Chap 1: Globalization

What Is Globalization?

•The shift toward a more integrated and interdependent world economy.

•The world is moving away from self-contained national economies toward an

interdependent, integrated global economie system

 Globalization
•Creates wealth and benefits;
•Has several facets, including the globalization of markets and the globalization of
production.

Critics say that Globalization:

•Increases the wealth of corporations and investors at the expense of the poor,

•Does other damage to society in general.

•Economic growth can result in both: positive and negative consequences.

*Negative Consequences:

•Using more nonrenewable natural resources.

•Environmental pollution through toxic and pesticide waste, factory and vehicle emissions,
and defẻoestation.

*Positive Consequences:

• Global cooperation to develop uniform standards to solve environmental problems.

•Efficiency in the use of resources because of openness.
•Access to technological developments, which reduce pollution and inefficient use of
resources.

What's wrong with Globalization?

- Threats to national sovereignty;

- Economic growth and environmental stress;
- Growing income inequality and personal stress:
- The transferring of production abroad is controversial in terms of who benefits when costs
are reduced and whether the process exchanges good jobs for bad ones.

- Your day has already been filled with the effects of globalization;

- You can think of globalization in terms of the globalization of markets and the globalization
of production.

→ Because of globalization, the availability of international products and services can be

accessed by individuals in many countries, from diverse economic backgrounds.
What Is The Globalization of Markets?

-Historically distinct and separate national markets are merging and creating the "global
market"
- The globalization of markets doesn't mean that consumers are the same everywhere, and
differences between markets no longer exist.

→ A company does not have to be the size of these multinational giants to facilitate, and
benefit from, the globalization of markets.

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 worldwide.

=>The most global markets currently are not markets for consumer products - where
national differences in tastes and preferences are still often important enough to act as a
brake on globalization - but markets for industrial goods and materials that serve a universal
need the world over.

What's the Globalization of Production?

Firms source 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 offeering
•Although the impediments such as formal and informal barriers to trade between
countries, barriers to foreign direct investment, transportation costs, and issues associated
with economic and political risk are all increasing, the globalization of markets and
production will continue development.
•Modern firms are important actors in this trend, their very actions fostering increased
globalization.
•These firms, however, are merely responding in an eflicient manner to changing
conditions in their operating environment-as well they should.

Factor of Product:
1/ Land: nature & farm
2/ Labor: mental ⇔ staff
Physical ⇔ unskill
3/ Capital: money & human
4/ Entrepreneur: 1+2+3
5/ Knowledge

Why Do We Need Global Institutions?

• Institutions:

=>help manage, regulate, and police the global marketplace;

=>promote the establishment of multinational treaties to govern the global business system.
 Notable global institutions include:

The World Trade Organization (WTO)

The International Monetary Fund (IMF)

The World Bank

V The United Nations (UN)

The World Trade Organization (like its predecessorGATT)

-Polices the world trading system;

-Makes sure that nation-states adhere to the rules laid down in trade treaties;

-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.

The United Nations (1945):

-Maintains international peace and security;

-Develops friendly relations among nations;

-Cooperates in solving international problems and in promoting respect for human rights;

-Is a center for harmonizing the actions of nations.

What is driving the move toward greater globalization?

 Two macro factors:

 Declining trade and investment barriers since World War II.
 Technological change

What is driving the move toward greater globalization? (cont’d)

=> The decline in barriers to the free flow of goods, services, and capital.

 Average tariffs have fallen significantly and are now at 4 percent;

 Countries have opened their markets to FDI, and more favorable environment for
FDI.
 Global stock of FDI has been expanded.
 Facilitates global production have increasing.

=>Technological change

 Microprocessors and Telecommunications support dramatic improvements in

communication
 Information processing through the Internet and World Wide Web;
 Transportation technologies.
International trade

-Occurs when a firm exports goods or services to consumers in another country.

-Has created a network of global links that bind countries, institutions, and individuals with
trade, financial markets, technology, and living standards.

-For example, a reduction in coffee production in Brazil would affect individuals and
economies worldwide.

Foreign direct investment (FDI)

-Occurs when a firm invests resources in business activities outside its home country.

*Home sẽ là đi ra

*Host sẽ là điểm đến

International trade (cont' d)

- Many of the barriers to international trade took the form of high tariffs on imports of
manufactured goods.

→ The typical aim of such tariffs was to protect domestic industries from foreign competition.

→ One consequence, however, was "beggar thy neighbor" retaliatory trade policies, with
countries progressively raising trade barriers against each other.

 The world's poorer nations have the most to gain from any reduction in agricultural
tariffs and subsidies;
 Such reforms would give them access to the markets of the developed world.
 In addition to reducing trade barriers, many countries have also been progressively
removing restrictions to foreign direct investment.
 Such trends have been driving both the globalization of markets and the
globalization of production.
 The lowering of barriers to international trade enables firms to view the world, rather
than a single country, as their market.
 The lowering of trade and investment barriers also allows firms to base production
at the optimal location for that activity.
 Thus, a firm might:
 Design a product in one country,
 Produce component parts in two other countries,
 Assemble the product in yet another country,
 And then export the finished product around the world.

