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Sunny Li Sun

August 30, 2008

BA 4371-004 International BusinessBA 4371-004 International BusinessClass 2Class 2

Globalizing Business

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Big news: Harry Potter and The Deathly Hallows

hit bookstores worldwide at 12:01 a.m. on July 21, 2007

Rowling’s genius: the overwhelming importance of continuing to love in the face of death --The Times

Globalizing Harry Potter

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Scholastic: a record breaking first printing of 12 million copies

selling an unprecedented 8.3 million copies in its first 24 hours

The series has already sold 325 million copies worldwide and been translated into 66 languages.

"Harry Potter" films — the fifth of which was released 2007 — have grossed more than $3.8 billion globally.

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Harry Potter: a Rorschach Blot A worldwide character of clashes between various forms of

traditionalism and modernism: French: whether or not "Harry Potter" indoctrinates

youngsters into the orthodoxy of unfettered market capitalism.

Swedish: decry what they perceive as "Harry Potter's" Anglo-American vision of bourgeoisie conformity and its affirmation of class and gender inequality.

Turk: the pivots around issues of Turkish civilizational identity: whether Turkey is part of the West, the East, or a bridge between the two. A few Turkish writers have even asserted that controversies over "Harry Potter" in the United States demonstrate how Turks are more "Western" than Americans.

Russian: a country whose concern over international status and prestige becomes more apparent each day, the newspaper Novaya Gazeta created a minor firestorm when it claimed that the film visage of Dobby the House-Elf was a deliberate insult to President Vladimir Putin.

Indonesian: Wahhabists view "Harry Potter" as promoting paganism and undermining Islam.

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GlobalizationGlobalization refers to close economic integration of countries and peoples of the world.

Its impact onPolitics Culture (religion)SportsTerrorismEnvironmentTechnologyYou

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Semiglobalizationstrategy that suggests that barriers to market

integration at borders are high but not high enough to completely insulate countries from each other

The volume of world trade and investment has accelerated since the early 1980s.

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Hybridization of cultural globalizationUnauthorized "sequels“: explicitly recast in local settings

and using local plot devices. Indian fake novel: Harry Potter makes friends with a Bengali

boy and tours India. China: into Chinese mythological traditions

Fans produce a worldwide stream of fiction set in the Harry Potter universe, each extending elements of the novels to reflect their own interests and preferences. For all its often crass commercialization, "Harry Potter's" success owes something to a process of hybridization familiar to scholars of cultural globalization.

Americans increasingly see themselves as objects of economic globalization, whether in the form of "outsourcing" or the impact of Chinese imports on U.S. manufacturing. But we still tend to think of cultural globalization as synonymous with "Americanization." The "Harry Potter" books provide a subtle rejoinder to such impressions and subvert the equation of globalization with relentless homogenization.

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Core Question in Our ClassWhat determines the

success of countries in the globalization?

What determines the success of industries in the globalization?

What determines the success of firms in the globalization?

What determines the success of individuals in the globalization?

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Fortune 500 and MNEConcept:Foreign Direct Investment (FDI) - investments in, controlling, and managing

value-added activities in other countries

Multinational enterprise (MNE) - firm that engages in foreign direct investments.

Manages production establishments or delivers services in at least two countries. have a powerful influence in international relations and local economies. play an important role in globalization; First MNCs: the Dutch East India Company (1602)Fortune 500/2008 Texas is home to the most companies (58) on this year's list. (NY:55; CA: 52)http://money.cnn.com/magazines/fortune/fortune500/2008/states/TX.html

Foreign revenue account for 37.5% of total sales

In 1970, there were approximately 7,000 MNEs worldwide. In 2005, the United Nations identified over 70,000 MNEs, which controlled 690,000 units overseas.

The largest 500 account for 80% of the world’s FDI. Total annual sales of these 500 firms are in excess of $11 trillion (that is, about one-quarter of global output)

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How does globalization defeat or save Ford?In 1907 Henry Ford proclaimed, "I will

democratize the automobile," and then made good on his promise.

Today Ford Motor fights to create a future for itself in the face of brutal global competition and the green revolution.

U.S. market share continued its decade-long slide - from 25% in 1997 to 15.6% in 2007

Lost 20.1B pretax in the past 2 year in North America, but make 1.1B in Europe.

