McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights CHAPTER Globalization McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Globalization: Chapter Objectives • Globalization – What is it? What are its key causes? – Why is it expanding rapidly? – What is its impact on: jobs, incomes, labor policies, environmental policies, national sovereignty? – How does it affect an international business manager’s opportunities and challenges? • What is the impact on the world economy of – Foreign direct investment flows – Country economic growth rate differences – Multinational corporations’ growth/size McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-1 Globalization: • World Economy becoming more integrated and interdependent – Accelerating rate of change of this trend • National economies less isolated due to: – – – – – Lower cross-border trade and investment barriers “Smaller” geographic and time (zones) distance Fewer national government regulations Less idiosyncratic business systems Lower impact of national culture differences McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-2 Globalization of Markets • Historically distinct and separate markets are merging into a huge global marketplace – Mostly not consumer product markets – Mostly industrial products – Tastes and preferences of consumers converging (??) • MNCs creating global marketplace? • MNCs’ foreign operations becoming more vulnerable to competition in their home markets McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-3 Globalization of Production • Individual MNCs disperse different parts of their operations to narrow set of locations around the world because of: – National advantages in factors of production key to the “where to produce?” decision • Labor, land, capital, energy, expertise – Global web of suppliers – Stake of foreign governments in MNC operations McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-4 “Drivers” of Globalization: Declining Trade and Investment Barriers • GATT, WTO; Removal of FDI restrictions/barriers • Average Tariff Rates on Manufactured Products (% value) • • • • • • • • France Germany Italy Japan Holland Sweden Britain USA McGraw-Hill/Irwin 1913 21 20 18 30 20 – 21 1950 18 26 25 – 11 23 18 1990 5.9 5.9 5.9 5.3 5.9 4.4 5.9 5.9 2000 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-5 More evidence of Globalization • World trade increased about 20x since 1950 while • Global production has increased about 6.5x • Between ’90 and ’00 FDI increased 5x, trade by 2x and world output by 0.2x • By 2000: – 60,000 parent companies operated away from home markets through 820,000 subsidiaries/affiliates – Produced US$14 trillion in global sales, twice the value of global exports – US, Japanese, Western European companies the major investors in Europe, Asia, and North America McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-6 Technological Change and Globalization • Globalization of markets and production – the result of lowering of trade barriers – enabled by technological change • Telecommunications & microprocessors – High power/low cost computing – Increase in information processing capacity • The internet and the world-wide web • Transportation technology McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights World Output and Trade % Share of World: Output ’63 Output Exports ’00 ’98 Exports ’01 USA 40.3 27 12.7 11.9 Japan 5.5 14.2 7.3 6.6 Germany 9.7 7.3 10 9.2 France 6.3 5.2 5.7 5.2 UK 6.5 4.1 4.5 4.4 Italy 3.4 4.1 4.5 3.9 Canada 3.0 2.0 4.0 4.3 China n.a 3.2 3.4 4.3 S Korea n.a 1.4 2.5 2.4 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-8 Globalization and the MNE • A multinational enterprise (MNE) is any business that has productive activities in two or more countries • The national heritage of the largest MNCs United States Japan United Kingdom France Germany 1976 45% 18.8 7.3 8.1 1990 31.5% 12 16.8 10.4 8.9 1997 32.4% 15.7 6.6 9.8 12.7 2000 26% 17 13 12 • “Mini-multinationals” now a factor in the world economy McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-9 Globalization: Does it cause Prosperity or Impoverishment? • Impact of barrier removal on jobs and incomes – Do jobs move away from wealthy advanced economies in search of lower wage rates? • Impact of trade liberalization on labor policies and the environment – Do manufacturing facilities move to developing countries with weaker labor laws and environmental protection? • Its impact on national sovereignty – WTO, EU, UN: supplanting national governments? McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-10 Managing the Global Marketplace • An international business is any firm that engages in international trade or investment • An MNE engages in international investment over which it has managerial control • International business involves managing across: – Differences in cultures, political, legal and economic systems and levels of economic development – Such differences endure in spite of globalization trends • International managers confronted with a greater range of complexity McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights ...CHAPTER Globalization McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Globalization: Chapter Objectives • Globalization – What is it? What are... America McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-6 Technological Change and Globalization • Globalization of markets and production – the result of lowering of trade... energy, expertise – Global web of suppliers – Stake of foreign governments in MNC operations McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Slide 1-4 “Drivers” of Globalization: