3 Globalization and International Linkages Chapter OneGlobalization and International Linkages
4 Globalization and International Linkages The specific objectives of this chapter are toASSESS the implications of globalization for countries, industries, firms, and communities.REVIEW the major trends in global and regional integration.EXAMINE the changing balance of global economic power and trade and investment flows among countries.ANALYZE the major economic systems and recent developments among countries that reflect those systems.
5 International Management International management involvesApplying management concepts and techniques in a multinational environmentAdapting management practices to different economic, political, and cultural contextsMultinational corporation (MNC)Operations in more than one countryInternational salesNationality mix among managers and owners
6 The World’s Top Nonfinancial TNCs Ranked by Foreign Assets, 2012
7 The World’s Top Nonfinancial TNCs from Developing and Transitioning Economies Ranked by Foreign Assets, 2011
8 Globalization and Internationalization Process of social, political, economic, cultural, and technological integration among countries around the world.Hastened byOffshoringProcess by which companies undertake some activities at offshore locations instead of in their countries of origin.OutsourcingSubcontracting or contracting out of activities to external locations instead of in their countries of origin
9 Globalization: Pros and Cons Benefits of GlobalizationWealthJobsTechnologyLower pricesAvailability of goodsCriticisms of GlobalizationOff-shoring of business service jobs to lower-wage countriesGrowing trade deficitsSlow wage growthEnvironmental and social impacts
10 Global and Regional Integration Global AgreementsWorld Trade Organization (WTO)General Agreement on Tariffs and Trade (GATT)Regional AgreementsNorth American Free Trade Agreement (NAFTA)U.S.-Central American Free Trade Agreement (CAFTA, CAFTA-DR)European Union (EU)Association of Southeast Asian Nations (ASEAN)Trans-Pacific Partnership (TPP)Free Trade Agreement of the Americas (FTAA)
11 International Economic Power in the Global Economy Shifting landscape due toEconomic integration and rapid growth of emerging marketsEconomic potential of emerging marketsBRIC countries (Brazil, Russia, India, and China) could be among the four most dominant economies by 2050N-11 (the next wave of emerging markets): Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and VietnamAfrican countries may follow.
12 The World’s Largest Economies 2009 and 2050 (Projected) Measured by GDP at Market Exchange Rates
13 The World’s Largest Economies 2009 and 2050 (Projected) Measured by GDP at Purchasing Power Parity
14 Changing Global Demographics: Developing Countries on the Rise Ranked by Size
15 Trends in Trade and International Investments International TradeIn 2009 merchandise and commercial services exports declinedBy 2014, FDI is estimated to reach $1.9 trillion, surpassing the all-time high set in 2007Foreign direct investment (FDI)Investment in property, plant, or equipment in another countryGrowing at healthy rateOutpacing domestic growth in most countriesDeclined in 2009 due to the global recessionRecent increases in merchandise exports and foreign direct investment
16 World Merchandise Trade by Region and Selected Country, 2012 (in US$ billions and percentages) continues
17 World Merchandise Trade by Region and Selected Country, 2012 (in US$ billions and percentages)
18 Foreign Direct Investment Inflows, by Region (in US$ billions)
19 Foreign Direct Investment Outflows, by Region (in US$ billions)
20 Global Economic Systems Market economyCommand economyMixed economy
21 Economic Performance by Major World Region Established EconomiesNorth AmericaEuropean UnionJapanEmerging EconomiesCentral and Eastern EuropeChinaOther Emerging Markets of AsiaIndiaDeveloping Economies on the VergeSouth AmericaMiddle East and Central AsiaAfrica
22 Economic Performance Established Economies North AmericaOne of the four largest trading blocs in the worldCombined purchasing power of U.S., Canada and Mexico is more than $12 trillionFree-market-based economy is attractive to private firmsUnited StatesForeign MNCs find U.S. a lucrative expansion marketForeign firms welcomed as investors in U.S. marketU.S. firms hold global dominance in technology-intensive industries, telecommunications, media, and biotechnology
23 Economic Performance Established Economies CanadaU.S.’s largest trading partnerMost of the largest foreign-owned Canadian companies are totally or heavily U.S.-ownedLegal and business environment in Canada is similar to that in U.S.MexicoStrongest Latin American economyFree-trade agreements with over 50 countriesVery strong maquiladora systemTrade with both Europe and Asia has increasedNow competitive with Asia for the U.S. market
24 Economic Performance Established Economies European UnionUltimate objectiveEliminate all trade barriers among member countriesEmergence of the EU as an operational economic unionA unified Europe could become the largest economic market in terms of purchasing power in the worldForeign MNCs trying to gain foothold in EUAcquisitions, alliances, cooperative R&D effortsEconomic linkages between the EU and Central and Eastern European countriesChallenge is to absorb former communist bloc countriesPressure on the euro due to financial crises in Greece, Portugal, Spain, and Ireland
25 Economic Performance Established Economies JapanHuge economic success in 1970s and 1980sMinistry of International Trade and Industry (MITI)KeiretsusLarge, vertically integrated corporationsHoldings provide assistance needed in providing goods and services to end usersRemains a formidable competitor in the Pacific Rim, North America, and Europe
26 Economic Performance Emerging Economies Central and Eastern EuropeRussiaDismantling of price controlsPrivatizationMembership in International Monetary Fund (IMF) helping to control inflationCrime and political uncertaintyHungary, Poland, Czech RepublicPolitical instabilityStruggling to right their economic ships
27 Economic Performance Emerging Economies ChinaReal economic growth of 9.1% in 2009, 10.4% in 2010, 9.3% in 2011, and 8% in 2012Savings glut in corporate sectorGlobalization of manufacturing networksVast developmental needsUnemployment concernsAttractive to investors despite political riskProduct pirating is a major problemUndervaluation of currencyGovernment policies favor domestic firms
28 Economic Performance Emerging Economies South KoreaChaebols: Very large family-held conglomeratesSolid economy, moderate growth and inflation, low unemploymentExport surplusFairly equal distribution of incomeHong KongPart of People’s Republic of ChinaUncertainty about the role the Chinese government intends to play
29 Economic Performance Emerging Economies SingaporeMajor success storyUrban-plan model, leader, and financial center for regionTaiwanProgressed from labor-intensive economy to one dominated by technologically sophisticated industriesbanking, electricity generation, petroleum refining, and computers
30 Economic Performance Emerging Economies Thailand, Malaysia, Indonesia, VietnamLarge population baseInexpensive laborConsiderable natural resourcesSome turmoil in aftermath of recent economic crisisAttractive to outside investors
31 Economic Performance Emerging Economies IndiaLarge populationRecent trend of locating software and high value-added services to this country boosting middle- and upper-class market for goods and servicesGDP quickly reaching the level of ChinaAttractive to U.S. and British investorsEnglish speaking, well educated, technologically sophisticated workersGovernment funds for economic development
32 Economic Performance Developing Economies on the Verge South AmericaHampered by foreign debt and severe inflationMost have tried to implement economic reforms to reduce their debtExperienced periodic economic instability and the emergence of populist leadersNevertheless, attractive to businessBrazilEconomy flourishing, attracting MNCs’ investmentPrivatization and stable governmentUndisputed economic leader of SA
33 Economic Performance Developing Economies on the Verge ChileA decade of economic growthAttracts foreign direct investmentTrade agreements―Mercosur, China, India, the EU, South Korea, Mexico, among othersArgentinaOverall strong economyAbundant natural resources, highly literate population, export-oriented agriculture, diversified industrial baseEconomic problems persist
34 Economic Performance Developing Economies on the Verge Middle East and Central AsiaLarge oil reservesHighly unstable geopolitical and religious forcesLarge investments by Arab countries in U.S. property and businessesMany people worldwide work for Arab employersArab Spring has impacted the political and economic environment
35 Economic Performance Developing Economies on the Verge AfricaConsiderable natural resourcesAfrican nations remain very poor and undevelopedInternational trade is only beginning to serve as a major sources of incomePopulace divided into 3,000 tribes that speak 1,000 languages and dialectsMajor political instabilityPoverty, malnutrition, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector
36 Overview of the World Economic Outlook: Projections (percentage change, unless otherwise noted) continues
37 Overview of the World Economic Outlook: Projections (percentage change, unless otherwise noted)
39 Market Potential Indicators Ranking for Emerging Markets, 2013
40 Review and DiscussHow has globalization affected different world regions? What are some of the benefits and costs of globalization for different sectors of society?How has NAFTA affected the economies of North America and the EU affected Europe? What importance do these economic pacts have for international managers in North America, Europe, and Asia?Why are Russia and Eastern Europe of interest to international managers? Identify and describe some reasons for such interest.
41 Review and DiscussMany MNCs have secured a foothold in Asia, and many more are looking to develop business relations there. Why does this region of the world hold such interest for international management? Identify and describe some reasons for such interest.Why would MNCs be interested in South America, India, the Middle East, Central Asia, and Africa, the less developed and emerging countries of the world? Would MNCs be better off focusing their efforts on more industrialized regions? Explain.
42 Review and DiscussMMNCs from emerging markets (India, China, Brazil) are beginning to challenge the dominance of developed country MNCs. How might MNCs from North America, Europe, and Japan respond to these challenges?