Q1. How has globalization affected different world regions? What are some of the benefits
and costs of globalization for different sectors of society (companies, workers, communities)?
Globalization is the process of increased integration and co-operation of different national
economies. It involves national economies becoming increasingly inter-related and integrated.
Globalization is distinct from internationalization in that internationalization is the process of
a business crossing national and cultural borders, while globalization is the vision of creating
one world unit, a single market entity. Evidence of globalization can be seen in increased levels
of trade, capital flows, and migration. Globalization has been facilitated by technological
advances in transnational communications, transport, and travel.
The factors involving globalization are:
 Greater free trade.
 Greater movement of labor.
 Increased capital flows.
 The growth of multi-national companies.
 Increased integration of global trade cycle.
 Increased communication and improved transport, effectively reducing barriers
between countries.
Summary of costs/benefits of Globalization:
Benefits
Costs
Lower prices/ greater choice
Structural unemployment
Economies of scale – lower prices
Environmental costs
Increased global investment
Tax competition and avoidance
Free movement of labor
Brain drain from some countries
May reduce global inequality
Less cultural diversity
Benefits of globalization for different sectors of society (companies, workers, communities):
1. Free Trade: Free trade is a way for countries to exchange goods and resources. This means
countries can specialize in producing goods where they have a comparative advantage (this
means they can produce goods at a lower opportunity cost). When countries specialize
there will be several gains from trade:
a.
b.
c.
d.
e.
Lower prices for consumers
Greater choice of goods, e.g. food imports enable a more extensive diet.
Bigger export markets for domestic manufacturers
Economies of scale through being able to specialize in certain goods
Greater competition.
2. Free movement of labor: Increased labor migration gives advantages to both workers and
recipient countries. If a country experiences high unemployment, there are increased
opportunities to look for work elsewhere. This process of labor migration also helps reduce
geographical inequality. This has been quite effective in the EU, with many Eastern
European workers migrating west.
Also, it helps countries with labor shortages fill important posts. For example, the UK
needed to recruit nurses from the far east to fill shortages.
However, this issue is also quite controversial. Some are concerned that the free movement
of labor can cause excess pressure on housing and social services in some countries.
Countries like the US have responded to this process by actively trying to prevent migrants
from other countries.
3. Increased economies of scale: Production is increasingly specialized. Globalization
enables goods to be produced in different parts of the world. This greater specialization
enables lower average costs and lower prices for consumers
4. Greater competition: Domestic monopolies used to be protected by a lack of competition.
However, globalization means that firms face greater competition from foreign firms.
5. Increased investment: Globalization has also enabled increased levels of investment. It
has made it easier for countries to attract short-term and long-term investment. Investment
by multinational companies can play a big role in improving the economies of developing
countries.
1.
2.
3.
4.
Costs of globalization for different sectors of society (companies, workers,
communities):
Free trade can harm developing economies: Developing countries often struggle to
compete with developed countries, therefore it is argued free trade benefits developed
countries more. However, developing countries are often harmed by tariff protection, that
western economies have on agriculture.
Environmental costs: One problem of globalization is that it has increased the use of nonrenewable resources. It has also contributed to increased pollution and global warming.
Firms can also outsource production to where environmental standards are less strict.
However, arguably the problem is not so much globalization as a failure to set satisfactory
environmental standards.
Labor drain: Globalization enables workers to move more freely. Therefore, some
countries find it difficult to hold onto their best-skilled workers, who are attracted by higher
wages elsewhere.
Less cultural diversity: Globalization has led to increased economic and cultural
hegemony. With globalization there is arguably less cultural diversity; however, it is also
led to more options for some people.
5. Tax competition and tax avoidance: Multinational companies like Amazon and Google,
can set up offices in countries like Bermuda and Luxembourg with very low rates of
corporation tax and then funnel their profits through these subsidiaries. This means they
pay very little tax in the countries where they do most of their business. This means
governments have to increase taxes on VAT and income tax. It is also seen as unfair
competition for domestic firms who don’t use the same tax avoidance measures. The
greater mobility of capital means that countries have sought to encourage inward
investment by offering the lowest corporation tax. (e.g. Ireland offers very low tax rate).
This has encouraged lower corporation tax, which leads to higher forms of other tax.
Q2. How has NAFTA affected the economies of North America and how has the EU affected
Europe? What importance do these economic pacts have for international managers in
North America, Europe, and Asia?
Partly as a result of the slow progress in multilateral trade negotiations, the United States and
many other countries have pursued bilateral and regional trade agreements. The United States,
Canada, and Mexico make up the North American Free Trade Agreement (NAFTA), which in
essence has removed all barriers to trade among these countries and created a huge North
American market. Several economic developments have occurred because of this agreement
that are designed to promote commerce in the region. Some of the more important
developments include:
(1) the elimination of tariffs as well as import and export quotas.
