Download What Is The Globalization of Markets?

Globalisation, diversity and
inequality
Week 1
• Globalism (commonly called globalization)
characterized by networks of international
linkages that bind countries, institutions, and
people in an interdependent global economy.
• The invisible hand of global competition is being
propelled by increasingly borderless world,
by technological advancements, and by the rise
of developing economies such as China and
India
• Thomas Friedman -"levelling the playing field"
among countries—or the "flattening of the
world."
What Is Globalization?
• The world is moving away from selfcontained national economies toward an
interdependent, integrated global
economic system
• Globalization refers to the shift toward a
more integrated and interdependent world
economy
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What Is The
Globalization of Markets?
• Historically distinct and separate national
markets are merging
• It no longer makes sense to talk about the
“German market” or the “American market”
• Instead, there is the “global market”
– falling trade barriers make it easier to sell globally
– consumers’ tastes and preferences are converging on
some global norm
– firms promote the trend by offering the same basic
products worldwide
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What Is The
Globalization of Production?
• Firms source goods and services from
locations around the globe to capitalize on
national differences in the cost and quality
of factors of production like land, labor,
and capital
• Companies can
– lower their overall cost structure
– improve the quality or functionality of their
product offering
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Why Do We Need
Global Institutions?
• Institutions
– help manage, regulate, and police the global
marketplace
– promote the establishment of multinational treaties to
govern the global business system
• Examples include
– the General Agreement on Tariffs and Trade
(GATT)
– the World Trade Organization (WTO)
– the International Monetary Fund (IMF)
– the World Bank
– the United Nations (UN)
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What Is Driving
Globalization?
• The decline in barriers to the free flow of goods,
services, and capital that has occurred since the
end of World War II
– since 1950, average tariffs have fallen significantly
and are now at 4 percent
– countries have opened their markets to FDI
• Technological change
– microprocessors and telecommunications
– the Internet and World Wide Web
– transportation technology
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WHY COMPANY GOES GLOBAL?
Aggressive reasons:
• New markets, be first movers, attempt to increase profits, sales and markets.
• Guarantee a supply of raw materials; no variations in cost, search people,
search competencies, search for the best of materials available,
• Acquire technology: have new innovative capabilities.
• Seek politically stable bases for new operations. To prevent social
disharmony.
• Varies by industry, the nationality of a company will also affects it motives in
going international.
• Eg: Gilltett, pepsi,
Defensive reasons:
• against technology and sometime combination of both.
• Nationality of a company will also affect its motives in going international: UK
companies comfortable with US and vice versa.
• Recently US companies have begun to look to Japan for new ideas in
management: Xerox, Nissan and Renault.
HOW COMPANIES GO GLOBAL?
Four stages of internationalisation
• First degree: Has only indirect or passive international
dealings.
• accomplished with assistance of third company. Trying to look
into other markets.
• Here internationalisation is handled by existing department.
Has traditional domestic organisation structure. Trade of good
of goods and services.
• Second degree: company deals with overseas concerns.
Retain some of its foreign trade agents and seek out for more in
an active manner.
• They also represent company philosophy.
• Small dedicated staff actively working with agents.
• Also travel to customer sites, go thorough the agents
understand the markets and agents.
Third degree: it is reached when international concern of the company are of
much higher importance to its overall makeup.
• The firm still remains domestically oriented in this stage.
• Firm will have direct hand in both in import and export or producing goods or
services abroad.
• Some managers will be placed overseas. Company possesses an entire
international division and not a department.
Fourth degree: management sees the company orientation as being
multinational.
• company process is matured and the work standard is very much
comparable to what you do in the home country.
• Eg: German company is German as well as seen as American in US. Looks
for adaptability where ever it needs to adapt itself. See they parent country
but actively adapt itself locally.
• They operation are both international as well as domestic.
• Type of international activity: foreign trade, assistance, contracts, FDI and
will have global organisation in structure.
Attitudes towards globallisation.
• Ethnocentric attitude: sees foreign countries and their people
as inferior to the home country.
• Manager with this attitude believe home country approaches
are the best.
• follow the same methodology such as reward, uniform, culture.
• Polycentric: see all countries as being different and difficult to
understand to indentify the practices.
• foreign centres to deal with the local issues.
• foreign offices make their own decisions.
• This is done when you do know the language, culture, do know
the governance and practices. Do know how the political
system have evolved in the state.
• Negative cases are GAP using local trade such as child labour,
star bucks in Brazil.
Geocentric:
• Recognises both similarities and differences
among the countries.
• draws the most effective individuals and
methods from any place in the world.
• focussed on quality and performance, highly
focussed on delivery and highly focussed on
innovation.
THE GLOBAL BUSINESS ENVIRONMENT:
• Globalism : "The World Is Flat“
• Described globalization - the death of Princess Diana of
England
Princess Diana was an English princess, With an Egyptian
boyfriend, Who crashed in a French tunnel, Driving a German
car, With a Dutch engine, Driven by a Belgian who was drunk,
On Scottish whisky, Followed closely by Italian Paparazzi, On
Japanese motorcycles.
She was treated by an American doctor, Using Brazilian
medicines.
This description is sent to you by an British Indian, Using Bill
Gate's technology, And you are probably reading this on your
computer, That uses Taiwanese chips, and a Korean monitor,
assembled by Bangladeshi workers, in a Singapore plant,
transported by Indian lorry-drivers, unloaded by Sicilian
longshoremen, and trucked to you by Mexican immigrants?
Top 20 countries measured - trade, travel,
technology, and links to the rest of the world
The Globalization of Health Care
• The practice of outsourcing medical work to other
countries. In recent years, pressures to cut costs in
the medical industry have led to the practice of
outsourcing.
• Today, not only is paperwork outsourced to countries
such as India, but also the reading of x-rays.
• In some cases, patients, in an effort to curb costs, are
now choosing to have medical procedures conducted
in foreign countries, and some insurance companies
are promoting the use of foreign facilities. Discussion
of the case can begin with the following questions:
1-15
Suggested Discussion Questions
• 1. A decade ago the idea that medical procedures
might move offshore was unthinkable. Today it is a
reality. What trends have facilitated this process? Is
the globalization of health care good or bad for the
American economy?
• 2. Is the globalization of health care good or bad for
patients? Who might benefit from the globalization of
health care? Who might lose?
• 3. How might a universal health insurance program
change the current trends in the health care industry?
In your opinion, are programs like that offered by
Aetna to have surgery conducted in another country
truly viable?
1-16
What Does Globalization
Mean For Firms?
• Lower barriers to trade and investment mean firms can
– view the world, rather than a single country, as their market
– base production in the optimal location for that activity
• Technological change means
– lower transportation costs - firms can disperse production to
economical, geographically separate locations
– lower information processing and communication costs - firms
can create and manage globally dispersed production systems
– low cost global communications networks - help create an
electronic global marketplace
– low-cost transportation - help create global markets
– global communication networks and global media - create a
worldwide culture, and a global market for consumer products
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THE GLOBAL BUSINESS ENVIRONMENT
Many facets of globalism and they intertwine
• Economic power and shifting opinions
• Challenges that managers face : politics,
culture, global competition, terrorism, and
technology. Eg: Western Drug manufacturer
Challenges:
• Rising nationalist
• Takeovers such as the Indian company Mittal
Steel's bid for Europe's largest steel company,
Arcelor
• United States reacted to an attempted takeover
of the British P&O by Dubai Ports World
• Firms compete with your firm both at home
and abroad
• Domestic competitors competing on price by
outsourcing or off shoring resources and
services anywhere in the world.
• Ford, for example, is pushing it's Mustang with
the slogan "buy American,"
• Toyota has been investing in North America
for 20 years in plants, suppliers, and
dealerships, as well as design, testing, and
research centres
• Nestle has 50 percent of its sales outside of its
home market, Coca-Cola has 80 percent, and
Procter & Gamble has 65 percent
Regional Trading Blocs:
• To work against the Dominance of the US
• blocs represented by the North American Free
Trade Agreement (NAFTA), the EU, and the
Association of Southeast Asian Nations
(ASEAN).
