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GLOBALIZATION

Can be defined as the growing integration and interdependence of the world's economies. Lead national economies to integrate towards a single global economy, where consumers have ever- increasingly having similar habit and tastes. Economic and political decisions taken in one region of the world are likely to affect those in other parts of the world too.

FACTORS CONTRIBUTING TO THE GROWTH IN GLOBALIZATION


1. Liberalization of international trade

Encouraged more trade in exports and imports. Trade protection method has been reduced (tariffs,quotas) through the cooperation of the member states of the World Trade Organization.

Multinational company have been more able to set up overseas trading facilities and outlets

2.Technological progress

Reduced the cost of information interchange.

By internet, business are able to sell product to a world wide market if the have the online presence. Convergence of consumer habits and tastes all across the world.
Ex : mobile phones, video-conferencing, etc

Reduced barriers to international trade as cost of production are decreased.

3.Deregulation

Cost of transportation and distribution have fallen.

With the opening up of competition of previously state-owned monopolies in the transport market, business are able to distribute products worldwide at lower cost than before.
Encouraged the growth of multinational corporations to enjoy more of a global presence.

4. Cultural awareness and recognition

Consumers around the world have increasingly similat taste.


Consumers also more willing to buy foreign products that led to a huge increase in the market for cultural exports.

5. Language

English official business language in many parts of the world In much Asia , English speakers are the ones targeted for fast-track promotion.

Organisation can have the benefit from the EOS - no need to produce different promotional advertisements , information of products in so many languages

THE EFFECTS OF GLOBALIZATION ON BUSINESS ACTIVITY


1. Increase the level of competition

As internet has reduced the costs for many industries, thereby reducing barriers to entry and opening up competition.

2. Meeting customers expectations and need becomes increasingly more demanding.

Demands for the quality, customer service, price and after sales care.
Business must meet the demands of their customers in order to compete with other business.

3. Benefits of EOS

A global business can take advantage of global marketing economies and risk bearing EOS.

4. Greater choice of location of their production facilities. China- low cost of labour and rent. Reduced the firm's costs of production.

5. Mergers, acquisitions and joint ventureallow business to grow at faster pace then grow as organically.

With globalization, business have more choice in their expansion plans With globalization, business have higher number of customers.

6. Increased the customer base

Multinational Corporation

Company that operates in two or more countries

Other term : transnational corporation

Why become a MNC?

Biz can increase sale by expanding internationally


Widen customer's base International brand recognition Larger customer base, high production level Larger economies of scale to be exploited ( benefit from host country)

Benefit from economy of scale


Infrastructure and financial incentive

Can avoid protectionist policies [if production within the country] Benefit from cheaper production cost

Especially inexpensive labour Can still survive if there is country or region suffering recession or disaster World is smaller (time, distance)

Able spread the risk

Globalization of market

ICT made trade become easy

Problem may faced in expansion

Lack of local knowledge may create problems

Eg: Lack of brand recognition

Storage, transportation and distribution cost may increase External factors (eg; legal restrictions, language barriers, and cultural differences) Political and economical condition in foreign country

Infrastructure may limit the efficiency

REGIONAL TRADING BLOCS 1. This section looks at some of the major trading blocs in the world and their major implications for businesses. 2. RTB are also known as regional economic blocs. 3. Members of an RTB strive to eliminate trade barriers on the movement of goods, services, labour and capital. 4. Member countries can enjoy mutual benefits from being engaged in free international trade.

5. 1. 3 different levels of free trade within trading blocs : i. Closer Economic Partnership Agreement (CEPA) - is a free trade agreement, under WTO between 2 or more countries.
- gives preferential access to markets for business within member countries. ii. Free Trade Area (FTA) - member states agree to trade freely with each other, but have separate trade barriers with non-member countries. Common Market - also known as a Customs Union - refer to RTB where there is free trade and free movement of labour and capital between member countries. - commodities imported from outside the union have the same trade restrictions (known as common external tariff) - there are common safety standards and other regulations imposed on nonmember countries.

iii.

6. A regional trading bloc will impose physical barriers to internal trade.

7. The imposition of tariffs increases the price exports, thereby reducing the competitiveness of the product. 8. Quotas are the limits on the volume or value of foreign goods and services.

9. The limited supply has 2 effects : i. reduces the amount of the product available for sale in foreign markets ii. raise the price of the products due to the limited supply

1. The European Union (EU) - member states charge a common external tariff to non-member countries - major advantage for businesses operating in the EU is the potential to exploit economies of scale. - membership of the trading bloc increases the customer base for businesses operating throughout Europe. -Changes in economic activity and/or economic policy in member countries will affect the economic performance of those member states.

1. The European Free Trade Association (EFTA) - there are no import restrictions between these members - European Community signed agreements with EFTA members, setting up a free-trade area over 100 million customers. - signed further treaty which provided for the creation of a European Economic Area (EEA), allowing EFTA members freer trade with the EU states. 2. The North American Free Trade Agreement (NAFTA) - was set up between USA, Canada and Mexico with the aim to promote trade and investment between the members. - NAFTA members have more multinationals and a higher GDP (gross domestic product) per capita than any other trading bloc.

1. The Association of South East Asian Nations (ASEAN) - one of the largest regional trading blocs in the world. - member nations were Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia. - there are large economic and social disparities between the ASEAN countries which makes conducting business in these countries less predictable

1. Closer Economic Partnership Agreement (CEPA) -CEPA is an economic agreement between two countries. -CEPA is a WTO-compliant free trade agreement - the purpose of signing the CEPA is to strengthen their trade and investment cooperation. This can be achieved by : i. ii. Steadily reducing or eliminating tariffs and non-tariff barriers Promoting trade and investment facilitation

- trade creation takes place when a country switches from buying commodities from a high cost country to buying them from a lower cost country. - trade diversion results in losers in a trading bloc when a country switches from buying commodities from a lower cost country to buying them from a higher cost country. - RTBs and globalization aim to improve the overall efficiency of world economies.