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1 - 1 Chapter 1: Globalization WHAT IS GLOBALIZATION? Globalization refers to the shift towards a more integrated and interdependent world economy. The.

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Presentation on theme: "1 - 1 Chapter 1: Globalization WHAT IS GLOBALIZATION? Globalization refers to the shift towards a more integrated and interdependent world economy. The."— Presentation transcript:

1 1 - 1 Chapter 1: Globalization WHAT IS GLOBALIZATION? Globalization refers to the shift towards a more integrated and interdependent world economy. The Globalization of Markets The Globalization of Production

2 1 - 2 Chapter 1: Globalization THE EMERGENCE OF GLOBAL INSTITUTIONS Global institutions: help manage, regulate, and police the global market place promote the establishment of multinational treaties to govern the global business system

3 1 - 3 Chapter 1: Globalization DRIVERS OF GLOBALIZATION Two macro factors underlie the trend toward greater globalization: Declining Trade and Investment Barriers The Role of Technological Change

4 1 - 4 Chapter 1: Globalization THE CHANGING DEMOGRAPHICS OF 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

5 1 - 5 Chapter 1: Globalization The Changing World Output and World Trade Picture The Changing Foreign Direct Investment Picture The Changing Nature of the Multinational Enterprise The Changing World Order The Global Economy of the 21st Century

6 1 - 6 Chapter 1: Globalization MANAGING IN THE GLOBAL MARKETPLACE Managing an international business (any firm that engages in international trade or investment) is different from managing a domestic business because: Countries differ Managers face a greater and more complex range of problems International companies must work within the limits imposed by governmental intervention and the global trading system International transactions require converting funds and being susceptible to exchange rate changes

7 1 - 7 Chapter 2: National Differences in Political Economy POLITICAL SYSTEMS A political system is the system of government in a nation Political systems can be assessed according to: the degree to which they emphasize collectivism as opposed to individualism the degree to which they are democratic or totalitarian

8 1 - 8 Chapter 2: National Differences in Political Economy ECONOMIC SYSTEMS A free market system is likely in countries where individual goals are given primacy over collective goals State-owned enterprises and restricted markets are common in countries where collective goals are dominant

9 1 - 9 Chapter 2: National Differences in Political Economy LEGAL SYSTEMS The legal system of a country is the rules, or laws, that regulate behavior, along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained.

10 Chapter 2: National Differences in Political Economy Different Legal Systems Differences in Contract Law Property Rights and Corruption The Protection of Intellectual Property Product Safety and Product Liability

11 Chapter 2: National Differences in Political Economy THE DETERMINANTS OF ECONOMIC DEVELOPMENT Differing political, economic, and legal systems can have a profound impact on the level of a country's economic development, and hence on the attractiveness of a country as a possible market and/or production location for a firm.

12 Chapter 2: National Differences in Political Economy STATES IN TRANSITION Since the late 1980s, a wave of democratic revolutions has swept the world, and many of the previous totalitarian regimes collapsed There has been a move away from centrally planned and mixed economies towards free markets

13 Chapter 2: National Differences in Political Economy STATES IN TRANSITION The Spread of Democracy The New World Order and Global Terrorism The Spread of Market-Based Systems The Nature of Economic Transformation Deregulation Privatization Legal Systems Implications of Changing Political Economy

14 Chapter 2: National Differences in Political Economy IMPLICATIONS FOR MANAGERS Political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business The political, economic, and legal environment of a country clearly influences the attractiveness of that country as a market and/or investment site

15 Chapter 3: Differences in Culture INTRODUCTION Operating a successful international business requires cross- cultural literacy (an understanding of how cultural differences across and within nations can affect the way in which business is practiced). A relationship may exist between culture and the costs of doing business in a country or region.

16 Chapter 3: Differences in Culture WHAT IS CULTURE? The fundamental building blocks of culture are values (abstract ideas about what a group believes to be good, right, and desirable) and norms (the social rules and guidelines that prescribe appropriate behavior in particular situations). Society refers to a group of people who share a common set of values and norms.

17 Chapter 3: Differences in Culture SOCIAL STRUCTURE A society's social structure is its basic social organization. Two dimensions to consider: the degree to which the basic unit of social organization is the individual, as opposed to the group the degree to which a society is stratified into classes or castes

18 Chapter 3: Differences in Culture RELIGIOUS AND ETHICAL SYSTEMS Religion can be defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred. Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior.

19 Chapter 3: Differences in Culture EDUCATION Formal education is the medium through which individuals learn many of the language, conceptual, and mathematical skills that are indispensable in a modern society. The knowledge base, training, and educational opportunities available to a country's citizens can also give it a competitive advantage in the market and make it a more or less attractive place for expanding business.

20 Chapter 3: Differences in Culture Hofstede’s four dimensions of culture: Power Distance Individualism Versus Collectivism Uncertainty Avoidance Masculinity Versus Femininity

21 Chapter 3: Differences in Culture CULTURAL CHANGE Culture evolves over time, although changes in value systems can be slow and painful for a society. Social turmoil is an inevitable outcome of cultural change. As countries become economically stronger, cultural change is particularly common.

22 Chapter 4: Ethics in International Business INTRODUCTION Ethics refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong governing the conduct of business people. Ethical strategy is a strategy, or course of action, that does not violate these accepted principles.

23 Chapter 4: Ethics in International Business ETHICAL ISSUES IN INTERNATIONAL BUSINESS The most common ethical issues in business involve employment practices, human rights, environmental regulations, corruption, and the moral obligation of multinational companies.

24 Chapter 4: Ethics in International Business ETHICAL DILEMMAS Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable.

25 Chapter 4: Ethics in International Business THE ROOTS OF UNETHICAL BEHAVIOR What are the roots of unethical behavior? Personal Ethics Decision Making Processes Organizational Culture Unrealistic Performance Expectations Leadership

26 Chapter 5: International Trade Theory AN OVERVIEW OF TRADE THEORY Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country.

27 Chapter 5: International Trade Theory MERCANTILISM Mercantilism, which emerged in England in the mid-16 th century, asserted that it is in a country’s best interest to maintain a trade surplus-- to export more than it imports.

28 Chapter 5: International Trade Theory ABSOLUTE ADVANTAGE In 1776, Adam Smith attacked the mercantilist assumption that trade is a zero-sum game and argued that countries differ in their ability to produce goods efficiently, and that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

29 Chapter 5: International Trade Theory COMPARATIVE ADVANTAGE In 1817, David Ricardo argued that it makes sense for a country to specialize in the production of those goods that it produces most efficiently and to buy the goods that it produces less efficiently from other countries, even if this means buying goods from other countries that it could produce more efficiently itself.

30 Chapter 5: International Trade Theory HECKSCHER-OHLIN THEORY Hecksher and Ohlin argued that that countries will export goods that make intensive use of those factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce.

31 Chapter 5: International Trade Theory THE PRODUCT LIFE CYCLE THEORY In the mid-1960s, Raymond Vernon proposed the product life- cycle theory that suggested that as products mature both the location of sales and the optimal production location will change affecting the flow and direction of trade.

32 Chapter 5: International Trade Theory NEW TRADE THEORY New trade theory suggests that because of economies of scale (unit cost reductions associated with a large scale of output) and increasing returns to specialization, in some industries there are likely to be only a few profitable firms

33 Chapter 5: International Trade Theory NATIONAL COMPETITIVE ADVANTAGE: PORTER’S DIAMOND Porter’s 1990 study tried to explain why a nation achieves international success in a particular industry and identified attributes that promote or impede the creation of competitive advantage.

