Chapter 12
Globalization
This chapter:
 Explains globalization in more depth.
 Discusses its impact on culture, the growth of
trade agreements, the erosion of nation-state
sovereignty, and protectionism.
 Describes corruption and efforts to combat
corruption
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McDonald’s Corporation
Opening Case
 More than half of McDonald’s restaurants are outside of the
U.S., accounting for 62% of company revenues.
 As a prominent global brand McDonald’s symbolizes
perceived evils of globalization.
 In developing nations, the arrival of a McDonald’s is regarded
as a sign of modernization.
 McDonald’s does transfer cultural values and practices.
However, most of McDonald’s international restaurants are
franchises, run as local businesses. The entrepreneurs who
run these businesses adapt them to local custom.
The story of McDonald’s illustrates the complexity of
globalization.
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What is Globalization?
 Globalization occurs when networks of
economic, political, social, military,
scientific, or environmental
interdependence grow to span worldwide
differences.
 Economic globalization refers to the
development of an increasingly integrated
commercial system based on free markets
in which nations are open to foreign trade
and investment.
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Major Forces in
Expanding Globalization
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Ideas
Capital
Labor
MNCs
Governments
Technology
Multilateral organizations
NGOs
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Pros of Globalization
 Has lifted millions of people out of
poverty.
 Consumer benefits of more variety,
lower costs, and higher quality of
products.
 Improved working conditions for
millions of workers.
 Human rights have improved.
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Flaws and Problems
in Globalization
 In some countries the financial systems, laws,
ideas, and institutions did not keep pace with the
rapid spread of globalization.
 Politicians and their constituents have become
increasingly protectionist.
 Tens of millions of manufacturing jobs have been
lost in the U.S. and Europe because of global
competition.
 The Western countries have pushed poor countries
to eliminate trade barriers, but kept up their own
barriers.
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Expanding Trade Agreements
 Rapid increase in the number of trade agreements
has been a major force in globalization.
 Trade agreements have helped to increase global
competition and have accelerated world trade.
 The largest of these in terms of population are:
 European Union (EU)
 North American Free Trade Agreement
(NAFTA)
 The Asia-Pacific Economic Cooperation (APEC)
forum
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The European Union
 On January 1, 1993, the EU became a unified regional
market and by 2007 there were 27 member states.
 On January 1, 1999, the EU adopted the euro.
 A milestone was reached in 2004 when leaders of the 25
European nations then in the Union signed the 50-article EU
constitution.
 Many businesses in newly joined nations face serious
problems in complying with the rules and requirements found
in some 80,000 pages of EU laws.
 Many individuals in the Union are unhappy; a survey said 44
percent believe life has become worse since their nation
joined the EU.
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The North American Free Trade
Agreement
 Created a free trade block consisting of
the United States, Canada, and Mexico.
 Labor unions in the U.S. opposed NAFTA
from its beginning.
 Workers on both sides of the border have
seen individual losses and gains.
 Expanding trade has opened new
opportunities.
 Important problems have arisen in the
operation of NAFTA.
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Other Trade Agreements
 Mercado Comun del Sur (Mercosur)
 Asia-Pacific Economic Cooperation
(APEC)
 Association of South East Asian
Nations (ASEAN)
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Globalization and the
Erosion of State Sovereignty
 Disagreement exists regarding whether globalization has
eroded the sovereignty of nations.
 Nation-state sovereignty has been eroded
 Market forces overwhelm the economic powers of nationstates to determine economic, political, cultural, and
social affairs.
 The competitiveness imperative amounts to an
infringement on state authority.
 Nation-state sovereignty has not been seriously eroded
 All nations have the authority and power to block the
entrance of a large global company or to deny demands
of an MNC for concessions.
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Erosion of Cultures
 The rapid and explosive spread of American
culture throughout the world is one significant trend
within globalization.
 Throughout the world there is resentment about
the transmission of certain Western cultural values.
 Majorities of people in Europe like American music,
television, and films and technology but dislike the
spread of American ideas.
 Economic forces of globalization have encouraged
massive migrations of peoples.
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Why Free Trade?
 Some nations have an advantage over others in
the production of particular goods.
 Resources will be used most efficiently when each
country produces that for which it enjoys a cost
advantage.
 The law of comparative advantage.
 It is argued that free trade will stimulate
competition, reward individual initiative, increase
productivity, and improve national well-being.
