Chapter 2

Globalization of Markets and the

Internationalization of the Firm

International Business
Strategy Management & the New Realities
by
Cavusgil, Knight and Riesenberger

International Business: Strategy, Management, and the New Realities

 Globalization of Markets: A Macro Concept

• Two mega trends have altered the international

business landscape: globalization and
technological advances.

• Market globalization refers to the

interconnectedness of national economies and
growing interdependence of buyers, producers,
suppliers, and governments in different countries.

• Globalization allows firms to view the world as one

large marketplace for goods, services, capital, labor,
and knowledge.
International Business: Strategy, Management, and the New Realities
 Phases of Globalization
1st Phase: 1830, peaking around 1880
Aided by railroads, ocean transport; resulting in the rise of mass
production and growing trade

2nd Phase: 1900, peaking late 1920s

Fueled by electricity and emergent modern technologies; early
MNEs

3rd Phase: 1948, peaking around 1970

End of WW II; Marshall Plan; Gradual reduction of trade barriers,
especially under General Agreement on Tariffs and Trade (GATT)

4th Phase: 1980, peaking around 1997

Fueled by information and communications technologies; World
Trade Organization (WTO); rapid liberalization in Emerging
Markets
 The Death of Distance

International Business: Strategy, Management, and the New Realities

The Drivers and Consequences of Market
Globalization
 Firms are Compelled to Internationalize

• Firms implement internationalization

proactively are more successful than
those reactively engaging.

• E.g., Vodafone has established

production and marketing operations
all around the world. Has some 200
million customers in 30 countries.

International Business: Strategy, Management, and the New Realities

 Technological Advances as a
Driver of Market Globalization

• Advances in technology provide the

means for internationalization of firms
• Advances in technology:
– Reduces cost of doing international
business;
– Enables even small firms to go
international
– Helps coordinate worldwide activities;
– Mitigates geographic distance
International Business: Strategy, Management, and the New Realities
 Information Technology

• Cost of computer processing fell by 30% per

year since late 1980s, and continues to fall.

• Increases productivity across the firm

• Impact of IT on our daily lives has been

profound – laptops, smartphones, tablets,
Internet, Google, social media, etc.

International Business: Strategy, Management, and the New Realities

Declining Cost of Global Communication and
Growing Number of Internet Users
 Communications Technology

• Especially important. Includes

telecommunications, satellites, optical fiber,
wireless technology (3G to 5G), and the Internet.

• The Internet, and Internet-dependent systems

such as intranets, extranets, and e-mail, connect
millions of people across the globe.

• The Internet opens up the global marketplace to

all firms, large and small

International Business: Strategy, Management, and the New Realities

Manufacturing and Transportation Technologies

• Revolutionary developments now permit

manufacturing that is both low-scale and low cost,
with the support of computer-aided-design of products
(CAD), robotics, and production lines managed and
monitored by microprocessor-based controls.
• In the 1960s, technological advances have led to the
development of fuel-efficient jumbo jets, giant ocean-
going freighters, and containerized shipping.
• Thus, the cost of transportation has declined
substantially, spurring rapid growth in international
trade.

International Business: Strategy, Management, and the New Realities

Societal Consequences of Market Globalization

• Positive consequences
– More jobs
– Economic development and growing prosperity
– Technology and knowledge transfer

• Negative consequences
– Natural environment
– Disruptive effects in national economies
– Human rights violations abroad (e.g.,
sweatshops)
– Job losses at home
International Business: Strategy, Management, and the New Realities
 Economic Freedom Enhances Income Growth

• In the long run, globalization generally

leads to:
– higher living standards
– more efficient resource usage
– greater access to technology, products, and
services

• In particular, liberalization of markets

appears to enhance income levels

International Business: Strategy, Management, and the New Realities

 Unintended Consequences of Market
Globalization
• Loss of national sovereignty
– Power shifts to MNEs and larger countries

• Offshoring and the flight of jobs

– Dislocation of jobs

• Effect on the poor

– Benefits of globalization are not evenly distributed

• Effect on the natural environment

• Effect on national culture

– Loss of national cultural values and identity
International Business: Strategy, Management, and the New Realities
 Corporate Social Responsibility

• Over time, governments pass legislation that

promotes improved environmental conditions.
• In addition, many firms now consider the
societal consequences of their actions --
Corporate Social Responsibilty (CSR)
• Examples: Benetton in Italy (clothing), Alcan in
Canada (aluminum), and Starbucks have
attempted to embrace practices that protect the
environment, often at the expense of profits.

International Business: Strategy, Management, and the New Realities

 Firm Level Consequences of Market
Globalization

• Countless new business opportunities for

internationalizing firms
• New risks and intense rivalry from foreign
competitors
• More demanding buyers who source from
suppliers worldwide
• Greater emphasis on proactive internationalization

• Internationalization of firm’s value chain

International Business: Strategy, Management, and the New Realities

 Examples of How Firms’ Value
Chain Activities Can Be Internationalized
Value Chain: Sequence of value adding activities
performed in the course of developing, producing,
marketing, and servicing a product.
 Implications for Management
• Global orchestration’ of value-chain activities (e.g.,
in order to cut costs, access resources, target new
markets)

• Exploit knowledge acquired worldwide

• Increase productivity

• Collaborate with foreign partners

International Business: Strategy, Management, and the New Realities

Implications for Managers: Acquiring Global
Competence is a Requirement

• Open-mindedness
• Tolerance for ambiguity
• Perceptiveness
• Premium on personal relationships
• Flexibility, adaptability, and self-reliance
• Good sense of humor
• Warmth in human relationships
• A curious mind

International Business: Strategy, Management, and the New Realities