What is Globalization? • The shift toward a more integrated and interdependent world economy • Two components: • The globalization of markets • The globalization of production
Globalization of Production • Vizio flat panel TV is • designed in a small office in California • assembled in Mexico • From • panels made in South Korea • electronic components made in China • microprocessors made in the U.S.
Not just manufacturing… • Globalization of production has historically been about manufacturing • Increasingly companies are using modern communications to outsource service activities to low-cost nations
Globalization of markets • In the past, each country had its own companiesin many industries and its own products • I never saw Japanese media (and I saw little non-US media) in college
Today everyone knows… • Nintendo • Starbucks • Coca-Cola • Ikea • McDonald’s • Samsung
But the most global markets are for standard goods • Aluminum • Wheat • Microprocessors • Aircraft • For many consumer end-products, huge differences still exist among national markets • Entertainment, food, clothing
Drivers of Globalization • Two factors underlie globalization • “Decline in barriers to the free flow of goods, services, and capital” that has occurred since the end of World War II • Technological change
Declining Trade and Investment Barriers • During the 1920s and ‘30s, many of nations erected formidable barriers to international trade and foreign direct investment • Advanced industrial nations of the West committed themselves after World War II to removing barriersto the free flow of goods, services, and capital between nations.
The Role of Technology • Lowering of trade barriers made globalization possible; • Technology has made it a transforming movement
Globalization is acceleration of trends of the last 10,000 years • People lived for 250,000 years in hunter-gatherer bands • Rise of agriculture 10,000 years ago led to rise of empires and nation-states • Science and ‘enlightenment’ after 1680 produced global trade and empires • Free trade and tech after 1980 produced globalization
The Emergence of Global Institutions Notable global institutions include • theWorld Trade Organization (WTO) which is responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties • In 2008, 151 nations accounting for 97% of world trade were members of the WTO • the International Monetary Fund (IMF) which maintains order in the international monetary system
The Changing Roles of Countriesin the Global Economy In the 1960s: • The U.S. dominated the world economy and the world trade picture • U.S. multinationals dominated the international business scene • About half the world-- the centrally planned economies of the communist world-- was off limits to Western international business Today, much of this has changed.
The Changing World Output and World Trade Picture • In the early 1960s, the U.S. was the world's dominant industrial power accounting for about 40.3% of world manufacturing output • By 2007, the U.S. accounted for only 20.7% • Other developed nations experienced a similar decline
The Changing Nature of the Multinational Enterprise • Since the 1960s, • there has been a rise in non-U.S. multinationals • there has been a rise in mini-multinationals
Pro Lower prices for goods and services Economic growth Increase in consumer income Creates jobs (for many) Countries specialize in production of goods and services that are produced most efficiently Con Destroys manufacturing jobs in wealthy nations Wage rates of unskilled in advanced countries decline Companies move to countries with fewer labor and environment regulations Loss of sovereignty Homogenized cultures The Globalization Debate
Managing in the Global Marketplace • Much of this course is concerned with managing an international business • i.e., any business with international • sales, • sourcing, or • Investment
Managing an international business is different • Countries are different • International transactions involve converting money into different currencies • Range of problems in an international business is wider and problems are more complex • International business must cope with different, conflicting government rules and systems • Different strategic approaches required
Key terms • An international business – any business with international sales, sourcing, or investment • A multinational business – any business with productive activities in 2 or more countries • A global business – a business that takes a global approachto production and sourcing (Coca-Cola, Intel)
The Emergence of Global Institutions • the World Bank which promotes economic development • the United Nations (UN) which maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations