that are mutually supporting.

 Companies have found in many LDCs. that to do business it is necessary to make a variety of payments. practices. and laws among the many countries where MNCs do business create extremely difficult moral.Corruption in Business and Government Transactions  Cultural differences. and even in some highly industrialized countries. 12-20 . and legal problems for MNCs. ethical.

´ and when does it become tainted with bribery?  A different problem in identification of bribery is offsets.  Contractors dislike offsets but they are an essential part of doing business in many countries.  When is the payment ³normal. which have become popular in the international arms trade. 12-21 .What is Corruption?  At one end of the spectrum is what might be called petty corruption or ³grease´ payments.  Offsets can be part of an agreement to bring investment to a company.

12-22 .  Corruption imposes costs beyond individual company losses to competitors who bribe.  It undermines democratic institutions  It retards economic development  It contributes to government instability  It attacks the foundation of democratic institutions  Corruption varies significantly among countries.Costs and Consequences of Corruption  Foregoing bribery can costly in terms of business lost to competitors.

´  Congress passed the Foreign Corrupt Practices Act (FCPA) in 1977.Business Anticorruption Practices and Procedures  A study by The Conference Board concluded that ³«anticorruption practices and procedures have become significant more widespread. which makes it illegal for managers of U. corruption and bribery endure. and corporate efforts at eradication.S.  Most large companies have formal policies against corrupt payments.  Despite international. detailed and sophisticated than in 2000. 12-23 . national. corporations to bribe an official of a foreign government or ministry.

social systems. are exercising power responsibly.Concluding Observations  MNCs have major impacts on markets. 12-24 . and political institutions. with help and prodding from government and strong activist critics. and moral issues for their management. corporations. ethical.  Complexities of doing global business raise serious economic.S. political.  It is believed that more top managers of U. social.

 The forces of globalization are beneficial to the peoples of the world and promise even greater benefits in the future. dislocation.  It has led to exploitation. and suffering for some who have yet to experience its benefits.  It has changed business-government-society relationships in profound and fundamental ways. 12-25 .Concluding Observations  Globalization has created enormous wealth for people all over the world.  Important reforms are necessary.