The role of technological change

-The lowering of trade barriers made globalization of markets and production a theoretical
possibility.

-Technological change has made it a tangible reality.

-Since the end of world war Il, the world has seen major advances in communication,
information processing, and transportation technology, including the explosive emergence of
the Internet and World Wide Web.
 + Telecommunications is creating a global audience.

+ Transportation is creating a global village.

Implications for the Globalization of Production

 As transportation costs associated with the globalization of production have declined,

dispersal of production to geographically separate locations became more
economical.
 As a result of the technological innovations, the real costs of information processing
and communication have fallen dramatically in the past two decades.
 These developments make it possible for a firm to create and then manage a globally
dispersed production system, further facilitating the globalization of production.
 A worldwide communications network has become essential for many international
businesses.

So, in brief the implications of technological change for the globalization of production
include:

-Lower transportation costs that enable firms to disperse production to economical,

geographically separate locations.

-Lower information processing and communication costs that enable firms to create and
manage globally dispersed production systems.

Implications for the Globalization of Markets

- In addition to the globalization of production, technological innovations have facilitated the

globalization of markets.

-Low-cost global communications networks such as the World Wide Web are helping to
create electronic global marketplaces.

-Low-cost transportation has made it more economical to ship products around the world,
thereby helping to create global markets.

So, in brief the implications of technological change for the globalization of markets
include:

- Low cost global communications networks help create electronic global marketplace.

-Low-cost transportation help create global markets.

-Global communication networks and global media are creating a worldwide culture, and a
global market for consumer products.

What is International Business?

-International business consists of transactions that are devised and carried out across
national borders to satisfy the objectives of individuals, companies, and organizations.

-International business consists of all commercial transactions — including sales,

investments, and transportation — that take place between two or more countries.
-Increasingly foreign countries are a source of both production and sales for domestic
companies.

What is International Business? (cont'd)

 International Business is all commercial transactions - private and governmental

between two or more countries.
 Private company undertake such transactions for Profit;
 Governments may or may not do the same in their transactions.

Why should we study International Business?

 International Business comprises a large and growing portion of the world's total
business.
 The conditions within a company's external environments affect the way business
functions.
 These conditions are physical, societal and competitive.

Why should we study International Business? (cont'd)

 Companies international operations and governmental regulation of international

business affect:
 Company Profits;
 Employment security and wages;
 Consumer prices;
 National security.
 A better understanding of International Business may help you to make more
informed decisions.
 Though global trade has existed for centuries, today the business world is changing
and becoming more international as a result of globalization.
 International trade affects most companies and customers around the world.
 International Business:
 Satisfaction
 Across National Borders
 International Transactions

Studying IB is Important, just because:

 Most companies are either international or compete with international companies;

 Modes of operations may differ from those used domestically;
 The best way of conducting business may differ by country;
 An understanding helps you make better career decisions;
 An understanding helps you decide what government policies to support.

Researching International business, knowing that:

 causes the flow of ideas, services, and capital across the world;
 offers consumers new choices;
 permits the acquisition of a wider variety of products;
 facilitates the mobility of labor, capital, and technology;
 provides challenging employment opportunities; o reallocates resources, makes
preferential choices,
and shifts activities to a global level.
Management in IB

In additional to domestic business management skills, international business management

requires:

 Social science understanding;

 Political science appreciation;
 Legal awareness;

And an innate ability in:

+Anthropology

+Sociology

+Psychology

+Economics

+Geography

Management in IB (cont' d) ( quan trọng có thi)

Physical and Social Factors Affecting

International Business Operations.

 To operate within a company's external environment, its managers must have

knowledge of business operations and a working knowledge of social sciences,
 And how they affect all functional business fields.

Competitive Factors Affecting International Business

 A company's competitive strategy influences how and where it can best operate.
 A company's competitive situation may differ in terms of its relative strength and
which competitors it faces.

Why companies engage in IB?

When operating internationally, a company should consider:

• Its mission - What it will and become over the long term

 Its objectives - Specific performance targets to fulfill the mission

 Its Strategy - The means to fulfill

There are seven major objectives that may influence companies to engage in IB.

 Expand sales

-The consumers interest in their product/services.

-The consumers' willingness and ability to buy them.

 Acquire resources

-Better components, services, products.

 -Foreign capital.

-Technologies and Information.

 Minimize risk

-Take advantage of the business cycle for products/services.

-Diversify among international markets.

 Profit Advantage

-International business is more profitable than the domestic.

 Diversify Sources of Sales and Supplies

-To take advantage of business cycle - recessions and expansions.

-Sales decrease/ increase in a country.

 Growth Opportunities

-Take advantage of substantial products/services.

-Population and income are growing fast.

 Government Policies and Regulations

-Government policies and regulations do encourage and motivate the exporters to go

international.

-There are many forms of positive support to domestic companies to export and to
invest in foreign market.

Reasons for Growth in IB

 Rapid increase in and expansion of technology;

 Transportation is quicker while costs are lower;
 Communication enables control from afar;
 Liberal government policies on trade and resources;
 Development of institutions that support international trade;
 Growing consumer pressures;
Increased global competition.

