Globalization

What is Globalization?
 The shift toward a more
integrated and
interdependent world
economy
 Two components:
 The globalization of markets
 The globalization of production
 Globalization of
Production
 Vizio flat panel TV is
 designed in a small office in California
 assembled in Mexico
 From
 panels made in South Korea
 electronic components made in China
 microprocessors made in the U.S.
 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
 I never saw Japanese media (and I saw
little non-US media) in college
 Today everyone knows…
 Nintendo
 Starbucks
 Coca-Cola
 Ikea
 McDonald’s
 Samsung
But the most global markets
are for standard goods
 Aluminum
 Wheat
 Microprocessors
 Aircraft
 For many consumer end-products, huge
differences still exist among national
markets
 Entertainment, food, clothing
 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, 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, and capital between
nations.
 Average Tariff Rates on
Manufactured Products
1913 1950 1990 2002
France 21 % 18 % 5.9 % 4.0 %
Germany 20 % 26 % 5.9 % 4.0 %
Italy 18 % 25 % 5.9 % 4.0 %
Japan 30 % -- 5.3 % 3.8 %
Holland 5% 1% 5.9 % 4.0 %
Sweden 20 % 9% 4.4 % 4.0 %
UK -- 4% 5.9 % 4.0 %
US 44 % 14 % 4.8 % 4.0 %
Affects of Lowering Trade
Barriers
 The Role of Technology
 Lowering of trade barriers made
globalization possible;
 Technology has made it a
transforming movement
Internet Usage Growth
Globalization is acceleration of
trends of the last 10,000 years
 People lived for 250,000 years in hunter-
gatherer bands
 Rise of agriculture 10,000 years ago led to
rise of empires and nation-states
 Science and ‘enlightenment’ after 1680
produced global trade and empires
 Free trade and tech after 1980 produced
globalization
 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
 In 2008, 151 nations accounting for 97% of
world trade were members of the WTO
 the International Monetary Fund (IMF) which
maintains order in the international monetary
system
 The Changing Roles of Countries
in
the Global Economy
In the 1960s:
 The U.S. dominated the world economy and
the world trade picture
 U.S. multinationals dominated the
international business scene
 About half the world-- the centrally planned
economies of the communist world-- was off
limits to Western international business
Today, much of this has changed.
 The Changing World Output
and World Trade Picture
 In the early 1960s, the U.S. was the world's
dominant industrial power accounting for
about 40.3% of world manufacturing output
 By 2007, the U.S. accounted for only 20.7%
 Other developed nations experienced a similar
decline
 The Changing Nature of
the Multinational Enterprise
 Since the 1960s,
 there has been a rise in non-U.S.
multinationals
 there has been a rise in mini-multinationals
 The Globalization Debate
Pro Con
 Destroys manufacturing
 Lower prices for goods
jobs in wealthy nations
and services
 Wage rates of unskilled
 Economic growth
in advanced countries
 Increase in consumer decline
income
 Companies move to
 Creates jobs (for many) countries with fewer
 Countries specialize in labor and environment
production of goods and regulations
services that are  Loss of sovereignty
produced most
 Homogenized cultures
efficiently
 Managing in the Global
Marketplace
 Much of this course is concerned
with managing an international
business
 i.e., any business with international
 sales,
 sourcing, or
 Investment
 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
 Key terms
 An international business – any business
with international sales, sourcing, 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, Intel)
 The Emergence
of Global Institutions
 the World Bank which promotes economic
development
 the United Nations (UN) which maintains
international peace and security, develops
friendly relations among nations, cooperates
in solving international problems and
promotes respect for human rights, and is a
center for harmonizing the actions of nations