International Business An Asian Perspective

By

Charles W.L. Hill

Chow-Hou Wee

Krishna Udayasankar

Chapter 1

Globalization

Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

INTRODUCTION

In the world economy today, we seefewer self-contained national economies with high

barriers to cross-border trade and investmenta more integrated global economic system with

lower barriers to trade and investmentover $4 trillion in foreign exchange transactions

dailyover $12 million of goods and $3.3 trillion of

services being sold across national bordersthe establishment of international institutions

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What Is Globalization?The world is moving away from self-

contained national economies toward an interdependent, integrated global economic system

Globalization refers to the shift toward a more integrated and interdependent world economy

Two key facets of globalization are: the globalization of markets the globalization of production

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What Is The Globalization of Markets?

Globalization of markets - the merging of historically distinct and separate national markets into one huge global marketplace

It no longer makes sense to talk about the “German market” or the “American market”

Instead, there is the “global market” falling trade barriers make it easier to sell globally In many markets today, the tastes and preferences of

consumers in different nations are converging upon some global norm

firms promote the trend by offering the same basic products worldwide

The Globalization of Markets

Coca Cola, Starbucks, Sony PlayStation, and McDonald’s hamburgers, IKEA furniture

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What Is The Globalization of Production?

Globalization of production - the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor, land, and capital)

Goal: Companies can..lower their overall cost structure improve the quality or functionality of their

product and gain competitive advantageBoeing and Vizio

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What Is Driving Globalization?

1. Declining trade and investment barriers The decline in barriers to the free flow of goods, services,

and capital that has occurred since the end of World War II

since 1950, average tariffs have fallen significantly and are now at 4 percent

countries have opened their markets to FDI

1. Technological change microprocessors and telecommunications the Internet and World Wide Web transportation technology

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Declining Trade And Investment Barriers

Average Tariff Rates on Manufactured Products as Percent of Value

Declining Trade and Investment Barriers

International trade occurs when a firm exports goods or services to consumers in another country

Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country

During the 1920s and 1930s, many nations erected barriers to international trade and FDI to protect domestic industries from foreign competition

Declining Trade and Investment Barriers

After WWII, advanced Western countries began removing trade and investment barriers

Under GATT (the forerunner of the WTO), over 100 nations negotiated further decreases in tariffs and made significant progress on a number of non-tariff issues

Under the WTO, a mechanism now exists for dispute resolution and the enforcement of trade laws, and there is a push to cut tariffs on industrial goods, services, and agricultural products

Declining Trade and Investment Barriers

Lower barriers to trade and investment mean firms canview the world, rather than a single country, as

their marketbase production in the optimal location for that

activityThis has led to an acceleration in the volume of

world trade and investment since the early 1980s

The Role of Technological Change

Since World War II, there have been major advances in communication, information processing, and transportation The microprocessor - lowered the cost of global

communication and the cost of coordinating and controlling a global organization

U.S. web-based transactions - $133 billion in 2008 1.6 billion Internet users in 2009 Commercial jet aircraft and super freighters and the

introduction of containerization - simplify trans-shipment from one mode of transport to another

The Role of Technological Change

Question: What are the implications of technological change for the globalization of production?

Answer: Lower transportation costs make a geographically

dispersed production system more economical and allow firms to better respond to international customer demands

Lower information processing and communication costs - firms can create and manage globally dispersed production systems

The Role of Technological Change

Question: What are the implications of technological change for the globalization of markets?

Answer:Low cost communications networks help create

electronic global marketplacesLow cost transportation enable firms to create global

markets, and facilitate the movement of people from country to country promoting a convergence of consumer tastes and preferences

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What Is A Multinational Enterprise?

A multinational enterprise (MNE) is any business that has productive activities in two or more countries

Since the 1960s, there has been a rise in non-U.S. multinationals, and a growth of mini-multinationals

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The Global Economy in the 21st Century

The world is moving toward a more integrated global economic systemnew opportunities for firms but, political and economic disruptions can throw plans into

disarray

Globalization is not inevitable there are signs of a retreat from liberal economic ideology 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, and

moved around the world

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The Globalization Debate

Question: Is the shift toward a more integrated and interdependent global economy a good thing?

Answer:Supporters believe that increased trade and cross-

border investment mean lower prices for goods and servicesgreater economic growthhigher consumer income, and more jobs

Others feel that globalization is not beneficial

Antiglobalization Protests Question: What are the concerns of critics of globalization?

Answer: 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

Protesters fear that globalization is forever changing the world in a negative way

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How Does Globalization Affect Jobs And Income?

Critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries Critics claim jobs in advanced economies are being lost

to low-wage nationsSupporters claim while some jobs may be lost,

the economy as a whole is better off free trade will result in countries specializing in the

production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently, and that in doing so, all countries will gain

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How Does Globalization Affect Labor Policies And The Environment?

Critics argue that firms avoid costly efforts to adhere to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced

Supporters claim that tougher environmental and labor standards are associated with economic progress

as countries get richer as a result of globalization, they raise their environmental and labor regulations

free trade does not lead to more pollution and labor exploitation, it leads to less

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How Does Globalization Affect National Sovereignty?

Critics worry economic power is shifting away from national governments and toward supranational organizations such as the WTO, the European Union (EU), and the UN

Critics argue that unelected bureaucrats have the power to impose policies on the democratically elected governments of nation-states

Supporters claim that the power of these organizations is limited to what nation-states agree to grant the organizations must be able to persuade members states

to follow certain actions without the support of members, the organizations have no

power

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How Is Globalization Affecting The World’s Poor?

Is the gap between rich nations and poor nations is getting wider?

Critics argue the gap between rich and poor has gotten wider and the benefits of globalization have not been shared equally

Supporters claim that the best way for the poor nations to improve their situation is to reduce barriers to trade and investment implement economic policies based on free market

economies receive debt forgiveness for debts incurred under

totalitarian regimes