Chapter 3

Globalization
Compiled from: Charles W.L. Hill, Global Edition

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 Contents:
• What is globalization
• Globalization of Markets
• Globalization of Production
• What Is Driving Globalization
• Global management skill Vs. Domestic Management
Skill
• Global Institutions
• How does Globalization affect Jobs ,Income, labor
policies ,managers implication, environment and
National Sovereignty, etc.
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 What Is Globalization?
• Globalization - the shift towards a more
integrated and interdependent world
economy
• The world is moving away from self-contained
national economies toward an
interdependent, integrated global economic
system

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 Definition of Globalization
• According to Charles Hill Globalization refers
to the shift toward a more integrated and
interdependent world economy.
• According to Tomlinson, Globalization is a
process of complex interactions between
societies ,cultures , institutions and individuals
world wide.

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 What Is The
Globalization of Markets?
• Historically distinct and separate national markets are
merging
• It no longer makes sense to talk about the “German market”
or the “American market”
• Instead, there is the “global market”
– falling trade barriers make it easier to sell globally
– consumers’ tastes and preferences are converging on some
global norm
– firms promote the trend by offering the same basic
products worldwide merging of historically distinct and
separate national markets. E.g. Coca cola.

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 What Is The
Globalization of Markets?

• Firms of all sizes benefit and contribute to the

globalization of markets
– 97% of all U.S. exporters have less than 500
employees
– 98% of all small and mid-sized German companies
participate in international markets

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 What Is The
Globalization of Production?
• Firms source goods and services from locations around the
globe to capitalize on national differences in the cost and
quality of factors of production like land, labor, energy, and
capital
• Companies can
– lower their overall cost structure
– improve the quality or functionality of their product
offering
• 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 Factor of Production .e.g. Boeing
company producing planes through global supplier’s base

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 Global management skill Vs. Domestic
Management Skill
• A global mindset
• Know the business and it’s environment
• Create and convey a clear vision with integrity
• Self awareness and self understanding
• Be able to manage diversity
• Continuously learn
• Differences between domestic mindset and
global mind set.
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 Why Do We Need
Global Institutions?
• Global institutions
– help manage, regulate, and police the global
marketplace
– promote the establishment of multinational
treaties to govern the global business system

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 Why Do We Need
Global Institutions?
• Examples 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)
– the G20

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 What Do Global
Institutions Do?

• The World Trade Organization (like its

predecessor GATT)
– polices the world trading system
– makes sure that nation-states adhere to the rules
laid down in trade treaties
– promotes lower barriers to trade and investment
– 164 members in 2016 ,latest member Afganisthan.

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 WTO
• The WTO Secretariat is located in Geneva. It has around 630 staff and is headed by a director-
general. Its responsibilities include:
•  Administrative and technical support for WTO delegate bodies (councils, committees,
working parties, negotiating groups) for negotiations and the implementation of agreements.
•  Technical support for developing countries, and especially the least-developed.
•  Trade performance and trade policy analysis by WTO economists and statisticians.
•  Assistance from legal staff in the resolution of trade disputes involving the interpretation of
WTO rules and precedents.
•  Dealing with accession negotiations for new members and providing advice to governments
considering membership.
• Some of the WTO’s divisions are responsible for supporting particular committees: the
Agriculture Division assists the committees on agriculture and on sanitary and phytosanitary
measures, for example. Other divisions provide broader support for WTO activities: technical
cooperation, economic analysis, and information, for example.
• The WTO budget is over 160 million Swiss francs with individual contributions calculated on
the basis of shares in the total trade conducted by WTO members.

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 What Do Global
Institutions Do?

• The International Monetary Fund (1944)

– maintains order in the international monetary
system
– lender of last resort for countries in crisis
• Argentina, Indonesia, Mexico, Russia, South Korea,
Thailand, Turkey, Ireland, and Greece
• The World Bank (1944)
– promotes economic development via low interest
loans for infrastructure projects

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 What Do Global
Institutions Do?
• The United Nations (1945)
– maintains international peace and security
– develops friendly relations among nations
– cooperates in solving international problems and in promoting respect
for human rights
– is a center for harmonizing the actions of nations
• The G20
– forum through which major nations tried to launch a coordinated
policy response to the 2008-2009 global financial crisis.As of 2017
there are 20 members of the group. These include, at the leaders'
summits, the leaders of 19 countries and of the European Union, and,
at the ministerial-level meetings, the finance ministers and central
bank governors of 19 countries and of the European Union.

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 What Is Driving Globalization?
• Declining barriers to the free flow of goods, services,
and capital
– average tariffs are now at just 4%
– more favorable environment for FDI
• global stock of FDI was $15.5 trillion in 2009
– facilitates global production
• Technological change
– microprocessors and telecommunications
– the Internet and World Wide Web
– transportation technology

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 What Does Globalization
Mean For Firms?

• Lower barriers to trade and investment mean

firms can
– view the world, rather than a single country, as
their market
– base production in the optimal location for that
activity
• But, firms may also find their home markets
under attack by foreign firms

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 Declining Trade And
Investment Barriers
Average Tariff Rates on Manufactured Products as Percent of Value

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 What Does Globalization
Mean For Firms?
• Technological change means
– lower transportation costs
• help create global markets and allow firms to disperse
production to economical, geographically separate
locations
– low cost information processing and communication
• firms can create and manage globally dispersed
production
– low cost global communications networks
• help create an electronic global marketplace
– global communication networks and global media
• create a worldwide culture and a global consumer
product market

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How Has World Output And
World Trade Changed?

The Changing Demographics of World GDP and Trade

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 How Does Globalization Affect Jobs And
Income?

• Critics argue that falling barriers to trade are

destroying manufacturing jobs in advanced
countries
• Supporters contend that the benefits of this
trend outweigh the costs
– countries will specialize in what they do most
efficiently and trade for other goods—and all
countries will benefit

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How Does Globalization Affect Labor Policies
And The Environment?
• Critics argue that firms avoid the cost of adhering to
labor and environmental regulations by moving
production to countries where such regulations do
not exist, or are not enforced
• Supporters claim that tougher environmental and
labor standards are associated with economic
progress
– as countries get richer from free trade, they implement
tougher environmental and labor regulations

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 How Does Globalization Affect National
Sovereignty?
• Is today’s global economy shifting economic power away from
national governments toward supranational organizations like
the WTO, the EU, and the UN?
• Critics argue that unelected bureaucrats have the power to
impose policies on the democratically elected governments of
nation-states
• Supporters claim that the power of these organizations is
limited to what nation-states agree to grant
– the power of the organizations lies in their ability to get
countries to agree to follow certain actions

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

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 How Does The Global Marketplace Affect
Managers?
• 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

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