International Business and Trade CHAPTER 1 GLOBALIZATION Globalization trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies What is Globalization? It encompasses the socioeconomic reform process of eliminating trade, investment, cultural, information technology, and political barriers across countries, which could lead to increased economic growth and geopolitical integration and interdependence among nations of the world. Denationalization – (national boundaries are becoming less relevant) Internationalization – (entities cooperating across national boundaries) Globalization of Markets - Refers to convergence in buyer preferences in markets. Global Products Semiconductors (Intel, Philips) Aircraft (Airbus, Boeing) Construction equipment (Caterpillar, Mitsubishi) Autos (Honda, Volkswagen) Financial Services (Citicorp, HSBC) Air travel (Lufthansa, Singapore Airlines) Accounting services (Ernst & Young, KPMG) Consumer goods (Procter and Gamble, Unilever) Fast Food (KFC, Mc Donalds) Globalization of Markets Advantages: - Reduces marketing costs (standardizing certain marketing activities) - Creates new market opportunities domestic market saturation / untapped markets (ex. Search engines Google and Yahoo) - Levels uneven income streams Supplementing domestic sales with international sales - Yet local needs are important Think global act local Globalization of Production - Refers to the dispersal of production activities to locations that help a company achieve its costminimization or qualitymaximization for a good or service. Globalization of Production Advantages: - Access lower-cost workers (reduced overall production costs through access to lowcost labor ex. India, China and Philippines) - Access technical expertise (companies also produce goods and services abroad to benefit from technical know-how ex. Film Roman produces the TV series The Simpsons, but it provides key poses and step-bystep frame directions to AKOM Production in Seoul, South Korea) - Access production inputs (allows companies to access resources that are unavailable or more costly at home ex. Japan’s largest paper company – Nippon Seishi ) Forces Driving Globalization Falling Barriers to Trade and Investment - General Agreement on Tariffs and Trade (GATT) World Trade Organization (WTO) Regional Trade Agreements Trade and National Output General Agreement on Tariffs and Trade (GATT) a treaty designed to promote free trade by reducing both tariffs and non tariff barriers to international trade. World Trade Organization (WTO) An international organization that enforces the rules of international trade. • Administering trade agreements • Acting as a forum for trade negotiations • Settling trade disputes • Reviewing national trade policies • Assisting developing countries with trade policy issues, through technical assistance and training programs • Cooperating with other international organization like IMF and World Bank. What the World Trade Organization does ??? Difference Between GATT and WTO Regional Trade Agreements The North American Free Trade Agreement (NAFTA) is an agreement among the United States, Canada and Mexico designed to remove tariff barriers between the three countries. The European Union (EU) is a political and economic union of 28 member states that are located primarily in Europe. Its members have a combined area of 4,475,757 km2 (1,728,099 sq mi) and an estimated total population of about 513 million. The EU has developed an internal single market through a standardized system of laws that apply in all member states in those matters, and only those matters, where members have agreed to act as one. ASEAN MEMBER COUNTRIES Trade and National Output Gross Domestic Product (GDP) – is the value of all goods and services produced by a domestic economy over a one-year period. ( excludes nation’s income generated from exports, imports and the international operations of its companies). Trade and National Output Gross National Product (GNP) – is the value of all goods and services produced by a country’s domestic and international activities over a oneyear period. GDP or GNP per capita – nation’s GDP or GNP divided by its population. Per capita income: Implications • Per capita income is often used to measure a sector's average income and compare the wealth of different populations. • Per capita income is often used to measure a country's standard of living. This helps to ascertain a country's development status. • It is one of the three measures for calculating the Human Development Index of a country. Forces Driving Globalization Technological Innovation - E-mail and Videoconferencing (operating across borders and time zones complicates the job coordination and controlling business activities) - Internet and World Wide Web (companies uses the internet to quickly and cheaply contact managers in distant locations / eliminating intermediaries) Forces Driving Globalization Technological Innovation - Company Intranets and Extranets (internal company web sites and information networks (intranets ) give employees access to company data using personal computers ex. Volvo Car Corporation) - Advancement in Transportation Technologies (ex. Global Positioning System (GPS) with Radio Frequency Identification) The World Bank is an international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects. It comprises two institutions: the International Bank for Reconstruction and Development, and the International Development Association. The International Monetary Fund (IMF), also known as the Fund, is an international organization headquartered in Washington, D.C., consisting of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world while periodically depending on World Bank for its resources Untangling the Globalization Debate Arguments against globalization - Eliminates Jobs in Developed Nations - Lowers Wages in Developed Nations - Exploits Workers in Untangling the Globalization Debate Arguments favoring globalization - Increases wealth and efficiency in all nations - Generates labor market flexibility in developed nations. - Advances economies of developing nations Individual pain is worth the collective gain
