Globalization

What is Globalization?
The shift toward a more integrated and interdependent world economy Two components:
The globalization of markets The globalization of production

Globalization of Production
Vizio flat panel TV is
designed in a small office in California assembled in Mexico From
panels made in South Korea electronic components made in China microprocessors made in the U.S.

Not just manufacturing

Globalization of production has historically been about manufacturing Increasingly companies are using modern communications to outsource service activities to low-cost nations

Globalization of markets
In the past, each country had its own companies in many industries and its own products
I never saw Japanese media (and I saw little non-US media) in college

Today everyone knows

Nintendo Starbucks Coca-Cola Ikea McDonalds Samsung

But the most global markets are for standard goods Aluminum
Wheat Microprocessors Aircraft For many consumer end-products,

huge differences still exist among national markets

Entertainment, food, clothing

Drivers of Globalization
Two factors underlie globalization
Decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II Technological change

Declining Trade and Investment Barriers

During the 1920s and 30s, many of nations erected formidable barriers to international trade and foreign direct investment Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations.

Average Tariff Rates on Manufactured Products

France German y Italy Japan Holland Sweden UK US 1913 21 % 20 % 18 % 30 % 5% 20 % -44 % 1950 18 % 26 % 25 % -1% 9% 4% 14 % 1990 5.9 % 5.9 % 5.9 5.3 5.9 4.4 5.9 4.8 % % % % % % 2002 4.0 % 4.0 % 4.0 3.8 4.0 4.0 4.0 4.0 % % % % % %

Affects of Lowering Trade Barriers

Figure 1.1: Volum e of W orld Trade and W orld Product ion, 1950-2004
3100 2600 In d e x1 9 5 0 = 1 0 0 2100 1600 1100 600 100
19 50 19 54 19 58 19 62 19 66 19 70 19 74 19 78 19 82 19 86 19 90 19 94 19 98 20 02

Total Merchandise Exports

World Production

The Role of Technology

Lowering of trade barriers made globalization possible; Technology has made it a transforming movement

Internet Usage Growth

Figure 1.3: Int ernet Users per 1 00 0 People, 1 990 2 003
700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 World

In t e r n e tU s e r sp e r1 0 0 0p e o p le

Japan

United States

European Monetary Union

 People lived for 250,000 years in hunter-gatherer bands Rise of agriculture 10,000 years ago led to rise of empires and nation-states Science and enlightenment after 1680 produced global trade and empires Free trade and tech after 1980

Globalization is acceleration of trends of the last 10,000 years

The Emergence of Global Institutions

Notable global institutions include the World Trade Organization (WTO) which is responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties
In 2008, 151 nations accounting for 97% of world trade were members of the WTO

the International Monetary Fund (IMF) which maintains order in the international monetary system

The Changing Roles of Countries in the Global Economy

In the 1960s: The U.S. dominated the world economy and the world trade picture 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 Today, much of this has changed.

The Changing World Output and World Trade Picture

In the early 1960s, the U.S. was the world's dominant industrial power accounting for about 40.3% of world manufacturing output By 2007, the U.S. accounted for only 20.7% Other developed nations experienced a similar decline

The Changing Nature of the Multinational Enterprise

Since the 1960s, there has been a rise in non-U.S. multinationals there has been a rise in minimultinationals

The Globalization Debate

Pro
Lower prices for goods and services Economic growth Increase in consumer income Creates jobs (for many) Countries specialize in production of goods and services that are produced most efficiently

Con
Destroys manufacturing jobs in wealthy nations Wage rates of unskilled in advanced countries decline Companies move to countries with fewer labor and environment regulations Loss of sovereignty Homogenized cultures

Managing in the Global Marketplace

Much of this course is concerned with managing an international business
i.e., any business with international
sales, sourcing, or Investment

Managing an international business is different Countries are different

International transactions involve converting money into different currencies Range of problems in an international business is wider and problems are more complex International business must cope with different, conflicting government rules and systems Different strategic approaches required

Key terms
An international business any business with international sales, sourcing, or investment A multinational business any business with productive activities in 2 or more countries A global business a business that takes a global approach to

The Emergence of Global Institutions

the World Bank which promotes economic development the United Nations (UN) which maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations