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Chapter One
Globalization and
International Linkages
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Globalization and
International Linkages
 The specific objectives of this chapter are to
1. ASSESS the implications of globalization for
countries, industries, firms, and communities.
2. REVIEW the major trends in global and
regional integration.
3. EXAMINE the changing balance of global
economic power and trade and investment
flows among countries.
4. ANALYZE the major economic systems and recent
developments among countries that reflect those
systems.
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International Management
International management involves
 Applying management concepts and techniques in
a multinational environment and
 Adapting management practices to different
economic, political, and cultural environments.
Multinational corporation (MNC)
 Operations in more than one country
 International sales
 Nationality mix of managers and owners
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The World’s Top Nonfinancial MNCs
Ranked by Foreign Assets, 2007
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The World’s Top Nonfinancial MNCs
from Developing Countries
Ranked by Foreign Assets, 2007
1-6
Globalization and Internationalization
Globalization
 Process of social, political, economic, cultural, and
technological integration among countries around
the world.
Hastened by
 Offshoring
Process by which companies undertake some
activities at offshore locations instead of their
countries of origin.
 Outsourcing
Subcontracting or contracting out of activities to
external organizations that had previously been
performed by the firm.
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Globalization: Pros and Cons
Benefits of Globalization
 Wealth
 Jobs
 Technology
 Lower prices
Criticisms of Globalization
 off-shoring of business service jobs to lower-wage
countries
 growing trade deficits
 slow wage growth
 environmental and social impacts
1-8
Global and Regional Integration
Global Agreements
 World Trade Organization (WTO)
General Agreement on Tariffs and Trade (GATT)
Regional Agreements
 North American Free Trade Agreement (NAFTA)
 U.S.-Central American Free Trade Agreement
(CAFTA)
 European Union (EU)
 Association of Southeast Asian Nations (ASEAN)
 Free Trade Agreement of the Americas (FTAA)
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International Economic Power
in the Global Economy
Shifting landscape due to
 Economic integration
 Economic potential of emerging markets
BRIC countries (Brazil, Russia, India, and China)
could be among the four most dominant
economies by 2050
1-10
The World’s Largest Economies 2005 and 2020
(Projected)
Measured by GDP at Market Exchange Rates
1-11
The World’s Largest Economies 2005 and 2020
(Projected)
Measured by GDP at Purchasing Power Parity
1-12
Changing Demographics: Developing
Countries on the Rise
(ranked by size)
1-13
Trends in Trade and
International Investments
International Trade
 In 2009 merchandise and commercial services
exports declined
Foreign direct investment (FDI)
 Investment in property, plant, or equipment in
another country
Growing at healthy rate
Outpacing domestic growth in most countries
Declined in 2009 due to the global recession
1-14
World Merchandise Trade by Region
and Selected Country, 2009
(in U.S.$ billions or percent)
1-15
World Foreign Direct
Investment Inflows
(in U.S.$ millions)
1-16
World Foreign Direct
Investment Inflows
(in U.S.$ millions)
1-17
Global Economic Systems
Market Economy
Command Economy
Mixed Economy
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Economic Performance
by Major World Region
 Established Economies
 North America
 European Union
 Japan
 Emerging Economies




Central and Eastern Europe
China
Other Emerging Markets of Asia
India
 Developing Economies on the Verge
 South America
 Middle East and Central Asia
 Africa
1-19
Economic Performance
Established Economies
North America
 One of the four largest trading blocs in the world
Combined purchasing power of U.S., Canada and
Mexico approaches $12 trillion
 Free-market-based economy is attractive to private
firms
United States
 Foreign MNC’s find U.S. a lucrative expansion market
 Foreign firms welcomed as investors in U.S. market
 U.S. firms hold market dominance in many European
markets; gaining market share in Asia
1-20
Economic Performance
Established Economies
Canada
 U.S.’s largest trading partner
 Most of the largest foreign-owned Canadian
companies are totally or heavily U.S.-owned
 Legal and business environment in Canada is similar
to that in U.S.
