Understanding Globalization

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Chapter 1

• Understanding Globalization

2
Objectives

• Understand what is meant by globalization.
• Be familiar with the causes of globalization.
• Changing international trade patterns, FDI flow,
  differences in economic growth among countries,
  and the rise of new MNCs are changing the nature
  of the world economy.
• Debate over the impact of globalization.
• Numerous opportunities and challenges due to
  globalization.

3
Introduction

• Whether a business student is studying marketing,
  finance, accounting, strategy, human relations,
  or operations management, the differences between
  countries in which a firm does business will
  affect decisions that must be made.

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• The world is getting closer in terms of cross
  border trade and investment,
• -by distance,
• -time zones,
• -languages and
• -by national differences
• in government regulation, culture and business
  systems and toward a world in which national
  economies are merging into one huge
  interdependent global economic system.

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What is globalization?

• 1-Globalization is the trend toward a more
  integrated global economic system.
• 2-Globalization describes an ongoing process by
  which regional economies, societies, and cultures
  have become integrated through a globe-spanning
  network of communication and trade.
  (Wikipedia.com)
• 3-Name for the process of increasing the
  connectivity and interdependence of the world's
  markets and businesses. (Investorword.com)

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Faces of globalization

• Globalization has two faces
• Globalization of markets
• Globalization of production

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Globalization of markets

• Globalization of markets refers to the fact that
  in many industries historically distinct and
  separate national markets are merging into one
  huge global marketplace.
• There is a movement towards a globalization of
  markets, as the tastes and preferences of
  consumers in different nations are beginning to
  converge upon some global norm.

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• The global acceptance of Coca-Cola, Levis jeans,
  Sony Walkmans, and McDonalds hamburgers are all
  examples. By offering a standard product
  worldwide, they are helping to create a global
  market. Even smaller companies can get the
  benefits from the globalization of markets.

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Globalization of production

• The globalization of production refers to the
  tendency among many firms to source goods and
  services from different locations around the
  globe in an attempt to take advantage of national
  differences in the cost and quality of factors of
  production. (labor, energy, land and capital)

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• Through this companies hope to lower their
  overall cost structure and or improve the quality
  or functionality of their product, thereby
  allowing them to compete more effectively against
  their rivals. The examples of Boeing and Swan
  Optical illustrate how production is dispersed.

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• Boeing companys commercial jet airliner, Boeing
  777 contains 132,500 major components parts that
  are produced around the world by 545 different
  suppliers. Eight Japanese suppliers make parts of
  fuselage, doors and wings, a supplier in
  Singapore make the doors for the nose landing
  gear, three suppliers in Italy manufacture wing
  flaps etc.

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Drivers of globalization

• Two key factors seem to underlie the trend
  towards the increasing globalization of
• markets and production
• a)-The decline of barriers to trade and
  investment
• b)-Technological change

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The decline of barriers to trade and investment

• International trade occurs when a firm exports
  goods or services to consumers in another
  country.
• For example Under GATT (General Agreement on
  Tariffs and Trade), over 140 nations negotiated
  even further to decrease tariffs and made
  significant progress on a number of non-tariff
  issues (e.g. intellectual property, trade in
  services).

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Decline in investment barriers

• The Foreign direct Investment FDI occurs when a
  firm invests to international trade activities
  outside its home country.
• For example, in Japan, Kodak has taken market
  share from Fuji recent years. In the United
  States,
• Japanese firms have taken away market share from
  General motors, and Chrysler and in Western
  Europe

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The role of technological change

• While lowering trade barriers has made the
  globalization of markets and production a
  possibility, technological changes have made it a
  reality.
• Telecommunications is creating a global audience.
  Transport is creating a global village. From
  Buenos Aires to Boston to Beijing, ordinary
  people are watching MTV, they are wearing Levis
  jeans, and they are listening to Sony Walkman as
  they commute to work

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The changing demographics of the global economy

• In 1960s there were four facts described in the
  demographics of the global economy.
• The U.S dominance in the worlds economy and world
  trade.
• U.S dominance in the world Foreign Direct
  Investment picture.
• The dominance of large multinational U.S firms in
  the international business scene.
• Roughly half of the globe (communist world), was
  unavailable to Western International Business

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• All these four facts either have changed or now
  changing rapidly. The changing demographics has
  four facets.
• The changing world output and world trade picture
• A changing world Foreign Direct Investment
  picture
• The changing nature of the Multinational
  Enterprise
• The changing world order

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The changing world output and world trade picture
The changing pattern of World output and trade The changing pattern of World output and trade The changing pattern of World output and trade The changing pattern of World output and trade
Country Share of world output 1963 () Share of world output 1985 () Share of world output 1995 ()
United States 40.3 21.9 12.2
Japan 5.5 8.2 9.4
Germany 9.7 4.3 10.1
France 6.3 3.5 5.6
United kingdom 6.5 3.4 4.9
Italy 3.4 3.2 4.5
Canada 3.0 2.1 3.9
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A changing world Foreign Direct Investment picture

• The U.S firms accounted for 66.3 of the
  worldwide FDI flow in 1960s.
• British firms were second, accounting for 10.5
• while Japanese firms were a distant third, with
  only 2.
• U.S firms declined substantially form around 44
  percent in 1980 to 25 percent in 1994.
• Japanese, France, other developed nations and the
  worlds developing nations reflects a small but
  growing trend in FDI.

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The changing nature of the Multinational
Enterprise

• Definition A multinational enterprise is any
  business that has productive activities in two or
  more countries.
• Before only U.S
• now non U.S but Japan, Korea, Germany...

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changing in world order
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Review

• What is globalization?
• Discuss the changing demographics of the global
  economy.
• What are the drivers of globalization?
• Is globalization prosperity or impoverishment?
• Group discussion
• What is an advantages and disadvantages of
  Globalization?