1. Week 1 Globalization, Politic and Economy Dr. Ananda Hussein

2. What Is Globalization?
The world is moving away from self-contained national economies toward an interdependent, integrated global economic system
Globalization refers to the shift toward a more integrated and interdependent world economy
Globalization has two facets:
1) the globalization of markets
2) the globalization of production

3. 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.

4. The Globalization Of Production
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 like land, labor, and capital
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.

5. The Emergence Of Global Institutions
Institutions are needed to:
help manage, regulate, and police the global marketplace
promote the establishment of multinational treaties to govern the global business system

6. The Emergence Of Global Institutions
Institutions created over the past half century include:
the General Agreement on Tariffs and Trade (GATT)
the World Trade Organization (WTO)
the International Monetary Fund (IMF)
the World Bank
the United Nations (UN)

7. Drivers Of Globalization
Two macro factors underlie the trend toward greater globalization:
the decline in 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.

8. Declining Trade And Investment Barriers
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 countries made a commitment to lower barriers to trade and investment
Since 1950, average tariffs have fallen significantly and are now at about 4%
Countries have also been opening markets to FDI
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.

9. 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

10. The Role Of Technological Change
Technological change has made the globalization of markets a reality
Important advances have occurred in:
microprocessors and telecommunications
the Internet and World Wide Web
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.

11. 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

12. 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

13. The Changing Nature Of The Multinational Enterprise
A multinational enterprise (MNE) is any business that has productive activities in two or more countries
Since the 1960s, there has been a rise in non-U.S. multinationals, and a growth of mini-multinationals
A multinational enterprise is any business that has productive activities in two or more countries.
Expect the growth of new multinational enterprises (any business that has productive activities in two or more countries) from the world's developing nations.
The number of mini-multinationals (small and medium-sized companies) is on the rise.

14. The Changing World Order
Many former Communist nations in Europe and Asia are now committed to democratic politics and free market economies and so, create new opportunities for international businesses
China and Latin America are also moving toward greater free market reforms
The Management Focus: China’s Hisense – An Emerging Multinational examines how one Chinese company, Hisense, has emerged as one of China’s premier makers of televisions, air conditioners, refrigerators, personal computers, and telecommunications. Hisense began as a state-owned company in 1969, but became a private corporation in Today, the company has sales of $3.3 billion, and has sets its sights on becoming a global enterprise with a world class consumer brand. Hisnese believes its core strength lies with its ability to rapidly innovate.
Teaching Tip: To find out more about Hisense, visit the company’s web site at {

15. The Global Economy Of The Twenty-first Century
The world is moving toward a more global economic system, but globalization is not inevitable
Globalization also brings risks like the financial crisis that swept through South East Asia in the late 1990s

16. 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

17. Managing In The Global Marketplace
An international business is any firm that engages in international trade or investment

18. Managing In The Global Marketplace
Managing an international business differs from managing a domestic business because:
countries are different
the range of problems confronted in an international business is wider and the problems more complex than those in a domestic business
firms have to find ways to work within the limits imposed by government intervention in the international trade and investment system
international transactions involve converting money into different currencies

19. Political Systems
The political economy of a nation refers to how the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well- being

20. Political Systems
Political system refers to the system of government in a nation
Political systems can be assessed according to two dimensions
the degree to which they emphasize collectivism as opposed to individualism
the degree to which they are democratic or totalitarian
Political systems have two dimensions: the degree of collectivism versus individualism, and the degree of democracy versus totalitarianism.
These dimensions are interrelated; systems that emphasize collectivism tend towards totalitarian, while systems that place a high value on individualism tend to be democratic.
However, a large gray area exists in the middle. It is possible to have democratic societies that emphasize a mix of collectivism and individualism. Similarly, it is possible to have totalitarian societies that are not collectivist.

21. Collectivism And Individualism
Collectivism refers to a political system that stresses the primacy of collective goals over individual goals
Collectivism can be traced back to the Greek philosopher, Plato ( BC), but in modern times, collectivism is equated with socialists
Collectivism refers to a political system that stresses the primacy of collective goals over individual goals. The needs of society as a whole are generally viewed as being more important than individual freedoms. In such circumstances, an individual’s right to do something may be restricted on the grounds that it runs counter to “the good of society” or to “the common good.”

22. Collectivism And Individualism
Socialists advocate state ownership of the basic means of production, distribution, and exchange
State-owned enterprises are managed to benefit society as a whole, rather than individual capitalists
In the early 20th century, socialism split into:
Communism – socialism can only be achieved through violent revolution and totalitarian dictatorship
Social democrats – socialism is achieved through democratic means

23. Classroom Performance System
A political system that stresses the primacy of collective goals over individual goals is called
a) individualism
b) collectivism
c) a democracy
d) a market economy
The answer is B.

24. Collectivism And Individualism
By the mid-1990s, communism was in retreat worldwide
Social democracy is also retreating as many countries move toward free market economies
State-owned enterprises have been privatized

25. Classroom Performance System
_____ believe (s) that socialism can only be achieved through violent revolution and totalitarian dictatorship. a) communists b) social democrats c) social republicans d) Plato
The answer is A.

