1. Chapter 1 Globalization

2. 1 - 2 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Globalization What does “globalization” mean? -What are its causes? -Why is it proceeding rapidly? -What is its impact on Jobs? Incomes? Labor and environmental policies? National sovereignty? International Trade patterns -Foreign direct investment flows -Economic growth rates -Multinational corporations and their impact

3. 1 - 3 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Globalization Trend to integrated / interdependent World Economy -Trend’s rate of change accelerating Trend away from national economies isolation impacting: -Cross-border trade and investment -Geographic and time (zones) distance -National government regulations -Idiosyncratic business systems -National cultures

4. 1 - 4 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Globalization of Markets Distinct/separate markets merging into a huge global marketplace -Mostly NOT consumer product markets -Includes industrial products -Tastes and preferences of consumers converging (??) MNCs creating global marketplace? MNCs more vulnerable to competition in their home markets

5. 1 - 5 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Globalization of Production Each MNC -Sources particular goods and services from a set of locations it selects around the world -Develops a global web of suppliers as a source of competitive advantage -Decides “where to produce” depending on a country’s factors of production Labor, land, capital, entrepreneurship Host governments have a stake in the successful establishment of an MNC’s operations

6. 1 - 6 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Global Institutions’ Emergence These define the “rules” of international economic activity -World Trade Organization (succeeded GATT) -International Monetary Fund (IMF) -World Bank -United Nations

7. 1 - 7 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Evidence of Globalization World trade increase more than -20x up between ’50 and ’98 -25x up from ’70 to ’02 FDI annual flows increased more than -10x from ’84 to ’98, or -50x between ’75 and ’00 -Declined about 50% between ’00 and ’03

8. 1 - 8 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. More evidence of Globalization FDI bilateral treaties up more than 10x from ’80 to ’02 By 1998 60,000 parent companies : -operated away from home markets through 500,000 subsidiaries / affiliates -Produced US$11 trillion in global sales, 25% of global output US, Japanese, Western European companies the major investors in Europe, Asia, and North America

9. 1 - 9 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. “Drivers” of Globalization: Declining Trade and Investment Barriers Average Tariff Rates on Manufactured Products (% value) 1913195019902002 France21185.94.0 Germany20265.94.0 Italy18255.94.0 Japan30–5.33.8 Holland5115.94.0 Sweden2094.44.0 Britain–235.94.0 USA 21185.94.0

10. 1 - 10 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 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

11. 1 - 11 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. “The World is Flat” Must Read: Thomas Friedman’s “The World is Flat”

12. 1 - 12 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Globalization and the Global Economy % share of world output and exports 1963 19972003 1998 2003 outputoutput output exports exports United States40.320.821.1 12.7 11.0 Japan5.58.37.0 7.3 5.7 Germany9.7 (W)4.84.5 10 9.6 France6.33.53.2 5.7 5.7 United Kingdom6.53.23.2 4.5 4.7 Italy3.43.23.0 4.5 4.1 Canada31.71.9 4.0 3.6 ChinaNA11.312.6 3.4 5.0

13. 1 - 13 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Globalization and the MNE A multinational enterprise (MNE) is any business that has productive activities in two or more countries The national heritage of the largest MNEs 197619972001 United States45%25%27% Japan 4 25 8 United Kingdom19 618 France 7 812 Germany 8 8 9 “Mini-multinationals” a world economy factor

14. 1 - 14 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Globalization: Prosperity or Impoverishment? Impact of trade liberalization and FDI barrier removal on -jobs and incomes Do jobs move from wealthy, advanced economies in search of lower wage rates? -On labor policies and the environment Do manufacturing facilities move to developing countries with weaker labor laws and environmental protection? -On national sovereignty WTO, UN, EU: supplanting national governments?

15. 1 - 15 McGraw-Hill/Irwin Global Business Today, 4/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. Income Levels & Environmental Pollution