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

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

CHAPTER

Globalization

1

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 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

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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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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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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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“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

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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

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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:

Output

’63

Output

’00

Exports

’98

Exports

’01

USA 40.3 27 12.7 11.9

Japan 5.5 14.2 7.3 6.6

Germany 9.7 7.3 10 9.2

France 6.3 5.2 5.7 5.2

UK 6.5 4.1 4.5 4.4

Italy 3.4 4.1 4.5 3.9

Canada 3.0 2.0 4.0 4.3

China n.a. 3.2 3.4 4.3

S. Korea n.a. 1.4 2.5 2.4

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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

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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?

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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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