Globalization? Flashcards
What Is Globalization?
refers to the shift toward a more integrated
and interdependent world economy
Globalization of Markets
* Globalization of Production
* Globalization of Consumers
Globalization of Markets and Consumers
Refers to the merging of historically distinct and separate
national markets into one huge global marketplace.
* Falling barriers to cross-border trade have made it easier
to sell internationally.
* Tastes and preferences of consumers in different nations
converge on some global norm, thereby helping to create
a global market
* Consumer products such as Citicorp credit cards, Apple
iPhones, offer a standardized product worldwide, helping
create a global market.
Globalization of Production
Refers to the sourcing of goods and services from
locations around the world to take advantage of national
differences in costs and quality of factors of
production(labor, energy, land and capital).
* Companies lower overall cost structure and/or improve
quality or functionality of product offering, thereby allowing
them to compete more effectively.
Global Institutions
Global institutions help manage, regulate, and police the global
marketplace;
* Promote the establishment of multinational treaties to govern the
global business system.
Global Institutions ppls
United Nations (1945)
* World Trade Organization (WTO) preceded by the GATT
* International Monetary Fund (IMF)
* World Bank
World Trade Organization (WTO)
Responsible for policing the world trading system and
making sure nation-states adhere to the rules laid down in
trade treaties signed by WTO member states.
IMF
International Monetary Fund, was to maintain order in the international monetary
system
Lender of last resort to nation-states whose economies are in
turmoil and whose currencies are losing value
World Bank
promote economic development
Provides low interest rate loans to cash-strapped governments
that wish to undertake infrastructure investments (building
dams or road systems,..).
The IMF loans come with strings attached:
Countries are required to adopt specific policies aimed at
returning their troubled economies to stability and growth.
* Some critics charge that the IMF’s policy recommendations are
often inappropriate
WB is a group comprised of the following
IBRD- the Int’l Bank for Reconstruction and Development
* IDA- International Development Association
* IFC- International Finance Corporation
* MIGA- Multilateral Investment Guarantee Agency
* ICSID- International Centre for Settlement of Investment Disputes
IBRD
the Int’l Bank for Reconstruction and Development, Most often it is the IBRD that is involved in international
business opportunities for Canadian companies
Two macro factors seem to underlie the trend toward greater
globalization
Decline in barriers to the free flow of goods, services, and
capital, since the end of World War II
* Technological change in communication, information
processing, and transportation
Declining Trade and Investment Barriers
allows firms to view the world as the market. allows firms to base at optimal location, A firm might design a product in one country, produce component
parts in two other countries, assemble the product in yet another
country, and then export the finished product around the world.
Technological Change
Technological change has made globalization of markets and
production a tangible reality.
* Since the end of World War II, the world has seen major
advances in:
* Communication,
* Information processing,
* Transportation technology and
* Explosive emergence of the Internet and World Wide Web.
Microprocessors and Telecommunications
Development of the microprocessor enabled the explosive growth
of high-power, low-cost computing, vastly increasing the amount
of information that can be processed.
* Satellite, Optical fiber, wireless and Internet technologies rely on
microprocessor to encode, transmit, and decode the vast amount
of information that flows along these electronic highways.
Internet
In 1990, fewer than 1 million users were connected to the
Internet. By 2019, approximately 4 billion Internet users.
* The Web makes it much easier for buyers and sellers to find each
other, wherever they may be located and whatever their size.
* It enables enterprises to coordinate and control a globally
dispersed production system in a way that was not possible 25
years ago
Transportation Technology
Development of commercial jet aircraft and superfreighters
reducing time needed to get from one location to another; has
effectively shrunk the globe
* Introduction of containerization has revolutionized the
transportation business, significantly lowering the costs of
shipping goods over long distances
The Changing World Output and World Trade Picture
Changes in Foreign Direct Investment
Among developing nations, the largest recipient of FDI has
been China (received between 2004 and 2012 between
$60B to $100B a year, followed by Brazil, Mexico, and India.
* Sustained flow of FDI into developing nations is an
important stimulus for economic growth in these countries
The Changing Nature of the Multinational Enterprise
A multinational enterprise (MNE) is any business that has
productive activities in two or more countries.
* Since the 1960s, there have been two notable trends in the
demographics of the multinational enterprise:
* The rise of non-U.S. multinationals, particularly Japanese
multinationals, and
* The growth of mini-multinationals.
Non-U.S. multinationals
The large number of U.S. multinationals reflected U.S. economic
dominance in the three decades after World War II while,
* The large number of British multinationals reflected that country’s
industrial dominance in the early decades of the twentieth century
Non-U.S. multinationals 2.
Globalization of the world economy and Japan’s rise to the top
rank of economic powers has resulted in a relative decline in the
dominance of U.S. and British firms in the global marketplace
* If we look at smaller firms, we see significant growth in the
number of multinationals from developing economies.
The Rise of Mini-Multinationals
Most Int’l trade and investment still conducted by large firms but,
* Many medium-sized and small businesses are becoming
increasingly involved in international trade and investment.
Example:
* International Road Dynamics (IRD) of Saskatchewan has
subsidiaries in the United States, Chile, China, Belgium.
* Iceculture Inc., based in Ontario with a staff of 15 export to
Britain, Europe, South Africa, Iceland, etc.
The Changing World Order
The economies of most of the former communist states are in
very poor condition, and their continued commitment to
democracy and free market economics cannot be taken for
granted.
* More quiet revolutions have been occurring in India, China,
and Latin America.
* Their implications for international businesses may be
just as profound as the collapse of communism in
Eastern Europe.
The Changing World Order 2. China
China continues to move progressively toward greater free
market reforms.
* If what is occurring in China continues for two more decades,
China may move from developing economy to industrial
superpower status even more rapidly than Japan did.
The Changing World Order 3. Latin
Throughout most of Latin America debt and inflation are down;
* Governments are selling state-owned enterprises to private
investors;
* FDI is welcomed and the region’s economies are growing;
* These changes have increased the attractiveness of Latin
America, both as a market for exports and as a site for FDI.
Anti-globalization arguments
Harmful effects on jobs and income
* Labor policies
* Environmental impact
* National sovereignty
* World’s poor
Globalization, Jobs and Income
Outsourcing of Canadian jobs to developing countries: fears of a
long-term harmful effects on Canada’s well-being. (Example
Gildan Activewear Inc. Montreal).
* Technological change has had a bigger impact than globalization
on the declining share of national income enjoyed by labour.
* The solution is not in limiting free trade and globalization, but in
increasing society’s investment in education to reduce the supply
of unskilled workers
Globalization and National Sovereignty
Another concern is increasingly interdependent global
economy shifts economic power away from national
governments toward organizations such as WTO, EU and UN.
* The WTO is a favourite target of those who attack the
headlong rush toward a global economy
Globalization and the World’s Poor
Critics of globalization argue that despite the supposed
benefits associated with free trade and investment, the gap
between the rich and poor is widening.
* While some of the world’s poorer nations are capable of rapid
periods of economic, there is stagnation among the world’s
poorest nations economies.
international business
Differences between countries require that an international
business vary its practices country by country;
* Cross-border transactions also require that money be
converted from the firm’s home currency into a foreign
currency and vice versa.
