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The Challenges of Globalization

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1 The Challenges of Globalization
Chapter 6 The Challenges of Globalization McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

2 Ch. 6 Key Learning Objectives
Defining globalization and classifying the major ways in which companies enter the global marketplace Recognizing the major drivers of the globalization process and the international financial and trade institutions that have shaped this process in recent decades Analyzing the benefits and costs of the globalization of business Identifying the major types of political and economic systems in which companies operate across the world, and the special challenges posed by doing business in diverse settings Assessing how businesses can work collaboratively with governments and the civil sector to address global social issues 6-2

3 The Process of Globalization
Refers to the increasing movement of goods, services, and capital across national borders Is considered a process – an ongoing series of interrelated events International trade and financial flows integrate the world economy, leading to the spread of technology, culture, and politics Globalization is not simply a trend or a fad but, rather, an international system 6-3

4 Entering and Competing in the Global Marketplace
Develop global market channels First build a successful business in their home country, then export products or services to buyers in other countries Establish global operations Locate manufacturing plants or service operations in other countries as a way to cut costs Develop global supply chains Purchase raw materials, components, or other supplies from sellers in other countries; work may also be subcontracted 6-4

5 Major Transnational Corporations (TNCs)
Defined by the United Nations as firms that control assets abroad 104,000 TNCs operate in the modern global economy They, in turn, have nine times that number of affiliates (suppliers, subcontractors, and other entities with which they have some business relationship) Most global commerce is carried out by a small number of powerful firms Next slide lists top 10 non-financial transnational corporations, ranked in order of the value of the foreign assets they control 6-5

6 The World’s Top 10 Nonfinancial Transnational Corporations
Figure 6.1 The World’s Top 10 Nonfinancial Transnational Corporations 6-6

7 Foreign Direct Investment
Another important aspect of globalization is the worldwide flow of capital Foreign direct investment (FDI) occurs when a company, individual, or fund invests money in another country, for example, by buying shares of stock in or loaning money to a foreign firm In 2010, FDI was $1.24 trillion 6-7

8 The Acceleration of Globalization
The world’s economy is becoming increasingly integrated Higher share of output is being exported across national borders One-fifth of all goods and services produced worldwide is sold to other nations, rather than domestically This is almost double the percentage of 1960 In earlier years, most exports were of goods. An important recent trend is the globalization of services, such as travel, insurance, financial, and information services. 6-8

9 The Acceleration of Globalization
Driven by several factors: Technological innovation Easier to communicate with employees, partners, and suppliers all over the globe in real time Transportation systems Improvements enable the fast and cheap movement of goods and services from one place to another The rise of major transnational corporations Bigger, well-capitalized, firms are better equipped to conduct business across national boundaries than smaller firms Social and political reforms Rise of Pacific Rim growth economies, collapse of communism in Central and Eastern Europe have opened new regions to world trade 6-9

10 International Financial and Trade Institutions
Three institutions that set the rules by which international commerce is transacted: World Bank (WB) International Monetary Fund (IMF) World Trade Organization (WTO) No business can operate across national boundaries without complying with rules set by the WTO Many businesses in developing countries are dependent on WB and IMF loans to survive 6-10

11 The World Bank Established in 1944
Provides economic development loans to its member nations Funds used mainly for roads, dams, power plants, pipelines, and other infrastructure projects Funding provided by member countries and international capital markets Negotiates “structural adjustment plans” with countries it loans to Applies conditions on these countries Conditions are considered by critics to lead to unfair burden on developing countries 6-11

12 International Monetary Fund
“Sister” organization to World Bank, created at same time Purpose is to make currency exchange easier for member countries so that they can participate in global trade Lends foreign exchange to member countries Imposes conditions on governments that receive its loans Has begun to offer debt relief to some nations 6-12

13 World Trade Organization
Founded in 1995, successor to General Agreement on Tariffs and Trade (GATT) International body that establishes the ground rules for trade among nations Its major objective is to promote free trade; attempts to eliminate barriers to trade (e.g. quotas, duties and tariffs) Conducts “rounds” of negotiations on various topics “Most favored nation” rule means members countries cannot discriminate against foreign products for any reason 6-13

14 The Benefits and Costs of Globalization
Globalization is highly controversial Clearly, some benefit from globalization, while others do not What are some of the major arguments advanced by both side in the debate over this important issue? 6-14

15 Benefits and Costs of Globalization
Figure 6.2 6-15

16 Comparative Political and Economic Systems
Nations differ greatly in their political, social and economic systems First important dimension to consider is how power is exercised and degree of democratic rights Past century has been marked by spread of democratic rights to many nations for the first time 6-16

17 Comparative Political Systems
Democracy – The presence of political freedom Four defining features of democracy (according to the U.N.) Fair elections An independent media Separation of powers among the executive, legislative, and judicial branches of government An open society where citizens have the right to form their own independent organizations to pursue social, religious, and cultural goals 6-17

18 Comparative Political Systems
Military dictatorships Repressive regimes ruled by dictators who exercise total power through control of the armed forces Examples include Zimbabwe and Uzbekistan Rights of citizens to organize for cultural or religious freedoms is restricted in others Examples include Iran, Saudi Arabia According to United Nations estimates, 106 countries still limit important civil and political freedoms 6-18

19 Comparative Political Systems
Degree to which human rights are protected differs greatly among nations Several international codes of human rights exist Most important one is United Nations Universal Declaration of Human Rights of 1948 Over half world’s nations have adopted these human rights covenants Still, many violations of human rights still occur: Recent genocides in Rwanda, Sudan Systems where minority groups and indigenous peoples lack basic human rights, example of Nepal 6-19

20 Comparative Economic Systems
Free enterprise systems Based on the principle of voluntary association and exchange Members of society satisfy most of their economic needs through voluntary market transactions Central state control Economic power is concentrated in the hands of government officials and political authorities The central government owns the property that is used to produce goods and services 6-20

21 Challenges of Global Diversity
Diversity and complexity of systems that transnational corporations face creates challenges If a company does business in a nation that does not grant women equal rights, should that company hire and promote women at work, even if it violates local laws and customs? Should a company enter into a business venture with a government-owned enterprise if that government has a reputation for violating its citizens’ human rights? 6-21

22 Meeting the Challenges of Global Diversity
Notion of constructive engagement By operating with strong moral principles, transnational corporations can be a force for positive change in nations where they operate In some circumstances this is not possible due to extreme conditions, provoking dilemma At what point do violations of political, human, and economic rights become so extreme that a company cannot morally justify doing business in that country? 6-22

23 Collaborative Partnerships for Global Problem Solving
Emerging trend for development of collaborative, multi-sector partnerships focused on particular social issues or problems in the global economy These partnerships have been termed global action networks, or GANs Involves 3 sectors Business Government Civil society Unique capabilities of each sector is presented on following slide 6-23

24 Distinctive Attributes of the Three Major Sectors
Figure 6.3 6-24

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