Chapter 1
Globalisation
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
1
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Lecture/Chapter Topics
• Chapter Introduction
• Definition of Globalisation
• Emergence of Global Institutions
• Driving Forces of Globalisation
• Changing Characteristics of Global Economy
• Globalisation Debate
• Managing in Global Marketplace
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Definition of Globalisation
•
•
Globalisation: the trend towards a more integrated
global economic system
Effects of globalisation can be seen everywhere, for
example:
–
–
–
–
the cars people drive
the food people eat
the jobs people have
the clothes people wear
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Definition of Globalisation
•
What is Globalisation?
– Globalisation refers to the shift towards a more integrated
and interdependent world economy.
•
Facets of Globalisation
– Globalisation of Markets
– Globalisation of Products
– Emergence of Global Institutions
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Definition of Globalisation
• The Globalisation of Markets
–
–
The historically distinct and separate national markets are
merging into one huge global marketplace in which the tastes
and preferences of consumers in different nations are
beginning to converge in some global norm.
Examples of consumer products:
 Prada fashions, Sony Playstation video games, McDonald’s
hamburgers (US), Nescafe coffee (Switzerland), Nokia mobile
phones (Finland), IKEA furniture (Sweden)
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Definition of Globalisation
• Globalisation of Production
– Sourcing goods and services from different locations around
the globe in an attempt to take advantage of national
differences in the cost and quality of factors of
production, thereby allowing them to compete more
effectively against their rivals
– Examples of globalisation of production:
 Boeing’s 777 and 787 commercial aircrafts
 Lenovo’s ‘ThinkPad’ laptop
 Nighthawk Radiology Services
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Emergence of Global Institutions
• Global Institutions
Over the past half century, a number of important global
institutions have been created to:
– help manage, regulate and police the global marketplace
– promote the establishment of multinational treaties to govern
the global business system
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Emergence of Global Institutions
• Examples of Global Institutions
– General Agreement On Tariffs And Trade (GATT)
 An international treaty that committed signatories to lowering
barriers to the free flow of goods across national borders, a
predecessor of the WTO
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Emergence of Global Institutions
• Examples of Global Institutions (cont’d)
– World Trade Organization (WTO)
 To be responsible for policing the world trading system and
ensuring that nations adhere to the rules established in WTO
treaties
– International Monetary Fund (IMF)
 To maintains order in the international monetary system
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Emergence of Global Institutions
• Examples of Global Institutions (cont’d)
– World Bank (International Bank for Reconstruction and
Development)
 To promote economic development
– United Nations (UN)
 To maintain international peace and security
 To develop friendly relations among nations
 To cooperate in solving international problems and promote respect
for human rights
 To be a centre for harmonising the actions of nations
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Driving Forces of Globalisation
•
Two macro factors seem to underlie the trend towards
greater globalisation
1. Declining trade and investment barriers

The decline in barriers to the free flow of goods, services and capital
2. The role of technological change

Technological change, particularly the dramatic developments in
recent years in communication, information processing and
transportation technologies
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Driving Forces of Globalisation
• Declining Trade and Investment Barriers
– After WWII, the industrialised countries of the West began
the process of removing barriers to the free flow of goods,
services and capital between nations.
– Under GATT, over 100 nations negotiated further decreases
in tariffs and made significant progress on a number of nontariff issues.
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Driving Forces of Globalisation
• 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.
• Removal of barriers to trade has contributed to
increased international trade (both exporting and
importing), world output, and foreign direct
investment.
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Driving Forces of Globalisation
• The average tariff rates have fallen significantly
since 1950 and now stand at about 4%.
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Driving Forces of Globalisation
• The volume of world trade and investment has
accelerated since the early 1980s.
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Driving Forces of Globalisation
• The average yearly outflow of FDI increased from
US$25 billion in 1975 to a record US$1.2 trillion in
2000, before falling back to an estimated US$897
billion in 2005.
• The flow of FDI accelerated faster than the growth
in both world trade and world output.
