Globalization
What is Globalization?
The shift toward a more
integrated and
interdependent world
economy
Two components:
 The globalization of markets
 The globalization of production
Globalization of
Production
 Vizio flat panel TV is
 designed in a small office in California
 assembled in Mexico
 From
 panels made in South Korea
 electronic components made in China
 microprocessors made in the U.S.
Not just manufacturing…
 Globalization of production has
historically been about manufacturing
 Increasingly companies are using
modern communications to outsource
service activities to low-cost nations
Globalization of markets
 In the past, each country had
its own companies in many industries
and its own products
 I never saw Japanese media (and I saw
little non-US media) in college
Today everyone knows…
 Nintendo
 Starbucks
 Coca-Cola
 Ikea
 McDonald’s
 Samsung
But the most global markets
are for standard goods
 Aluminum
 Wheat
 Microprocessors
 Aircraft
 For many consumer end-products,
huge differences still exist among
national markets
 Entertainment, food, clothing
Drivers of Globalization
Two factors underlie globalization
 “Decline in barriers to the free flow of
goods, services, and capital” that has
occurred since the end of World War II
 Technological change
Declining Trade and
Investment Barriers
 During the 1920s and ‘30s, many of
nations erected formidable barriers to
international trade and
foreign direct investment
 Advanced industrial nations of the West
committed themselves after World War II
to removing barriers to the free flow of
goods, services, and capital between
nations.
Average Tariff Rates on
Manufactured Products
France
Germany
Italy
Japan
Holland
Sweden
UK
US
1913
21 %
20 %
18 %
30 %
5%
20 %
-44 %
1950
18 %
26 %
25 %
-1%
9%
4%
14 %
1990
5.9 %
5.9 %
5.9 %
5.3 %
5.9 %
4.4 %
5.9 %
4.8 %
2002
4.0 %
4.0 %
4.0 %
3.8 %
4.0 %
4.0 %
4.0 %
4.0 %
Affects of Lowering Trade
Barriers
Figure 1.1: Volume of World Trade and World
Production, 1950-2004
3100
2100
1600
1100
600
100
19
50
19
54
19
58
19
62
19
66
19
70
19
74
19
78
19
82
19
86
19
90
19
94
19
98
20
02
Index 1950=100
2600
Total Merchandise Exports
World Production
The Role of Technology
 Lowering of trade barriers made
globalization possible;
 Technology has made it a
transforming movement
Internet Usage Growth
Figure 1.3: Internet Users per 1000 People, 19902003
600.00
500.00
400.00
300.00
200.00
100.00
Japan
United States
European Monetary Union
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0.00
1990
Internet Users per 1000 people
700.00
World
Globalization is acceleration of
trends of the last 10,000 years
 People lived for 250,000 years in
hunter-gatherer bands
 Rise of agriculture 10,000 years ago led
to rise of empires and nation-states
 Science and ‘enlightenment’ after 1680
produced global trade and empires
 Free trade and tech after 1980
produced globalization
The Emergence
of Global Institutions
Notable global institutions include
 the World Trade Organization (WTO) which is
responsible for policing the world trading
system and ensuring that nations adhere to
the rules established in WTO treaties
 In 2008, 151 nations accounting for 97% of world
trade were members of the WTO
 the International Monetary Fund (IMF) which
maintains order in the international monetary
system
The Changing Roles of Countries
in
the Global Economy
In the 1960s:
 The U.S. dominated the world economy and
the world trade picture
 U.S. multinationals dominated the
international business scene
 About half the world-- the centrally planned
economies of the communist world-- was off
limits to Western international business
Today, much of this has changed.
The Changing World Output
and World Trade Picture
 In the early 1960s, the U.S. was the world's
dominant industrial power accounting for
about 40.3% of world manufacturing output
 By 2007, the U.S. accounted for only 20.7%
 Other developed nations experienced a similar
decline
The Changing Nature of
the Multinational Enterprise
 Since the 1960s,
 there has been a rise in non-U.S.
multinationals
 there has been a rise in mini-multinationals
The Globalization Debate
Pro
 Lower prices for goods
and services
 Economic growth
 Increase in consumer
income
 Creates jobs (for many)
 Countries specialize in
production of goods and
services that are
produced most
efficiently
Con
 Destroys manufacturing
jobs in wealthy nations
 Wage rates of unskilled
in advanced countries
decline
 Companies move to
countries with fewer
labor and environment
regulations
 Loss of sovereignty
 Homogenized cultures
Managing in the Global
Marketplace
 Much of this course is concerned
with managing an international
business
 i.e., any business with international
 sales,
 sourcing, or
 Investment
Managing an international
business is different
 Countries are different
 International transactions involve converting
money into different currencies
 Range of problems in an international
business is wider and problems are
more complex
 International business must cope with
different, conflicting government rules
and systems
 Different strategic approaches required
Key terms
 An international business – any
business with international sales,
sourcing, or investment
 A multinational business – any
business with productive activities in
2 or more countries
 A global business – a business that
takes a global approach to production
and sourcing (Coca-Cola, Intel)
The Emergence
of Global Institutions
 the World Bank which promotes economic
development
 the United Nations (UN) which maintains
international peace and security, develops
friendly relations among nations, cooperates
in solving international problems and
promotes respect for human rights, and is a
center for harmonizing the actions of nations