Gain 1M in Asia, 1Q 2008 (lost 26M in 2007)

Sell 90,791 cars in China, 1Q 2008 (47% growth)

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How does globalization defeat or save Ford?1970s, First world car: EscortMidsize Ford Mondeo designed in

Europe, called Contour in US.“One Ford" : integrating design,

engineering, and manufacturing round the world. simplifies engineering requirements, reduces time to marketcosts lessComplexity is reducedpurchasing becomes more efficient.

In 2004, the European team began designing the Fiesta, and the United States dithered over whether to join up.

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Assume you are a number of Ford

Fiesta global design team…. Mk7 Fiesta will be built by AutoAlliance Thailand

(shares platform with Mazda 2) and Cologne plant Concept:expatriate manager (expat) - manager who works abroad international premium - significant pay raise commanded

by expats when working overseas

What will you do in Thailand or Germany?Americans want more powerful air conditioning and can't

stand hatchbacks (think about BMW new 1-series)Synchronize new-model plans for each of the major marketsFord used to use 28 different seat structures around the

world, involving frames, springs, and so forth. Now it has two.

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Fortune Global 500 Rank: distribution by country

0

50

100

150

200

250

300

350

400

450

500

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Others

Brazil

Australia

China

Switzerland

South Korea

Canada

J apan

European Union

United States

In general, over 80% of the 500 largest MNEs come from the Triad. Since 1990, the United

States has contributed about one-third of these firms,

the European Union has maintained a reasonably steady increase,

Japan has experienced the most dramatic variation (roughly corresponding to the boom and bust of its economy with several years of delay).

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Fortune Global 500 Rank: distribution by country

0

50

100

150

200

250

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

Fort

une

500

numb

er

Uni ted StatesEuropean Uni onJ apanCanadaSouth KoreaSwi tzer l andChi naAust ral i aBrazi lOthers

2005 2006 2007

Brazil

4 5 5

China

20 24 29

Russia

5 4 5

India 6 6 7

BRIC 35 39 46

Among MNEs from emerging economies, those from South Korea and Brazil have largely maintained their presence,

Those from China have been increasingly visible since the mid 1990s

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Competing on World's manufacturing Measured in real value-added terms, China's share in global

manufacturing is projected to overtake that of the United States by 2016–17. This is helped by the Asian giant's rapid gains in the market shares of textiles, basic metals, computer equipment, appliances, and mineral products. The manufacturing sector in US: 12.5% of GDP,

36% of the Chinese economy is engaged in manufacturing.

Compound annual growth rate : China 10–15% (based on real, value-added terms) US: 3%

Globally, manufacturing accounts: 17% of GDP, service sector: 65%. The U.S. share: 21.4 %, China: 10.8%, India 4.6% (based on Purchasing Power Parity (PPP) )

http://www.globalinsight.com/Perspective/PerspectiveDetail13718.htm

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History Until the 19th century, China had

been the world leader in manufacturing for over a millennium

1840, Britain became the world’s biggest manufacturer after its Industrial Revolution.

The U.S. has been the largest manufacturer by a wide margin for over a century. It took the global mantle from a declining Britain and held off challenges from Germany, the Soviet Union, and Japan

Over a recently 23-year period, China's share in world industrial output rose from 2.2 percent to 6.9 percent (2006); India's share increased from 0.9 percent to 1.2 percent

• On a per capita basis, American workers are far more productive than their Chinese counterparts.

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The new shape of Chinese manufacturing

Case 1: Anshan Steel, China’s second largest steelmaker, potentially partners with Arcelor Mittal.

Case 2: How China plays a bigger role in the global operation of Luxottica, the world’s biggest maker of spectacle frames

Case 3: A British entrepreneur who started in China with just £5,000 but is aiming to achieve an annual sales of £15m in five years

An economic weakling only 20 years ago, China is now the world’s second largest manufacturing power next to the US

FT.Com Published: August 7 2008 http://www.ft.com/cms/s/0/bd9b31ec-644f-11dd-af61-0000779fd18c.html

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China’s rise in Global Stage

Pressures or Opportunities?

