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CHAPTER. 1. Globalization. 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?

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  1. CHAPTER 1 Globalization

  2. 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 manager’s 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

  3. 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

  4. 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

  5. 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

  6. 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) 1913 1950 1990 2000 • France 21 18 5.9 3.9 • Germany 20 26 5.9 3.9 • Italy 18 25 5.9 3.9 • Japan 30 – 5.3 3.9 • Holland 5 11 5.9 3.9 • Sweden 20 9 4.4 3.9 • Britain – 23 5.9 3.9 • USA 21 18 5.9 3.9

  7. 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

  8. 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

  9. World Output and Trade

  10. 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 1976 1990 1997 2000 United States 45% 31.5% 32.4% 26% Japan 9 12 15.7 17 United Kingdom 18.8 16.8 6.6 8 France 7.3 10.4 9.8 13 Germany 8.1 8.9 12.7 12 • “Mini-multinationals” now a factor in the world economy

  11. Slide 1-9 Globalization: Does it causeProsperity 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?

  12. 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

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