Global Business

Chapter 1: Globalization
Restaurant Brands International: Burger Kind and Tim Hortons merging
- Cross-border acquisition in absence of barriers and protectionism

Globalization is the shift toward a more integrated and interdependent world economy
- Market and Consumers
 Merging of historically distinct and separate national markets into one huge global
marketplace
 Less trade barriers to cross-border (US -CAD) trade and investment = internationally sells
easy
 global market = helped by convergence of tastes and preferences of consumers in different
nations + standardized product worldwide
- firms benefactor and facilitators of trend  same product worldwide = global market
- firms do not need to be big to benefit – 98% in U.S of 300,000 small/medium businesses
(less than 500) exports but only represents 33% in total export value
 low-cost global communication = helped create electronic global marketplaces
 Mass movement of immigration due to low-cost jet travel

Global edge: Michigan, recourse that connects IB professionals worldwide to wealth of info,
infight, learning on global business activities
Preferences of consumers = brake on GZ
Global market = for industrial goods (aluminum, oil, wheat)
Global GDP rising = interconnectedness

- Production
 Outsourcing of goods and services to take advantage of national differences in costs and
quality of factors of production (+ energy) – knowledge(investment) + entrepreneurship
 lower overall cost structure and/or improve quality/functionality/ productivity of product =
allow to compete effectively
 lower transportation cost = outsourcing
 allows firm to create and manage a globally dispersed production system

Best at outsourcing: Boeing

- Global web = better final product since outsourcing to experts + increase change it will
have orders
- Hospital = outsource radiology – time difference advantage
- Global product are products that results from outsourcing to different suppliers
Concerns about future:
- Exit of United Kingdom form European Union (Brexit)
- Renegotiation of NAFTA
- Trade disputes between U.S and major trading partners (China)
- Covid = exposed how easy global supply = disrupted
 - Russia invasion of Ukraine

China: epicenter of new economic order in opposition to Western leadership

Global Institutions
- Help manage, regulate, and police the global market
- Promotes multinational treaties to govern global business system

General Agreement on Tariffs and Trade:

- lowering barriers to three flow of goods across national border. Led too…
- 8 rounds 1948-1993
- Uruguay Round = extend to cover services, + protection of intellectual property

WTO:
- Responsible for policing the world trading system + making sure people adhere to rules
mentioned in treaties
- 164 nations, 98%
- Facilitating establishment of additional multinational agreement among members
- To create a more open global business
Critics: oppression of national sovereignty so influence has been diminished as political actors

IMF:
- Maintain order in international monetary system
- Lender of last resort to nations whose economies are in turmoil and currencies loosing
value
- INTEREST RATE + imposed policies “aimed to stabilize and grow economy” (threat to
government)

WB:
- Promote economic development by lending money to infrastructure investment
- Low interest rate loans so less controversial
- International bank for reconstruction and development (INVOLVED IN IB opportunities
for Canadian companies) , international development association, international finance
corporation, multilateral investment guarantee agency, international centre for settlement
of investment disputes
UN:
- Preserving peace through international cooperate and collective security
- 193 countries accept obligation of UN charters (international treaty that establishes basic
principles of International relation
1. Maintain international peace and security
2. Develop friendly relations among nations
3. Cooperate in solving international problems and promoting respond for human rights
4. Promotion of higher standards of living, full employment, and conditions of
economic and social progress and development
- Works with WB: eradicating poverty and improving well-being everywhere = necessary
steps for long lasting world peace.
Drivers of globalization: Macro factors

Before: high tariffs on imported goods to protect domestic industries = retaliatory trade policies
 depressed world demand and contributed to great depression

1. Decline in trade and investment barriers

= to free flow of goods, services, and capital since end of WW2
- Enables firms to view world and learn from global market
- Allows firms to base production at the optimal location = increase world market
- Allows outsourcing
2. Technological change in communication, info processing(faster + cheaper), and
transportation (decreasing distance)
= Has made globalization of markets and production and tangible reality
- and emergence of Internet and World Wide Web