Mexico
 Strongest Latin American economy
 Very strong maquiladora industry
 Trade with both Europe and Asia has increased
 Now competitive with Asia for the U.S. market
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Economic Performance
Established Economies
European Union
 Ultimate objective
Eliminate all trade barriers among member countries
Emergence of the EU as an operational economic union
 A unified Europe could become the largest economic market in
terms of purchasing power in the world
 Foreign MNCs trying to gain foothold in EU
Acquisitions, alliances, cooperative R&D efforts
 Economic linkages between the EU and newly
emerging Central and Eastern European countries
Challenge is to absorb former communist bloc countries
 Financial crises in Greece and Ireland putting
pressure on the euro
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Economic Performance
Established Economies
Japan
 Huge economic success in 1970s and 1980s
 Ministry of International Trade and Industry
(MITI)
 Keiretsus
Vertically integrated industries
Holdings provide assistance needed in providing goods
and services to end users
 Decade long recession in 1990s
More competition from emerging economies
Poor management decisions
 Remains a formidable competitor in the Pacific Rim,
1-23
North America, and Europe
Economic Performance
Emerging Economies
Central and Eastern Europe
Russia
Dismantling of price controls and privatization
Membership in International Monetary Fund
(IMF) controlling inflation
Crime and political uncertainty
 Czech Republic, Hungary, Poland
Privatization
Inflation
Political uncertainty
1-24
Economic Performance
Emerging Economies
China
 Real economic growth of 12 percent in 2007, 9
percent in 2008, and 11.5 percent in 2009
Savings glut in corporate sector
Vast developmental needs
Unemployment concerns
 Attractive to investors despite political risk
Product pirating is a major problem
Currency value
Government policies favor domestic firms
1-25
Economic Performance
Emerging Economies
South Korea
 Chaebols
Very large family-held conglomerates
 Solid economy, moderate growth and inflation, low
unemployment
Hong Kong
 Part of People’s Republic of China
 Uncertainty about the role the Chinese government
1-26
Economic Performance
Emerging Economies
Singapore
 Success story
 Leader and financial center for region
Taiwan
 Progressed from labor-intensive economy to one
dominated by technologically sophisticated
industries
banking, electricity generation, petroleum refining and
computers
1-27
Economic Performance
Emerging Economies
Thailand, Malaysia, Indonesia
 Large population base
 Inexpensive labor
 Considerable natural resources
 Attractive to outside investors
1-28
Economic Performance
Emerging Economies
India
 Large population
 Recent trend of locating software and high valueadded services to this country boosting middle- and
upper-class market for goods and services
 Attractive to U.S. and British investors
well educated, English speaking, technologically
sophisticated workers
1-29
Economic Performance
Developing Economies on the Verge
South America
 Hampered by foreign debt and severe inflation
 But, intercountry trade is increasing
Countries looking to do business with U.S.
Brazil
 Economy is now flourishing and attracting
investment from MNCs
Privatization and stable government
1-30
Economic Performance
Developing Economies on the Verge
Chile
 Uncertain future, but helped by trade agreements
Argentina
 Abundant natural resources
 Economic problems persist
1-31
Economic Performance
Developing Economies on the Verge
Middle East and Central Asia
 Large oil reserves
 Highly unstable geopolitical and religious forces
 Plagued by continuing economic problems
1-32
Economic Performance
Developing Economies on the Verge
 Africa
 Considerable natural resources
 African nations remain very poor and undeveloped
 International trade is not a major sources of income
 Populace divided into 3,000 tribes that speak 1,000
languages and dialects
 Major political instability
 Poverty, starvation, illiteracy, corruption,
overcrowding among many social problems
negatively affecting economic sector
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World’s Most
Competitive Nations, 2010
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Market Potential Indicators Ranking for
Emerging Markets, 2009
1-35
Review and Discuss
1.
2.
3.
How has globalization affected different world
regions? What are some of the benefits and costs
of globalization for different sectors of society?
How has NAFTA affected the economies of North
America and the EU affected Europe? What
importance do these economic pacts have for
international managers in North America, Europe
and Asia?
Why would MNCs be interested in South America,
India, the Middle East, Central Asia, and Africa, the
less developed and emerging countries of the world?
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