1. Globalization

2. What is Globalization?
The shift toward a more integrated and interdependent world economy
Two components:
The globalization of markets
The globalization of production

3. Globalization of Production
Vizio flat panel TV is
designed in a small office in California
assembled in Mexico
From
panels made in South Korea
electronic components made in China
microprocessors made in the U.S.

4. Not just manufacturing…
Globalization of production has historically been about manufacturing
Increasingly companies are using modern communications to outsource service activities to low-cost nations

5. Globalization of markets
In the past, each country had its own companies in many industries and its own products
I never saw Japanese media (and I saw little non-US media) in college

6. Today everyone knows… Nintendo Starbucks Coca-Cola Ikea McDonald’s
Samsung

7. But the most global markets are for standard goods
Aluminum
Wheat
Microprocessors
Aircraft
For many consumer end-products, huge differences still exist among national markets
Entertainment, food, clothing

8. Drivers of Globalization
Two factors underlie globalization
“Decline in barriers to the free flow of goods, services, and capital” that has occurred since the end of World War II
Technological change

9. Declining Trade and Investment Barriers
During the 1920s and ‘30s, many of nations erected formidable barriers to international trade and foreign direct investment
Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations.

10. Average Tariff Rates on Manufactured Products
1913
1950
1990
2002
France
21 %
18 %
5.9 %
4.0 %
Germany
20 %
26 %
Italy
25 %
Japan
30 % --
5.3 %
3.8 %
Holland
5 %
1 %
Sweden
9 %
4.4 % UK 4% US
44 %
14 %
4.8 %
Under the umbrella of GATT, eight rounds of negotiations among member states (now numbering 148) have worked to lower barriers to the free flow of goods and services. The most recent round of negotiations, known as the Uruguay Round, was completed in December The Uruguay Round further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization (WTO) to police the international trading system. Table 1.1 summarizes the impact of GATT agreements on average tariff rates for manufactured goods. As can be seen, average tariff rates have fallen significantly since 1950 and now stand at about 4.0 percent.

11. Affects of Lowering Trade Barriers
According to data from the World Trade Organization, the volume of world merchandise trade has grown faster than the world economy since 1950 (see figure 1.1). From 1970 to 2004, the volume of world merchandise trade expanded almost 26-fold, outstripping world production, which grew about 7.5 times in real terms. (World merchandise trade includes trade in manufactured goods, agricultural goods and mining products, but not services. World production and trade are measured in real, or inflation-adjusted, dollars.) As suggested by Figure 1.1, due to falling barriers to cross-border trade and investment, the growth in world trade seems to have accelerated since the early 1980s.

12. The Role of Technology
Lowering of trade barriers made globalization possible;
Technology has made it a transforming movement

13. Internet Usage Growth
The rapid growth of the Internet and the associated World Wide Web (which utilizes the Internet to communicate between World Wide Web sites) is the latest expression of communication technology development. In 1990, fewer than 1 million users were connected to the Internet. By 1995 the figure had risen to 50 million. In 2004 it grew to about 945 million. By 2007, forecasts suggest the Internet may have more than 1.47 billion users, or about 25 percent of the world’s population. In July 1993, some 1.8 million host computers were connected to the Internet (host computers host the Web pages of local users). By January 2005, the number of host computers had increased to 317 million, and the number is still growing rapidly. In the United States, where Internet usage is most advanced, almost 60 percent of the population was using the Internet by 2003 (see figure 1.3). Worldwide the figure was 15 percent and growing fast. The Internet and World Wide Web (WWW) promise to develop into the information backbone of the global economy.

14. Globalization is acceleration of trends of the last 10,000 years
People lived for 250,000 years in hunter-gatherer bands
Rise of agriculture 10,000 years ago led to rise of empires and nation-states
Science and ‘enlightenment’ after 1680 produced global trade and empires
Free trade and tech after 1980 produced globalization

15. The Emergence of Global Institutions
Notable global institutions include
the World Trade Organization (WTO) which is responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties
In 2008, 151 nations accounting for 97% of world trade were members of the WTO
the International Monetary Fund (IMF) which maintains order in the international monetary system
Internet Extra: To learn the status of current trade issues, “hot” areas of international trade, and the responsibilities of the WTO, go to {
Click on Current News. Review the issues that are currently at the top of the agenda for the WTO.
Do they affect developed countries or developing countries? What are their implications for global trade?
Go to Trade Topics. Click on Disputes Gateway. Explore the disputes currently under review. How do you think they will be resolved? Why?