The relative decline in U.S. manufacturing's world share is not a sign of weakening future prospects for the United States. Rather, China's rapid manufacturing growth will help raise its consumer income and infrastructural development needs, thus opening up vastly greater trade opportunities for the U.S. manufacturing and service industries

The expanding Chinese market is more likely to open up greater opportunities for the United States as well as other producers. Several important areas of economic growth—such as finance, information technologies, and business services,

In addition to such manufacturing industries as aircraft, pharmaceuticals, heavy capital equipment, and scientific and medical equipment—are all expected to remain larger in the United States than in China.

Friedman attends the spectacular closing ceremony at the Beijing Olympics:

1/Holy mackerel, the energy coming out of this country is unrivaled.2/We are so cooked. Start teaching your kids Mandarin.

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Debate on Globalization

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GDP Density = GDP per capita * Number of people per square kilometer.The darker the colors, the higher the GDP density.

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Two sides of globalizationContributions of globalization

higher economic growth and standards of living,

increased sharing of technologies

more extensive cultural integration.

Critics on globalization undermines wages in rich

countriesexploits workers in poor

countriesdevastates the environment, compromises human rights, diminishes national sovereigntygives large MNEs too much

power

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Is globalization increase inequality?

Globalization has dramatically increased the world's supply of low-skilled labor, damping wages for such workers in developed countries.

Rapid technological change also has boosted demand for high-skilled workers, whose wages have risen as demand has exceeded supply.

labor unions have lost ground and workers' wages have suffered as wealthy countries have shifted to service industries from manufacturing

http://online.wsj.com/article/SB121961240961667287.html?mod=djem_jiewr_swwps_082808

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Is globalization increase inequality?It's hard to know what to do about it, other than to accept

it and repair it, rather than try to prevent it." In practice, that's likely to mean higher taxes on wealthier citizens.

Opening up is a good thing for countries that have the administrative capacity to deal with it, e.g., India.

Economic policy Brazil: global growth

has boosted low-wage workers' income levels more than the levels of higher earners.

Argentina: its per capita GDP slide by some 20% in the 1980s as a series of government administrations piled on a debt load that eventually became crippling. Since then, real wages have fallen and the gap between rich and poor has widened.

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Three views on globalizationA new force sweeping through the world in recent

timesA long-run historical evolution since the dawn of

human historya pendulum that

swings from one extreme to another from time to time.

Nafta (1994)Free Trade Agreements with Colombia, Panama and South Korea (not passed Congress). Is Reagan (or Thatcher) revolution dead? Back New Deal (Roosevelt), Great Society (LBJ)?

http://blogs.wsj.com/agenda/category/trade/

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Debates on Globalization: Is World Flat or not? •Friedman, Thomas: leading columnist on the New York Times, won three Pulitzer prizes.

http://www.thomaslfriedman.com Globalization 1.0 (1500 to 1800) shrank the world through the application of energy (sail and later steam).

Globalization 2.0 (1800 to 2000) shrank it further, the great agent of change being multi-national companies (no mention at all of world-wide colonisation!) and the changes being powered by falling transportation and later telecommunication costs.

Globalization 3.0 (2001- ) We have just entered is powered by software linked to a global telecommunication network and is unique in giving individuals the power to collaborate and compete globally and allowing anyone, anywhere to take part and drive development.

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Ten flatteners1/the decline of Russian communism, reduction in

regulation and freeing of trade etc round the world;2/the growth of browser software and fibre optic

cable;3/work-flow software;4/Open source software (e.g.,Linux, Wikipedia) ;5/Strategic outsourcing;6/Offshoring;7/Coordinated global supply chains;8/Insourcing;9/'In-forming' (e.g.,information power of Google)10/'The steroids' - the growth of wireless

communication

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Washington ConsensusEE will need to fit themselves into the "Golden

Straitjacket," Privatizationfree tradelow government spending

The path is "not always pretty or gentle or comfortable. But it's here and it's the only model on the rack this historical season."

--Thomas Friedman: The Lexus and the Olive Tree

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The Myth of Free Trade and the Secret History of CapitalismHa-Joon Chang: a heterodox economists at the

University of Cambridge.

Today's rich nations are effectively kicking away the ladder ... in order to deprive others of the means of climbing up after them.