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Driving Forces of Globalisation
• The world FDI flow since 1982
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Driving Forces of Globalisation
• The Role of Technological Change
– The lowering of trade barriers made globalisation of markets
and production a theoretical possibility; technological change
made it a tangible reality.
– Major Technological Advancements
 Microprocessors and telecommunications
 The Internet and the World Wide Web
 Transportation technology
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Driving Forces of Globalisation
• Microprocessors and Telecommunications
– Major advances in communications and information
processing have lowered the cost of global
communication and therefore the cost of coordinating and
controlling a global organisation.
– ‘Telecommunications is creating a global audience, …’
(Renato Ruggiero, former Director-General of the WTO)
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Driving Forces of Globalisation
• The Internet and the World Wide Web
– The rapid growth of the World Wide Web is the latest
expression of technological development.
– Fewer than one million users were connected to the Internet in
1990, but there were 50 million in 1995, and more than
1.47 billion users in 2007 (est.).
– Web-based transactions have grown from virtually zero in
1994 to nearly $7 trillion in 2004.
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Driving Forces of Globalisation
• The Internet and the World Wide Web
– The Web is emerging as an equaliser.
– It rolls back some of the constraints of location, scale and time
zones.
– The Web makes it much easier for buyers and sellers to find each
other, wherever they may be located and whatever their size.
– It allows businesses, both small and large, to expand their global
presence at a lower cost than ever before.
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Driving Forces of Globalisation
• Transportation Technology
– The most important developments:



Commercial jet aircraft
Super freighters
Introduction of containerisation
– Greatly simplifies trans-shipment from one mode of
transport to another
– ‘..., transportation is creating a global village.’ (Renato
Ruggiero, former Director-General of the WTO)
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Driving Forces of Globalisation
• Implications of Globalisation for Production
– Improvements in transportation technology have enabled
firms to better respond to international customer demands, e.g.
Deel.
• Implications of Globalisation for Markets
– Managers today operate in an environment that offers more
opportunities, but is also more complex and competitive than
that of a generation ago, e.g. CNN, BBC.
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Changing Characteristics of the Global
Economy
• The US dominated the world economy and the world
trade picture.
• There was US domination in foreign direct investment
(FDI).
• US multinationals dominated the international
business scene.
• The centrally planned economies of the communist
world were off limits to Western international
business.
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Changing Characteristics of the Global
Economy
• The Changing World Output and the Changing World
Trade Picture
– In the early 1960s, the US was the world's dominant
industrial power, accounting for about 40.3% of world
manufacturing output.
– By 2005 the US accounted for only 20.1% of world output.
– Germany, France and the United Kingdom, all nations that
were among the first to industrialise, also saw their relative
standing slip.
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Changing Characteristics of the Global
Economy
• The Changing World Output and the Changing World
Trade Picture (Cont’d)
– The share of world output generated by developing countries
has been steadily increasing since the 1960s.
– Rapid economic growth is now being experienced by
countries such as China, India, Thailand and Indonesia.
– Further relative decline in the US share of world output and
world exports seems likely.
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Changing Characteristics of the Global
Economy
• The Changing World Output and the Changing World
Trade Picture (Cont’d)
– Forecasts predict a rapid rise in the share of world output
accounted for by developing nations such as China, India,
Indonesia, Thailand and South Korea, and a decline in the
share of industrialised countries such as Britain, Japan and
the United States.
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Changing Characteristics of the Global
Economy
• The changing picture of world output and trade
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Changing Characteristics of the Global
Economy
• The Changing Picture of Foreign Direct Investment
– The stock of foreign direct investments generated by rich
industrial countries has been on a steady decline.
– There has been sustained growth in cross-border flows of
foreign direct investment.
– The flow of foreign direct investment has been directed at
developing nations, especially China.
