chapter

Globalization
McGraw-Hill/Irwin
Global Business Today, 5e

2008 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Chapter 1: Globalization

Objectives
1.
2.
3.
4.
5.

Understand what is meant by the term

globalization
Be familiar with the main drivers of globalization
Appreciate the changing nature of the global
economy
Understand the main arguments in the debate
over the impact of globalization
Appreciate how the process of globalization is
creating opportunities and challenges for business
managers.

Chapter 1: Globalization

WHAT IS GLOBALIZATION?
Globalization refers to the shift towards a
more integrated and interdependent world
economy.

Chapter 1: Globalization

Effects of globalization can be seen

everywhere:
the cars people drive
the food people eat
the jobs where people work
the clothes people wear

Chapter 1: Globalization
Americans drive cars made in Germany, use VCRs made
in Japan and wear clothing made in China. The world
economy is more integrated than ever before.

Chapter 1: Globalization

The Globalization of Markets

Globalization of markets: separate national markets are
merging into one huge global marketplace in which the
tastes and preferences of consumers in different nations
are beginning to converge upon some global norm.
Examples:
Sony Playstation
Coca-Cola

Citicorp credit cards

McDonald's hamburgers

Example
Company/Business Unit

Main Location

Boeing Commercial Airplanes

Washington
(announced Nov and Dec 2003)
Alenia Aeronautica (announced Italy
Nov. 2003)
Boeing Charleston (announced
South Carolina
as Vought Aircraft Industries
Nov. 2003)

787 Work Statement

Airplane development,
integration, final assembly,
program leadership
Horizontal stabilizer, center
fuselage
Aft fuselage

Vertical tail assembly, movable

Boeing Fabrication (announced
Washington, Canada, Australia trailing edges, wing-to-body
Nov 2003)
fairing, interiors
Spirit Aerosystems Inc.
Fixed and movable leading
(announced as Boeing-Wichita Kansas, Oklahoma
edges, flight deck, part of
Nov 2003; Apr 2004)
forward fuselage, engine pylons
Center wing box, integration of
Fuji Heavy Industries
Japan
the center wing box with the
(announced Nov 2003)
main landing gear wheel well
Main landing gear wheel well,
Kawasaki Heavy Industries
Japan
main wing fixed trailing edge,
(announced Nov 2003)
part of forward fuselage
Source: http://www.boeing.com/boeing/commercial/787family/dev_team.page

Chapter 1: Globalization

The Globalization of Production

Globalization of production
the tendency among many firms to source goods and
services from different locations around the globe
take advantage of national differences in the cost and
quality of factors of production
Examples: Boeing, Lenovo

Chapter 1: Globalization

THE EMERGENCE OF GLOBAL INSTITUTIONS

Global institutions:
help manage, regulate, and police the global
market place
promote the establishment of multinational
treaties to govern the global business system

Chapter 1: Globalization
Examples of Global Institutions:

World Trade Organization (WTO) : responsible for policing

the world trading system and ensuring that nations adhere to the
rules established in WTO treaties
International Monetary Fund (IMF) :maintains order in the
international monetary system
World Bank: promotes economic development
United Nations (UN): 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

Chapter 1: Globalization

DRIVERS OF GLOBALIZATION
Declining trade and investment barriers
The role of technological change

Chapter 1: Globalization

Declining Trade and Investment Barriers

The industrialized countries of the West began the
process of removing barriers
Under GATT
over 100 nations negotiated further decreases in tariffs
and made significant progress on a number of nontariff issues

Chapter 1: Globalization

Under the WTO

dispute resolution and the enforcement of trade laws
cut tariffs on industrial goods, services, and
agricultural products

Removal of barriers to trade has contributed to

increased international trade (the export of goods
or services to consumers in another country), world
output, and foreign direct investment (the
investing of resources and business activities outside a
firms home country)

Chapter 1: Globalization

The volume of world trade and investment has

accelerated since the early 1980s.

Chapter 1: Globalization

The Role of Technological Change

The lowering of trade barriers made
globalization of markets and production a
theoretical possibility, technological change
made it a tangible reality.

Chapter 1: Globalization

THE CHANGING DEMOGRAPHICS OF

THE GLOBAL ECONOMY
In the 1960s:
the U.S. dominated the world economy and the world
trade picture
U.S dominance in foreign direct investment
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

Chapter 1: Globalization

The changing picture of world output and trade can be

seen in Table 1.2.

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The stock of FDI by the worlds six most important

national sources is shown in Figure 1.2.

Chapter 1: Globalization

The sustained growth in cross-border flows of FDI and

the emergence of developing nations as important
destinations for FDI can be seen in Figure 1.3.

Chapter 1: Globalization

The Changing Nature of Multinational

Enterprises
A multinational enterprise is any business that has
productive activities in two or more countries.
Non-U.S. Multinationals

The Rise of Mini-Multinationals

Chapter 1: Globalization

The Changing World Order

The collapse of communism in Eastern Europe
The economic development of China presents
huge opportunities and risks
Mexico and Latin America also present
tremendous new opportunities both as markets
and sources of materials and production

Chapter 1: Globalization

THE GLOBALIZATION DEBATE

Is the shift toward a more integrated and interdependent
global economy a good thing?
1. Globalization, Jobs, and Incomes
Critics of globalization worry that jobs are being lost to
low-wage nations
Supporters of globalization argue that free trade will result
in countries specializing in the production of those goods
and services that they can produce most efficiently,

Chapter 1: Globalization
2. Globalization, Labor Policies, and the Environment
Critics of globalization argue that that free trade
encourages firms from advanced nations to move
manufacturing facilities offshore to less developed
countries with lax environmental and labor regulations
Supporters of free trade point out that tougher
environmental regulation and stricter labor standards
go hand in hand with economic progress

Chapter 1: Globalization

3. Globalization and National Sovereignty

Critics of globalization worry that economic
power is shifting away from national governments
and toward supranational organizations

Chapter 1: Globalization

4. Globalization and the Worlds Poor

Critics of globalization argue the benefits of
globalization have not been shared equally
Supporters of free trade suggest that the actions
of governments have made limited economic
improvement in many countries (debt relief prog.,
gov., economic policies, corruption).

Chapter 1: Globalization

MANAGING IN THE GLOBAL MARKETPLACE

Managing an international business is different from
managing a domestic business because:
countries differ
face a greater and more complex range of
problems
within the limits imposed by governmental
intervention and the global trading system
international transactions being susceptible to
exchange rate changes

Chapter 1: Globalization

THE
END

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