International

Business An Asian
By
Perspective
Charles W.L. Hill
Chow-Hou Wee
Krishna Udayasankar

Chapter 1

Globalization
McGraw-Hill/Irwin

Copyright 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

INTRODUCTION
In the world economy today, we see
fewer self-contained national economies with high
barriers to cross-border trade and investment
a more integrated global economic system with
lower barriers to trade and investment
over $4 trillion in foreign exchange transactions
daily
over $12 million of goods and $3.3 trillion of
services being sold across national borders
the establishment of international institutions

What Is Globalization?
The world is moving away from selfcontained national economies toward
an interdependent, integrated global
economic system
Globalization refers to the shift
toward a more integrated and
interdependent world economy
Two key facets of globalization are:
the globalization of markets

the globalization of production

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What Is The
Globalization of Markets?
Globalization of markets - the merging of
historically distinct and separate national
markets into one huge global marketplace
It no longer makes sense to talk about the
German market or the American market
Instead, there is the global market
falling trade barriers make it easier to sell globally
In many markets today, the tastes and
preferences of consumers in different nations are
converging upon some global norm
firms promote the trend by offering the same
basic products worldwide

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The Globalization of
Markets
Coca Cola, Starbucks, Sony PlayStation,
and McDonalds hamburgers, IKEA
furniture

What Is The
Globalization of
Production?

Globalization of production - the sourcing of

goods and services from locations around
the globe to take advantage of national
differences in the cost and quality of factors
of production (labor, land, and capital)
Goal:
Companies can..
lower their overall cost structure
improve the quality or functionality of their
product and gain competitive advantage
Boeing and Vizio
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What Is Driving
Globalization?
1. Declining trade and investment barriers
The decline in barriers to the free flow of goods,
services, and capital that has occurred since the end
of World War II
since 1950, average tariffs have fallen significantly
and are now at 4 percent
countries have opened their markets to FDI

2.

Technological change

microprocessors and telecommunications

the Internet and World Wide Web
transportation technology
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Declining Trade And

Investment Barriers
Average Tariff Rates on Manufactured Products as Percent of Value

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Declining Trade and

Investment Barriers
International trade occurs when a firm
exports goods or services to consumers in
another country
Foreign direct investment (FDI) occurs
when a firm invests resources in business
activities outside its home country
During the 1920s and 1930s, many nations
erected barriers to international trade and
FDI to protect domestic industries from
foreign competition

Declining Trade and

Investment Barriers
After WWII, advanced Western countries began
removing trade and investment barriers
Under GATT (the forerunner of the WTO), over
100 nations negotiated further decreases in
tariffs and made significant progress on a
number of non-tariff issues
Under the WTO, a mechanism now exists for
dispute resolution and the enforcement of trade
laws, and there is a push to cut tariffs on
industrial goods, services, and agricultural
products

Declining Trade and

Investment Barriers
Lower barriers to trade and investment
mean firms can
view the world, rather than a single
country, as their market
base production in the optimal location for
that activity

This has led to an acceleration in the

volume of world trade and investment
since the early 1980s

The Role of
Technological Change
Since World War II, there have been major advances
in communication, information processing, and
transportation
The microprocessor - lowered the cost of global
communication and the cost of coordinating and
controlling a global organization
U.S. web-based transactions - $133 billion in 2008
1.6 billion Internet users in 2009
Commercial jet aircraft and super freighters and
the introduction of containerization - simplify transshipment from one mode of transport to another

The Role of
Technological Change
Question: What are the implications of
technological change for the globalization of
production?
Answer:
Lower transportation costs make a geographically
dispersed production system more economical and
allow firms to better respond to international
customer demands
Lower information processing and communication
costs - firms can create and manage globally
dispersed production systems

The Role of
Technological Change
Question: What are the implications of
technological change for the globalization of
markets?
Answer:
Low cost communications networks help create
electronic global marketplaces
Low cost transportation enable firms to create
global markets, and facilitate the movement of
people from country to country promoting a
convergence of consumer tastes and preferences

What Is A
Multinational Enterprise?
A multinational enterprise (MNE) is
any business that has productive activities
in two or more countries
Since the 1960s:
there has been a rise in non-U.S.
multinationals
there has been a rise in mini-multinationals

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The Changing
Multinational Enterprise
Globalization has resulted in a decline in the
dominance of U.S. firms in the global marketplace
In 1973, 48.5 % of the worlds 260 largest MNEs were
U.S. firms
By 2008, just 19 of the worlds 100 largest non-financial
MNEs were from the U.S., 13 were from France, 13 from
Germany, 14 were from Britain, and 10 were from Japan

Small and medium-size firms are now expanding

internationally
easier to build international sales via the
Internet

The Global Economy in the

21st Century

The world is moving toward a more integrated

global economic system

new opportunities for firms

but, political and economic disruptions can throw plans
into disarray

Globalization is not inevitable

there are signs of a retreat from liberal economic ideology
in Russia

Globalization brings risks

the financial crisis that swept through South East Asia in
the late 1990s
the recent financial crisis that started in the U.S. in 2008,
and moved around the world
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The Globalization Debate

Question: Is the shift toward a more integrated
and interdependent global economy a good
thing?
Answer:
Supporters believe that increased trade and
cross-border investment mean
lower prices for goods and services
greater economic growth
higher consumer income, and more jobs

Others feel that globalization is not beneficial

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Antiglobalization Protests
Question: What are the concerns of critics of
globalization?
Answer:
Critics worry that globalization will cause
job losses
environmental degradation
the cultural imperialism of global media and MNEs

Anti-globalization protesters now regularly show

up at most major meetings of global institutions
Protesters fear that globalization is forever
changing the world in a negative way
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How Does Globalization Affect

Jobs And Income?
Critics argue that falling barriers to trade are
destroying manufacturing jobs in advanced
countries
Critics claim jobs in advanced economies are being
lost to low-wage nations

Supporters claim while some jobs may be

lost, the economy as a whole is better off
free trade will result in countries specializing in the
production of those goods and services that they
can produce most efficiently, while importing goods
and services that they cannot produce as efficiently,
and that in doing so, all countries will gain

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How Does Globalization Affect Labor

Policies And The Environment?
Critics argue that firms avoid costly efforts to
adhere to labor and environmental regulations
by moving production to countries where such
regulations do not exist, or are not enforced
Supporters claim that tougher environmental
and labor standards are associated with
economic progress
as countries get richer as a result of globalization,
they raise their environmental and labor
regulations
free trade does not lead to more pollution and
labor exploitation, it leads to less
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How Does Globalization

Affect National Sovereignty?
Critics worry economic power is shifting away from
national governments and toward supranational
organizations such as the WTO, the European Union
(EU), and the UN
Critics argue that unelected bureaucrats have the
power to impose policies on the democratically
elected governments of nation-states
Supporters claim that the power of these
organizations is limited to what nation-states agree
to grant
the organizations must be able to persuade members
states to follow certain actions
without the support of members, the organizations have
no power
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How Is Globalization
Affecting The Worlds Poor?
Is the gap between rich nations and poor
nations is getting wider?
Critics argue the gap between rich and
poor has gotten wider and the benefits of
globalization have not been shared equally
Supporters claim that the best way for the
poor nations to improve their situation is to
reduce barriers to trade and investment
implement economic policies based on free
market economies
receive debt forgiveness for debts incurred
under totalitarian regimes
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