GLOBALIZATION Lecture 01

Introduction 2 The effects of this trend can be seen in the cars people drive in the food people eat in the jobs where people work in the clothes people wear in many other ways

Globalization 3 Question: What is globalization? Globalization - the trend towards a more integrated global economic system Globalization of markets - the merging of historically distinct and separate national markets into one huge global marketplace Globalization of production - the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor energy, land, and capital)

The Emergence of Global Institutions 4 Global institutions  manage, regulate, and police the global market place  promote the establishment of multinational treaties to govern the global business system Notable global institutions include  the World Trade Organization (WTO)  the International Monetary Fund (IMF)  the World Bank  the United Nations (UN)

Globalization Forces There are five major kinds of drivers that are leading international firms to the globalization of their operations. 5  Political: preferential trading arrangements that group several nations into a single market have presented firms with significant marketing opportunities. E.g. NAFTA, SAFTA, European Union etc.  Technological: advances in computers and communications technology are permitting an increased flow of ideas and information across borders, enabling consumers to learn about foreign goods. Cable TV allows an advertiser to reach numerous countries simultaneously.  Market: As companies globalize, they also become global customers. For years, advertising agencies established offices in foreign markets when their major clients entered those markets to avoid having a competitor steal their accounts.  Cost: Economies of scale. Locate production in countries where the cost of the factors of production are lower.  Competitive: Competition continues to increase intensively. Companies are defending their home markets from competitors by entering the competitors’ home markets to distract them.

Forces in the Environment  Environment  The sum of all forces surrounding and influencing the life and development of the firm.  Forces can be classified as  External forces Management can exert influence but cannot control  Internal forces Management must administer and adapt 6

The Globalization of Markets 7 The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace In many markets today, the tastes and preferences of consumers in different nations are converging upon some global norm Examples of this trend include Coca Cola, Starbucks, Sony PlayStation, and McDonald’s hamburgers

Globalization of Markets 8 The merging of distinctly separate national markets into a global marketplace Falling barriers to cross-border trade have made it easier to sell internationally Tastes and preferences converge onto a global norm Firms offer standardized products worldwide creating a world market

Globalization of Markets 9 Difficulties that arise from the globalization of markets  Significant differences still exist among national markets  Country-specific marketing strategies  Varied product mix  The most global markets are not consumer markets  The most global markets are for industrial goods and materials that serve a universal need all over the world.

The Globalization of Production 10 The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (labor energy, land, and capital) The goal for companies is to lower their overall cost structure or improve the quality or functionality of their product and gain competitive advantage Examples of companies doing this include Boeing and Vizio

Globalization of Production 11 Impediments to the globalization of production include  Formal and informal barriers to trade  Barriers to foreign direct investment  Transportation costs  Issues associated with economic risk  Issues associated with political risk

Drivers of Globalization 12 Question: What is driving the move toward greater globalization? There are two macro factors underlying the trend toward greater globalization 1. declining trade and investment barriers 2. technological change

The Role of Technological Change & Its Implications 13 Lower transportation costs make a geographically dispersed production system more economical and allow firms to better respond to international customer demands Low cost communications networks have helped create electronic global marketplaces Low cost transportation have enabled firms to create global markets, and have facilitated the movement of people from country to country promoting a convergence of consumer tastes and preferences

Global Dimensions Product Markets Promotion Where value is added to product Competitive strategy Use of non-home- country personnel Extent of global ownership of firm 14

The Globalization Debate 15 Pro Factors  Lower prices for goods and services  Economic growth stimulation  Increase in consumer income  Creates jobs  Countries specialize in production of goods and services that are produced most efficiently Con Factors  Destroys manufacturing jobs in wealthy, advanced countries  Wage rates of unskilled workers in advanced countries declines  Companies move to countries with fewer labor and environment regulations  Loss of sovereignty

Managing in the Global Marketplace Countries differences require companies to vary their practices country by country 2. Managers face a greater and more complex range of problems 3. International companies must work within the limits imposed by governmental intervention and the global trading system 4. International transactions require converting funds and being susceptible to exchange rate changes