16. The Changing Roles of Countries in 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
Today, much of this has changed.
Country Focus: India’s Software Sector
Summary
This feature explores the growth of India’s software industry. Starting from nothing just twenty-five years, the industry now generates revenues of nearly $40 billion, and exports of $31.3 billion. With global spending on information technology expected to be some $260 billion in 2009, Indian companies are primed to capture a significant share of the pie, forcing their Western counterparts to make changes to their strategies.
Suggested Discussion Questions
1. What factors have contributed to the growth of India’s software industry?
Discussion Points: Four key factors have contributed to the growth of India’s software industry. First is the huge number of engineers in India. Some 400,000 engineers graduate from Indian universities every year. A second factor is India’s low wage structure. Indian engineers make about 12 percent of what an American colleague might make. Third, coordination between Western firms and Indian firms is facilitated by the large number of English-speaking Indians. Finally, because of the differences in time zones, Indian firms operate while American firms are closed.
2. How has India’s software industry changed in recent years? What are the implications of these changes for American companies like IBM and Microsoft?
Discussion Points: There has been a gradual shift in the Indian software industry in recent years. Initially, Indian firms focused on the low end of the industry to supply basic software development and testing services to Western firms. Today however, many companies have moved into higher end services to compete for large software development projects, business outsourcing contracts, and information technology consulting services. This new competitive threat is forcing American firms like IBM and Microsoft to rethink their global strategies. Some Western companies are now investing in India with the goal of capturing some of the cost advantages Indian companies like Infosys and Wirpro enjoy.
Teaching Tip: The economic slowdown in the United States is beginning to have an effect on India’s information technology sector. To learn more, go to {

17. The Changing World Output and World Trade Picture
In the early 1960s, the U.S. was the world's dominant industrial power accounting for about 40.3% of world manufacturing output
By 2007, the U.S. accounted for only 20.7%
Other developed nations experienced a similar decline

18. The Changing Nature of the Multinational Enterprise
Since the 1960s,
there has been a rise in non-U.S. multinationals
there has been a rise in mini-multinationals
Management Focus: China’s Hisense – An Emerging Multinational
Summary
This feature examines the growth of Hisense which began in 1969 as a state-owned factory with just 10 employees. Over the years, the company emerged as one of China’s leading makers of television sets. In 1994, China relaxed its hold on the company and Zhou Houijan was appointed CEO. Under Zhou’s leadership Hisense has become as one of China’s premier manufacturers of consumer appliances and telecommunications equipment.
Suggested Discussion Questions
1. What makes Hisense different from other manufacturers of consumer electronics? What factors have contributed to its success?
Discussion Points: The success of Hisense can be attributed to not only its low cost structure, but also the company’s skill in product innovation. In fact, Hisense believes that its main strength is its rapid production innovation. The company feels that to be successful in the highly competitive consumer electronics industry, it must be on the cutting edge of innovation. Consequently, the company’s strategy is to continuously launch advanced, high quality, and competitively priced products.
2. Why has Hisense established multiple R&D centers? How do these R&D centers fit into the firm’s global strategy?
Discussion Points: In 1994, Hisense established its first R&D center in China. Since then, the company has also established R&D centers in South Africa and Europe, and is scheduled to open an R&D center in the United States in the near future. Being innovative is central to Hisense’s strategy.
Having multiple R&D centers allows Hisense to be closer to its markets, and should help the company better serve customer needs and preferences.
Teaching Tip: To learn more about Hisense go to {

19. The Globalization Debate
Con
Destroys manufacturing jobs in wealthy nations
Wage rates of unskilled in advanced countries decline
Companies move to countries with fewer labor and environment regulations
Loss of sovereignty
Homogenized cultures
Pro
Lower prices for goods and services
Economic growth
Increase in consumer income
Creates jobs (for many)
Countries specialize in production of goods and services that are produced most efficiently
The past quarter century has seen rapid changes in the global economy. Barriers to the free flow of goods, services, and capital have been coming down. The volume of cross-border trade and investment has been growing more rapidly than global output, indicating that national economies are becoming more closely integrated into a single, interdependent, global economic system. As their economies advance, more nations are joining the ranks of the developed world. But it is always hazardous to use established trends to predict the future. The world may be moving toward a more global economic system, but globalization is not inevitable. Countries may pull back from the recent commitment to liberal economic ideology if their experiences do not match their expectations. Also, greater globalization brings with it risks of its own. This was starkly demonstrated in 1997 and 1998 when a financial crisis in Thailand spread first to other East Asian nations and then in 1998 to Russia and Brazil. Ultimately the crisis threatened to plunge the economies of the developed world, including the United States, into a recession. This slide outlines some of the arguments from the great globalization debate.

20. Managing in the Global Marketplace
Much of this course is concerned with managing an international business
i.e., any business with international
sales,
sourcing, or
Investment

21. Managing an international business is different
Countries are different
International transactions involve converting money into different currencies
Range of problems in an international business is wider and problems are more complex
International business must cope with different, conflicting government rules and systems
Different strategic approaches required

24. Key terms
An international business – any business with international sales, sourcing, or investment
A multinational business – any business with productive activities in 2 or more countries
A global business – a business that takes a global approach to production and sourcing (Coca-Cola, Intel)

25. The Emergence of Global Institutions
the World Bank which promotes economic development
the United Nations (UN) which maintains international peace and security, develops friendly relations among nations, cooperates in solving international problems and promotes respect for human rights, and is a center for harmonizing the actions of nations