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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
• Think of the restaurants here in Wilkes
County…would this be the same back in the
1950’s?
Today everyone knows…
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Nintendo
Starbucks
Coca-Cola
Ikea
McDonalds
Samsung
But the most global markets are for
standard goods
•
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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%
Germany
20%
26%
5.9%
4%
Italy
18%
25%
5.9%
4%
Japan
30%
----
5.3%
3.8%
Holland
5%
1%
5.9%
4%
Sweden
20%
9%
4.4%
4%
UK
----
4%
5.9%
4%
US
44%
14%
4.8%
4%
The Role of Technology
• Lowering of trade barriers made globalization
possible;
• Technology has made it a transforming
movement
Globalization is acceleration of trends
of the last 10,000 years
• People lived for 250,000 years in huntergatherer 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 1980produced
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 Out put 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 Globalization Debate
Pros
Cons
-Lower prices for goods and services
-Destroys manufacturing jobs in wealthy
nations
-Economic Growth
-Wage rates of unskilled in advanced
countries decline
-Increase in consumer income
-Companies move to countries with fewer
labor and environment regulations
-Creates jobs (for many)
-Loss of sovereignty
-Countries specialize in production of
goods and services that are produced
most efficiently
-Homogenized cultures
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