(2) the opening of government procurement markets to companies in the other two
nations.
(3) an increase in the opportunity to make investments in each other’s country.
(4) an increase in the ease of travel between countries; and
(5) the removal of restrictions on agricultural products, auto parts, and energy goods.
Many of these provisions were implemented gradually. For example, in the case of Mexico, quotas
on Mexican products in the textile and apparel sectors were phased out over time, and customs
duties on all textile products were eliminated over 10 years Negotiations between NAFTA
members and many Latin American countries, such as Chile, have concluded, and others are
ongoing.
The European Union (EU) has made significant progress over the past decade in becoming a
unified market. In 2003 it consisted of 15 nations: Austria, Belgium, Denmark, Finland, France,
Germany, Great Britain, Greece, the Netherlands, Ireland, Italy, Luxembourg, Portugal, Spain, and
Sweden. In May 2004, 10 additional countries joined the EU: Cyprus, the Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. In January 2007, Romania and
Bulgaria acceded to the EU, and in July 2013, Croatia became the 28th and newest member of the
EU. Not only have most trade barriers between the members been removed, but a subset of
European countries has adopted a unified currency called the euro. As a result, it is now possible
for customers to compare prices between most countries and for business firms to lower their costs
by conducting business in one uniform currency. With access to the entire pan-European market,
large MNCs can now achieve the operational scale and scope necessary to reduce costs and
increase efficiencies. Even though long-standing cultural differences remain, and the EU has
recently experienced some substantial challenges, the EU is more integrated as a single market
than NAFTA, CAFTA, or the allied Asian countries. With many additional countries poised to
join the EU, including Albania, Serbia, and Turkey, the resulting pan-European market will be one
that no major MNC can afford to ignore. Moreover, the Transatlantic Trade and Investment
Partnership (T-TIP) is a proposed trade agreement between the European Union and the United
States that could further bolster trade and multilateral economic growth in Europe and North
America.
Q3. Why are Russia and Eastern Europe of interest to international managers? Identify and
describe some reasons for such interest and also risks associated with doing business in these
regions.
The Soviet Union ceased to exist back in 1991. Each of the individual republics that made up the
U.S.S.R. in turn declared its independence and now is attempting to shift from a centrally planned
to a market-based economy. The Russian Republic has the largest population, territory, and
influence, but others, such as Ukraine, also are industrialized and potentially important in the
global economy. Of most importance to the study of international management are the Russian
economic reforms, the dismantling of Russian price controls (allowing supply and demand to
determine prices), and privatization (converting the old communist-style public enterprises to
private ownership).
Russia’s economy continues to emerge as poverty declines and the middle class expands. Direct
investment in Russia, along with its membership in the International Monetary Fund (IMF), helped
to raise GDP and decrease inflation, offsetting the hyperinflation created from the initial attempt
at transitioning to a market-based economy in the early 1990s. Abundant oil and high global energy
prices greatly boosted Russia’s economy in the early 2000s, though recent decreases in demand
have pushed Russia into a recession.
In addition, the Group of Seven formally expanded to include Russia in 1997, becoming the Group
of Eight (G8). However, Russia was suspended from the group in 2014 after a series of political
differences between the original G7 and Russia, culminating in the annexation of Crimea. In
addition, multilateral sanctions were imposed. These actions, when combined with falling oil and
gas prices, have resulted in a dramatic slowdown in Russia’s economy and a fall in the value of
the ruble. As such, the Russian economy likely will have a number of years of economic instability
and many recurrent political problems. The improvement of the investment climate in Russia and
its positive effect on the inflow of foreign direct investment into the country's economy is being
declared at the highest levels of the Russian government as an important objective for the further
economic development of the country. One of the most important instruments for that
improvement should be the consideration of foreign investor's opinions and ideas and reaction to
the most urgent and critical issues which serve as obstacles to their investment activities in Russia.
A common scenario among growing Eastern European markets such as Warsaw, Budapest is that
demand is coming primarily from domestic buyers, with indications that an increasing number of
foreign buyers are interested in investing the year of 2020. These emerging markets are home to
an increasing amount of high-end inventory, and in 2020, many Eastern European cities will see
the debut of luxury new developments. That’s why investors are mostly interested to invest in
Russia and Eastern Europe.
Q4. Many MNCs have secured a foothold in Asia, and many more are looking to develop
business relations there. Why does this region of the world hold such interest for
international management? Identify and describe some reasons for such interest.
The unparalleled size of Asia's markets has always caught the eye of multinational corporations.
More recently, as government policies and cultural attitudes in the region continue to evolve, the
strategies of multinational companies have changed as well. Globalization has changed business.
