International Business and Trade

CHAPTER 1 GLOBALIZATION
 Globalization

trend toward greater economic, cultural,

political, and technological interdependence
among national institutions and economies
What is Globalization?
It encompasses the socio-economic
reform process of eliminating trade,
investment, cultural, information
technology, and political barriers
across counties, which could lead to
increased economic growth and geo-
political integration and
interdependence among nations of
the world.
Denationalization –
(national boundaries
are becoming less
relevant)

Internationalization –
(entities cooperating
across national
boundaries)
 Globalization of Markets

- Refers to convergence in
buyer preferences in
markets.
 Global Products
Semiconductors (Intel, Philips)
Aircraft (Airbus, Boeing)
Construction equipment (Caterpillar, Mitsubishi)
Autos (Honda, Volkswagen)
Financial Services (Citicorp, HSBC)
Air travel (Lufthansa, Singapore Airlines)
Accounting services (Ernst & Young, KPMG)
Consumer goods (Procter and Gamble, Unilever)
Fast Food (KFC, Mc Donalds)
 Globalization of Markets
Advantages:
- Reduces marketing costs
(standardizing certain marketing activities)
- Creates new market opportunities
domestic market saturation / untapped
markets (ex. Search engines Google and
Yahoo)
- Levels uneven income streams
Supplementing domestic sales with
international sales
- Yet local needs are important
Think global act local
 Globalization of Production

- Refers to the dispersal of

production activities to
locations that help a
company achieve its cost-
minimization or quality-
maximization for a good or
service.
 Globalization of Production
Advantages:
- Access lower-cost workers (reduced overall
production costs through access to low-cost labor
ex. India, China and Philippines)
- Access technical expertise
(companies also produce goods and services abroad
to benefit from technical know-how ex. Film Roman
produces the TV series The Simpsons, but it provides
key poses and step-by-step frame directions to
AKOM Production in Seoul, South Korea)
- Access production inputs
(allows companies to access resources that are
unavailable or more costly at home ex. Japan’s
largest paper company – Nippon Seishi )
 Forces Driving Globalization

Falling Barriers to Trade and Investment

- General Agreement on Tariffs and Trade (GATT)

- World Trade Organization (WTO)
- Regional Trade Agreements
- Trade and National Output
General Agreement on
Tariffs and Trade (GATT)

a treaty designed to
promote free trade by
reducing both tariffs and
non tariff barriers to
international trade.
World Trade Organization
(WTO)

An international
organization that enforces
the rules of international
trade.
• Administering trade What the World
agreements
• Acting as a forum for trade
Trade Organization
negotiations does ???
• Settling trade disputes
• Reviewing national trade
policies
• Assisting developing
countries with trade policy
issues, through technical
assistance and training
programs
• Cooperating with other
international organization
like IMF and World Bank.
Difference Between GATT and WTO
Regional Trade Agreements
The North American Free Trade Agreement
(NAFTA) is an agreement among the United
States, Canada and Mexico designed to
remove tariff barriers between the three
countries.
The European Union (EU) is a
political and economic union of 
28 member states that are located
primarily in Europe. Its members
have a combined area of
4,475,757 km2 (1,728,099 sq mi)
and an estimated total population
of about 513 million. The EU has
developed an internal single market
 through a standardized 
system of laws that apply in all
member states in those matters,
and only those matters, where
members have agreed to act as
one. 
ASEAN MEMBER COUNTRIES
 Trade and National Output

Gross Domestic Product (GDP) – is the value of all

goods and services produced by a domestic
economy over a one-year period. ( excludes
nation’s income generated from exports, imports
and the international operations of its
companies).
 Trade and National Output

Gross National Product (GNP) – is the value of all

goods and services produced by a country’s
domestic and international activities over a one-
year period.
GDP or GNP per capita – nation’s GDP or GNP
divided by its population.
 Per capita income: Implications
• Per capita income is often used to measure a
sector's average income and compare the
wealth of different populations.

• Per capita income is often used to measure a

country's standard of living. This helps to
ascertain a country's development status.

• It is one of the three measures for calculating

the Human Development Index of a country.
 Forces Driving Globalization
Technological Innovation

- E-mail and Videoconferencing (operating across

borders and time zones complicates the job coordination and
controlling business activities)
- Internet and World Wide Web (companies uses the
internet to quickly and cheaply contact managers in distant
locations / eliminating intermediaries)
 Forces Driving Globalization
Technological Innovation
- Company Intranets and Extranets (internal company
web sites and information networks (intranets ) give
employees access to company data using personal
computers ex. Volvo Car Corporation)
- Advancement in Transportation Technologies
(ex. Global Positioning System (GPS) with Radio Frequency
Identification)
The World Bank is an international
financial institution that provides
loans and grants to the
governments of poorer countries
for the purpose of pursuing capital
projects. It comprises two
institutions: the International
Bank for Reconstruction and
Development, and the
International Development
Association.
The International Monetary
Fund (IMF), also known as the
Fund, is an international
organization headquartered in 
Washington, D.C., consisting of
189 countries working to foster
global monetary cooperation,
secure financial stability,
facilitate international trade,
promote high employment and
sustainable economic growth,
and reduce poverty around the
world while periodically
depending on World Bank for
its resources
Untangling the Globalization Debate
Arguments against
globalization
- Eliminates Jobs in
Developed Nations
- Lowers Wages in
Developed Nations
- Exploits Workers in
Untangling the Globalization Debate
Arguments favoring
globalization
- Increases wealth and
efficiency in all nations
- Generates labor market
flexibility in developed
nations.
- Advances economies of
developing nations
 Individual pain is
worth the collective
gain