International Management
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Chapter 1 Globalization Globalization refers to the shift toward a more integrated and interdependent world economy. World is moving away from self-contained national economies toward an interdependent, integrated global economic system o Barriers to cross-border trade and investment are declining. o Perceived distance is shrinking due to advances in transportation and telecommunications technology. o Material culture is starting to look similar over the world. o National economies are merging into an interdependent and integrated global economic system.What is The Globalization of Markets?Separate national markets are mergingIt no longer makes sense to talk about the “Singapore market” or the “American market” θ Instead, there is the “global market”Falling trade barriers make it easier to sell globally Consumers’ tastes and preferences are converging on some global norm Firms promote the trend by offering the same basic products worldwideThe most global markets currently are not markets for consumer products. National differences in tastes and preferences are still often important enough to act as a brake on globalization. θ But markets for industrial goods and materials that serve a universal need the world over. o Oil, aluminum, wheat, microprocessors, DRAMs, commercial jet aircraft, computer software and financial assets from U.S. Treasury bills to eurobonds and futures on the Nikkei Index.What Is The Globalization of Production?The sourcing of goods and services from locations around the globe to capitalize on national differences in the cost and quality of factors of production like land, labor, and capital.Companies can – Lower their overall cost structure. -Improve the quality or functionality of their product offeringWhy Do We Need Global Institutions?Institutions o Help manage, regulate, and police the global marketplace.o Promote the establishment of multinational treaties to govern the global business system.E.g. General Agreement on Tariffs and Trade (GATT) ♣ The World Trade Organization (WTO) ♣ The International Monetary Fund (IMF) ♣ The World Bank ♣ The United Nations (UN)What Do Global Institutions Do?The World Trade Organization (former GATT) o Polices the world trading system o Makes sure that nation-states adhere to the rules laid down in trade treaties o Promotes lower barriers to trade and investment The International Monetary Fund (1944) maintains order in the international monetary system The World Bank (1944) promotes economic development θ The United Nations (1945) o Maintains international peace and security o Develops friendly relations among nations o Cooperates in solving international problems and in promoting respect for human rights o Is a center for harmonizing the actions of nationsWhat Is Driving Globalization? The decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II ♣ Since 1950, average tariffs have fallen significantly ♣ Countries have opened their markets to FDI Technological change ♣ Microprocessors and telecommunications: PC ♣ The Internet and World Wide Web: Amazon.com ♣ Transportation technology : Sears, Roebuck & Co.
What Does Globalization Mean For Firms?Lower barriers to trade and investment mean firms can o View the world, rather than a single country, as their market o Base production in the optimal location for that activityTechnological change means ♣ lower transportation costs – firms can disperse production to economical, geographically separate locations • help create global markets ◊ Jet aircraft and containerization ♣ lower information processing and communication costs – firms can create and manage globally dispersed production and distribution systems ♣ Dell uses the internet for global coordination and control. ♣ Low cost global communications networks – help create an electronic global marketplace: global e-commerce. ♣ Can create a worldwide culture, and a global market for consumer productsThe Changing Demographics Of The Global EconomyFour trends are important: ♣ The Changing World Output and World Trade Picture♣ The Changing Foreign Direct Investment Picture ♣ The Changing Nature of the Multinational Enterprise ♣ The Changing World OrderHow Has World Output And World Trade Changed?By 2008, the United States accounted for just over 20% of world economic activityThe share of world output accounted for by developing nations is rising and is expected to account for more than 60% of world economic activity by 2020How Has Foreign Direct Investment Changed Over Time?Today, the United States accounts for less than one-fifth of worldwide FDI flowsIn contrast, the share of FDI accounted for by developing countries has risen θ Developing countries, especially China, have also become popular destinations for FDIWhat Is A Multinational Enterprise?A multinational enterprise (MNE) is any business that has productive activities in two or more countriesIs An Interdependent Global Economy A Good Thing?Supporters believe that increased trade and crossborder investment mean ♣ Lower prices of goods and services to consumers ♣ Greater economic growth ♣ Higher consumer income, and more jobsCritics worry that globalization will cause-Job losses ♣ Environmental degradation ♣ The cultural imperialism of MNEsHow Does Globalization Affect Jobs And Income?Critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries ♣ Shortage of skilled labor vs. Excess unskilled labor ♣ Technology-induced shift vs. Shift to overseasSupporters contend that the benefits of this trend outweigh the costs ♣ Countries will specialize in what they do most efficiently and trade for other goods—and all countries will benefit