2. Globalization and International Linkages Chapter One McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All Rights Reserved.

3. 1-3 Globalization and International Linkages  The specific objectives of this chapter are to 1. ASSESS the implications of globalization for countries, industries, firms, and communities. 2. REVIEW the major trends in global and regional integration. 3. EXAMINE the changing balance of global economic power and trade and investment flows among countries. 4. ANALYZE the major economic systems and recent developments among countries that reflect those systems.

4. 1-4 International Management  International management involves  Applying management concepts and techniques in a multinational environment and  Adapting management practices to different economic, political, and cultural environments.  Multinational corporation (MNC)  Operations in more than one country  International sales  Nationality mix of managers and owners

5. 1-5 The World’s Top Nonfinancial MNCs Ranked by Foreign Assets, 2007

6. 1-6 The World’s Top Nonfinancial MNCs from Developing Countries Ranked by Foreign Assets, 2007

7. 1-7 Globalization and Internationalization  Globalization  Process of social, political, economic, cultural, and technological integration among countries around the world.  Hastened by  Offshoring  Process by which companies undertake some activities at offshore locations instead of their countries of origin.  Outsourcing  Subcontracting or contracting out of activities to external organizations that had previously been performed by the firm.

8. 1-8 Globalization: Pros and Cons  Benefits of Globalization  Wealth  Jobs  Technology  Lower prices  Criticisms of Globalization  off-shoring of business service jobs to lower-wage countries  growing trade deficits  slow wage growth  environmental and social impacts

9. 1-9 Global and Regional Integration  Global Agreements  World Trade Organization (WTO)  General Agreement on Tariffs and Trade (GATT)  Regional Agreements  North American Free Trade Agreement (NAFTA)  U.S.-Central American Free Trade Agreement (CAFTA)  European Union (EU)  Association of Southeast Asian Nations (ASEAN)  Free Trade Agreement of the Americas (FTAA)

10. 1-10 International Economic Power in the Global Economy  Shifting landscape due to  Economic integration  Economic potential of emerging markets  BRIC countries (Brazil, Russia, India, and China) could be among the four most dominant economies by 2050

11. 1-11 The World’s Largest Economies 2005 and 2020 (Projected) Measured by GDP at Market Exchange Rates

12. 1-12 The World’s Largest Economies 2005 and 2020 (Projected) Measured by GDP at Purchasing Power Parity

13. 1-13 Changing Demographics: Developing Countries on the Rise (ranked by size)

14. 1-14 Trends in Trade and International Investments  International Trade  In 2009 merchandise and commercial services exports declined  Foreign direct investment (FDI)  Investment in property, plant, or equipment in another country  Growing at healthy rate  Outpacing domestic growth in most countries  Declined in 2009 due to the global recession

15. 1-15 World Merchandise Trade by Region and Selected Country, 2009 (in U.S.$ billions or percent)

16. 1-16 World Foreign Direct Investment Inflows (in U.S.$ millions)

17. 1-17 World Foreign Direct Investment Inflows (in U.S.$ millions)

18. 1-18 Global Economic Systems  Market Economy  Command Economy  Mixed Economy

19. 1-19 Economic Performance by Major World Region  Established Economies  North America  European Union  Japan  Emerging Economies  Central and Eastern Europe  China  Other Emerging Markets of Asia  India  Developing Economies on the Verge  South America  Middle East and Central Asia  Africa

20. 1-20 Economic Performance Established Economies  North America  One of the four largest trading blocs in the world  Combined purchasing power of U.S., Canada and Mexico approaches $12 trillion  Free-market-based economy is attractive to private firms  United States  Foreign MNC’s find U.S. a lucrative expansion market  Foreign firms welcomed as investors in U.S. market  U.S. firms hold market dominance in many European markets; gaining market share in Asia

21. 1-21 Economic Performance Established Economies  Canada  U.S.’s largest trading partner  Most of the largest foreign-owned Canadian companies are totally or heavily U.S.-owned  Legal and business environment in Canada is similar to that in U.S.  Mexico  Strongest Latin American economy  Very strong maquiladora industry  Trade with both Europe and Asia has increased  Now competitive with Asia for the U.S. market

