Chapter One

Globalization and International Linkages

McGraw-Hill/Irwin

Copyright 2012 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Globalization and International Linkages

The specific objectives of this chapter are to 1. ASSESS the implications of globalization for countries, industries, firms, and communities. 2. REVIEW the major trends in global and regional integration. 3. EXAMINE the changing balance of global economic power and trade and investment flows among countries. 4. ANALYZE the major economic systems and recent developments among countries that reflect those systems.
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International Management
International management involves
Applying management concepts and techniques in a multinational environment and Adapting management practices to different economic, political, and cultural environments.

Multinational corporation (MNC)

Operations in more than one country International sales Nationality mix of managers and owners
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The Worlds Top Nonfinancial MNCs

Ranked by Foreign Assets, 2007

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The Worlds Top Nonfinancial MNCs from Developing Countries

Ranked by Foreign Assets, 2007

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Globalization and Internationalization

Globalization
Process of social, political, economic, cultural, and technological integration among countries around the world.

Hastened by
Offshoring Process by which companies undertake some activities at offshore locations instead of their countries of origin. Outsourcing Subcontracting or contracting out of activities to external organizations that had previously been performed by the firm.
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Globalization: Pros and Cons

Benefits of Globalization
Wealth Jobs Technology Lower prices

Criticisms of Globalization
off-shoring of business service jobs to lower-wage countries growing trade deficits slow wage growth environmental and social impacts
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Global and Regional Integration

Global Agreements
World Trade Organization (WTO) General Agreement on Tariffs and Trade (GATT)

Regional Agreements
North American Free Trade Agreement (NAFTA) U.S.-Central American Free Trade Agreement (CAFTA) European Union (EU) Association of Southeast Asian Nations (ASEAN) Free Trade Agreement of the Americas (FTAA)
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International Economic Power in the Global Economy

Shifting landscape due to
Economic integration Economic potential of emerging markets BRIC countries (Brazil, Russia, India, and China) could be among the four most dominant economies by 2050

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The Worlds Largest Economies 2005 and 2020

(Projected) Measured by GDP at Market Exchange Rates

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The Worlds Largest Economies 2005 and 2020

(Projected)
Measured by GDP at Purchasing Power Parity

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Changing Demographics: Developing Countries on the Rise

(ranked by size)

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Trends in Trade and International Investments

International Trade
In 2009 merchandise and commercial services exports declined

Foreign direct investment (FDI)

Investment in property, plant, or equipment in another country Growing at healthy rate Outpacing domestic growth in most countries Declined in 2009 due to the global recession

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World Merchandise Trade by Region and Selected Country, 2009

(in U.S.$ billions or percent)

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World Foreign Direct Investment Inflows

(in U.S.$ millions)

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World Foreign Direct Investment Inflows

(in U.S.$ millions)

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Global Economic Systems

Market Economy Command Economy Mixed Economy

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Economic Performance by Major World Region

Established Economies
North America European Union Japan

Emerging Economies
Central and Eastern Europe China Other Emerging Markets of Asia India

Developing Economies on the Verge

South America Middle East and Central Asia Africa

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Economic Performance Established Economies

North America
One of the four largest trading blocs in the world Combined purchasing power of U.S., Canada and Mexico approaches $12 trillion Free-market-based economy is attractive to private firms

United States
Foreign MNCs find U.S. a lucrative expansion market Foreign firms welcomed as investors in U.S. market U.S. firms hold market dominance in many European markets; gaining market share in Asia
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Economic Performance Established Economies

Canada
U.S.s largest trading partner Most of the largest foreign-owned Canadian companies are totally or heavily U.S.-owned Legal and business environment in Canada is similar to that in U.S.

Mexico
Strongest Latin American economy Very strong maquiladora industry Trade with both Europe and Asia has increased Now competitive with Asia for the U.S. market
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Economic Performance Established Economies

European Union
Ultimate objective
Eliminate all trade barriers among member countries Emergence of the EU as an operational economic union
A unified Europe could become the largest economic market in terms of purchasing power in the world

Foreign MNCs trying to gain foothold in EU

Acquisitions, alliances, cooperative R&D efforts

Economic linkages between the EU and newly emerging Central and Eastern European countries
Challenge is to absorb former communist bloc countries

Financial crises in Greece and Ireland putting pressure on the euro

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Economic Performance

Established Economies
Japan
Huge economic success in 1970s and 1980s Ministry of International Trade and Industry (MITI) Keiretsus
Vertically integrated industries Holdings provide assistance needed in providing goods and services to end users

Decade long recession in 1990s

More competition from emerging economies Poor management decisions

Remains a formidable competitor in the Pacific Rim, 1-23 North America, and Europe

Economic Performance Emerging Economies

Central and Eastern Europe Russia
Dismantling of price controls and privatization Membership in International Monetary Fund (IMF) controlling inflation Crime and political uncertainty

Czech Republic, Hungary, Poland

Privatization Inflation
Political uncertainty
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Economic Performance Emerging Economies

China
Real economic growth of 12 percent in 2007, 9 percent in 2008, and 11.5 percent in 2009 Savings glut in corporate sector Vast developmental needs Unemployment concerns Attractive to investors despite political risk Product pirating is a major problem Currency value Government policies favor domestic firms
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Economic Performance Emerging Economies

South Korea
Chaebols Very large family-held conglomerates Solid economy, moderate growth and inflation, low unemployment

Hong Kong
Part of Peoples Republic of China Uncertainty about the role the Chinese government

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Economic Performance Emerging Economies

Singapore
Success story Leader and financial center for region

Taiwan
Progressed from labor-intensive economy to one dominated by technologically sophisticated industries
banking, electricity generation, petroleum refining and computers

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Economic Performance Emerging Economies

Thailand, Malaysia, Indonesia
Large population base Inexpensive labor Considerable natural resources Attractive to outside investors

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Economic Performance Emerging Economies

India
Large population Recent trend of locating software and high valueadded services to this country boosting middle- and upper-class market for goods and services Attractive to U.S. and British investors
well educated, English speaking, technologically sophisticated workers

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Economic Performance Developing Economies on the Verge

South America
Hampered by foreign debt and severe inflation But, intercountry trade is increasing
Countries looking to do business with U.S.

Brazil
Economy is now flourishing and attracting investment from MNCs
Privatization and stable government

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Economic Performance Developing Economies on the Verge

Chile
Uncertain future, but helped by trade agreements

Argentina
Abundant natural resources Economic problems persist

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Economic Performance Developing Economies on the Verge

Middle East and Central Asia
Large oil reserves Highly unstable geopolitical and religious forces Plagued by continuing economic problems

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Economic Performance Developing Economies on the Verge

Africa Considerable natural resources African nations remain very poor and undeveloped International trade is not a major sources of income Populace divided into 3,000 tribes that speak 1,000 languages and dialects Major political instability Poverty, starvation, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector
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Worlds Most Competitive Nations, 2010

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Market Potential Indicators Ranking for Emerging Markets, 2009

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Review and Discuss

1. How has globalization affected different world regions? What are some of the benefits and costs of globalization for different sectors of society? How has NAFTA affected the economies of North America and the EU affected Europe? What importance do these economic pacts have for international managers in North America, Europe and Asia? Why would MNCs be interested in South America, India, the Middle East, Central Asia, and Africa, the less developed and emerging countries of the world?

2.

3.

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