1. Chapter One
Globalization

2. What is Globalization?
The shift toward a more integrated and interdependent world economy
Two components:
The globalization of markets
The globalization of production
This slide offers a definition for globalization; it highlights that globalization affects two primary areas.

3. Globalization of Markets
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
This slide offers a definition of the globalization of markets trend. It also details why this has happened.

4. Globalization of Markets
Difficulties that arise from the globalization of markets
Significant differences still exist among national markets
Country-specific marketing strategies
Varied product mix
Some problems occur when companies begin operating globally. These include: very significant differences still exist among national markets along many relevant dimensions, including consumer tastes and preferences, distribution channels, culturally embedded value systems, business systems, and legal regulations. These differences frequently require that marketing strategies, product features, and operating practices be customized to best match conditions in a country. For example, automobile companies will promote different car models depending on a range of factors such as local fuel costs, income levels, traffic congestion, and cultural values. Similarly, many companies need to vary aspects of their product mix and operations from country to country depending on local tastes and preferences.

5. Globalization of Markets
The most global markets are not consumer markets
The most global markets are for industrial goods and materials that serve a universal need the world over
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.

6. 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
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.

7. Globalization of Production
Historically this has been primarily confined to manufacturing enterprises
Increasingly companies are taking advantage of modern communications technology, and particularly the Internet, to outsource service activities to low-cost producers in other nations
As we saw in the Opening Case, 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. Similarly, in December 2003, IBM announced it would move the work of some 4,300 software engineers from the United States to India and China (software production is counted as a service activity).

8. Globalization of Production
Outsourcing of productive activities to different suppliers results in the creation of products that are global in nature
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
Robert Reich, who served as secretary of labor in the Clinton administration, has argued that as a consequence of the trend exemplified by companies such as Boeing, Microsoft, and IBM, in many cases it is becoming irrelevant to talk about American products, Japanese products, German products, or Korean products. But as with the globalization of markets, one must be careful not to push the globalization of production too far. As we will see in later chapters, substantial impediments still make it difficult for firms to achieve the optimal dispersion of their productive activities to locations around the globe

9. The 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
As markets globalize and an increasing proportion of business activity transcends national borders, there is a need for institutions to help manage, regulate, and police the global marketplace, and to promote the establishment of multinational treaties to govern the global business system. Over the past half century, a number of important global institutions have been created to help perform these functions.

10. Drivers of Globalization
Two macro factors seem to underlie the trend toward greater globalization
Decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II
Technological change

11. Declining Trade and Investment Barriers
During the 1920s and ‘30s, many of the nation-states of the world erected formidable barriers to international trade and foreign direct investment
Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations.

12. Growth Trends
As shown in Figure 1.2, between 1992 and 2004 the total flow of FDI from all countries increased by about 360 percent, while world trade doubled and world output grew by 35 percent. As a result of the strong FDI flow, by 2003 the global stock of FDI exceeded $8.1 trillion. In total, at least 61,000 parent companies had 900,000 affiliates in foreign markets that collectively employed some 54 million people abroad and generated value accounting for about one-tenth of global GDP. The foreign affiliates of multinationals had an estimated $17.6 trillion in global sales, nearly twice as high as the value of global exports of goods and service combined, which stood at $9.2 trillion

13. The Role of Technology
Lowering of trade barriers made globalization possible; technology has made it a reality
Since the end of World War II the world has seen advances in
Communication
Information processing
Transportation technology
The lowering of trade barriers made globalization of markets and production a theoretical possibility. Technological change has made it a tangible reality. Since the end of World War II, the world has seen major advances in communication, information processing, and transportation technology, including the explosive emergence of the Internet and World Wide Web. Telecommunications is creating a global audience. Transport is creating a global village. From Buenos Aires to Boston, and from Birmingham to Beijing, ordinary people are watching MTV, they’re wearing blue jeans, and they’re listening to iPod’s as they commute to work.

14. Internet Usage Growth
The rapid growth of the Internet and the associated World Wide Web (which utilizes the Internet to communicate between World Wide Web sites) is the latest expression of communication technology development. In 1990, fewer than 1 million users were connected to the Internet. By 1995 the figure had risen to 50 million. In 2004 it grew to about 945 million. By 2007, forecasts suggest the Internet may have more than 1.47 billion users, or about 25 percent of the world’s population. In July 1993, some 1.8 million host computers were connected to the Internet (host computers host the Web pages of local users). By January 2005, the number of host computers had increased to 317 million, and the number is still growing rapidly. In the United States, where Internet usage is most advanced, almost 60 percent of the population was using the Internet by 2003 (see figure 1.3). Worldwide the figure was 15 percent and growing fast. The Internet and World Wide Web (WWW) promise to develop into the information backbone of the global economy.

15. The Globalization Debate
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
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
The past quarter century has seen rapid changes in the global economy. Barriers to the free flow of goods, services, and capital have been coming down. The volume of cross-border trade and investment has been growing more rapidly than global output, indicating that national economies are becoming more closely integrated into a single, interdependent, global economic system. As their economies advance, more nations are joining the ranks of the developed world. But it is always hazardous to use established trends to predict the future. The world may be moving toward a more global economic system, but globalization is not inevitable. Countries may pull back from the recent commitment to liberal economic ideology if their experiences do not match their expectations. Also, greater globalization brings with it risks of its own. This was starkly demonstrated in 1997 and 1998 when a financial crisis in Thailand spread first to other East Asian nations and then in 1998 to Russia and Brazil. Ultimately the crisis threatened to plunge the economies of the developed world, including the United States, into a recession. This slide outlines some of the arguments from the great globalization debate.