• World trade takes place within three regional
free-trade blocs (Western Europe, Asia, and the
Americas) grouped around the three dominant
currencies (the euro, the yen, and the dollar).
• EU - now comprises a 27-nation unified market
of over 400 million people
China export powerhouse:
• join the World Trade Organization (WTO) in 2002
• (GDP) growth rate (10.7 percent in 2006)
• vast population of low-wage workers and massive
consumer market potential
• 49,000 U.S. companies alone operating.
• halfway between a command economy and a market
economy, with capital allocation still largely statecontrolled
India: world's services supplier.
• world's leader for outsourced back-office services,
and increasingly for high-tech services.
• Fastest-growing free market democracy, estimated
growth of 8.1 percent
• Hindrance to growth, in particular for the
manufacturing sector, remains its poor infrastructure.
Other Regions in the World: Russia
• Move away from communism, together with the
trend toward privatization
• Foreign investment, consumers' climbing confidence.
• politically stable. New land, legal and labour codes, as
well as the now-convertible ruble have encouraged
foreign firms to take advantage of opportunities
• Corruption and government interference persist in
Russia.
• Central and South America, the Middle East, and
Africa desperate to attract foreign investment
• Africa ignored by most of the world's investors,
although it receives increasing investment from
companies in South Africa - region's biggest economy
How Does Globalization Affect
Jobs And Income?
• Critics argue that falling barriers to trade
are destroying manufacturing jobs in
advanced countries
• Supporters contend that the benefits of
this trend outweigh the costs
– countries will specialize in what they do most
efficiently and trade for other goods—and all
countries will benefit
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THE GLOBALIZATION OF HUMAN CAPITAL:
3.3m (U.S.) jobs would be lost in service-sector
outsourcing by 2015 (Forrester Research).
IBM's India staff, jumped from 9,000 - 43,000 from
2004 through mid-2006
English-speaking—earns about $20,000 a year,
compared to $80,000
MNCs such as Intel, Dell, IBM, Yahoo!, and AOL employ
workers in chip design, software, call centres, and tax
processing
Dell has four call centres in India, where the bulk of its
10,000 employees work, as well as software
development and product testing centres
In China - long the world's low-cost manufacturing hub—
jobs are on the upswing for back-office support for
financial services, telecom and retail companies
THE POLITICAL AND ECONOMIC ENVIRONMENT:
• Uprisings, conflicts and differences among ethnic
groupings
• Many terrorist activities are also based on religious
differences, as in the Middle East
• Managers to understand and anticipate ethnic,
religious, problems of general instability, problems of
an operational nature, effects on the workforce, on
production and access to raw materials, and on the
market.
• Political risks - governmental action or politically
motivated event that could adversely affect the longrun profitability or value of a firm
• Eg: Bolivian President Evo Morales' nationalize the
national gas industry, followed - Venezuela, where
Mr. Chavez -forced major oil companies to accept a
minority stake in fields.
• Nationalization refers to the forced sale of an MNC's
assets to local buyers
• Expropriation - local government seizes and provides
inadequate compensation for MNC
• terrorism severe and random political risk to company
personnel and assets and interrupt
• Risk assessment by multinational corporations usually
takes two forms:
• Use experts or consultants familiar with the country.
• A second means of political risk assessment used
by MNCs. Development of internal staff and in-house
capabilities- hiring people with expertise in the political
and economic conditions.
SEVEN TYPICAL POLITICAL RISK :
• Expropriation of corporate assets without prompt and
adequate compensation
• Forced sale of equity to host-country nationals, usually
at or below depreciated book value
• Discriminatory treatment against foreign firms in the
application of regulations or laws
• Barriers to repatriation of funds (profits or equity)
• Loss of technology or other intellectual property (such
as patents, trademarks, or trade names)
• Interference in managerial decision making
• Dishonesty by government officials, including
cancelling or altering contractual agreements,
extortion demands.
