Chapter INTRODUCTION & OVERVIEW 1

Case: Wal-mart’s global expansion Largest retailer in the world –Over 4500 stores International expansion in 1991begins with Mexico in response to market saturation in the US Localization strategy adopted after trial and error Global buying power has allowed it to reap economies of scale Wal-mart faces significant competition from other global retailers, but has the first mover advantage in some markets

What is globalization? The shift towards a more integrated and interdependent world economy Two components: The globalization of markets The globalization of production

Globalization of markets The merging of distinctly separate national markets into a global marketplace Tastes and preferences converge onto a global norm Firms offer standardized products worldwide creating a world market

Globalization of markets Significant differences still exist between national markets on many relevant dimensions These differences require that marketing and operating strategies and product features be customized to best match conditions in a country.

Globalization of markets Countries are different Range of problems are wider and more complex Government intervention in trade and investment creates problems International investment is impacted by different currencies

Globalization of production Refers to sourcing of goods and services from locations around the world to take advantage of Differences in cost or quality of the factors of production Labor Land Capital

Swan Optical Manufacturing 1-5 Design Global Production Example 1

Volume of world trade and production, Fig: 1.1

Emergence of global institutions Globalization has created the need for institutions to help manage, regulate and police the global marketplace GATT WTO IMF World bank United Nations

Global drivers Macro factors that underlie trend towards greater globalization Decline in trade barriers Technological change

Pattern of declining tariffs

Declining barriers to trade Globalization of markets and production has been facilitated by Reduction in trade barriers Removal of restrictions to foreign direct investment

The changing pattern of world output and trade

Percentage share of total FDI stock Fig: 1.3

Volume of FDI inflows, ($ billions) Fig: 1.4

The role of technological change Microprocessors and telecommunications The internet and world wide web Transportation technology

The shrinking globe Fig: 1.2

Changing demographics of the world economy World output and trade Changing foreign direct investment Changing nature of multinationals Mini multinationals Non US multinationals

National origin of largest multinational corporations Fig: 1.5

Globalization debate-Pro 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

Environmental performance and income Fig 1.6

Globalization debate-Con 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