Chapter 6 The Challenges of Globalization Copyright © 2014 by The McGraw-Hill Companies, Inc. All...

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Chapter 6 The Challenges of Globalization Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserve McGraw-Hill/Irwin

Transcript of Chapter 6 The Challenges of Globalization Copyright © 2014 by The McGraw-Hill Companies, Inc. All...

Page 1: Chapter 6 The Challenges of Globalization Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

Chapter 6

The Challenges of Globalization

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Page 2: Chapter 6 The Challenges of Globalization Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

Ch. 6 Key Learning Objectives Defining globalization and classifying the major ways in

which companies enter the global marketplace Recognizing the major drivers of the globalization process

and the international financial and trade institutions that have shaped this process in recent decades

Analyzing the benefits and costs of the globalization of business

Identifying the major types of political and economic systems in which companies operate across the world, and the special challenges posed by doing business in diverse settings

Assessing how businesses can work collaboratively with governments and the civil sector to address global social issues

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The Process of Globalization Refers to the increasing movement of goods,

services, and capital across national borders

Is considered a process – an ongoing series of interrelated events International trade and financial flows integrate the world

economy, leading to the spread of technology, culture, and politics

Globalization is not simply a trend or a fad but, rather, an international system

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Page 4: Chapter 6 The Challenges of Globalization Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

Entering and Competing in the Global Marketplace Develop global market channels

First build a successful business in their home country, then export products or services to buyers in other countries

Establish global operations Locate manufacturing plants or service operations in other

countries as a way to cut costs

Develop global supply chains Purchase raw materials, components, or other supplies from

sellers in other countries; work may also be subcontracted

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Major Transnational Corporations (TNCs)

Defined by the United Nations as firms that control assets abroad 104,000 TNCs operate in the modern global economy They, in turn, have nine times that number of affiliates (suppliers,

subcontractors, and other entities with which they have some business relationship)

Most global commerce is carried out by a small number of powerful firms Next slide lists top 10 non-financial transnational corporations,

ranked in order of the value of the foreign assets they control

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The World’s Top 10 Nonfinancial Transnational Corporations

Figure 6.1

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Foreign Direct Investment Another important aspect of globalization is the

worldwide flow of capital

Foreign direct investment (FDI) occurs when a company, individual, or fund invests money in another country, for example, by buying shares of stock in or loaning money to a foreign firm

In 2010, FDI was $1.24 trillion

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The Acceleration of Globalization The world’s economy is becoming increasingly

integrated Higher share of output is being exported across national borders One-fifth of all goods and services produced worldwide is sold to

other nations, rather than domestically This is almost double the percentage of 1960

In earlier years, most exports were of goods. An important recent trend is the globalization of services, such as travel, insurance, financial, and information services.

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The Acceleration of Globalization Driven by several factors:

Technological innovation• Easier to communicate with employees, partners, and suppliers

all over the globe in real time

Transportation systems• Improvements enable the fast and cheap movement of goods

and services from one place to another

The rise of major transnational corporations• Bigger, well-capitalized, firms are better equipped to conduct

business across national boundaries than smaller firms

Social and political reforms • Rise of Pacific Rim growth economies, collapse of communism

in Central and Eastern Europe have opened new regions to world trade

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International Financial and Trade Institutions Three institutions that set the rules by which international

commerce is transacted: World Bank (WB) International Monetary Fund (IMF) World Trade Organization (WTO)

No business can operate across national boundaries without complying with rules set by the WTO

Many businesses in developing countries are dependent on WB and IMF loans to survive

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The World Bank Established in 1944 Provides economic development loans to its member

nations Funds used mainly for roads, dams, power plants,

pipelines, and other infrastructure projects Funding provided by member countries and

international capital markets Negotiates “structural adjustment plans” with

countries it loans to Applies conditions on these countries Conditions are considered by critics to lead to unfair burden

on developing countries

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International Monetary Fund

“Sister” organization to World Bank, created at same time

Purpose is to make currency exchange easier for member countries so that they can participate in global trade

Lends foreign exchange to member countries

Imposes conditions on governments that receive its loans Has begun to offer debt relief to some nations

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World Trade Organization Founded in 1995, successor to General Agreement on

Tariffs and Trade (GATT)

International body that establishes the ground rules for trade among nations

Its major objective is to promote free trade; attempts to eliminate barriers to trade (e.g. quotas, duties and tariffs)

Conducts “rounds” of negotiations on various topics

“Most favored nation” rule means members countries cannot discriminate against foreign products for any reason

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The Benefits and Costs of Globalization Globalization is highly controversial

Clearly, some benefit from globalization, while others do not

What are some of the major arguments advanced by both side in the debate over this important issue?

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Benefits and Costs of GlobalizationFigure 6.2

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Comparative Political and Economic Systems Nations differ greatly in their political, social and

economic systems

First important dimension to consider is how power is exercised and degree of democratic rights

Past century has been marked by spread of democratic rights to many nations for the first time

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Comparative Political Systems Democracy – The presence of political freedom

Four defining features of democracy (according to the U.N.) Fair elections An independent media Separation of powers among the executive, legislative, and

judicial branches of government An open society where citizens have the right to form their

own independent organizations to pursue social, religious, and cultural goals

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Comparative Political Systems

Military dictatorships

Repressive regimes ruled by dictators who exercise total power through control of the armed forces Examples include Zimbabwe and Uzbekistan

Rights of citizens to organize for cultural or religious freedoms is restricted in others Examples include Iran, Saudi Arabia

According to United Nations estimates, 106 countries still limit important civil and political freedoms

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Comparative Political Systems Degree to which human rights are protected differs

greatly among nations Several international codes of human rights exist

Most important one is United Nations Universal Declaration of Human Rights of 1948

Over half world’s nations have adopted these human rights covenants

Still, many violations of human rights still occur: Recent genocides in Rwanda, Sudan Systems where minority groups and indigenous peoples lack

basic human rights, example of Nepal

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Comparative Economic Systems Free enterprise systems

Based on the principle of voluntary association and exchange

Members of society satisfy most of their economic needs through voluntary market transactions

Central state control Economic power is concentrated in the hands of government

officials and political authorities The central government owns the property that is used to

produce goods and services

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Challenges of Global Diversity

Diversity and complexity of systems that transnational corporations face creates challenges

If a company does business in a nation that does not grant women equal rights, should that company hire and promote women at work, even if it violates local laws and customs?

Should a company enter into a business venture with a government-owned enterprise if that government has a reputation for violating its citizens’ human rights?

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Meeting the Challenges of Global Diversity

Notion of constructive engagement By operating with strong moral principles, transnational

corporations can be a force for positive change in nations where they operate

In some circumstances this is not possible due to extreme conditions, provoking dilemma At what point do violations of political, human, and economic

rights become so extreme that a company cannot morally justify doing business in that country?

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Collaborative Partnerships for Global Problem Solving

Emerging trend for development of collaborative, multi-sector partnerships focused on particular social issues or problems in the global economy

These partnerships have been termed global action networks, or GANs

Involves 3 sectors Business Government Civil society

Unique capabilities of each sector is presented on following slide

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Distinctive Attributes of the Three Major Sectors

Figure 6.3

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