MANAGING POLITICAL RISK (TAOKA AND BEEMAN) ARE AS
FOLLOWS:
• Equity sharing includes the initiation of joint ventures with
nationals (individuals or those in firms, labour unions, or
government) to reduce political risks.
• Participative management requires that the firm actively involve
nationals, including those in labour organizations or
government, in the management of the subsidiary.
• Localization of the operation includes the modification of the
subsidiary's name, management style, and so forth, to suit local
tastes. Localization seeks to transform the subsidiary from a
foreign firm to a national firm.
• Development assistance includes the firm's active involvement
in infrastructure development (foreign-exchange generation,
local sourcing of materials or parts, management training,
technology transfer, securing external debt, and so forth)
MANAGING TERRORISM RISK:
No longer risk of terrorism focused on certain
areas such as South America or the Middle
East
80 countries lost its citizen in WTC 9/11/2001
Kidnappings are common in Latin America (as
a means of raising money for political
activities)
Abductions in Colombia hit a record 3,029 in
2000
MNCs stepped up security measures hiring
consultants in counterterrorism (training
employees to cope with the threat of terrorism)
ECONOMIC RISK:
• Political stability closely connected to economic
environment
(1) the government abruptly changes its domestic
monetary or fiscal policies or
(2) the government decides to modify its foreigninvestment policies.
(3) risk of exchange-rate volatility results in currency
translation
(4) John Mathis (Professor of international economics)
served as senior financial policy analyst for the
World Bank suggested: These methods are (1) the
quantitative approach, (2) the qualitative approach,
(3) a combination of both of these approaches, and
(4) the checklist approach
(1) the quantitative approach: measure
statistically a country's ability to honor its debt
obligation.
(2) the qualitative approach: evaluates a
country's economic risk by assessing the
competence of its leaders and analyzing the
types of policies they are likely to implement
(3) a combination of both of these approaches,
and
(4) the checklist approach
THE LEGAL ENVIRONMENT:
• Consults with legal services, both locally and at
headquarters.
• 70 countries, predominantly in Europe (e.g.,
France and Germany), are ruled by civil law, as
is Japan
• In Islamic countries, such as Saudi Arabia, the
dominant legal system is Islamic law
• Contract law plays a major role in international
business transactions
Eg: many developing and communist countries is
often a third party in the contract
The risk is, you could have a contract torn up or
changed
• Impose protectionist policies, such as tariffs,
quotas, and other trade restrictions, to give
preference to their own products and industries
• Foreign tax credits, holidays, exemptions,
depreciation allowances, and taxation of
corporate profits are additional considerations
the foreign investor must examine before acting
THE TECHNOLOGICAL ENVIRONMENT:
…The creation of a global, Web-enabled playing field
that allows for multiple forms of collaboration—the
sharing of knowledge and work—in real time, without
regard to geography, distance, or, in the near future,
even language. Thomas friedman, The World Is Flat,
2005
Advances resulting from cooperative research and
development (R&D)
risks of technology transfer and pirating are considerable
and costly
governments use their laws to some extent to control the
flow of technology
'Bhutan Today' – first daily newspaper.
INFORMATION TECHNOLOGY:
• speed and accuracy of information transmission
are changing and making geographic barriers
less relevant.
• Political, economic, market, and competitive
information is available almost
instantaneously to anyone around the world
• cultural barriers are being lowered gradually
• Linked electronically to their employees,
customers, distributors, suppliers, and
alliance partners in many countries
Eg: Nike, health tourism
The Internet and e-business provide following
advantages in global business:
• Convenience in conducting business worldwide;
facilitating communication across borders
contributes to the shift toward globalization and
a global market.
• An electronic meeting and trading place, which
adds efficiency in conducting business sales.
• A corporate Intranet service, merging internal
and external information for enterprises
worldwide.
• Power to consumers as they gain access to
limitless options and price differentials.
• A link and efficiency in distribution.