12-Jan-21

INTERNATIONAL BUSINESS
Dr. Tran Nguyen Chat
Email: [email protected]

CHAPTER 1: GLOBALIZATION

1 2

1. Understand what is meant 4. Explain the major arguments in

by the term globalization. the debate over the impact of
2. Recognize the main drivers of globalization.
globalization. 5. Understand how the process of
3. Describe the changing nature of the globalization is creating opportunities
global economy. and challenges for business managers.

LEARNING OBJECTIVES
LEARNING OBJECTIVES

3 4

1.1 Introduction
1.2 What Is Globalization?
1.3 Drivers of Globalization
1.4 The Changing Demographics
of the Global Economy
1.5 The Globalization Debate

OUTLINE 1.1 INTRODUCTION

5 6

1
 12-Jan-21

Definition of globalization and

1.2 What Is Globalization? its related issues

➢ Globalization - the shift toward a more Globalization has several facets, including the
integrated and interdependent world economy globalization of markets and the globalization
of production.
➢ The world is moving away from self-contained
national economies toward an interdependent,
integrated global economic system

12-Jan-21 International Business 7 12-Jan-21 International Business 8

7 8

Definition of globalization and Definition of globalization and

its related issues (cont.) its related issues (cont.)

+ The globalization of markets refers to the merging of historically The most global markets currently are not markets for
distinct and separate national markets into one huge global
consumer products—where national differences in tastes
marketplace.
and preferences are still often important enough to act as
+ Falling barriers to cross-border trade have made it easier to sell
a brake on globalization—but markets for industrial goods
internationally.
+ It has been argued for some time that the tastes and preferences
and materials that serve a universal need the world over
of consumers in different nations are beginning to converge on some
global norm, thereby helping to create a global market
10
12-Jan-21 International Business 9 12-Jan-21 International Business

9 10

Definition of globalization and Definition of globalization and

its related issues (cont.) its related issues (cont.)

The globalization of production refers to sourcing goods and

Early outsourcing efforts were primarily confined to
services from locations around the globe to take advantage of
manufacturing activities, increasingly, however,
national differences in the cost and quality of factors of production
(such as labor, energy, land, and capital) companies are taking advantage of modern
→ By using global sourcing, companies hope to lower their overall communications technology, particularly the Internet, to
cost structure or improve the quality or functionality of their product outsource service activities to low-cost producers in
offering, thereby allowing them to compete more effectively. other nations

12-Jan-21 International Business 11 12-Jan-21 International Business 12

11 12

2
 12-Jan-21

What Is The Globalization of Markets? What Is The Globalization of Markets?

➢ Historically distinct and separate national markets ➢ Instead, there is the “global market”
are merging ➢ falling trade barriers make it easier to sell globally
➢ It no longer makes sense to talk about the “German ➢ consumers’ tastes and preferences are converging
market” or the “American market” on some global norm
➢ firms promote the trend by offering the same basic
products worldwide

12-Jan-21 International Business 13 12-Jan-21 International Business 14

13 14

What Is The Globalization of Markets? What Is The Globalization of Production?

➢ Firms source goods and services from locations

➢ Firms of all sizes benefit and contribute to around the globe to capitalize on national
the globalization of markets differences in the cost and quality of factors of
➢ 97% of all U.S. exporters have less than 500 production like land, labor, energy, and capital
employees
➢ 98% of all small and mid-sized German
companies participate in international markets

12-Jan-21 International Business 15 12-Jan-21 International Business 16

15 16

What Is The Globalization of Production? The global actors in the world

economy

+ Multinational corporations (MNCs)

➢Companies can
+ States;
➢ lower their overall cost structure
➢ improve the quality or functionality of their + Global institutions: WTO, WB, IMF, UN.
product offering

18
12-Jan-21 International Business 17 12-Jan-21 International Business

17 18

3
 12-Jan-21

Why Do We Need Global Institutions? Why Do We Need Global Institutions?

