BUSN 361
International Business
Dr. Kokila Doshi
Professor of Economics
Chapter 1
Learning Objectives
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What is meant by globalization?
 Globalization of markets
 Globalization of production
Are the tastes & preferences converging?
Factors affecting globalization
 Transportation costs
 Technology- Innovations & information technology
 Tariffs
Learning Objectives
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Is globalization good? Pros & cons
Relate the topics to companies, current
trends or countries
International Business, Charles
W.L. Hill
Chapter 1
What are the differences between international
business and domestic business?
1. Countries are different
2. Problems faced by a manager are more complex
and wider in range
3. More countries, more rules, more competition
4. Fluctuations in currency values
5. International business operates within the limits
of government regulations of international trade
and investment
What is globalization?
Globalization refers to the shift toward a more
integrated and interdependent economy. It has
two components:
1. Globalization of Market
2. Globalization of Production
Globalization of Markets
Globalization of markets refers to the merging of
distinct and separate national markets into a huge
global marketplace.
1. Markets for Consumer Goods
Levi’s, McDonald’s, Nike
Converging tastes and preferences?
2. Market for Industrial Goods
Aluminum, Computer Memory Chips, Oil
3. Market for Financial Assets
Eurobonds, U.S. Treasury Bills
Globalization of Production
Globalization of production refers to the tendency
among firms to source goods and services from
locations around the globe to take advantage of
national differences in costs and quality of factors of
production.
Example: Honda, Boeing Aircraft Boeing aircraft has
132,500 parts and 545 suppliers from countries like
Italy, Japan, Singapore
Even small companies are globalizing their production.
Example: Swan Optical
Drivers of Globalization
1. Declining Barriers to International
Trade and Investment
2. Technology Change
Declining Trade Barriers
(A) Tariffs
Tariff rates since 1950 have gone down significantly. GATT and WTO have
played an important role in helping countries liberalize their trade and
reduce trade barriers.
Example: Avg. Tariff Rates in 1950
Germany-26%
Italy-25%
Britain-23%
U.S.A.-14%
If GATT agreements are fully implemented, average tariff rates in these
countries will be reduced to 3.9% (2000).
(B) Liberalization and Deregulation
Many countries have relaxed regulation controlling the inflow of FDI.
Technological Change
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Transportation Technology and
Shrinking Globe
Information Technology
Technological change has helped both
globalization of markets and
globalization of production
Changing Global Economy
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Declining share of U. S. in FDI
1980-44%
1996-25%
Increasing share of FDI received by developing countries
1991-$42 billion (26%)
1997-$149 billion (37%)
China alone received $45 billion
Changing nature of Multinationals
Rise in non-U.S. multinationals
Growth of mini-multinationals
1973: of 260 multinationals,
1997: of 500 multinationals,
U.S. (48.5%)
Japan (3.5%)
U.S. (32.4%)
Japan (25.2%)