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Globalization Chapter 1 ©The McGraw-Hill Companies, Inc., 2000 Global Telecommunications ©The McGraw-Hill Companies, Inc., 2000 1-1 Globalization The shift towards a more integrated and interdependent world economy. Two components: The globalization of markets. The globalization of production. ©The McGraw-Hill Companies, Inc., 2000 1-2 Global Drivers Positive Technology Negative Culture Open Markets Market Barriers Economic Integration National Barriers Peace War Corporate Strategy Corporate Strategy Global Focus Local Focus ©The McGraw-Hill Companies, Inc., 2000 1-3 Globalization of Markets ©The McGraw-Hill Companies, Inc., 2000 1-4 Global Production Swan Optical Manufacturing Design ©The McGraw-Hill Companies, Inc., 2000 1-5 Growth of World Trade and World Output 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1950=100 Trade GDP Volume 1950 1960 1970 ©The McGraw-Hill Companies, Inc., 2000 1980 1990 1997 Figure 1.1 1-6 Impact of GATT Tariff Rates Average Tariff Rates on Manufactured Products % of Value 50 45 40 35 30 25 20 15 10 5 0 France Germany Italy Japan Holland Sweden Britain United States 1913 1950 ©The McGraw-Hill Companies, Inc., 2000 1990 2000 Table 1-1 in text Table 1.1 1-7 The Shrinking Globe Figure 1.2 1500 -1840 Best average speed of horse-drawn coaches and sailing ships, 10 mph. 1850 - 1930 1950s Propeller Steam locomotives aircraft average 65 mph. 300 - 400 Steamships average mph. 36 mph. ©The©The McGraw-Hill Companies, Inc., 2000 Inc., 2000 McGraw-Hill Companies, 1960s Jet passenger aircraft, 500 - 700 mph. 1-8 The Changing Pattern of World Output and Trade Country United States Japan Germany France United Kingdom Italy Canada China S. Korea Share of World Share of World Share of World Output 1963 Output 1996 Exports 1997 40.3% 20.8% 12.6% 5.5% 8.3% 7.76% 9.7% 4.8% 9.9% 6.3% 3.5% 5.46% 6.5% 3.2% 4.94% 3.4% 3.2% 4.76% 3% 1.7% 3.81% NA 11.3% 2.85% NA 1.7% 2.45% Table 1.2 ©The McGraw-Hill Companies, Inc., 2000 1-9 Percentage Share of Total FDI Stock 1980-1996 50 45 40 35 30 25 20 15 10 5 0 1980 1985 1990 1994 1996 USA UK JPN Figure 1.3 ©The McGraw-Hill Companies, Inc., 2000 GER FR Neth ODC Dlvng Econ 1-10 FDI Inflows 1980-1996 $B 400 350 300 World 250 Dev Ctry 200 Dlvg Ctry 150 USA 100 China 50 0 1985- 1991 90 1992 ©The McGraw-Hill Companies, Inc., 2000 1993 1994 1995 1996 1997 Figure 1.4 1-11 The National Composition of the Largest Multinationals Of the Top 260 in 1973 1997 United States Japan Britain France Germany 126 (48.4%) 9 (3.5%) 49 (18.8%) 19 (7.3%) 21 (8.1%) Of the Top 500 in 162 (32.4%) 126 (25.2%) 34 (6.8%) 42 (8.4%) 41 (8.3%) Table 1.3 ©The McGraw-Hill Companies, Inc., 2000 1-12 Globalization - Pro Lower prices for goods and services. Economic growth stimulation. Increase in consumer income. Creates jobs. Countries specialize in production of goods and services that are produced most efficiently. ©The McGraw-Hill Companies, Inc., 2000 1-13 Globalization - Con Destroys manufacturing jobs in wealthy, advanced countries. Wage rates of unskilled workers in advanced countries declines. Companies move to countries with fewer labor and environment regulations. Loss of sovereignty. ©The McGraw-Hill Companies, Inc., 2000 1-14 International vs Domestic Business Countries are different. Range of problems are wider and more complex. Government intervention in trade and investment creates problems. International investment is impacted by different currencies. ©The McGraw-Hill Companies, Inc., 2000 1-15 Sovereignty and the WTO “Under the new system, many decisions that affect billions of people are no longer made by local or national governments but instead, if challenged by any WTO member nation, would be deferred to a group of unelected bureaucrats sitting behind closed doors in Geneva.” -Ralph Nader- ©The McGraw-Hill Companies, Inc., 2000 1-16 Differences Between International and Domestic Businesses Countries are different. The range of problems are wider and more complex. The intervention of governments that may limit international trade and investment. The need to convert into different currencies. ©The McGraw-Hill Companies, Inc., 2000 1-17