➢ Global institutions ➢ Examples include

➢ help manage, regulate, and police the global ➢ the General Agreement on Tariffs and Trade
(GATT)
marketplace
➢ the World Trade Organization (WTO)
➢ promote the establishment of multinational
treaties to govern the global business system ➢ the International Monetary Fund (IMF)
➢ the World Bank
➢ the United Nations (UN)
➢ the G20
12-Jan-21 International Business 19 12-Jan-21 International Business 20

19 20

What Do Global Institutions Do? What Do Global Institutions Do?

➢ The World Trade Organization (like its ➢ The International Monetary Fund (1944)
predecessor GATT) ➢ maintains order in the international monetary
system
➢ polices the world trading system ➢ lender of last resort for countries in crisis
➢ makes sure that nation-states adhere to the rules ➢ Argentina, Indonesia, Mexico, Russia, South Korea,
Thailand, Turkey, Ireland, and Greece
laid down in trade treaties
➢ The World Bank (1944)
➢ promotes lower barriers to trade and investment
➢ promotes economic development via low interest
➢ 159 members in 2013 loans for infrastructure projects
12-Jan-21 International Business 21 12-Jan-21 International Business 22

21 22

What Do Global Institutions Do? What Do Global Institutions Do?

➢The United Nations (1945)

➢ maintains international peace and security ➢The G20
➢ develops friendly relations among nations ➢ forum through which major nations tried to
➢ cooperates in solving international problems launch a coordinated policy response to the
and in promoting respect for human rights 2008-2009 global financial crisis
➢ is a center for harmonizing the actions of
nations

12-Jan-21 International Business 23 12-Jan-21 International Business 24

23 24

4
 12-Jan-21

1.3 What Is Driving Globalization? 1.3 What Is Driving Globalization?

➢ Declining barriers to the free flow of goods,

➢ Technological change
services, and capital
➢ microprocessors and telecommunications
➢ average tariffs are now at just 4%
➢ Internet: information backbone of the global economy
➢ more favorable environment for FDI
➢ transportation technology
➢ global stock of FDI was $20.4 trillion in 2011
➢ facilitates global production

12-Jan-21 International Business 25 12-Jan-21 International Business 26

25 26

What Does Globalization Mean For Firms? What Does Globalization Mean For Firms?

➢ Lower barriers to trade and investment mean

firms can ➢ Technological change means
➢ lower transportation costs
➢ view the world, rather than a single country, as ➢ help create global markets and allow firms to
their market disperse production to economical, geographically
➢ base production in the optimal location for that separate locations
activity
➢ But, firms may also find their home markets
under attack by foreign firms
12-Jan-21 International Business 27 12-Jan-21 International Business 28

27 28

What Does Globalization Mean For Firms? Forces driving globalization

• Technological change:
➢ low cost information processing and communication – Production
➢ firms can create and manage globally dispersed – Communication & information
production
– Transport
➢ low cost global communications networks
➢ help create an electronic global marketplace • Liberalization of trade & investment:
➢ global communication networks and global media – Tariff, non-tariff barrier reductions
➢ create a worldwide culture and a global consumer – Liberalized financial transactions
product market – International financial markets

30
12-Jan-21 International Business 29 12-Jan-21 International Business

29 30

5
 12-Jan-21

1.4 The Changing Demographics

Waves of Globalization Of The Global Economy
• 1st wave: 1870-1914
– Falling tariff barriers
➢ Four trends are important:
– improved transportation 1. The changing world output and world trade
• 2nd wave: 1945-1980 picture
– Agreements to lower barriers again
– Rich country trade specialization 2. The changing foreign direct investment picture
– Poor nations left behind
3. The changing nature of the multinational
• 3rd wave: 1980-present
– Growth of emerging markets
enterprise
– international capital movements regain importance 4. The changing world order
31
12-Jan-21 International Business 12-Jan-21 International Business 32

