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Lect_02-global

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soatenator
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LECTURE 2

Globalisation and
International Business

University of South Australia Australia’s University of Enterprise


Learning
objectives
2.1 Explain the process and
drivers of globalisation and the
opportunities and challenges it
creates for business.

2.2 Illustrate how the global


economy has changed over the
past 50 years.

2.3 Justify the labelling of the 21st


century as the Emerging Markets
Century.

2.4 Debate the impact of


globalisation on issues such as job
security, income inequality and
the environment.

2.5 Compare how the


management of international
business differs from the
management of domestic
business.
What is globalisation?
Shift to more integrated & interdependent world economy

Globalisation of markets
Convergence of tastes & preferences of national to global
markets
Examples: Prada, PlayStation, McDonald’s, Nescafé, IKEA

Globalisation of production
Location economies from producing where advantage exists
Examples: iPhone, Boeing Dreamliner, Komatsu construction

Emergence of global institutions


Treaties to manage, regulate & police global marketplace
Rules-based global trade system
Examples: GATT & WTO, IMF, World Bank, G20 & UN
Drivers of
globalisation

1. Declining trade and


investment barriers to
free flow of goods,
services and capital
after World War II

2. Technological change,
particularly
communications,
information processing
and transport
technologies
Declining trade &
investment barriers
Removal of barriers
Free flow of goods, services and capital between
nations
Consequence of World War II–trade issues directly
resulted in war

GATT then WTO


Reduction of tariffs
Introduction of dispute resolution and rules-based
trade

Increase in international trade, world output and FDI


Declining trade and investment barriers

Table 1.1 Average tariff rates on manufactured products as a percentage of value


Tariff rate information

WTO | Trade Statistics - Tariff profiles

This Photo by Unknown Author is licensed


under CC BY-SA-NC
Role of
technological
change
Technological change enabled
globalisation
Major advances:

Microprocessors and
telecommunications
Lower costs and higher
speeds of ICT

Internet

Transport technology
Commercial jet aircraft
Super-freighters
Containerisation
Role of technological change
Implications of
globalisation for
production and markets
Technological innovations
resulted in:

• Global communication
networks and global media
• Internet as facilitator of trade
in services
• Creation of electronic global
marketplaces
• Faster and lower-cost
transport
• Mass movement of people by
jet airliners.
• next
continued
Changing shape of
global economy
US domination of world economy, FDI & trade
decreasing

US percentage of world output declined from 40.3%


in 1960s to 16.1% in 2015
Growth of developing nations corporations
Rise of ‘mini-multinationals’

Decline of Group of Eight (G8)


900 million consumers
Rise of Group of Twenty (G20)
4.2 billion consumers

Stock of FDIs by rich industrial countries declining


Flow of FDI directed at developing nations, China
next
Changing pattern of world trade

Table 1.2 The changing pattern of world output and trade


Update…

World Economics
Total FDI stock

Figure 1.1 Source of FDI stock; percentage of world total of FDI stock, 2000, 2014 and 2017,
selected economies

SOURCE: Calculated by the author from data in UNCTAD, World Investment Report 2018, Annex Tables, accessed via
https://unctad.org/en/PublicationsLibrary/ wir2018_en.pdf on 26 March 2019.
Inflows of FDI
Figure 1.2 FDI inflows, 1991–2017, by economy type, annual, US$ million

SOURCE: Calculated by the author from data in UNCTAD, World Investment Report 2018, Annex Tables, accessed via https://
unctad.org/en/PublicationsLibrary/ wir2018_en.pdf on 26 March 2019.
Changing world
order
New opportunities & risks arising from:

Collapse of Communism in Eastern


Europe

China’s economic development

Mexico, Latin America and Asia

2007–09 Global Financial Crisis (GFC)


Reassessment of government’s intervention
in developed markets
Global
economy of
21st century

World more favourable to


international business

BUT globalisation not


inevitable

Risks of globalisation
Asian financial crisis of
1997–98
Global Financial Crisis of
2007–09
Emergence of sovereign
wealth funds (SWFs)
next
Update
More recent risks of Globalisation:
Military conflict:
◦ Russian invasion of Ukraine
◦ → global inflation
◦ → increased energy prices
◦ → food shortages
◦ → sanctions and firm exits from affected nations

Trade Wars
◦ US vs China geopolitics
◦ Political tariffs e.g. China on Australia, Lithuania etc
Pandemic
→ Supply chain shortages → inflation and production disruption
→ Reduced demand for raw materials and inputs, particularly in China
Emerging
economies
Might be developed in future

Criteria for describing developing economies:


Size of economy and national product
Rising per capita income, middle class and reduced
poverty
Open to trade and FDI
Growth rate of economy
Prospect of future growth
Transition to a more business-friendly, market economy

High returns but also high risk


next
Emerging
economies of
the world
MAP 1.1 The 25 countries classified as emerging market economies

SOURCE: Based on Grant Thornton International Ltd, ‘Emerging markets opportunity


index: high growth economies’, International Business Report 2012, 2012.
Globalisation
debate
Is shift to integrated and interdependent global economy a
good thing?

Anti-globalisation supporters believe:


Jobs losses and depressed wages in developed countries
Lax environmental rules in developing countries
Lax employment rules in developing countries

Globalisation supporters believe:


Free trade and specialisation
Correlation between economic progress and higher
environmental and labour standards
Poverty and pollution reduction
next
Globalisation debate

FIGURE 1.4 Income levels and environmental pollution


Globalisation &
national sovereignty
Globalisation critics:
Political and economic power moving away from
national governments to supranational organisations
such as the WTO, EU and UN
These bodies have ‘supranational’ power to override
local and national governments on policy

Globalisation supporters:
Institutions supporting free trade are agreements
between governments to share authority in certain
areas
National governments free to assert their views as
they wish
next

continued
Globalisation and the poor
Globalisation critics:
International income and global inequality continues

Globalisation supporters:
World poverty reduced
Measured by
International income inequality–average income per capita of the
country in which they live
Global inequality–based on an individual’s income, regardless of the
country in which they live
next

continued
Will Covid kill
globalisation?

End of globalisation?
Managing in
global
marketplace
Countries differ

Greater and more complex


range of influences and
problems

Intense competition

Limits imposed by
governmental intervention
and the global trading system

Conversion of currency and


exposure to foreign exchange
rate risk
next
Questions & Comments?

University of South Australia


Australia’s University of Enterprise

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