 Job opportunities, and a wider variety of goods and
services at minimum prices and with higher quality.
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Pressures for
Protectionism
 Most domestic businesses, whether engaged in
foreign trade or not, feel pressures from foreign
competitors with better products and lower prices.
 Three justifications are often given for protectionist
measures.
 The U.S. has large trade deficits that must be
reduced.
 Protectionists want to shield industries from
foreign competition.
 Trade barriers in foreign countries restrict
American imports to them.
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Free Trader Responses to
Protectionists
 One main argument is the logic for free trade.
 The cause of the exceptional rise in world trade,
say antiprotectionists, has been in no small
measure the world’s reduction in tariff barriers.
 Some argue that rich countries should reduce tariff
barriers and poor ones should be allowed to
maintain them since the underdeveloped countries
do not have the infrastructure and institutions to
open their markets to free trade.
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U.S. Deviation from Free
Trade Policy
 Despite strong free trade rhetoric and the steady
lowering of tariff and other trade barriers, the
United States protects industries from foreign
competition.
 The Federal Buy American Act
 The Merchant Marine Act
 The Passenger Vessel Services Act
 U.S. tariffs have declined significantly in recent
years, but there are many exceptions.
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Tariff Barriers in
Other Countries
 China still imposes substantial barriers on imports such as
watches, automobiles, steel, textiles, and many food
products.
 Japanese restricts U.S. imports of meat, poultry, vegetables,
and fruit products.
 Various restrictions among European Union countries are
applied to genetically engineered commodities.
 Taiwan restricts imports of rice.
 Korea imposes high duties maintains a broad range of trade
restrictions and nontariff barriers on agricultural and fishery
products.
 Brazil still retains high tariffs on technology products.
 Mexico still retains substantial trade restrictions on products
such as meat, poultry, vegetables, and fruit.
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Classical Free Trade Theory
versus Reality
 The reality is that the global economy is a mixture
of free trade and protectionism.
 Classical free trade theory based on comparative
advantage has lost much validity for a large part of
world trade.
 Porter argues that “industrial clusters” help a nation
achieve global superiority in one industry.
 These clusters are composed of firms and
industries that are mutually supporting, innovative,
competitive, low-cost producers, and committed to
meeting demanding consumer tastes.
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Corruption in Business and
Government Transactions
 Cultural differences, practices, and laws
among the many countries where MNCs do
business create extremely difficult moral,
ethical, and legal problems for MNCs.
 Companies have found in many LDCs, and
even in some highly industrialized
countries, that to do business it is
necessary to make a variety of payments.
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What is Corruption?
 At one end of the spectrum is what might be called
petty corruption or “grease” payments.
 When is the payment “normal,” and when does it
become tainted with bribery?
 A different problem in identification of bribery is
offsets, which have become popular in the
international arms trade.
 Offsets can be part of an agreement to bring
investment to a company.
 Contractors dislike offsets but they are an
essential part of doing business in many
countries.
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Costs and Consequences
of Corruption
 Foregoing bribery can costly in terms of
business lost to competitors.
 Corruption imposes costs beyond individual
company losses to competitors who bribe.
 It undermines democratic institutions
 It retards economic development
 It contributes to government instability
 It attacks the foundation of democratic
institutions
 Corruption varies significantly among
countries.
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Business Anticorruption
Practices and Procedures
 A study by The Conference Board concluded that
“…anticorruption practices and procedures have
become significant more widespread, detailed and
sophisticated than in 2000.”
 Congress passed the Foreign Corrupt Practices Act
(FCPA) in 1977, which makes it illegal for
managers of U.S. corporations to bribe an official of
a foreign government or ministry.
 Most large companies have formal policies against
corrupt payments.
 Despite international, national, and corporate efforts
at eradication, corruption and bribery endure.
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Concluding Observations
 MNCs have major impacts on markets,
social systems, and political institutions.
 Complexities of doing global business raise
serious economic, ethical, political, social,
and moral issues for their management.
 It is believed that more top managers of
U.S. corporations, with help and prodding
from government and strong activist critics,
are exercising power responsibly.
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Concluding Observations
 Globalization has created enormous
wealth for people all over the world.
 It has led to exploitation, dislocation, and
suffering for some who have yet to
experience its benefits.
 It has changed business-governmentsociety relationships in profound and
fundamental ways.
 The forces of globalization are
beneficial to the peoples of the world
and promise even greater benefits in
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