31 32

What Is A Multinational Enterprise? The Changing World Order

➢Multinational enterprise (MNE) - any ➢ Many former Communist nations in Europe and
business that has productive activities in two Asia are now committed to democratic politics
and free market economies
or more countries ➢ creates new opportunities for international
businesses
➢Since the 1960s
➢ but, there are signs of growing unrest and totalitarian
➢ the number of non-U.S. multinationals has risen tendencies in some countries
➢ the number of mini-multinationals has risen

12-Jan-21 International Business 33 12-Jan-21 International Business 34

33 34

1.5 How Will The Global Economy Of The 21st

The Changing World Order Century Look?
➢ The world is moving toward a more global
➢ China and Latin America are also moving economic system…
toward greater free market reforms
➢ between 1983 and 2010, FDI in China increased
➢ But globalization is not inevitable
from less than $2 billion to $100 billion annually ➢ there are signs of a retreat from liberal economic
➢ but, China also has many new strong companies that ideology in Russia
could threaten Western firms ➢ Globalization brings risks
➢ the financial crisis that swept through South East
Asia in the late 1990s
➢ the recent financial crisis that started in the U.S. in
2008-2009, and moved around the world
12-Jan-21 International Business 35 12-Jan-21 International Business 36

35 36

6
 12-Jan-21

WORLD ECONOMY World Economic Outlook

12-Jan-21 International Business 37 12-Jan-21 International Business 38

37 38

Is An Interdependent Global Economy

Vietnam 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

12-Jan-21 International Business 39 12-Jan-21 International Business 40

39 40

Is An Interdependent Global Economy How Does Globalization Affect

A Good Thing? Jobs And Income?

➢ Critics argue that falling barriers to trade are

➢ Critics worry that globalization will cause destroying manufacturing jobs in advanced
➢ job losses countries
➢ environmental degradation
➢ the cultural imperialism of global media and MNEs ➢ Supporters contend that the benefits of this
➢ Anti-globalization protesters now regularly show trend outweigh the costs
up at most major meetings of global institutions ➢ countries will specialize in what they do most
efficiently and trade for other goods—and all
countries will benefit
12-Jan-21 International Business 41 12-Jan-21 International Business 42

41 42

7
 12-Jan-21

How Does Globalization Affect How Does Globalization Affect

Labor Policies And The Environment? Labor Policies And The Environment?

➢ Critics argue that firms avoid the cost of adhering

to labor and environmental regulations by moving ➢ Supporters claim that tougher environmental and
production to countries where such regulations labor standards are associated with economic
do not exist, or are not enforced progress
➢ as countries get richer from free trade, they implement
tougher environmental and labor regulations

12-Jan-21 International Business 43 12-Jan-21 International Business 44

43 44

How Does Globalization Affect How Does Globalization Affect

National Sovereignty? National Sovereignty?

➢ Is today’s global economy shifting economic power away

from national governments toward supranational ➢ Supporters claim that the power of these organizations is
organizations like the WTO, the EU, and the UN? limited to what nation-states agree to grant
➢ Critics argue that unelected bureaucrats have the power ➢ the power of the organizations lies in their ability to get
to impose policies on the democratically elected countries to agree to follow certain actions
governments of nation-states

12-Jan-21 International Business 45 12-Jan-21 International Business 46

45 46

How Is Globalization Affecting How Is Globalization Affecting

The World’s Poor? The World’s Poor?

➢ Is the gap between rich nations and poor

nations getting wider? ➢ Supporters claim that the best way for the
poor nations to improve their situation is to
➢ reduce barriers to trade and investment
➢ Critics believe that if globalization was beneficial ➢ implement economic policies based on free
there should not be a divergence between rich market economies
and poor nations ➢ receive debt forgiveness for debts incurred under
totalitarian regimes

12-Jan-21 International Business 47 12-Jan-21 International Business 48

47 48

8
 12-Jan-21

How Does The Global Marketplace Affect How Does The Global Marketplace Affect
Managers? Managers?

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

12-Jan-21 International Business 49 12-Jan-21 International Business 50

49 50

Dr. Tran Nguyen Chat

Email: [email protected]

12-Jan-21

51