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2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

CHAPTER

Globalization
McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Globalization: Chapter Objectives


Globalization
What is it? What are its key causes? Why is it expanding rapidly? What is its impact on: jobs, incomes, labor policies, environmental policies, national sovereignty? How does it affect an international business managers opportunities and challenges?

What is the impact on the world economy of


Foreign direct investment flows Country economic growth rate differences Multinational corporations growth/size
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Slide 1-1

Globalization:
World Economy becoming more integrated and interdependent
Accelerating rate of change of this trend

National economies less isolated due to:


Lower cross-border trade and investment barriers Smaller geographic and time (zones) distance Fewer national government regulations Less idiosyncratic business systems Lower impact of national culture differences

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2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide 1-2

Globalization of Markets
Historically distinct and separate markets are merging into a huge global marketplace
Mostly not consumer product markets Mostly industrial products Tastes and preferences of consumers converging (??)

MNCs creating global marketplace? MNCs foreign operations becoming more vulnerable to competition in their home markets

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2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide 1-3

Globalization of Production
Individual MNCs disperse different parts of their operations to narrow set of locations around the world because of:
National advantages in factors of production key to the where to produce? decision
Labor, land, capital, energy, expertise

Global web of suppliers Stake of foreign governments in MNC operations


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Slide 1-4

Drivers of Globalization:
Declining Trade and Investment Barriers GATT, WTO; Removal of FDI restrictions/barriers Average Tariff Rates on Manufactured Products
(% value)

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France Germany Italy Japan Holland Sweden Britain USA

1913 21 20 18 30 5 20 21

1950 18 26 25 11 9 23 18

1990 5.9 5.9 5.9 5.3 5.9 4.4 5.9 5.9

2000 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide 1-5

More evidence of Globalization


World trade increased about 20x since 1950 while Global production has increased about 6.5x Between 90 and 00 FDI increased 5x, trade by 2x and world output by 0.2x By 2000:
60,000 parent companies operated away from home markets through 820,000 subsidiaries/affiliates Produced US$14 trillion in global sales, twice the value of global exports US, Japanese, Western European companies the major investors in Europe, Asia, and North America
McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide 1-6

Technological Change and Globalization


Globalization of markets and production
the result of lowering of trade barriers enabled by technological change

Telecommunications & microprocessors


High power/low cost computing Increase in information processing capacity

The internet and the world-wide web Transportation technology


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World Output and Trade


% Share of World: USA Japan Germany France UK Italy Canada China S. Korea
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Output 63 40.3 5.5 9.7 6.3 6.5 3.4 3.0 n.a. n.a.

Output Exports 00 98 27 14.2 7.3 5.2 4.1 4.1 2.0 3.2 1.4 12.7 7.3 10 5.7 4.5 4.5 4.0 3.4 2.5

Exports 01 11.9 6.6 9.2 5.2 4.4 3.9 4.3 4.3 2.4

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide 1-8

Globalization and the MNE


A multinational enterprise (MNE) is any business that has productive activities in two or more countries The national heritage of the largest MNCs
United States Japan United Kingdom France Germany 1976 45% 9 18.8 7.3 8.1 1990 31.5% 12 16.8 10.4 8.9 1997 32.4% 15.7 6.6 9.8 12.7 2000 26% 17 8 13 12

Mini-multinationals now a factor in the world economy

McGraw-Hill/Irwin

2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide 1-9

Globalization: Does it cause Prosperity or Impoverishment?


Impact of barrier removal on jobs and incomes
Do jobs move away from wealthy advanced economies in search of lower wage rates?

Impact of trade liberalization on labor policies and the environment


Do manufacturing facilities move to developing countries with weaker labor laws and environmental protection?

Its impact on national sovereignty


WTO, EU, UN: supplanting national governments?
McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide 1-10

Managing the Global Marketplace


An international business is any firm that engages in international trade or investment An MNE engages in international investment over which it has managerial control International business involves managing across:
Differences in cultures, political, legal and economic systems and levels of economic development Such differences endure in spite of globalization trends

International managers confronted with a greater range of complexity


McGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.