LECTURE1 Flashcards
The world economy today
- 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 $5 trillion in foreign exchange transactions daily
- Over $19 trillion of goods and $5 trillion of services being sold across national borders
- The establishment of international institutions
Today’s world reflects globalization
- Declining barriers to cross-border trade and investment
- Advances in transportation and telecommunications
- Material culture similar all over the world
- National economies merging into integrated global economic system
Understand what is meant by the term globalization.
Globalization refers to the trend towards a more integrated and interdependent world economy
Two key facets of globalization
The globalization of markets
The globalization of production
The Globalization of Markets
-The merging of historically distinct and separate national markets into one huge global marketplace
-In many markets today, the tastes and preferences of consumers in different nations are converging upon some global norm
Coca Cola, McDonald’s, IKEA, Starbucks, Apple
.A company does not have to be the size of these multinational giants to facilitate, and benefit from, the globalization of markets.
The Globalization of Production
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 energy, land, and capital)
Lower overall cost structure
Improve the quality or functionality of the product to compete more effectively
Boeing only undertakes engineering design, marketing and sales, final assembly – everything else is outsourced globally
Currently rethinking this strategy
Understand what is meant by the term globalization.
Early outsourcing was primarily for manufacturing Today, modern communications technology allows companies to outsource services Impediments to globalization Formal and informal trade barriers Barriers to foreign direct investment Transportation costs Economic and political risk Managerial challenge
Drivers of Globalization
Two factors driving the move toward greater globalization
Decline in barriers to free flow of goods, services, and capital
Technological change
Drivers of Globalization (Declining Trade and Investment Barriers)
-International trade: when a firm exports goods or services to consumers in another country
-Foreign direct investment: when a firm invests resources in business activities outside its home country
-We produce more goods and services than ever before but a greater proportion being traded across national borders
-Consumers more knowledgeable which drives demand
-Volume of world trade growing faster than GDP
-More companies dispersing parts production
Economies are becoming even more intertwined
World has become significantly wealthier
Drivers of Globalization (The Role of Technological Change
)
-There have been major advances in communication, information processing, and transportation
-Microprocessors and Telecommunications
-Moore’s Law
-The Role of Technological Change continued
Implications for the Globalization of Production
-Lower transportation costs
-Geographically dispersed production system more economical
-Allow firms to better respond to customer demands
Implications for the Globalization of Markets
-Low cost communication networks help create electronic global marketplace
-Low cost transportation makes it economical to ship products around the world
-A reduction in cultural distance
-A convergence of consumer tastes and preferences
The Changing Demographics of the Global Economy (The Changing World Output and World Trade Picture )
Early 1960s:
U.S. - dominant industrial power accounting for about 38.3% of world manufacturing output
By 2014:
U.S. accounted for only 22.4%
Germany, France, and the U.K. had a similar decline
Rapid economic growth now in countries like China, India, Russia, and Brazil
Further relative decline by the U.S. is likely
The Changing Demographics of the Global Economy (The Changing Foreign Direct Investment Picture)
- The share of world output generated by developing countries has been steadily increasing since the 1960s
- -The stock of foreign direct investment (total cumulative value of foreign investments) generated by rich industrial countries is declining
- Cross-border flows of foreign direct investment are rising
- The largest recipient of FDI is China, followed by Brazil, Mexico, and India
The Changing Demographics of the Global Economy (The Changing Nature of the Multinational Enterprise)
Non-U.S. Multinationals
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 and there has been a rise in mini-multinationals
By 2012, largest nonfinancial multinationals were found in U.S., Britain, France, Germany and Japan
The Rise of Mini-Multinationals
More small and medium-sized businesses involved in international trade and investment
Internet lowers barriers that small and medium firms face in building international sales
The Changing Demographics of the Global Economy (The Changing World Order)
The collapse of communism in Eastern Europe
Greater export and investment opportunities, but political unrest is increasing risk
Economic development in China
Huge opportunities despite continued government control, but also new competition from Chinese firms
Free market reforms and democracy in Latin America
New markets and new sources of materials and production, but economic and political risk remains high
Understand how the process of globalization is creating opportunities and challenges for business managers(Managing in the Global Marketplace )
International business is any firm that engaged in international trade or investment
Managing international business differs from managing purely domestic business
International business must vary its practices country by country
International business issues greater in complexity
Need to understand rules governing international trade and investment
Managing in the Global Marketplace( International business different for four reasons)
Countries are different
Range of problems is wider and problems more complex
Must find ways to work within governmental limits
Transactions involve converting money into different currencies