26. Collectivism And Individualism
Individualism refers to philosophy that an individual should have freedom in his own economic and political pursuits
Individualism can be traced to Greek philosopher, Aristotle ( BC), who argued that individual diversity and private ownership are desirable
Under individualism, individual economic and political freedoms are the ground rules on which a society should be based
More practically, individualism means democratic political systems and free market economies

27. Democracy And Totalitarianism
Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives
Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties
Democracy is usually associated with individualism and communism is usually associated with collectivism and totalitarianism
Democracy, as originally practiced by several city-states in ancient Greece, is based on a belief that citizens should be directly involved in decision making.
Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited. (Communist, theocratic, tribal, right wing) Totalitarianism denies its citizens all of the constitutional guarantees asserted by representative democracies.
The democratic–totalitarian dimension is not independent of the collectivism–individualism dimension. Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism.
However, gray areas exist; it is possible to have a democratic state where collective values predominate, and it is possible to have a totalitarian state that is hostile to collectivism and in which some degree of individualism—particularly in the economic sphere—is encouraged. For example, China has seen a move toward greater individual freedom in the economic sphere, but the government is still a totalitarian dictatorship.

28. Democracy And Totalitarianism
Pure democracy is based on the belief that citizens should be directly involved in decision making
Most modern democratic states practice representative democracy where citizens periodically elect individuals to represent them
Most modern democratic states practice representative democracy in which citizens periodically elect individuals to represent them. These elected representatives then form a government, whose function is to make decisions on behalf of the electorate and it is assumed that if elected representatives fail to perform this job adequately, they will be recalled, impeached or voted down at the next election.

29. Classroom Performance System
A form of government in which one person or political party exercises complete control over all spheres of human life and prohibits opposing political parties is a) a democracy b) a representative democracy c) totalitarianism d) socialism
The answer is C.

30. Democracy And Totalitarianism
There are four major forms of totalitarianism:
Communist totalitarianism – found in states where the communist party monopolizes power
Theocratic totalitarianism - found in states where political power is monopolized by a party, group, or individual that governs according to religious principles
Tribal totalitarianism - found in states where a political party that represents the interests of a particular tribe monopolizes power
Right-wing totalitarianism - permits some individual economic freedom, but restricts individual political freedom

31. Classroom Performance System
______ is found in states where political power is monopolized by a party according to religious principles.
a) tribal totalitarianism
b) right-wing totalitarianism
c) theocratic totalitarianism
d) communist totalitarianism
The answer is C.

32. Economic Systems Political ideology and economic systems are connected
In countries where individual goals are emphasized free market economies are likely
There are three types of economic systems:
market economies
command economies
mixed economies

33. Market Economy
In a market economy all productive activities are privately owned and production is determined by the interaction of supply and demand
The role of government is to encourage free and fair competition between private producers
A market economy is an economy in which all productive activities are privately owned, as opposed to being owned by the state. Production is determined by the interaction of supply and demand and signaled to producers through the price system.
For a market to work in this manner there must be no restrictions on supply. A restriction on supply occurs when a market is monopolized by a single firm. In such circumstances, rather than increase output in response to increased demand, a monopolist might restrict output and let prices rise.

34. Command Economy
In a command economy, the government plans the goods and services that a country produces, the quantity that is produced, and the prices as which they are sold
All businesses are state-owned, and governments allocate resources for “the good of society”
However, because there is little incentive to control costs and be efficient, command economies tend to stagnate
A command economy is an economy in which the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold are all planned by the government.
Consistent with the collectivist ideology, the objective of a command economy is for government to allocate resources for “the good of society.” In addition, in a pure command economy, all businesses are state owned.

35. Mixed Economy
In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning
Governments tend to own firms that are considered important to national security
A mixed economy is an economy in which certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning. India has a mixed economy.
Mixed economies were once very common throughout much of the world, although they are becoming much less so. There was a time not too long ago when Great Britain, France, and Sweden were mixed economies, but extensive privatization has reduced state ownership of businesses in all three.

36. Classroom Performance System
In which type of economic system are all productive activities privately owned?
a) a mixed economy
b) a command economy
c) a representative economy
d) a market economy
The answer is D.

37. Legal Systems
The legal system of a country refers to the rules that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained
There are three types of legal systems:
Common law - based on tradition, precedent, and custom
Civic law - based on detailed set of laws organized into codes
Theocratic law - law is based on religious teachings
Legal systems are the systems of rules or laws that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained.
The legal system of a country is of immense importance to international business. A country’s laws regulate business practice, define the manner in which business transactions are to be executed, and set down the rights and obligations of those involved in business transactions.
There are three main types of legal systems – or legal traditions – in use around the world: common law, civil law, and theocratic law.
Common law evolved in England over hundreds of years. It is now found in most of Great Britain’s former colonies, including the United States. Common law is based on tradition, precedent, and custom. When law courts interpret common law, they do so with regard to these characteristics. This gives a common law system a degree of flexibility that other systems lack because it allows the judge to interpret the law.
Civil law is based on a very detailed set of laws organized into codes. When law courts interpret civil law, they do so with regard to these codes. Over 80 countries, including Germany, France, Japan, and Russia, operate with a civil law system. A civil law system tends to be less adversarial that a common law system, since the judges rely upon detailed legal codes rather than tradition, precedent and custom which they interpret. Judges under a civil law system have less flexibility than those under a common law system.
Theocratic law is based on religious teachings. Islamic law is the most widely practiced theocratic legal system in the modern world, although usage of both Hindu and Jewish law persisted into the twentieth century.