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Changing Characteristics of the Global
Economy
• The stock of FDI by the world’s six most important
national sources
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Changing Characteristics of the Global
Economy
• The sustained growth in cross-border flows of FDI
and the emergence of developing nations as
important destinations for FDI
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Changing Characteristics of the Global
Economy
• The Changing Nature of Multinational Enterprises (MNEs)
– Non-US Multinationals
 The growth of MNEs (any business that has productive activities in two
or more countries) from Japan, European nations, Australia and New
Zealand after World War II
 Expected growth of new MNEs from the world's developing nations
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Changing Characteristics of the Global
Economy
• The Changing Nature of Multinational Enterprises
(MNEs) (Cont’d)
– Examples of MNEs from the developing nations on the UN’s
Top 100 list
 Hutchison Whampoa of Hong Kong, China, which ranked 16 in
terms of foreign assets
 Singtel of Singapore
 Petronas of Malaysia
 Samsung of Korea
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Changing Characteristics of the Global
Economy
• The Changing Nature of Multinational Enterprises
(Cont’d)
– The Rise of Mini-Multinationals
 Another trend in international business has
been the growth of small and medium-sized multinationals
(mini-multinationals).
 The number of mini-multinationals is on the rise.
– Example of mini-multinational
 ‘Comvita’, with its main manufacturing base at Paengaroa in
New Zealand
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Changing Characteristics of the Global
Economy
• The Changing World Order
– The collapse of communism in Eastern Europe presents a
host of export and investment opportunities for Western
businesses.
– The economic development of China poses huge
opportunities and risks, in spite of its continued Communist
control.
– Mexico and Latin America also present tremendous new
opportunities, both as markets and sources of materials and
production.
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Changing Characteristics of the Global
Economy
• The Global Economy of the 21st Century
– Firms must be aware that while the more integrated global
economy presents many new opportunities, it could also
result in political and economic disruptions that may throw
plans into disarray.
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Globalisation Debate
• Is the shift towards a more integrated and
interdependent global economy a good thing?
– Anti-globalisation protests highlight the disruptive forces of
globalisation.
– Anti-globalisation protesters now turn up at almost every
major meeting of global institutions.
– Protesters fear that globalisation is forever changing the
world in a negative way.
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Globalisation Debate
• Globalisation, Jobs and Incomes
– Critics of globalisation worry that jobs are being lost to lowwage nations.
– Supporters of globalisation argue that free trade will result in
countries specialising 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.
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Globalisation Debate
• Globalisation, Labour Policies and the Environment
– Critics of globalisation argue that that free trade encourages
firms from advanced nations to move manufacturing facilities
offshore to less developed countries with lax environmental
and labour regulations.
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Globalisation Debate
• Globalisation, Labour Policies and the Environment
(Cont’d)
– Supporters of free trade point out that tougher environmental
regulation and stricter labour standards go hand in hand with
economic progress and that foreign investment often helps a
country to raise its standards.
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Globalisation Debate
• Globalisation and National Sovereignty
– Critics of globalisation worry that economic power is shifting
away from national governments and towards supranational
organisations such as the World Trade Organization (WTO),
the European Union (EU) and the United Nations.
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Globalisation Debate
• Globalisation and the World’s Poor
– Critics of globalisation argue that the gap between rich and
poor has gotten wider and that the benefits of globalisation
have not been shared equally.
– Supporters of free trade suggest that the actions of
governments have brought limited economic improvement in
many countries.
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Managing in the Global Marketplace
• Managing an international business is different from
managing a domestic business
– Countries differ.
– Managers face a greater and more complex range of problems.
– International companies must work within the limits imposed by
governmental intervention and the global trading system.
– International transactions require converting funds and being
susceptible to exchange rate changes.
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Summary of Main Themes
• This chapter sets the scene for the rest of the book. It shows
how the world economy is becoming more global and reviews
the main drivers of globalisation, arguing that they seem to
be thrusting nation-states towards a more tightly integrated
global economy.
• We looked at how the nature of international business is
changing in response to the changing global economy; we
discussed some concerns raised by rapid globalisation;
and we reviewed implications of rapid globalisation for
individual managers.
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