22. 1-22 Economic Performance Established Economies  European Union  Ultimate objective  Eliminate all trade barriers among member countries  Emergence of the EU as an operational economic union  A unified Europe could become the largest economic market in terms of purchasing power in the world  Foreign MNCs trying to gain foothold in EU  Acquisitions, alliances, cooperative R&D efforts  Economic linkages between the EU and newly emerging Central and Eastern European countries  Challenge is to absorb former communist bloc countries  Financial crises in Greece and Ireland putting pressure on the euro

23. 1-23 Economic Performance Established Economies  Japan  Huge economic success in 1970s and 1980s  Ministry of International Trade and Industry (MITI)  Keiretsus  Vertically integrated industries  Holdings provide assistance needed in providing goods and services to end users  Decade long recession in 1990s  More competition from emerging economies  Poor management decisions  Remains a formidable competitor in the Pacific Rim, North America, and Europe

24. 1-24 Economic Performance Emerging Economies  Central and Eastern Europe  Russia  Dismantling of price controls and privatization  Membership in International Monetary Fund (IMF) controlling inflation  Crime and political uncertainty  Czech Republic, Hungary, Poland  Privatization  Inflation  Political uncertainty

25. 1-25 Economic Performance Emerging Economies  China  Real economic growth of 12 percent in 2007, 9 percent in 2008, and 11.5 percent in 2009  Savings glut in corporate sector  Vast developmental needs  Unemployment concerns  Attractive to investors despite political risk  Product pirating is a major problem  Currency value  Government policies favor domestic firms

26. 1-26 Economic Performance Emerging Economies  South Korea  Chaebols  Very large family-held conglomerates  Solid economy, moderate growth and inflation, low unemployment  Hong Kong  Part of People’s Republic of China  Uncertainty about the role the Chinese government

27. 1-27 Economic Performance Emerging Economies  Singapore  Success story  Leader and financial center for region  Taiwan  Progressed from labor-intensive economy to one dominated by technologically sophisticated industries  banking, electricity generation, petroleum refining and computers

28. 1-28 Economic Performance Emerging Economies  Thailand, Malaysia, Indonesia  Large population base  Inexpensive labor  Considerable natural resources  Attractive to outside investors

29. 1-29 Economic Performance Emerging Economies  India  Large population  Recent trend of locating software and high value- added services to this country boosting middle- and upper-class market for goods and services  Attractive to U.S. and British investors  well educated, English speaking, technologically sophisticated workers

30. 1-30 Economic Performance Developing Economies on the Verge  South America  Hampered by foreign debt and severe inflation  But, intercountry trade is increasing  Countries looking to do business with U.S.  Brazil  Economy is now flourishing and attracting investment from MNCs  Privatization and stable government

31. 1-31 Economic Performance Developing Economies on the Verge  Chile  Uncertain future, but helped by trade agreements  Argentina  Abundant natural resources  Economic problems persist

32. 1-32 Economic Performance Developing Economies on the Verge  Middle East and Central Asia  Large oil reserves  Highly unstable geopolitical and religious forces  Plagued by continuing economic problems

33. 1-33 Economic Performance Developing Economies on the Verge  Africa  Considerable natural resources  African nations remain very poor and undeveloped  International trade is not a major sources of income  Populace divided into 3,000 tribes that speak 1,000 languages and dialects  Major political instability  Poverty, starvation, illiteracy, corruption, overcrowding among many social problems negatively affecting economic sector

34. 1-34 World’s Most Competitive Nations, 2010

35. 1-35 Market Potential Indicators Ranking for Emerging Markets, 2009

36. 1-36 Review and Discuss 1.How has globalization affected different world regions? What are some of the benefits and costs of globalization for different sectors of society? 2.How has NAFTA affected the economies of North America and the EU affected Europe? What importance do these economic pacts have for international managers in North America, Europe and Asia? 3.Why would MNCs be interested in South America, India, the Middle East, Central Asia, and Africa, the less developed and emerging countries of the world?