Globalzation and Its Nature (3)

8/6/2019 Globalzation and Its Nature (3)

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Globalization: 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 managersopportunities and challenges?

What is the impact on the world economy of Foreign direct investment flows Indias economic growth

Multinational corporations growth/size

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History of Globalization

Sharing between world cultures began

1000s of years ago. In the 19th century cultural sharing exploded.


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19th Century

Europeans discover the Americas

European Imperialism Industrial Revolution

Inventions

Transportation

Telephone

Telegraph


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20th Century

Free market capitalism

End of the Cold War THE INTERNET

Exchange ideas

Transfer $$

Share culture

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Globalization: The Process

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 rigid business systems

Lower impact of national culture differences

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Globalization of Markets

Historically distinct and separate markets areemerging into a huge global marketplaces Mostly not consumer product markets

Mostly industrial products

Tastes and preferences of consumers converging (??)

MNCs creating global marketplaces?

MNCs foreign operations becoming morevulnerable 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 infactors of production key tothe 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 FDIrestrictions/barriers

Average Tariff Rates on Manufactured Products

(% value)1913 1950 1990 2002

France 21 18 5.9 4.0

Germany 20 26 5.9 4.0

Italy 18 25 5.9 4.0

Japan 30 5.3 3.8 Holland 5 11 5.9 4.0

Sweden 20 9 4.4 4.0

Britain 23 5.9 4.0

USA 21 18 4.8 4.0

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Slide 9


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% Growth of Merchandized

World Trade & World Output

0

500

1000

1500

2000

2500

3000

1950 1960 1970 1980 1990 1997 2000 2002 2004

Trade

GDP Volume

1950=100

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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 homemarkets through 820,000 subsidiaries/affiliates

Produced US$14 trillion in global sales, twice the value ofglobal exports

US, Japanese, Western European companies the majorinvestors in Europe, Asia, and North America

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Feasibility: 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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Feasibility: The Shrinking Globe

1500 -1840 1850 - 1930 1950s 1960s

Best average speed ofhorse-drawn coaches

and sailing ships, 10

mph.

Steam locomotives

average 65 mph.Steamships average

36 mph.

Propeller

aircraft

300 - 400

mph.

Jet

passenger

aircraft,500 - 700

mph.

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Rebalancing of World Output and

Trade% Share of

World:Output

63Output

03Exports

98Exports

03

USA 40.3 21.1 12.7 11

Japan 5.5 7.0 7.3 5.7

Germany 9.7 4.5 10 9.6

France 6.3 3.2 5.7 5.7

UK 6.5 4.1 4.5 4.7

Italy 3.4 3.0 4.5 4.1Canada 3.0 1.9 4.0 3.6

China n.a. 12.6 3.4 5.0

S. Korea n.a. 1.9 2.5 2.4

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Globalization and the MNE

A multinational enterprise (MNE) is anybusiness that has productive activities in two ormore countries

The national heritage of the largest MNCs

1976 1990 1997 2000United 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 - Pro

Lower prices for goods and services.

Economic growth stimulation. Increase in consumer income.

Creates jobs.

Countries specialize in production of goods andservices that are produced most efficiently.


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Theory of Comparative Advantage[See Hill, Chap. 4]

David Ricardo:Principles of Political Economy (1817). Extends free trade argument of Adam Smith

Trade is a positive-sum game.

Efficiency of resource utilization leads to more productivity.

Should import even if country is more efficient in theproducts production than country from which it is buying.

Look to see how much more efficient.

Concentrate production resources only where

relatively MOSTMOST efficient (e.g. 4x more vs only 1.5x) Makes better use of resources

unrestricted trade pushes out theProduction Possibility

Frontierfor all


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Proponents of Globalization

Increased Employment?

Lower Wages More Service Jobs

Cheaper Goods

(like gas? like cars?

like food? like textbooks?)


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NAFTA

North American Free Trade Agreement

(1993) Removed Tariffs

motor vehicles and automotive parts,

computers, textiles, and agriculture. US President George H. W. Bush.

US President Bill Clinton


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GATT

General Agreement on Tariffs and Trade

an international agreement Reduced tariffs

Favored Nation Status

Updated 1947 to 1990s


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FREE TRADE

MEANS BETTER JOBS

Refocus US jobs

BoeingMicrosoft

Hollywood


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pros and cons of globalization

PRO-GLOBALIZATION

Multinational Corporations

World Economic

Relationships

Free Trade

cheap goods

ANTI-GLOBALIZATION

Child labor Exploitation

Third World Poverty

Protectionism

Environmental hazards


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Who benefits from free trade, and who does not?

Corporations

Real smart people who

invent things

Real aggressive people

who start large

companies

CommunistGovernments like

China

Poor People in Poor

Countries

Poor People in the US

Non-technical people

in the US

Manual Labor in the

US The Environment

Small Farms and

Businesses


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What could be an ideal economic

globalization? The Solar Economy;

Renewable Energy Fora Sustainable Global

Future. America's ideal of

freedom, citizens findthe dignity and

security of economicindependence.

Worldwide educationand health.


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Ralph Naders Argument

Today, much of this economic, political,and technological power is in the hands of

global corporations wielding immenseinfluence over our government in veryintricate ways. One industry after another,not the least being the mass media, is

dominated by increasingly fewer giantcompanies. The trajectory of this power isto centralize control


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Brookings Institute

Economic theory points to two quite robustconclusions about the likely economic impact of off-shoring. Overall, off shoring will offer economicgains. American workers, companies, and possiblycommunities will learn to adjust to a more

technological work style in the process. Foreign outsourcing may also accelerate the

formation of innovative products and services.Some new and young firms, especially those that

rely on information technology, are using highlytrained foreign technicians (principally in India andChina) to build prototypes of new products andservices.


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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 economiesin search of lower wage rates?

Impact of trade liberalization on labor policies andthe 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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INDIA & CHINA

Benefits of fast-growing economy.

The economic

fundamentals of bothnations, with theirenormous populationsof young workers and

consumers, point tostrong growth fordecades under almostevery forecast.

Problems of fast-growing economy.

Coups, political strife,

and bad management. Both China and India

need annual growth ofat least 8% just to

provide jobs for thetens of millionsjoining the workforceeach year.


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Outsourcing, Off-shoring, and Globalization

OKLAHOMA

The creation of new jobs -

blue collar and white

collar in thethird/developing world is

just one controversial

element of globalization.

Small Farms and Dairiesin decline.

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Managing the Global Marketplace

An international business is any firm that engagesin 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 economicsystems 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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Globalzation and Its Nature (3)

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