GLOBALIZATION
AND THE MANAGER
Chapter 3
The process of globalization
◦ Globalization
The process whereby national economies and business systems are becoming deeply
interlinked with each other
◦ Market economy
An economy in which businesses are privately owned and prices are set by the
interaction of supply and demand
Socialist economy
An economy in which businesses are owned by the state and prices are set by state
planners
◦ 1. Traditional Economic System
◦ The traditional economic system is the world's most traditional and ancient types of economy.
Vast portions of the world still function under a traditional economic system. These areas tend
to be rural, second or third-world, and closely tied to the land, usually through farming.
◦ In general, in a traditional economic system, a surplus would be rare. Each member of a
traditional economy has a more specific and pronounced role, and these societies tend to be
very close-knit and socially satisfied. However, they do lack access to technology and advanced
medicine.
◦ 2. Command Economic System
◦ In a command economic system, a large part of the economic system is controlled by a
centralized power. For example, in the USSR most decisions were made by the central
government. This type of economy was the core of the communist philosophy.
◦ Since the government is such a central feature of the economy, it is often involved in everything
from planning to redistributing resources. A command economy is (theoretically) capable of
creating a healthy supply of its resources, and it rewards its people with affordable prices. This
capability also means that the government usually owns all the critical industries like utilities,
aviation, and railroad.
◦ Resource mobilization and society based; Rationing (calculation of demand/setting prices) and
lack of drive and Innovation
◦ 3. Market Economic System
◦ In a free-market economy, firms and households act in self-interest to determine how resources
get allocated, what goods get produced and who buys the goods. This is opposite to how a
command economy works, where the central government gets to keep the profits.
◦ There is no government intervention in a pure market economy (“laissez-faire“). However, no
truly free market economy exists in the world. For example, while America is a capitalist nation,
our government still regulates (or attempts to control) fair trade, government programs, honest
business, monopolies, etc. (Hong Kong)
◦ Entrepreneurship, innovation, research and development, and Fierce competition and lack of
greater good focus;
◦ 4. Mixed Economic System
◦ A mixed economy is a combination of different types of economic systems. This economic
system is a cross between a market economy and command economy. In the most common
types of mixed economies, the market is more or less free of government ownership except for
a few key areas like transportation or sensitive industries like defense and railroad. (China,
Pakistan).
◦ Less Government intervention; only to correct negative consumption; safety net programs,
redistribute income through taxation
Falling barriers to trade
◦ International trade
The sale of a good or service across boarder
◦ Foreign direct investment
Investment by a company based in one nation in business activities in another nation
◦ Tariffs
A tax on import
◦ Quotas
A limit on number of items of a good that can be imported from a foreign nation
◦ Regional trade agreements
Agreements to remove barriers to trade between nations within a geographic region
Implications of globalization
◦ New trends have resulted in a massive surge in the volume of international trade and foreign
direct investment.
◦ Competition. Globalization leads to increased competition. This competition can be related to
product and service cost and price, target market, technological adaptation, quick response,
quick production by companies etc. When a company produces with less cost and sells
cheaper, it is able to increase its market share.
◦ Foreign Direct Investment FDI
◦ Market Economy spreading
The globalization of production
◦ Sourcing goods and services from locations around the globe to take
advantage of national differences in the cost and quality of factors of
production
◦ In general, globalization decreases the cost of manufacturing. This means
that companies can offer goods at a lower price to consumers. The average
cost of goods is a key aspect that contributes to increases in the standard of
living.
◦ Reach new customers in new markets around the world –
Globalization simplifies communication between business owners,
vendors, and customers and therefore makes it easier to reach new markets
and stay connected with customers no matter where they are in the globe.
The globalization of market
◦ The merging of historically distinct and separate national markets into
one huge global marketplace
◦ Technology: the great facilitator
◦ Globalization of markets involves the growing interdependency among.
the economies of the world; multinational nature of sourcing,
manufacturing, trading, and investment activities; increasing frequency
of cross-border.
◦ the firm's value chain. Globalization compels firms to organize their
sourcing, manufacturing, marketing, and other value-adding activities
on a global scale to achieve cost advantages and time efficiencies.
Constraints on globalization
◦ Protectionist countertrends (Tariffs, import quotas, product standards, and subsidies)
◦ National differences in consumer behavior, national cultural values, and identity (Final
Line)
◦ Threats to National Sovereignty
◦ Power shifts to supranational organizations and monopoly
◦ Income Inequality and Poverty and Benefits and Costs of globalization are unevenly distributed
◦ Economic Growth and Environmental Stress; Sustainability Concerns
◦ Environmental Destruction
◦ Future of Work, Job Mobility, and Offshoring
◦ Globalization causes the dislocation of jobs; firms shift manufacturing abroad in order to avoid
workplace safety and health regulations (global nomads).
The benefits of going global
◦ Expanding the market
◦ Realizing scale economies
◦ Realizing location economies
◦ Global learning
Management challenges in the
global enterprise
◦ Global standardization or local customization
◦ Entry mode
Exporting
Licensing
obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined
market area. The company that obtains these rights (the licensee) usually agrees to pay a royalty fee to the original
owner
Franchising
a joint venture between a franchisor (owner) and a franchisee (buyer). sells the right to use its name and idea.
The franchisee buys this right to sell the franchisor's goods or services under an existing business model and
trademark.
Joint venture
a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing
a specific task. (Joint profit, losses etc)
Wholly owned subsidiary
a company whose common stock is 100% owned by another company, majority-owned subsidiary (51%-99%).
Managing people in Multinationals
◦ Expatriates: Home country executive sent to foreign post
◦ Staffing: processes, tactics, and strategies that are needed to
identify, recruit, and retain employees within an organization.
◦ Geocentric staffing: a staffing policy that seeks the best people for key
jobs throughout the organization, regardless of nationality
◦ Ethnocentric staffing: A staffing policy in which all key management
positions are staffed by home country nationals
◦ Polycentric staffing: A staffing policy in which key management positions
in a subsidiary are staffed by host country nationals