 GDP < Trade

1. outsourcing to drive down production cost and increase product quality
2. intertwined economies - dependent on each other’s for important goods and services
3. world = wealthier in last 4 decades
4. rising trade = pull global economy along
 FDI increase = liberalization
Financial Crisis of 2008 and 2009 = trade barriers rise to projects domestic jobs – Trump

Changing demographics of Global economy:

Important implication in IB = India + China + Latin America quiet revolution

Most purchase is currency - 25%

Globalization of Production:
- Decline in transportation cost = dispersal of production is cheaper = technological
innovation in comm
- OUTSOURCING + Lower cost of information processing/communication due to
technological innovations = create and manage a global production system

Globalization of Markets:
- Low-cost global comm (World Wide Web) = create electronic global marketplaces
- Low-cost jet travel = mass movement of people
= emergence of global markets for consumer products
- Global media and comm = worldwide culture. movie

The Changing Demographic of Global Economy:

1. U.S dominance in world economy and trade
2. U.S dominance in FDI
 3. U.S firms dominance in IB and industrial power
4. Half world = centrally planned economies of communist world
U.S relative decline reflecting faster economic growth of other economies (China>US<India in
2035)
Growing trade: China, India, Russia, Indonesia, Thailand, South Korea, Mexico, and Brazil.
 U.S trade dominance = vanished b/c of Japan, Germany, South Korea and China
 new developing counties then decrease their dominance

Quiet revolution in India: software (abundant supply of engineering talent, low labor cost, fluent
in English, time zone) + 20% of global economy = pharmaceutical after abolish law

Developing nations = 60% of world economy by 2030

And developed 5538%

Changing FDI picture

FDI: desire to disperse production activities to optimal location +build direct presence in major
foreign market (mostly Japan and Europe)
- Reflects Internationalization of business corporation
- Largest recipient = China - $181 billion in 2021
- U.S used to be 66.3% in 1960s = economic threat of Europe (France) = limit FDI
- Covid = increase in FDI
- FDI important stimulus for economic growth
- Latin America’s debt and inflation GOING DOWN or improving = FDI

Outward stock of FDI: total cumulative value of foreign investment by firms domiciled in a
nation outside of that nation’s border/ The total value of a country’s businesses’ investments in
other countries over time

- Ex: f U.S. companies own factories, offices, or businesses abroad, the total value of those
investments is the U.S.’s outward stock of FDI

Changing nature of the multinational enterprise:

NON-US multinational Japan:

- 2/3 FDI in 1960s in 2003  38.8%, then Japan
Rise of mini multinational: thanks to rise of Internet

Changing World:
- series of democratic revolution sweeping communist world (replaced by 15 independent
republic)
- before old communist counties were close for IB
- Pulling out of Russia due to invasion of Ukraine + totalitarian
- China will move from developing economy to industrial superpower (more rapidly than
Japan)
- Current trends = indicate that the world is moving towards economy system best for IB +
need hedging strategies to minimize risk of globalization
Quiet revolution China, and Latin America:
- Investment in IB = as profound as collapse of Communism
- China: suppress democracy movement BUT greater free market reforms  lead to
industrial superpower >Japan’s
 if continues China communist party – starting to control FDI so if continue = bad
- Latin America: restricting FDI + poorly managed so discourage
 limit rights of Foreign company to extract oil and gas

Global economy of twenty first century:

- Starting to barrier to flow of goods etc.. high tariff
- Adoption of liberal economic policies
- Moving toward economic system for favorable for IB
Can stop globalization
- Not inevitable since China and US technological = decoupling (no longer moving in step
according to expectation so it is stopping)
- Global financial crisis: in (Thailand then spread to Asia – Russia and Brazil), (U.S) +
Covid
- Brexit
- Pull back from commitment if do not match expectations
- Pull back on liberal views

Managing in the Global Market Place:

- Task of management IB
- Countries uniqueness = require IB practices that vary
- Cross-border transaction

Implication for Business

- South/North
- Covid and conflict
- Role of technology in international business