Chapter 2
Globalization of Markets and the
Internationalization of the Firm
International Business: Strategy, Management, and the New Realities
Globalization of Markets: A Macro Concept
• Two mega trends have altered the international
business landscape: globalization and
technological advances.
• Market globalization refers to the
interconnectedness of national economies and
growing interdependence of buyers, producers,
suppliers, and governments in different countries.
• Globalization allows firms to view the world as one
large marketplace for goods, services, capital,
labor, and knowledge.
International Business: Strategy, Management, and the New Realities
Phases of Globalization
1st Phase: 1830, peaking around 1880
Aided by railroads, ocean transport; resulting in the rise of mass
production and growing trade
2nd Phase: 1900, peaking late 1920s
Fueled by electricity and emergent modern technologies; early
MNEs
3rd Phase: 1948, peaking around 1970
End of WW II; Marshall Plan; Gradual reduction of trade barriers,
especially under General Agreement on Tariffs and Trade (GATT)
4th Phase: 1980, peaking around 1997
Fueled by information and communications technologies. Rapid
liberalization in Emerging Markets
The Drivers and Consequences of Market
Globalization
Firms are Compelled to Internationalize
• Firms implement internationalization
proactively are more successful than
those reactively engaging.
• E.g., Vodafone has established
production and marketing operations
all around the world. Has some 200
million customers in 30 countries.
International Business: Strategy, Management, and the New Realities
Technological Advances as a
Driver of Market Globalization
• Advances in technology provide the
means for internationalization of firms
• Advances in technology:
– Reduces cost of doing international
business;
– Enables even small firms to go
international
– Helps coordinate worldwide activities;
– Mitigates geographic distance
International Business: Strategy, Management, and the New Realities
Communications Technology
• Especially important. Includes
telecommunications, satellites, optical fiber,
wireless technology, and the Internet.
• The Internet, and Internet-dependent systems
such as intranets, extranets, and e-mail, connect
millions of people across the globe.
• The Internet opens up the global marketplace to
all firms, large and small
International Business: Strategy, Management, and the New Realities
Manufacturing and Transportation Technologies
• Manufacturing
– Revolutionary developments now permit manufacturing
that is both low-scale and low cost, with the support of
computer-aided-design of products (CAD), robotics, and
production lines managed and monitored by
microprocessor-based controls.
• Transportation
– Fuel-efficient jumbo jets, giant ocean-going freighters, and
containerized shipping.
• Thus
– , the cost of transportation has declined substantially,
spurring rapid growth in international trade.
International Business: Strategy, Management, and the New Realities
Societal Consequences of Market Globalization
• Positive consequences
– More jobs
– Economic development and growing prosperity
– Technology and knowledge transfer
• Negative consequences
– Natural environment
– Disruptive effects in national economies
– Human rights violations abroad (e.g.,
sweatshops)
– Job losses at home
International Business: Strategy, Management, and the New Realities
Economic Freedom Enhances Income Growth
• In the long run, globalization generally
leads to:
– higher living standards
– more efficient resource usage
– greater access to technology, products, and
services
• In particular, liberalization of markets
appears to enhance income levels
International Business: Strategy, Management, and the New Realities
Partial Index of Economic Freedom, 2010
source: http://www.heritage.org/index/ranking.aspx
International Business: Strategy, Management, and the New Realities
What inferences can you make from this chart?
Unintended Consequences of Market
Globalization
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Loss of national sovereignty
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Offshoring and the flight of jobs
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Power shifts to MNEs and larger countries
Dislocation of jobs
Effect on the poor
–
Benefits of globalization are not evenly distributed
•
Effect on the natural environment
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Effect on national culture
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Loss of national cultural values and identity
QEUST
International Business: Strategy, Management, and the New Realities
Corporate Social Responsibility
• Over time, governments pass legislation that
promotes improved environmental conditions.
Question: How, when, why?
• In addition, many firms now consider the
societal consequences of their actions -Corporate Social Responsibility (CSR)
Discuss how this works in a global
environment vs. a national environment.
International Business: Strategy, Management, and the New Realities
Firm Level Consequences of Market
Globalization
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Countless new business opportunities for
internationalizing firms
New risks and intense rivalry from foreign
competitors
More demanding buyers who source from
suppliers worldwide
Greater emphasis on proactive internationalization
Internationalization of firm’s value chain
International Business: Strategy, Management, and the New Realities
Examples of How Firms’ Value
Chain Activities Can Be Internationalized
Value Chain: Sequence of value adding activities
performed in the course of developing, producing,
marketing, and servicing a product.
Implications for Management
• Global orchestration’ of value-chain activities
(e.g., to cut costs, access resources, target new
markets)
• Exploit knowledge acquired worldwide
• Increase productivity
• Collaborate with foreign partners
International Business: Strategy, Management, and the New Realities
Implications for Managers: Acquiring Global
Competence is a Requirement
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Open-mindedness
Tolerance for ambiguity
Perceptiveness
Premium on personal relationships
Flexibility, adaptability, and self-reliance
Good sense of humor
Warmth in human relationships
A curious mind
International Business: Strategy, Management, and the New Realities