The history of capitalism: most of these Bad Samaritans suffer a form of historical amnesia and do not even realize that they are hurting the developing countries with their policies.

Fact 1: the Japanese government kicked out General Motors and Ford in 1939, subsequently bailed out Toyota with public money, and even then, the company failed badly with its first U.S. export attempts in 1958. Yet Japan persevered in its support of the industry, with the result that "today, Japanese cars are considered as 'natural' as Scottish salmon or French wine.

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Fact 2: US: infant industriesAn array of policies to protect the country's "infant

industries (a term coined by Hamilton): "protective tariffs and import bans; subsidies; export ban on key raw materials; import liberalization of and tariff rebates on industrial inputs; prizes and patents for inventions; regulation of product standards; and development of financial and transportation infrastructures."

If Hamilton was the finance minister of a developing country today, the International Monetary Fund and the World Bank would certainly have refused to lend money to his country and would be lobbying for his removal from office.

Antebellum cotton-growing South favored low tariffs, while the industrializing North wanted them high. After the Union's victory, the U.S. enacted tariffs that remained the highest in the world until World War I.

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Fact 3:BritishThe first episode of globalization: the free

movement of goods, people, and money that developed under British hegemony between 1870 and 1913, was made possible, in large part, by military might, rather than market forces.

The imperial free trade followed long years of high tariffs and careful protection and nurturing of selected British industries: banning of superior textile imports from India, blocking the Irish wool industry from exporting to

foreign nations, prohibiting the American iron industry from

competing with the mother country. No less an authority than Adam Smith advised the

Americans not to take up manufacturing.

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Market and democracy clashEven though the rich countries have low

average protection, they tend to disproportionately protect products that poor countries export, especially garments and textiles. India paid almost as much in tariffs to the US government as France, despite the fact that the size of its economy was only 3% that of France in 2002!

Market and democracy clash at the fundamental level. Democracy runs on the principle of 'one man (one person), one vote. The market runs on the principle of 'one dollar, one vote.

If developing countries want to leave poverty behind and nurture their fledgling industries just as today's rich nations once did, they have to defy the market.

Globalization and Its Discontents (2002), the 2001 Nobel laureate Joseph E. Stiglitz

http://en.wikipedia.org/wiki/Globalization_and_Its_Discontents

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My viewpoint: looking on global sportsChina Sports in Globalization 1932, Liu Changchun, a

sprinter, made his way to modern Olympic games, Los Angeles.

Xu Haifeng won China’s first gold medal in 1984, LA.

China won 51 gold medals in 2008.

International sport dates back to the 19th century, and the commercial exploitation of sport is even older than that. What is new is the degree of commercialisation and its spread to emerging markets.

Nine of the 20 football clubs in the English Premier League last season were owned by foreigners.

Brazilian footballers turn up in leagues from the Faroe Islands to Vietnam.

India in cricket are creating powerful sports businesses of their own.

Ambitious countries in Asia and the Gulf want their own tennis tournaments and Grand Prix.

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Marriage of media and sport in globalization The sports business is

based on the idea that people are willing to pay to watch others play, and television expands the audience vastly, from thousands inside the stadium to millions outside. For broadcasters, more eyeballs mean more subscribers and advertisers.

Successful sportsmen and women are now earning sums that the stars of a generation ago could not have dreamed of.

Top main sponsors pay $866m in money, goods and services to the Olympics 2008.

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Summary "Harry Potter" is already part of the globalizing process, with all its

complexities, tensions, and possibilities

Key Concepts Globalization refers to close economic integration of countries and peoples of

the worlds Semiglobalization Multinational enterprise (MNE) - firm that engages in foreign direct

investments. Foreign Direct Investment (FDI) - investments in, controlling, and managing

value-added activities in other countries Expatriate manager

Key Question in IB What determines the success of firms in the globalization?

Some trends in Globalization Globalization will defect or save the firm listed in Fortune 500? Over 80% of the 500 largest MNEs come from the Triad. The rise of China in manufacturing Three views on globalization Two sides of globalization The World is flatted by technology, but market and democracy could clash

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Next WeekFormal Institutions (Chapter 2)

Two Political SystemsThree Legal SystemsThree Economic Systems