The Changing Demographics Of The Global Economy

 There has been a drastic change in the demographics of the world economy in the
last 30 years.
 Four trends are important:
 The Changing World Output and World Trade Picture.
 + In 1960, the U.S. accounted for over 40% of world economic activity, but by 2009,
the U.S. accounted for just 24%. A similar trend occurred in other developed countries.

+ In contrast, the share of world output accounted for by developing nations is rising.
Expected to account for more than 60% of world economic activity by 2020.

The overview to how has world output and world trade changed over the last 50
years?

 In the 1960s:
 The U.S. dominated the world economy and the world trade picture
 The U.S. dominated world FDI
 U.S. multinationals dominated the international business scene.
 About half the world - the centrally planned economies of the communist world -
was off limits to Western International Business.
 The Changing Foreign Direct Investment
Picture.

How Has Foreign Direct Investment Changed?

-In the 1960s, U.S. firms accounted for about two-thirds of worldwide FDI flows.

 Today, the United States accounts for less than one-fifth of worldwide FDI flows.
 Other developed countries have followed a similar pattern.

-In contrast, the share of FDI accounted for by developing countries has risen.

• Developing countries, especially China, have also become popular destinations for FDI.

In brief, how has the foreign direct investment picture changed over the last 50
years?

 The share of world output generated by developing countries has been steadily
increasing since the 1960s.
The stock of foreign direct investment (total cumulative value of foreign investments)
generated by rich industrial countries is declining.
 Cross-border flows of foreign direct investment are rising.
 The largest recipient of FDI is China.
 The Changing Nature of the Multinational What Is A Multinational Enterprise?

Multinational enterprise (MNE) - any business that has productive activities in two or
more countries.
-Since the 1960s

 The number of non-U.S. multinationals has risen.

 The number of mini-multinationals has risen. Enterprise.
 The Changing World Order.
 The potential consequences for international business are enormous.
 Many former Communist nations in Europe and Asia are now committed to
democratic politics and free market economies

+Creates new opportunities for international businesses.

+But, there are signs of growing unrest and totalitarian tendencies in some
countries.
  China and Latin America are also moving toward greater free market reforms

-Between 1983 and 2010, FDI in China increased from less than $2 billion to $100 billion
annually.

-But. China also has many new strong companies that could threaten Western firms.

-Accordingly, Latin America restricted direct investment by foreign firms.

-In addition, the poorly managed economies of Latin America were characterized by low
growth, high debt, and hyperinflation-all of which discouraged investment by international
businesses.

Why is the changing world order important for firms?

 The collapse of communism in Eastern Europe.

+New export and investment opportunities.

 Economic development in China.

+Huge opportunities despite continued Communist control.

 Free market reforms and democracy in Latin America.

+New markets and new sources of materials and production.

How Will The Global Economy Of The 21st Century Look?

 The world is moving toward a more global economic system.

 But globalization is not inevitable.
 There are signs of a retreat from liberal economic ideology in Russia.
 Globalization brings risks.
O The financial crisis that swept through South East Asia in the late 1990s.
 The recent financial crisis that started in the U.S. in 2007-2008, and moved around
the world.

Is An Interdependent Global Economy A Good Thing?

 Supporters believe that increased trade and cross-border investment mean

+Lower prices for goods and services

+Greater economic growth

+Higher consumer income, and more jobs

 Critics worry that globalization will cause

+Job losses

+Environmental degradation

+The cultural imperialism of global media and MNEs

  Anti-globalization protesters now regularly show up at most major meetings of global
institutions.

Summary that is the shift toward a more integrated and interdependent global
economy a good thing?

-Many believe that globalization is promoting greater prosperity in the global economy, more
jobs, and lower prices for goods and services.

-Others feel that globalization is not beneficial.

Globalization. Jobs. And Income

 Globalization critics argue that falling barriers to trade are destroying manufacturing
jobs in advanced countries.
 Supporters of globalization contend that

-The benefits of this trend outweigh the costs — that countries will specialize in what
they do most efficiently;

-And trade for other goods — and all countries will benefit.

Globalization, Labor Policies, And The Environment

-Globalization critics argue that firms avoid costly efforts to adhere to labor and

environmental regulations by moving production to countries where such regulations do not

exist, or are not enforced.

-Globalization supporters clown that tougher environmental and labor standards are
associated with economic progress, so as countries get richer from free trade, they get
tougher environmental and labor regulations.

Globalization And National Sovereignty

-Critics of globalization worry that today's interdependent global economy is shifting

economic power away from national governments toward supranational organizations like
the WTO, the EU, and the UN

-Supporters of globalization contend that:

 The power of these organizations is limited to what nation-states agree to grant,

 And that the power of the organizations lies in their ability to get countries to agree
to follow certain actions

How Does The Global Marketplace Affect Managers?

Managing an international business differs from managing a domestic business because:

 Countries are different.

 The range of problems confronted in an international business is wider and the
problems more complex than those in a domestic business.
 Firms have to find ways to work within the limits imposed by government intervention
in the international trade and investment system.
 International transactions involve converting money into different currencies.