34 Chapter 5: International Trade Theory Factor Endowments Demand Conditions Related and Supporting Industries Firm Strategy, Structure, Rivalry

35 Chapter 5: International Trade Theory FOCUS ON MANAGERIAL IMPLICATIONS There are at least three main implications for international businesses: Location First-Mover Advantages Government Policy

36 Chapter 6: The Political Economy of International Trade INTRODUCTION Free trade refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country. While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups.

37 Chapter 6: The Political Economy of International Trade IINSTRUMENTS OF TRADE POLICY There are seven main instruments of trade policy: Tariffs Subsidies Import Quotas Voluntary Export Restraints Local Content Requirements Administrative Polices Antidumping Policies

38 Chapter 6: The Political Economy of International Trade THE CASE FOR GOVERNMENT INTERVENTION There are two types of arguments for government intervention: political and economic. Political arguments are concerned with protecting the interests of certain groups within a nation (normally producers), often at the expense of other groups (normally consumers) Economic arguments are typically concerned with boosting the overall wealth of a nation (to the benefit of all, both producers and consumers)

39 Chapter 6: The Political Economy of International Trade : GATT, Trade Liberalization, and Economic Growth The World Trade Organization (WTO), Experience to Date

40 Chapter 7: Foreign Direct Investment INTRODUCTION Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country. Once a firm undertakes FDI it becomes a multinational enterprise.

41 Chapter 7: Foreign Direct Investment FDI takes on two main forms: A greenfield investment (the establishment of a wholly new operation in a foreign country) Acquisition or merging with an existing firm in the foreign country FDI is not foreign portfolio investment (investment by individuals, firms, or public bodies in foreign financial instruments).

42 Chapter 7: Foreign Direct Investment FOREIGN DIRECT INVESTMENT IN THE WORLD ECONOMY The flow of FDI refers to the amount of FDI undertaken over a given time period The stock of FDI refers to the total accumulated value of foreign-owned assets at a given time Outflows of FDI are the flows of FDI out of a country Inflows of FDI are the flows of FDI into a country

43 Chapter 7: Foreign Direct Investment POLITICAL IDEOLOGY AND FOREIGN DIRECT INVESTMENT Ideology toward FDI ranges from a radical stance that is hostile to all FDI to the non-interventionist principle of free market economies Between these two extremes is an approach that might be called pragmatic nationalism

44 Chapter 7: Foreign Direct Investment BENEFITS AND COSTS OF FDI FDI affects countries in different ways. Host Country Benefits Host Country Costs Home Country Benefits Home Country Costs

45 Chapter 8: Regional Economic Integration INTRODUCTION Regional economic integration refers to agreements between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. While regional trade agreements are designed to promote free trade, there is some concern that the world is moving toward a situation in which a number of regional trade blocks compete against each other.

46 Chapter 8: Regional Economic Integration LEVELS OF ECONOMIC INTEGRATION There are five levels of economic integration: Free trade area Customs union Common market Economic union Political union

47 Chapter 8: Regional Economic Integration THE CASE FOR REGIONAL INTEGRATION The case for regional integration is both economic and political. The Economic Case for Integration The Political Case for Integration Impediments to Integration

48 Chapter 8: Regional Economic Integration THE CASE AGAINST REGIONAL INTEGRATION Regional economic integration only makes sense when the amount of trade it creates exceeds the amount it diverts Trade creation occurs when low cost producers within the free trade area replace high cost domestic producers Trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers

49 Chapter 8: Regional Economic Integration REGIONAL ECONOMIC INTEGRATION IN EUROPE There are two trade blocks in Europe: the European Union (EU) and the European Free Trade Association. Of the two, the EU is by far the more significant, not just in terms of membership, but also in terms of economic and political influence in the world economy.

50 Chapter 8: Regional Economic Integration REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS Regional economic integration is on the rise in the Americas. The North American Free Trade Agreement (NAFTA) is the most significant attempt. Other efforts include the Andean group and MERCOSUR. In addition, there are plans to establish a hemisphere-wide Free Trade Area of the Americas (FTAA).


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