Chapter 2

Perspectives on globalization

To evaluate contrasting views on globalization and its transformational effects on businesses and societies.

To gain an overview of the means by which organizations expand internationally, in both markets and production.

To appreciate leading theories of internationalization and foreigndirect investment (FDI).

To examine critically the impacts of globalization on societies.

To define and contrast globalization of markets and globalization of production

To identify methods of internationalizing operations

To apply theories of internationalization and foreign direct investment (FDI)

To follow trends in FDI outflows and inflows, highlighting the growing influence of emerging economies

To outline the impacts of globalization on societies, together with the roles (actual and potential) of MNEs

Definition: Increasing and deepening interactions between individuals and organizations across the globe.

Processes are ongoing, at varying pace between countries and between sectors.

Globalization of markets, implying growing uniformity, has been partially realized, but local preferences predominate in many sectors.

Globalization of production, implying co-ordination of operations across borders, has transformed manufacturing, but country differences are important.

Classifying countries in terms of economic development

Developed countries – Industrialized and economically advanced countries, with high levels of prosperity.

Developing countries – Countries changing from mainly agricultural or natural resource-based economy to industrial production.

Transition economies – Countries moving from communist or state-planned systems to market-based systems. (They overlap with developing countries, as modernization of their industries is a priority.)

Emerging economies or markets – Fast-growing developing and transition economies.

Global processes are proceeding more rapidly in some spheres than in others and differ in intensity and effects from place to place. Thus,

Trade and economic integration have surged ahead in the developed world, and in some developing countries, but not in most of Africa and much of Latin America. There is considerable cultural convergence, with the spread of urbanization and industrialization, but cultural foundations of divergent societies persist.The predicted demise of the nation state has not occurred, and national economies and governments remain important players, making it hard to decipher if we have really reachedthe “End of History”or confront animminent “Clash of Civilizations”.

Francis Fukuyama: The End Of History Revisited 73 min - Sep 3, 2008Francis Fukuyama: The End Of History Revisited The Long Now Foundation - Long Now Foundation The End Of History ...

Christopher Hitchens on Francis Fukuyama part 1 of 6 10 min - Nov 29, 2009 - Uploaded by hexag1Christopher Hitchens dissects and criticizes Francis Fukuyama's thesis: "The End of History and the Last Man"

Charlie Rose: January 30, 199758 min - Mar 2, 2007 - Uploaded by Charlie Rose Inc. First, a discussion with Samuel Huntington of Harvard University about "The Clash of Civilizations", an article published in "The Journal of Foreign Affairs"

Watch these videos and learn about these two contrasting views about what might lie ahead.

What does globalization mean for business, society and government?

Methods of internationalizing the operations

Outsourcing – contracting with another company to carry out operations, usually more cheaply than the firm can do ‘in-house’. Includes:– Business process outsourcing (BPO)– Offshoring (contracting out of a function to a low-cost location)

FDI – ownership and control of foreign assets. Includes:

− Greenfield investment

− Acquisition of an existing business

− Joint venture

Outsourcing

Bird and Fortune - Subprime Crisis

It is helpful to begin by describing the plight of car workers. Three areas can be

highlighted:

High costs, especially for healthcare and pensions, have been a major problem for the motor industry, but are also a feature common in US manufacturing generally. Historically, this situation can be traced to the weak welfare-state provisions in the US. Soaring costs in recent years have exacerbated the problems for manufacturing companies.

High wages earned by ‘blue-collar’ workers in the US have also become problematic: as manufacturing has become globalized, much of it has migrated to low-cost locations such as China.

Labour unions in the US have had a traditional stronghold in many industries, such as car manufacturing. They have achieved generous benefit packages for their members, especially in the car industry, but the financial liabilities have spiralled, jeopardizing the employers’ long-term viability. A legacy has been confrontational labour relations, and newer companies, such as the foreignowned carmakers, do not have unionized workforces.

In what ways are the problems at GM and Delphi illustrative of the problems for manufacturing workers in the US generally?

This quote is at the bottom of the previous page. He refers to the ‘economic andsocial trends that are on a collision course around the globe’. They include:• The migration of jobs to low-cost locations.• The vulnerability of manufacturing jobs, especially low-skilled ones, in highcostdeveloped economies.• The gap which has emerged between the well-off segments of society, whoseincomes have risen dramatically (often in conjunction with internationalexpansion of their firms), and the lower-income groups, often low-skilledworkers, who have seen stagnant or falling earnings. For these latter workersand their families, fears over how to pay for healthcare have mounted.

In the quote from Delphi’s CEO, what trends is he referring to?

♦ Assess the strengths and weaknesses of Delphi’s ‘survival plan’.

• Strengths:

Rewriting labor contracts to reflect financial constraints which itfaces; Diversification into high-tech sectors, which are less vulnerable to low-cost competition; closure of plants which it can no longer afford; the shift of manufacturing to lower cost locations.

• Weaknesses:

Legacies of its financial woes and labor union relations. The company is struggling to come out of bankruptcy and needs new owners. Private equity investors are naturally attracted to companies which seem to have potential for growth, but in times of economic downturn and financial uncertainty, they become risk-averse. Delphi will have difficulty in attracting new owners (see Chapter 11 for a discussion of the role of private equity groups).

Early theories of FDI were based on location and ownership advantages

Product life cycle theory

Theory of incremental internationalization– Concept of ‘psychic distance’

Dunning’s eclectic paradigm, known as the OLI paradigm – configuring ownership, location and internalization advantages