GlobalizationGlobalization

What is Globalization? What is Globalization?

The shift toward a more integrated and interdependent world economy

Two components:The globalization of marketsThe globalization of production

The shift toward a more integrated and interdependent world economy

Two components:The globalization of marketsThe globalization of production

Globalization of Production

Globalization of Production

Vizio flat panel TV is designed in a small office in California assembled in Mexico From

panels made in South Koreaelectronic components made in Chinamicroprocessors made in the U.S.

Vizio flat panel TV is designed in a small office in California assembled in Mexico From

panels made in South Koreaelectronic components made in Chinamicroprocessors made in the U.S.

Not just manufacturing…Not just manufacturing…

Globalization of production has historically been about manufacturing

Increasingly companies are using modern communications to outsource service activities to low-cost nations

Globalization of production has historically been about manufacturing

Increasingly companies are using modern communications to outsource service activities to low-cost nations

Globalization of markets Globalization of markets

In the past, each country had its own companies in many industries and its own products I never saw Japanese media (and I

saw little non-US media) in college

In the past, each country had its own companies in many industries and its own products I never saw Japanese media (and I

saw little non-US media) in college

Today everyone knows…Today everyone knows…

Nintendo Starbucks Coca-Cola Ikea McDonald’s Samsung

Nintendo Starbucks Coca-Cola Ikea McDonald’s Samsung

But the most global markets are for standard

goods

But the most global markets are for standard

goodsAluminum WheatMicroprocessorsAircraft

For many consumer end-products, huge differences still exist among national marketsEntertainment, food, clothing

Aluminum WheatMicroprocessorsAircraft

For many consumer end-products, huge differences still exist among national marketsEntertainment, food, clothing

Drivers of GlobalizationDrivers of Globalization

Two factors underlie globalization“Decline in barriers to the free flow of

goods, services, and capital” that has occurred since the end of World War II

Technological change

Two factors underlie globalization“Decline in barriers to the free flow of

goods, services, and capital” that has occurred since the end of World War II

Technological change

Declining Trade and Investment BarriersDeclining Trade and Investment Barriers

During the 1920s and ‘30s, many of nations erected formidable barriers to international trade and foreign direct investment

Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations.

During the 1920s and ‘30s, many of nations erected formidable barriers to international trade and foreign direct investment

Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations.

Average Tariff Rates on Manufactured ProductsAverage Tariff Rates on Manufactured Products

1913 1950 1990 2002

France 21 % 18 % 5.9 % 4.0 %

Germany

20 % 26 % 5.9 % 4.0 %

Italy 18 % 25 % 5.9 % 4.0 %

Japan 30 % -- 5.3 % 3.8 %

Holland 5 % 1 % 5.9 % 4.0 %

Sweden 20 % 9 % 4.4 % 4.0 %

UK -- 4% 5.9 % 4.0 %

US 44 % 14 % 4.8 % 4.0 %

Affects of Lowering Trade Barriers

Affects of Lowering Trade Barriers

The Role of TechnologyThe Role of Technology

Lowering of trade barriers made globalization possible;

Technology has made it a transforming movement

Lowering of trade barriers made globalization possible;

Technology has made it a transforming movement

Internet Usage GrowthInternet Usage Growth

Globalization is acceleration of trends of

the last 10,000 years

Globalization is acceleration of trends of

the last 10,000 years People lived for 250,000 years in

hunter-gatherer bands Rise of agriculture 10,000 years ago led

to rise of empires and nation-states Science and ‘enlightenment’ after 1680

produced global trade and empires Free trade and tech after 1980

produced globalization

People lived for 250,000 years in hunter-gatherer bands

Rise of agriculture 10,000 years ago led to rise of empires and nation-states

Science and ‘enlightenment’ after 1680 produced global trade and empires

Free trade and tech after 1980 produced globalization

The Emergence of Global Institutions

The Emergence of Global Institutions

Notable global institutions include the World Trade Organization (WTO)

which is responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties In 2008, 151 nations accounting for 97% of

world trade were members of the WTO the International Monetary Fund (IMF)

which maintains order in the international monetary system

Notable global institutions include the World Trade Organization (WTO)

which is responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties In 2008, 151 nations accounting for 97% of

world trade were members of the WTO the International Monetary Fund (IMF)

which maintains order in the international monetary system

The Changing Roles of Countriesin

the Global Economy

The Changing Roles of Countriesin

the Global EconomyIn the 1960s: The U.S. dominated the world economy

and the world trade picture U.S. multinationals dominated the

international business scene About half the world-- the centrally

planned economies of the communist world-- was off limits to Western international business

Today, much of this has changed.

In the 1960s: The U.S. dominated the world economy

and the world trade picture U.S. multinationals dominated the

international business scene About half the world-- the centrally

planned economies of the communist world-- was off limits to Western international business

Today, much of this has changed.

The Changing World Output and World Trade Picture

The Changing World Output and World Trade Picture

In the early 1960s, the U.S. was the world's dominant industrial power accounting for about 40.3% of world manufacturing output

By 2007, the U.S. accounted for only 20.7%

Other developed nations experienced a similar decline

In the early 1960s, the U.S. was the world's dominant industrial power accounting for about 40.3% of world manufacturing output

By 2007, the U.S. accounted for only 20.7%

Other developed nations experienced a similar decline

The Changing Nature of the Multinational Enterprise

The Changing Nature of the Multinational Enterprise

Since the 1960s, there has been a rise in non-U.S.

multinationals there has been a rise in mini-

multinationals

Since the 1960s, there has been a rise in non-U.S.

multinationals there has been a rise in mini-

multinationals

The Globalization DebateThe Globalization Debate

ProLower prices for goods

and servicesEconomic growth Increase in consumer

incomeCreates jobs (for many)Countries specialize in

production of goods and services that are produced most efficiently

ProLower prices for goods

and servicesEconomic growth Increase in consumer

incomeCreates jobs (for many)Countries specialize in

production of goods and services that are produced most efficiently

ConDestroys manufacturing

jobs in wealthy nationsWage rates of unskilled

in advanced countries decline

Companies move to countries with fewer labor and environment regulations

Loss of sovereigntyHomogenized cultures

ConDestroys manufacturing

jobs in wealthy nationsWage rates of unskilled

in advanced countries decline

Companies move to countries with fewer labor and environment regulations

Loss of sovereigntyHomogenized cultures

Managing in the Global Marketplace

Managing in the Global Marketplace

Much of this course is concerned with managing an international business i.e., any business with international

sales, sourcing, or Investment

Much of this course is concerned with managing an international business i.e., any business with international

sales, sourcing, or Investment

Managing an international business is

different

Managing an international business is

different Countries are different International transactions involve converting

money into different currencies Range of problems in an international

business is wider and problems are more complex

International business must cope with different, conflicting government rules and systems

Different strategic approaches required

Countries are different International transactions involve converting

money into different currencies Range of problems in an international

business is wider and problems are more complex

International business must cope with different, conflicting government rules and systems

Different strategic approaches required

Key termsKey terms

An international business – any business with international sales, sourcing, or investment

A multinational business – any business with productive activities in 2 or more countries

A global business – a business that takes a global approach to production and sourcing (Coca-Cola, Intel)

An international business – any business with international sales, sourcing, or investment

A multinational business – any business with productive activities in 2 or more countries

A global business – a business that takes a global approach to production and sourcing (Coca-Cola, Intel)

The Emergence of Global Institutions

The Emergence of Global Institutions

the World Bank which promotes economic development

the United Nations (UN) which maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations

the World Bank which promotes economic development

the United Nations (UN) which maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations