MBA PHMSB KOTA KINABALU GLOBALIZATION BFMA 6043 MBA PHMSB KOTA KINABALU

Review & Discussion Questions What is globalization? Why it is important, even to domestic firms? How does globalization have an effect on you, the domestic consumers?

Globalization The trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. The world is moving away from self-contained national economies toward an interdependent, integrated global economic system

Globalization Coined by Theodore Levitt “as if the entire world (or major regions of it) were a single entity; [such an organization] sells the same things in the same way everywhere” Economic Globalization International integration of goods, technology, information, labor, and capital Process of making this integration happen

Globalization The rise of “global village’ and Electronic commerce Great civilizations are supported by great communication systems Advancement in transportation and Communication Technologies The Net, Worldwide web

One big world market: the global economy Globalization One big world market: the global economy The increasing tendency of economies to interact as a single market instead of many national markets is the global economy. Consequences: Positive effects Negative effects

Globalization - Definition What is globalization? Globalization refers to the shift toward a more integrated and interdependent world economy Globalization can be defined as “the inexorable integration of markets, nation-states, and technologies…in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before”. (Friedman, 2000)

GLOBALIZATION- more definitions “The growing economic interdependence among countries, as reflected in increasing cross- border flows of three types of entities: goods and services, capital, and know-how” (Gupta & Govindarajan, 2004) “Worldwide trend of economic integration across borders that allows businesses to expand beyond their domestic boundaries” (Cullen & Parboteeah, 2008)

Globalization Globalization has two facets: 1) the globalization of markets 2) the globalization of production

The Globalization Of Markets The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace the convergence in buyer preferences in market around the world In many industries, it is no longer meaningful to talk about the “German market” or the “American market” Instead, there is only the global market The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. It is important to recognize that significant differences still exist among national markets, requiring companies to customize market strategies, product features, and operating practices to meet the conditions in particular markets. The most global markets currently are not markets for consumer products—where national differences in tastes and preferences are still often important enough to act as a brake on globalization—but markets for industrial goods and materials that serve a universal need the world over. These include the markets for commodities such as aluminum, oil, and wheat; the markets for industrial products such as microprocessors, DRAMs (computer memory chips), and commercial jet aircraft; the markets for computer software; and the markets for financial assets from U.S. Treasury bills to Eurobonds and futures on the Nikkei index or the Mexican peso.

The Globalization of Markets Occurring in many industries, including consumer goods, industrial products, and business services Shoe producer Nike, electronic maker Sony – sell so-called global products – products marketed in all countries essentially without any changes

The Globalization Of Markets Falling trade barriers make it easier to sell internationally The tastes and preferences of consumers are converging on some global norm Firms help create the global market by offering the same basic products worldwide In many markets the emergence of a global marketplace has begun to occur. There are three causes: falling barriers to cross-border trade have made it easier to sell internationally; tastes and preferences are converging on some global norm helping to create a global market; and firms are facilitating the trend by offering standardized products worldwide creating a global market.

Benefits of Globalization of Markets to Firms Reduces marketing costs Standardizing certain marketing activities Create New Market Opportunities Home market is small or becomes saturated Levels uneven Income Streams Reduce or eliminate wide variations in sales between seasons and steady firms’ cash flow

The Globalization Of Production The dispersal of production activities to locations that help a company achieve its cost-minimization or quality maximization objectives for a good or service This includes the sourcing of key production inputs (land, labor, and capital) as well as international outsourcing of services (To take advantage of national differences in cost and quality). Companies compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offering 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 (such as labor, energy, land, and capital). By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. Early outsourcing efforts were primarily confined to manufacturing enterprises, but today, more companies are taking advantage of modern communications technology, like the Internet, to outsource service activities to low-cost producers in other nations. The Country Focus: Outsourcing American Healthcare illustrates how the Internet has allowed hospitals to outsource some radiology work to India, where images from MRI scans and the like are read at night while U.S. physicians sleep, and are the results are ready for them in the morning. There are still substantial impediments to the globalization of production including formal and informal barriers to trade, barriers to foreign direct investment, transportation costs, issues associated with economic risk, and issues associated with political risk.

Benefits of Globalization of Productions to Firms Access Lower-Cost Workers Reduce overall production costs through access to low-cost labor Access Technical Expertise Technical know-how Access Production Inputs Access resources that are unavailable or more costly at home.

Drivers Of Globalization Two macro factors underlie the trend toward greater globalization: the decline in trade barriers to the free flow of goods, services, and capital that has occurred since the end of World War II technological change The two macro factors underlie the trend towards greater globalization: First, the decline in the barriers to free flow of goods, services, and capital Second, technological change in communications, information processing, and transportation technologies.

Declining Trade And Investment Barriers After World War II, advanced countries made a commitment to lower barriers to trade and investment 1947 – GATT was signed designed to promote free trade by reducing both tariff and non-tariff barriers 1994 – WTO was established to help the free flow of trade, help negotiate further opening of markets, and settle disputes between its members Regional Trade Agreements Since 1950, average tariffs have fallen significantly and are now at about 4% International trade occurs when a firm exports goods or services to consumers in another country. Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. After World War II, advanced industrial nations of the West committed themselves to removing barriers to the free flow of goods, services, and capital between nations.

Declining Trade And Investment Barriers Table 1.1: Average Tariff Rates on Manufactured Products as Percent of Value

Declining Trade And Investment Barriers Lower barriers to trade and investment mean: that firms can view the world, rather than a single country, as their market that firms can base production in the optimal location for that activity

Technological Change Technological change has made the globalization of markets a reality Important advances have occurred in: microprocessors and telecommunications Email and video-conferencing the Internet and World Wide Web /intranets/ extranets transportation technology The lowering of trade barriers made globalization of markets and production a theoretical possibility, technological change made it a tangible reality. Microprocessors and Telecommunications: Major advances in communications and information processing have lowered the cost of global communication and therefore the cost of coordinating and controlling a global organization. The Internet and the World Wide Web: Web-based transactions have grown from virtually zero in 1994 to nearly $7 trillion in 2004. Transportation Technology: the most important developments are probably development of commercial jet aircraft and super freighters and the introduction of containerization, which greatly simplifies trans-shipment from one mode of transport to another. Improvements in transportation technology have enabled firms to better respond to international customer demands. Managers today operate in an environment that offers more opportunities, but is also more complex and competitive than that of a generation ago.

The Role of Technological Change Implications of technological change for the globalization of production include: lower transportation costs that enable firms to disperse production to economical, geographically separate locations lower information processing and communication costs that enable firms to create and manage globally dispersed production systems

The Role Of Technological Change Implications of technological change for the globalization of markets include: low cost global communications networks help create electronic global marketplace low-cost transportation help create global markets global communication networks and global media are creating a worldwide culture, and a global market for consumer products

The Globalization Debate Is the shift toward a more integrated and interdependent global economy a good thing? Supporters believe that increased trade and cross-border investment mean lower prices for goods and services, greater economic growth, higher consumer income, and more jobs Critics worry that globalization will cause job losses, environmental degradation, and the cultural imperialism of global media and MNEs

Anti-Globalization Protests More than 40,000 anti-globalization protesters took to the street at the WTO meeting in Seattle in 1999 Protesters now regularly show up at most major meetings of global institutions The Country Focus: Protesting Globalization in France feature describes the anti-globalization protests going on in France. The protests, led by activist Jose Bove, started when the U.S. retaliated against EU bans on beef imports by imposing a 100% tariff on some EU products. Bove and his associates targeted McDonald’s, and also California winemaker Mondavi as symbols of their opposition to American investments. Still, despite the protests, foreign investment in France is at record highs, and ironically, so are French investments abroad.

Globalization, Jobs, And Income Globalization critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries Supporters of globalization contend that the benefits of this trend outweigh the costs—that countries will specialize in what they do most efficiently and trade for other goods—and all countries will benefit

Globalization, Labor Policies, And The Environment Globalization critics argue that firms avoid costly efforts to adhere to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced Globalization supporters claim that tougher environmental and labor standards are associated with economic progress, so as countries get richer from free trade, they get tougher environmental and labor regulations

Globalization And National Sovereignty Critics of globalization worry that today’s interdependent global economy is shifting economic power away from national governments toward supranational organizations like the WTO, the EU, and the UN Supporters of globalization contend that the power of these organizations is limited to what nation-states agree to grant, and that the power of the organizations lies in their ability to get countries to agree to follow certain actions

Globalization And The World’s Poor Critics of globalization argue that the gap between rich nations and poor nations is getting wider Supporters of globalization claim that the best way for the poor nations to improve their situation is to reduce barriers to trade and investment and implement economic policies based on free market economies, and to receive debt forgiveness for debts incurred under totalitarian regimes