Perspectives on Globalisation

and International Business –

Overview
 What is globalisation?

• Globality is a social condition reflecting the world

moving away from self-contained national economies
toward an interdependent, integrated globally tighter
economic, political, cultural and environmental
system (interconnections and flows).

• Globalisation refers to the expansion and intensification

of social processes/relations across world-time and
world-space; shifts in the world, from weakening
nationality to globality; a social condition based on a
more integrated and interdependent world economy.
 What is globalisation of markets?

• Historically distinct and separate national markets are

merging
• Increasingly makes less sense to talk about the “German
market” or the “American market”
• Instead, there is the “global market”:
o Falling trade barriers makes it easier to sell globally
o Consumers’ tastes and preferences are converging
on some global norm
o Firms promote the trend by offering the same basic
products worldwide
What is globalisation of production?

• Firms source goods and services from locations

around the globe to capitalise on national
differences in the cost and quality of factors of
production like land, labour, energy, and capital.

• Companies can:
o lower their overall cost structure
o improve the quality or functionality of their
product offering
 Globalisation: Different voices and perspectives (1)

Joseph Stieglitz Globalisation and its Discontents (1999);

Making Globalisation Work (2003)
• questions unregulated/liberal economic policies

Zygmunt Bauman Globalisation (1999); Liquid Modernity (2000)

• questions the divisive outcomes of globalisation

Tom Friedman The World Is Flat (2003)

• technology helps create a globalising world
where differences disappear
Martin Wolf Why Globalisation Works (2005)
• in favour of hyperglobalisation

Manuel Castells The Rise of Network Society (2008)

• examines the complex role of Information
and Communication Technologies
 Globalisation: Different voices and perspectives (2)

Wolfgang Streeck How Will Capitalism End? (2016)

• capitalism in a critical condition: stagnation;
inequality; low economic confidence
Stephen King Grave New World: The End of Globalisation,
The Return of History (2017)
• why globalisation is being rejected;
the rise of nationalism
Pankaj Ghemawat The New Global Road Map (2018)
• slowdown, turbulence, robust regularities
Richard Baldwin The Globotics Upheaval (2019)
• impacts of automation
 Globalisation: A contested concept (1)
Globalization seen by some critics as a major
outcome of ‘neo-liberal’ measures:

• Privatisation of public enterprises

• Deregulation of the economy
• Liberalisation of trade and industry
• Tax cuts
• Monetarist measures to keep inflation in check
despite unemployment consequences
 Globalisation: A contested concept (2)
Globalization seen by some critics as a major
outcome of ‘neo-liberal’ measures:
• Strict controls on organised labour
• Reduction of public expenditures including social
spending
• Downsizing of government
• Expansion of international markets
• Removal of controls on global financial flows
And these have tended to support the rise of
transnational corporations
 The globalisation debate
Is an interdependent global economy a good thing?
• Supporters believe that increased trade and cross-border
investment mean:
o lower prices for goods and services
o greater economic growth
o higher consumer income, and more jobs

• Critics worry that globalisation will cause:

o job losses
o environmental degradation
o the cultural imperialism of global media and MNEs
o riskier business environments from interconnectedness
 What is driving globalisation?
Two major drivers:
• Decline in barriers to the free flow of goods,
services, and capital since the end of World War II
o since 1950, average tariffs have fallen significantly and
are now at 4 percent
o countries have opened their markets to FDI

• Technological change
o microprocessors and telecommunications
o the Internet and World Wide Web
o transportation technology
 What does globalization mean for firms?
• Lower barriers to trade and investment mean firms can
o view the world, rather than a single country, as their market
o base production in the optimal location for that activity

• Technological change means

o lower transportation costs—firms can disperse production to
economical, geographically separate locations
o lower information processing and communication costs—firms can
create and manage globally dispersed production systems
o low cost global communications networks—help create an electronic
global marketplace
o low-cost transportation—help create global markets
o global communication networks and global media—create a
worldwide culture, and a global market for consumer products
 What does globalization mean for managers?

• Managing an international business differs from

managing a domestic business. For example:
o countries are different
o the range of problems confronted in an international
business is wider and the problems more complex than
those in a domestic business
o firms have to find ways to work within the limits imposed
by government intervention in the international trade and
investment system
o international transactions involve converting money into
different currencies
 How does globalization affect
national sovereignty?
• Is today’s interdependent global economy shifting
economic power away from national governments toward
supranational organisations 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.
• But there has been a swing away from these centralising
moves in the last four years—more towards national or
regional sovereignty.
• Supporters claim that the power of these organisations is
limited to what nation-states agree to grant.
D.2.2

The End
Perspectives on Globalisation and
International Business – Update
 Five trends in the global economy

There have been great changes in the world economy in

the last 35 years. Five trends are important:
1. The changing world output and world trade picture.
2. The changing Foreign Direct Investment picture.
3. The changing nature of the multinational enterprise
(more later in the course!).
4. The changing world order.
5. More recently there has been moves towards de-
globalisation and protectionism.
 Trend 1 – How has world output and
world trade changed?

• In 1960, the United States accounted for over 40% of

world economic activity.

• By 2008, the United States accounted for just over 20%

of world economic activity.

• A similar, relative declining trend occurred in other

developed countries.

• The share of world output accounted for by developing

nations is rising and accounted for more than 60% of
world economic activity by 2020.
 Trend 2 – How has Foreign Direct
Investment changed over time?

• In the 1960s, U.S. firms accounted for about two-thirds of

worldwide FDI flows.

• Today, the United States accounts for less than one-fifth

of worldwide FDI flows.

• Other developed countries have followed a similar

pattern.

• In contrast, the share of FDI accounted for by developing

countries has risen .

• Developing countries, especially China, have also

become popular destinations for FDI.
 Trend 3 – Multinational enterprises
doing less well (1)

• Over belief in multinational economies of scale. Top 700

profits in 2014–2019 dropped by 25%.

• ROE has dropped from 18% ten years ago to 11% by

2019. ROE on foreign operations investments down to
4–8% across OECD.

• Emerging country MNEs fare no better—worldwide ROE

was 8%.

• Half of big MNEs saw ROE fall in 2016–2019. 40%

failed to make an ROE of 10%.
Trend 3 – Multinational enterprises doing less
well (2)
• Half slump explained by fall in commodity prices—oil
firms mining etc. Another 10% by banks. Firms offering
specialist services behind globalisation also hit.

• Bright spot into 2021 has been technology companies.

• Lower ROEs in foreign markets than domestic ones, e.g.

USA =30% higher domestic returns than from foreign
investments.
• The advantages of economies of scale and arbitrage
have worn away.
• Firms with a domestic focus are winning market share,
e.g Reliance vs Bharti Airtel.
Trend 3 – Multinational enterprises doing less
well (3)
• Multinational share of global profits from 35% to 30% in
ten years.

• Governments and rules becoming less supportive of

multinationals.

• Many industries seem to work best when national or

regional.

• Multinationals need to rethink the source of their

competitive advantage.

• The 2020 coronavirus pandemic has made many rethink

strategies on the degree of globalisation of markets and
production.
 Trend 4 – The changing world order (1)

• Many former Communist nations in Europe and

Asia are now committed to forms of democratic
politics and market economies …
o so, there are new opportunities for international
businesses
o but, there are signs of growing unrest and
authoritarian tendencies in some countries like
Russia, Turkey …
 Trend 4 – The changing world order (2)

• China and Latin America have been also moving

toward greater market reforms
o between 1983 and 2008, FDI in China increased
from less than 2 billion to $90 billion annually

o But China has moved to greater state control since

2012

o China and other Asian countries increasingly have

MNEs that compete directly with Western firms e.g
Alibaba, Ten Cent.
Trend 5 – How major is the recent trend toward
deglobalisation? (1)

• Historically mostcompanies are regional rather

than ‘global’ Ghemawat (2007/2018), Rugman
and Collinson (2016)

• Ghemawat speaks of ‘semi-globalisation’

• Long term trend towards vertical and horizontal
globalisation being reversed.
 Trend 5 – How major is the recent trend toward
deglobalisation? (2)

• The global firm has recently been in retreat:

2016—multinational cross border investment fell
by 10-15%; trade through global supply chains
stagnated since 2007; Western firms percentage
sales outside home region has shrunk;
multinational profits falling, new investment falling
relative to GDP
• The pace of economic integration has slowed
2015-2020

• World trade was 58% of GDP in 2018 (1990=39%)

 Trend 5 – How major is the recent trend
towards deglobalisation? (3)

• 12 measures of global integration, 8 are in retreat;

7 began slowing from 2008, e.g. trade in 2008 was
60% GDP.
• Supply chain capacity has shrunk; as have
intermediate imports, while multinational profits
have shrunk as a percentage of total profits’ long
term cross-border investment has shrunk to 1.3%
GDP in 2018; trade has stagnated and and cross-
border loans have shrunk.
 Trend 5 – How major is the recent trend
towards deglobalisation? (4)

• Gross capital flows have moved from 7% in 2007 to

1.5% in 2018. But cross-border migration and data
flows have increased dramatically.
• Diagnosis—trade stopped getting cheaper,
straddling the world less profitable, growing services
harder to trade than products (only 7% of world
GDP is service exports), ‘emerging’ economies
more self reliant, protectionism, tariffs and counter-
attacks, few quick fixes not helped by uncertainty,
everything becoming more regional.
 ** UPDATE ON TRENDS (2) **
• Centre of gravity shifting east and south. 18 high growth
performer companies here and 18 S/E countries have 5%+p.a.
growth over 20 years.
• Patterns changing—rising data flows across borders; larger
roles for high growth developing economies and more south-
south, China-south trade.
• Pace of technological progress accelerating—more
opportunities to create value while redefining work. But
technological adoption uneven across countries, sectors and
companies.
• Growing gulf between those embracing change and those not.
• The 2020 pandemic highly disruptive—new winners and losers,
and new globalisation and deglobalisation trends.
 ** UPDATE ON TRENDS (2) **
• The world has been moving toward a more global economic
system…
• But globalization is not inevitable
• there are signs of a retreat from liberal economic ideology in Russia;
how will China proceed? India? Brazil? From 2017—the new
protectionism e.g. USA?

• 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, and moved
around the world …
• 2020 = Coronavirus impact on interconnected economies and
supply chains, financial stability.
The End