MGMT389 Summer2015 Lectures Lecture 1 Globalisation

8/18/2019 MGMT389 Summer2015 Lectures Lecture 1 Globalisation

1/20

GLOBALISATION

What is globalization?The world is moving away fromself-contained national economiestowardan interdependent, integrated global

economic systemGlobalization refers to the shift towarda more integrated andinterdependent world economy


2/20

ECONOMIC

INTERDEPENDENCEOF COUNTRIES

Dr. Gwendolyn Rodrigues

The story of a ‘particular’ American car :

30% to Korea: assembly 17.5% to Japan:components and advanced

technology

7.5% to Germany:design

4% to Taiwan and Singapore:

minor parts

2.5% to UK: marketing 1.5 to Ireland and

Barbados : data processing37% in USA

Source: Grossman and Rossi-Hansberg (2006)


3/20

What is the globalization of markets?

Historically distinct and separate national markets are merging

It no longer makes [as much] sense to talk about the

“ German market” or the “Americanmarket”Instead, there is the “ global market” fallingtrade barriers make it easier to sell globally

consumers’ tastes and preferences are converging onsome global normfirms promote the trend by offering the same basicproducts worldwide


4/20

What is the Globalization of Production ?

• Firms source goods and services from locationsaround the globe to capitalize on national

differences in:• the cost and quality of factors of

production like land, labor, and capital• Companies can

• lower their overall cost structure

• improve the quality or functionality oftheir product offering


5/20

Why do we need global institutions?

• Institutions help manage, regulate, andpolice the global marketplace

• promote the establishment of multinationaltreaties to govern the global business system

• •Examples include the General Agreement onTariffs and Trade (GATT)

• the World Trade Organization (WTO) [replacedGATT]• the International Monetary Fund (IMF)• the World Bank (WB) • the United Nations (UN)


6/20


7/20

What is driving globalization?

• The (i)decline in barriers to the free flow of goods,

services, and capital that has occurred since the end ofWorld War II since 1950, average tariffs have fallensignificantly and are now at 4 percent

• countries have opened their markets to• (ii) FDI

• (iii ) Technological change microprocessors andtelecommunications

• (iv)Internet and World Wide Web• (v) transportation technology


8/20

What does globalization mean for firms?• Lower barriers to trade and investment mean firms can view the

world, rather than a single country, as their market• base production in the optimal location for that activity

• Technological change means lower transportation costs - firmscan disperse production to economical, geographicallyseparate locations

• lower information processing and communication costs - firmscan create and manage globally dispersed production systems

• low cost global communications networks - help create anelectronic global marketplace

• low-cost transportation - help create global markets• global communication networks and global media - create a

worldwide culture, and a global market for consumer products


9/20

How Has World Output AndWorld Trade Changed?

The Changing Demographics of World Output and Trade


10/20

How Has Foreign DirectInvestment Changed Over Time?

In the 1960s, U.S. firms accounted for abouttwo-thirds of worldwide FDI flows Today, the United States accounts for less than

one-fifth of worldwide FDI flows

Other developed countries have followed asimilar pattern

In contrast, the share of FDI accounted forby developing countries has risen Developing countries, especially China, have

also become popular destinations for FDI


11/20

How Has Foreign Direct

Investment Changed Over Time?

Percentage Share of Total FDI Stock 1980-2011


12/20

How Has Foreign DirectInvestment Changed Over Time?

FDI Inflows 1988-2011


13/20

The Changing World Order Many former Communist nations in Europe and

Asia are now committed to democratic politicsand free market economies

creates new opportunities for internationalbusinesses but, there are signs of growing unrest and totalitarian

tendencies in some countriesChina and Latin America are also moving

toward greater free market reforms between 1983 and 2010, FDI in China increasedfrom less than $2 billion to $100 billion annually

but, China also has many new strong companies thatcould threaten Western firms


14/20

How Will The Global Economy Of The21st Century Look?

The world is moving toward a more globaleconomic system…

But globalization is not inevitable

there are signs of a retreat from liberal economicideology in Russia

Globalization brings risks the financial crisis that swept through South East Asia

in the late 1990s

the recent financial crisis that started in the U.S. in

2008-2009, and moved around the world


15/20

Is An Interdependent Global Economy AGood Thing? Supporters believe that increased trade and cross-

border investment mean lower prices for goods and services

greater economic growth higher consumer income, and more jobs

Critics worry that globalization will cause job losses environmental degradation

the cultural imperialism of global media and MNEs Anti-globalization protesters now regularly show up

at most major meetings of global institutions


16/20

How Does Globalization Affect Jobs AndIncome?

Critics argue that falling barriers to tradeare destroying manufacturing jobs inadvanced countries

Supporters contend that the benefits ofthis trend outweigh the costs

countries will specialize in what they domost efficiently and trade for other goods— and all countries will benefit


17/20

How Does Globalization Affect Labor Policies And

The Environment?

Critics argue that firms avoid the cost ofadhering to labor and environmental regulations

by moving production to countries where suchregulations do not exist, or are not enforced

Supporters claim that tougher environmental

and labor standards are associated witheconomic progress

as countries get richer from free trade, theyimplement tougher environmental and labor

regulations


18/20

How Does Globalization Affect NationalSovereignty?

Is today’s global economy shifting economic poweraway from national governments towardsupranational organizations like the WTO, the EU,

and the UN? Critics argue that unelected bureaucrats have the

power to impose policies on the democraticallyelected governments of nation-states

Supporters claim that the power of theseorganizations is limited to what nation-states agree togrant

the power of the organizations lies in their ability toget countries to agree to follow certain actions


19/20

How Is Globalization Affecting The World’s Poor?

Is the gap between rich nations and poor nationsgetting wider?

Critics believe that if globalization was beneficial thereshould not be a divergence between rich and poornationsSupporters claim that the best way for the poornations to improve their situation is to

reduce barriers to trade and investmentimplement economic policies based on free market economiesreceive debt forgiveness for debts incurred under totalitarian

regimes


20/20

How Does The Global Marketplace Affect Managers?

Managing an international business differs

from managing a domestic business because countries are different

the range of problems confronted in aninternational business is wider and the problemsmore complex than those in a domestic business

firms have to find ways to work within the limitsimposed by government intervention in theinternational trade and investment system

international transactions involve converting

money into different currencies

MGMT389 Summer2015 Lectures Lecture 1 Globalisation

Documents

Transcript of MGMT389 Summer2015 Lectures Lecture 1 Globalisation