Week 2: Globalization Flashcards
Globalization =
Globalization =
the international integration of markets in goods, services and capital
Trends driving Globalization
3 independent trends:
1.) technological innovation
- lowering logistic and transportation costs
- lowering costs of information transmission
2) growing international economic activity
- interconnected global value chains
3) liberalization of foreign economic policy
- reduction of trade tariffs and barriers between countries
4 Views of ‘Big picture’ on Globalization
1) Nothing new, just a return to previous normal
- great deal of evidence that world is no more globalized than 100 years ago from economic historians
- to what degree can one claim that
2) Technological determinism (strong form)
- is there still a role for governments?
-
3) Technological determinism (weak form)
- ?
4) Political ‘ideological change’ construct argument
Globalzation
Pros
1) Growth of free trade
- reduction trade barriers
- promotion of global economic growth and job creation
2) increasing competition and reduction of prices
3) infusion of foreign capital and technology to poor countries
- economic development and increased social + political conditions
4) politics is merging
5) more influx of information between countries
- speedy travel, mass communication, internet
Globalzation
Negative
1) Increased income disparities WITHIN countries (but sometimes also across countries)
2) trade barriers remain
3) MNEs have ability to avoid tax (exploit tax havens)
4) MNEs accused of social injustice:
- unfair working conditions
- lack of environmental concern
Semi-Globalization (Ghemawat)
Globalized world? -> NO!
“We are living in a world that is less connected as we think it is”
Arguments:
1) Incomplete cross-border integration
2) Reality: more complex than total insulation vs integration
–> Barriers to market integration at borders are high, but not high enough to insulate countries completely from each other
Implications:
semi-globalized world perspective offers room for cross-border strategy to have content distinct from single-country strategy
- oLi
*aggregation
* arbitrage
“law of one price”
-> if prices are consistent between countries, then we are talking about integrated economy - In EU not even the case
Aggregation (horizontal MNE) =
Aggregation (horizontal MNE)
= Exploiting the similarities across countries to tap
increasing returns to scale.
Arbitrage (vertical MNE) =
Arbitrage (vertical MNE) = Exploiting the differences among countries by taking
advantage of variations in absolute costs or willingness-to-pay.
Regionalization (Rugman and Verbeke)
No such thing as globalization!
Result from paper:
- few companies are truly global
- more are oriented at ‘home region’
-looking into how MNEs perform in the world will give us an idea how globalized the world truly is.
What does this mean for International Business?
1) MNEs increasingly face opportunities and constraints at regional level
-> create synergies at regional level by leveraging assets and competences within well integrated group of nations (EU)
2) But , face additional constraints when expanding beyond their home region (LORF)
- competing in regions you do not have synergies with