This phenomenon has led to the “multinational”—companies whose reach can seemingly take over
every inch of the world. While many of these companies have been created with a Western
approach to business, Asian corporations are rising, forcing Western-style multinationals to create
new strategies when it comes to their presence in Asian countries and cultures. Many Asian
governments are actively seeking to foster domestic champions of their own. These champions,
built on traditional Asian views, have already reached a large enough size to expand overseas and
forge partnerships with other companies in the region. The result is the birth of a new type of
multinational: the Asian multinational.
Suppose, for a number of reasons, India is attractive to multinationals, especially U.S. and British
firms. Many Indian people speak English, are very well educated, and are known for advanced
information technology expertise. Also, the Indian government is providing funds for economic
development. For example, India is expanding its telecommunication systems and increasing the
number of phone lines fivefold, a market that AT&T is vigorously pursuing.
Western culture has a tendency to create heavy-hitting corporations that reach across the world.
That said, as Asia gets wealthier and its firms build up greater financial firepower, the competitive
business landscape will continue to expand and involve more and more Asian multinationals.
Q5. Why would MNCs be interested in South America, India, the Middle East and Central
Asia, and Africa, the less developed and emerging countries of the world? Would MNCs be
better off focusing their efforts on more industrialized regions? Explain.
For the past decade, decision-makers in major banks and multinational companies have been
focusing their attention on one of the hottest "growth frontiers": emerging markets, specifically
Southeast Asia, the Indian subcontinent and Latin America. During much of the 1980's, the
prospects in most emerging countries were quite bleak: the debt crisis, inflation and domestic
political turbulence turned these regions into a planner's nightmare. Then a number of "economic
miracles" began to pop up, drawing attention to Asia, Eastern Europe, China, India and, toward
the end of the 80's, Latin America.
Emerging countries now represent the clear majority of the world's population. Their growth
prospects range from 4 to 5 percent per year in Latin America to 6 to 7 percent in East Asia to 10
percent in China. These are typically two to three times the expected growth rates of developed
countries. In all of these countries, growth will invariably entail the expansion of new middle
classes, with outsized needs for consumer durables, housing and mobility. For example, in most
of the market-planning exercises in which Booz-Allen & Hamilton is involved, emerging countries
represent anywhere from 50 to 80 percent of the growth in consumer durables over the next 10
years. This growth will call for unprecedented investments in infrastructure. For the world's
leading engineering and construction companies and the major builders of capital goods, longterm survival hinges on the effectiveness with which they capitalize on the growth opportunities
offered by emerging countries.
Multinationals are busy concentrating their investment efforts in emerging countries. This requires
either entry strategies into new, unfamiliar countries or growth strategies in countries that are
opening up or deregulating their markets. Local enterprises that are typically dominant in their
home countries find themselves facing serious challenges when their governments start
dismantling the import-substitution policies that had protected them for so long. Those companies
need to decide whether they can adapt to their new environment (by trying to grow internationally
or developing alliances with world-class players) or simply exit the business by selling out to a
multinational. So I think, multinationals companies should stay in emerging markets.
Q6. MNCs from emerging markets (India, China, Brazil) are beginning to challenge the
dominance of developed country MNCs. What are some advantages that firms from
emerging markets bring to their global business? How might MNCs from North America,
Europe, and Japan respond to these challenges?
One of the most far-reaching developments of the last twenty years has to do with the rise of
emerging economies, which once represented no more than 15% of the global economy and now
have come to account for nearly 50% of economic activity. These economies are growing fast and
are located around the world, including the BRICs (Brazil, Russia, India, and China), MITS
(Mexico, Indonesia, Turkey, and South Africa), and many other economies in Africa, East Asia,
South Asia, Latin America, and the Middle East. Some of these countries have become major
exporters of manufactured goods while others sell agricultural, energy or mineral commodities. In
the last few years, the emerging economies have also become major sources of foreign direct
investment, that is, companies based in emerging economies have expanded throughout the world,
making acquisitions and setting up manufacturing and distribution operations not just in emerging
economies and developing countries but in developed ones as well, becoming Multinational
Enterprises (MNEs). Multinational firms exist because certain economic conditions and
proprietary advantages make it advisable and possible for them to profitably undertake production
of a good or service in a foreign location. The most representative case of foreign direct investment
is horizontal expansion, which occurs when the firm sets up a plant or service delivery facility in
a foreign location with the goal of selling in that market, and without abandoning production of
the good or service in the home country.
Execution in emerging markets depends heavily on the quality of talent and the local organization.
In case of MNCs based on North America, Europe, Japan the winning MNCs may invest in
attracting and developing local talent at all levels. In addition to training, some MNCs might offer
programs to encourage the personal growth and long-term success of employees. Many of the
winning MNCs from emerging economies forge strong relationships with local and regional
governments and other community stakeholders that prove invaluable to their long-term success.
MNCs from North America, Europe, Japan may also align their activities with the sustainabledevelopment goals of local leaders and embed corporate social responsibility into their strategies.