Session 1:

Introduction to Globalization

MBAD 6241

Global Perspectives

Srividya Jandhyala

srividya@gwu.edu

Why develop a global perspective?

• Appreciation of the globalized arena for your organization

– Firm, NGO, International development agency….

• Understanding of globalized arena critical whether you

operate overseas or not

– Competition for resources and markets from overseas firms

– Interlinked economy makes events in the global arena relevant

• Variety of industries affected by global forces

– Telecom, eCommerce, financial services, global sports, oil,

government, consulting, aerospace, IT…

The phenomenon of globalization

• Process by which national economies merge into interdependent, integrated systems

– Economic: Trade and other economic interactions

– Cultural: Systems of symbols and meanings

– Social: social relationships and organizations

– Political: dispersion and concentration of authority and power, popular representation, etc

Economic globalization

Economic globalization

Exports of goods and services as % of GDP, 1960-2011

Source: WDI

Country 1960 1970 1980 1990 2000 2010 2011

China 2.6 10.6 16.1 23.3 30.6 31.4

Germany 16.4 20.2 24.8 33.4 47.0 50.2

Spain 8.4 12.4 14.7 16.1 29.1 27.2 30.3

France 14.4 16.0 21.4 21.5 28.8 25.6 27.0

UK 20.2 22.3 27.1 24.0 27.7 30.5 32.5

India 4.4 3.7 6.0 6.9 12.8 22.8 24.6

Japan 10.7 10.6 13.4 10.3 10.9 15.2 15.2

Mexico 8.5 7.7 10.7 18.6 30.9 30.3 31.7

Netherlands 48.9 44.8 52.3 56.5 70.1 78.2 83.0

US 5.2 5.8 10.1 9.6 11.0 12.8 14.0

Economic Globalization

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1970 1980 1990 2000 2010 2011

Word FDI, net inflows (% of GDP)

Cultural globalization

Opening day, Wednesday, Jan 31 1990

AP Photo

Cultural globalization

Most liked YouTube video (Guinness Record)

Dominates itunes store in US, Europe, Asia, Australia

Source: www.cnn.com

Social globalization

0%

2%

4%

6%

8%

10%

12%

14%

16%

Percent foreign born labor force in the US

Source: U.S. Census Bureau

Political globalization

0

50

100

150

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07Number of democracies

Source: Freedom House

Arab Spring, 2010-2011

Measuring globalization 1980-2010

• Trade in goods (% GDP) ×1.5

• Foreign direct investment (% GDP) ×4.5

• International tourists (% population) ×3.9

• Int’l gov’t organizations (number) ×1.5

• Books on globalization ×67.5

Source: Mauro F. Guillén, “Is Globalization Civilizing, Destructive or Feeble?”

Annual Review of Sociology 27 (2001):235-260; Mauro’s Guillen’s Indicators of

Globalization (2010)

Facilitators of globalization (1)

• Declining trade and investment barriers; economic

liberalization

Average Tariff Rates on Manufactured Products as % of Value

1913 1950 1990 2005

France 21 18 5.9 3.9

Germany 20 26 5.9 3.9

Italy 18 25 5.9 3.9

Japan 30 - 5.3 2.3

Holland 5 11 5.9 3.9

Sweden 20 9 4.4 3.9

Great Britain - 23 5.9 3.9

United States 44 14 4.8 3.2

Facilitators of globalization (2)

• Technological changes

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

People with access to the internet (billions)

Source: International Telecommunication Union

Emergence of global institutions

• Emergence of global institutions to manage, regulate, and

police the globalized world

Lower tariff and

other barriers to

world trade, enable

free flow of goods,

services, capital

Maintain order in

international

economic system,

lender of last resort,

conditionality

controversy

Promote economic

development by

providing loans for

infrastructural

development

Keep international

peace, develop

cooperation and

promote human rights

Growth of multinationals

• Growth of firms with activities in two or more countries

– More than 80,000 MNCs today

• Emergence of non-U.S. multinationals

• Growth of small and medium-sized multinationals

Number

of

MNCs

(in ‘000)

Source:

WIR, 2010

Globalization of markets

• Merging of some historically distinct and separate national

markets into one huge global marketplace

– Convergence of preferences

– Standardized product offerings

• What are the most global markets? Least global?

Champs-Elysées, Paris

Source: What the new Champs-Elysees says

about France, The Economist, April 28, 2011;

‘Angry Birds Spreads Wings’, 10 Aug 2011, WSJ

Globalization of production

• Sourcing of goods and services from around the globe

– Take advantage of national differences in cost and quality of factors of

production (eg, labor, energy, land and capital)

– Global web of suppliers (eg, Apple’s iPhone)

• Effect of Japan Earthquake?

Source: ‘Apple’s parts grab’, NY Post, 26 April 2011; ‘Infosys

China Plans to Triple Staff to 10,000’, 17 May 2011, WSJ; ‘Stress

Test for the Global Supply Chain’, 19 March 2011, NY Times

Silicon Wafer -> Chips -> Consumer pdts

First wave of globalization

1914 1938 1960 1980 1985 1990 1995 2000 2003

France 21 28 7 3 6 9 12 34 37

Germany 11 1 1 5 10 9 11 26 26

Japan 1 10 1 2 3 7 5 6 8

UK 52 39 15 15 22 24 28 62 63

US 7 9 6 8 6 8 10 13 19

World 9 n.a. 4 5 6 9 10 19 23

Source: G. Jones, The Evolution of International Business, 1996; L. Alfaro, Foreign Direct

Investment, 2002

Outward FDI stock as % GDP

First wave of globalization

Period Immigration (% world population)

1880-1914 3.0

1965 2.2

2000 2.9

Global Immigration

First wave of globalization

Source: U.S. Census Bureau

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Percent foreign born labor force in the US

What about globaloney?

• What is Ghemawat’s argument?

Source: “The case against globaloney”, The Economist,

20 April 2011

A note of caution

• Globalization goes in reverse?

• Globalization cannot be taken for granted; there have been

reversals in the past

• Not uniform across the globe, varies in degree, pace,

dimensions, industries, social classes…

Tinker toy activity

Distance still matters

• Reliance on country portfolio analysis and potential sales is

limiting

– Ignores costs and risks of market entry

• Ghemawat’s CAGE framework

– Takes the broader view of distance

– Much more solid empirical base

• Susceptibility to the different types of distance varies by

industry

Some manifestations of distance

• Cultural distance

– In China, it’s expected that you become friends with your boss

and you go out and socialize in a way that doesn’t happen in the

U.S.

• Administrative and political distance

– Institutional voids, Government policies (trade barriers and

restriction on foreign investment)

– Differences in intellectual property protection regulations and

enforcement

Some manifestations of distance

• Geographic distance

• Economic distance

– Lack of refrigeration infrastructure in China

– Differences in revenue streams and business models

Main suppliers of US

fresh vegetable imports

Source: Increased US imports of

fresh fruits and vegetables, USDA

Sept 2007, FTS-328-01

Globalized world

• Globalization is not complete homogeneity - national differences continue to exist

• Economic, political and socio-cultural differences

• Complexity, diversity and range of problems in international environment

• Despite development of global institutions, government intervention creates an uneven playing field

• Understanding the globalized world

Key issues in the globalization debate

• Implications for jobs and income

• Moving manufacturing facilities to countries with poor labor

and environment standards

• National sovereignty concerns

• Gap between rich and poor

Summary

• Globalization is a multidimensional phenomenon that goes

well beyond economic integration

• Cannot be taken for granted; there have been reversals in the

past

• Not uniform across the globe, varies in degree, pace,

dimensions, industries, social classes…

• Opportunities and challenges offered by the global economy

Administrative issues

• Class schedule

• Syllabus

• Blackboard

• Important issues (assignments, grading, additional material,

other course policies)

• Questions

Next time

• International Trade and Strategic Trade Policy

• Read:

– ‘Why Countries Trade: The Theory of Comparative Advantage’, Darden Note, UV2702

– ‘The Economic Gains from Trade: Theories of Strategic Trade’, HBS Note 9-796-184

– ‘The Competitive Advantage of Nations’, Michael Porter, HBR, March/April 1990: 73-91

– ‘Fashion Invasion’, The Economist, 8 December 2012

– ‘The New Corn Laws’, The Economist, 15 September 2012

• Case:

– Global Wine Wars