1. Chapter 1
Globalization

2. Introduction
In the world economy today, we see:
1. a shift away from self-contained national
economies with high barriers to cross-border
trade and investment - examples
2. a move toward a more integrated global
economic system with lower barriers to trade
and investment
3. about $3 trillion in foreign exchange
transactions taking place everyday
4. over $12 million of goods and some $3 trillion of
services being sold across national borders
5. the establishment of international institutions
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3. Introduction
The effects of this trend can be seen in:
1. the cars we drive
2. the food we eat
3. the jobs where we work
4. the clothes we wear &
5. many other ways
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4. What Is Globalization?
(Explained in 5 slides)
Question: What is globalization?
Globalization refers to the trend towards
a more integrated global economic
system
Two key facets of globalization are:
1. the globalization of markets (?)
2. the globalization of production
Why do produce in other countries(?)
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5. Outsourcing Medical Work (1 of 8)
What do you think of the practice of
outsourcing medical work to other
countries?
In recent years, pressures to cut
medical costs have led to the
practice of outsourcing. Today, not
only is medical transcription (?)
outsourced to countries such as
India, but also radiology (?)
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6. Outsourcing Medical Work (2 of 8)
In some cases, patients, in an effort
to curb costs, are now choosing to
have medical procedures
conducted in foreign countries.
In recent years advances in
technology are a primary key to
making the outsourcing of medical
work possible
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7. Outsourcing Medical Work (3 of 8)
In particular, the Internet makes it possible
for US doctors to quickly transmit large
amounts of data to countries such as
India and Mexico where the data can be
processed and returned.
In addition, the high cost of medical care in
countries like the US is prompting people
to consider cheaper alternatives.
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8. Outsourcing Medical Work (4 of 8)
The cost to repair a leaky heart valve
in India is about $10,000 including
airfare. While in the US the same
surgery could cost $60,000.
So, when considered from a strictly
economic perspective, the
globalization of health care should
result in a more efficient industry.
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9. Outsourcing Medical Work (5 of 8)
Certain medical procedures, illegal in
the US, are done in Mexican border
towns like Tijuana, which is close to
San Diego.
I’ve seen some of this.
Pros & cons.
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10. Outsourcing Medical Work (6 of 8)
Prices in the US should fall as
countries like India and Mexico offer
their services as an alternative to
higher-priced US ones. It would
follow then, that Americans would
have more disposable income
which could then be spent in other
parts of their economy.
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11. Outsourcing Medical Work (7 of 8)
Maybe the outsourcing of medical
procedures to nations where
salaries of medical professional are
lower clearly benefits consumers.
However, we might say that the level
of care in countries such as India
and Mexico may not be up to the
standards found in the US.
(See the next slide.)
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12. Outsourcing Medical Work (8 of 8)
Think about this: Where do rich
people from Mexico go for their
medical care?
Houston.
And not just people from Mexico. I’ve
seen Japanese, Saudis, Egyptians,
and Syrians too.
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13. Canadian Humor - 1
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14. Canadian Humor - 2
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15. The Globalization of Markets
(1)
The globalization of markets refers to the
merging of historically distinct and
separate national markets into one huge
global marketplace
In many markets today, the tastes and
preferences of consumers in different
nations are converging upon some global
norm
Examples of this trend include Coca
Cola, McDonald’s hamburgers,
Starbucks, and iPhones
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16. The Globalization of Markets
(2)
There are still some country-wide
differences:
 Germans drink more beer
 Italians eat more pasta
Russians drink more of anything
alcoholic.
Alcoholism is rampant.
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17. The Globalization of Production
The globalization of production 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 factors of
production (labor, energy, land, and capital)
The goal for firms is to lower their overall costs
or improve the quality or functionality of their
product to gain competitive advantage
Example: auto manufacturers in Mexico
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18. The Emergence
of Global Institutions (1)
Several global groups have emerged
to:
1. help manage, regulate, and police
the global market place (WTO)
2. promote the establishment of
multinational treaties to govern the
global business system
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19. The Emergence
of Global Institutions
Global institutions that work include:
1. the World Trade Organization (WTO)
which is responsible for policing the world
trading system and ensuring that nations
adhere to the rules established in WTO
treaties
 In 2008, 151 nations accounting for 97% of
world trade were members of the WTO
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20. The Emergence
of Global Institutions
2. the International Monetary Fund (IMF)
which maintains order in the international
monetary system
3. the World Bank which promotes
economic development
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21. The Emergence
of Global Institutions
A notable global institution that does not
work is:
The United Nations (UN) which maintains
international peace and security,
develops friendly relations among
nations, cooperates in solving
international problems and promotes
respect for human rights, and is a center
for harmonizing the actions of nations
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22. Drivers of Globalization
Question: What is driving the move
toward greater globalization?
 There are two macro factors underlying
the trend toward greater globalization:
1. declining barriers to trade and
investment
2. technological change
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23. Declining Trade
and Investment Barriers (1)
International trade occurs when a firm
exports goods or services to
consumers in another country
Foreign direct investment (FDI)
occurs when a firm invests
resources in business activities
outside its home country
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24. Declining Trade
and Investment Barriers (2)
During the 1920s and 1930s, many
nations erected barriers to
international trade and FDI to
protect domestic industries from
foreign competition, which should
have protected jobs
How do barriers protect jobs?
Further explained on the next slide.
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25. Smoot-Hawley Act (2)
 The Smoot-Hawley Tariff Act increased tariffs
on imports to the US by up to 50%. Why?
 It was enacted on June 1930 by the Republican
congress under Pres. Hoover. An example of
Law of Unintended Consequences.
 Why?.
What was the real result?
A.
B.
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26. Declining Trade
and Investment Barriers
After WWII, advanced Western countries
began removing trade and investment
barriers Why?
Under GATT (the forerunner of the WTO)
over 100 nations negotiated further
decreases in tariffs and made significant
progress on a number of non-tariff issues
 What is the big difference between the WTO
& GATT?
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27. Declining Trade
and Investment Barriers
Lower trade barriers enable firms to
view the world as a single market
and establish production activities in
optimal locations around the globe
What does this accomplish?
HP in Viet Nam
This has led to an acceleration in
the volume of world trade and
investment since the early 1980s
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28. The Role of
Technological Change
 The lowering of trade barriers made
globalization of markets and production a
theoretical possibility; technological
change made it a tangible reality
 Since WW II, there have been major
advances in:
1. communication, phone & Internet
2. information processing, &
3. transportation
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29. SUPERFREIGHTER (1)
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30. SUPERFREIGHTER (2)
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31. CONTAINER SHIP (1)
(2 weeks Hong Kong to Long Beach)
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32. CONTAINER SHIP (2)
(2 weeks Hong Kong to Long Beach)
What is the advantage of shipping
large quantities of stuff on a 747 or
a cargo ship?
What are the implications for a US
firm manufacturing in China or
Mexico?
Waterpic next 2 slides
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33. Hauling Products from Mexico
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34. Hauling Products from Mexico
Tell the Waterpic story.
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35. The Role of
Technological Change
Question: What are the implications of
technological change for the globalization
of production?
Lower transportation costs make a
geographically dispersed production
system more economical (?) and allow
firms to better respond to international
customer demands
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36. The Role of
Technological Change
Question: What are the implications of
technological change for the globalization of
markets?
1. Low-cost communications networks have
helped create electronic global marketplaces (?)
2. Low-cost transportation has enabled firms to
create global markets, and has facilitated the
movement of people from country to country
promoting a convergence of consumer tastes
and preferences
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37. The Changing Demographics
of the Global Economy
In the 1960s:
1. the US dominated the world economy
and the world trade picture
2. the US dominated world FDI
3. US multinationals dominated the
international business scene
4. About half the world-- the centrally
planned economies (?) of the communist
world-- were off limits to Western
international business – Why?
Today, much of this has changed.
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38. India’s IT Industry (2 of 4 )
Four key factors have contributed to the
growth of India’s software industry.
1. Is the huge number of engineers in
India. Some 400,000 engineers
graduate from Indian universities every
year.
The US does not graduate enough.
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39. India’s IT Industry (3 of 4 )
2. Is India’s low wage structure.
Indian engineers make about 12
% of what an US colleague might
make.
3. Is coordination between Western
firms and Indian firms is facilitated
by the large number of English-
speaking Indians.
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40. India’s IT Industry (4 of 4 )
4. Because of the differences in time
zones, Indian firms operate while
US firms are closed.
So what?
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41. The Changing World Output
and World Trade Picture
In the early 1960s the US was the
world's dominant industrial power
accounting for about 40.3% of world
manufacturing output
By 2007, the US accounted for only
20.7%
Other developed nations experienced a
similar decline
 What happened?
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42. The Changing World Output
and World Trade Picture (1)
Rapid economic growth is now
being experienced by countries
such as China, Thailand, Malaysia,
and India.
Further, relative decline in the US
share of world output and world
exports seems likely
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43. The Changing World Output
and World Trade Picture (2)
Forecasts predict a rapid rise in the
share of world output accounted for
by developing nations such as
China, India, Indonesia, Thailand,
and So. Korea, and a decline in the
share by industrialized countries
such as Britain, Japan, and the US
So firms may find both new markets
and new competitors in the
developing regions of the world
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44. The Changing Foreign
Direct Investment Picture
The share of world output generated by
developing countries has been steadily
increasing since the 1960s
The stock of FDI (total cumulative value
of FDI) generated by rich industrial
countries has been on a steady decline
There has been a sustained growth in
cross-border flows of FDI
The largest recipient of FDI has been
China.
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45. The Changing Nature of
the Multinational Enterprise
 A multinational enterprise (MNE) is any
firm that has business activities in two or
more countries –
 MNE does not connote BIG.
 Since the 1960s,
there has been a rise in non-US
MNCs
there has been a rise in mini-
multinationals - WOC
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46. The Changing Nature of
the Multinational Enterprise
The globalization of the world economy has
resulted in a decline in the dominance of US
firms in the global marketplace
 In 1973, 48.5 % of the world’s 260 largest
MNEs were US firms
 By 2006, just 24 of the world’s 100 largest
non-financial MNEs were from the US, 13
were from France, 12 from Germany, 12
were from Britain, and 9 were from Japan,
and 7 of the world’s largest 100 MNEs were
from developing economies
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47. The Changing Nature of
the Multinational Enterprise
 While most international trade and
investment is conducted by large MNEs,
many small and medium-size firms are
expanding internationally
The Internet has made it easier for
many smaller firms to build
international sales
Why?
Tell story of Australian mining equipment
firm - egalitarian
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48. The Changing World Order
Today, many markets that had been closed to
Western firms are open
 The collapse of communism in Eastern
Europe has created a host of export and
investment opportunities Why now?
 Economic development in China has created
huge opportunities despite continued
Communist control
 Free market reforms and democracy in Latin
America have created opportunities for new
markets and new sources of materials and
production – exceptions are: Bolivia, El
Salvador, & Venezuela Why these?
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49. The Global Economy
of the Twenty-First Century
A more integrated global economy
presents new opportunities for firms, but
it can also result in political and economic
disruptions that may throw plans into
disarray
 Describe the present global economic
collapse in terms of “global economy”.
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50. The Globalization Debate
Question: Is the shift toward a more
integrated and interdependent global
economy a good thing?
Many experts believe that globalization is
promoting greater prosperity in the global
economy, more jobs, and lower prices for
goods and services
Others feel that globalization is not
beneficial – Why not?
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51. Antiglobalization Protests
Tell about Bill Clinton's review of the
effects of The NAFTA on the US
economy.
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52. Globalization, Jobs,
and Income (1)
Critics of globalization worry that jobs in
advanced economies are being lost to low-wage
nations Remedy?
Supporters of globalization disagree, claiming
that the benefits of free trade outweigh its costs
 While some jobs may be lost, the economy
as a whole is better off See next slide.
Supporters argue that free trade will result in
countries specializing in the production of those
goods and services that they can produce most
efficiently, while importing goods and services
that they cannot produce as efficiently, and that
in doing so, all countries will gain
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53. Globalization, Jobs,
and Income (2)
The US has lost textile jobs to China,
Vietnam, and Malaysia. But
according to the next slides
unemployment has not gone up.
Why not?
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54. IS SOUTHERN EMPLOYMENT
TANKING (1 of 6) Fortune, 12/13/2004
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55. IS SOUTHERN EMPLOYMENT
TANKING (2 of 6 )
Complaints about the loss of U.S. textile
jobs are heard across the land, not to
mention in the halls of Congress.
lt's true that garment makers and their
suppliers have suffered. In the decade
after 1992, shipments by U.S. apparel
plants dropped from $97.6 billion a year
to $45:5 billion due to cheap, imported
garments.
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56. IS SOUTHERN EMPLOYMENT
TANKING (3 of 6 )
Employment in garment plants and
the fabric mills that supply them
declined from 1,594,000 workers to
618,000.
That happened partly because of
improved productivity in the milts,
but mostly from imports of formerly
US made garments.
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57. IS SOUTHERN EMPLOYMENT
TANKING (4 of 6 )
But take a closer look at the confederacy of
traditional textile states.
The unemployment rate in Alabama, No.
Carolina, Georgia, Mississippi,
Tennessee, and Virginia is lower today
than it was at the end of 1992.
The only exception is So. Carolina, where
unemployment is no worse than it was in
1993.
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58. IS SOUTHERN EMPLOYMENT
TANKING (5 of 6 )
Even in that state, many workers are
earning good pay at BMW, Bosch,
and Michelin plants, to name just a
few foreign firms that have created
jobs there.
At least in gross terms, the economy
is absorbing textile job losses
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59. IS SOUTHERN EMPLOYMENT
TANKING (6 of 6 )
Which is not to say, “Nobody’s hurting?”
The new jobs require up-to-date skills.
Many unemployed textile workers,
meanwhile, have 20-year old diplomas
from 2nd rate high schools.
These people are the victims of
shortsighted textile firms that chose
protection (?) over adjustment to the
global economy – and the federal and
local officials who abetted these firms.
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60. Globalization, Labor Policies,
and the Environment (1 of 2)
Critics of globalization argue
that that free trade encourages
firms from advanced nations to
move manufacturing facilities
offshore to less developed
countries with lax environmental
and labor regulations
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61. Globalization, Labor Policies,
and the Environment (2 of 2)
 Supporters of free trade point out that
tougher environmental regulation and
stricter labor standards go hand in hand
with economic progress and that as
countries get richer as a result of
globalization, they raise their
environmental and labor standards
Free trade does not lead to more
pollution and labor exploitation, it
leads to less – Do you believe this?
China’s story @ 4 rivers dam & the
Nike story
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62. Globalization and
National Sovereignty (1)
Critics of globalization worry that
economic power is shifting away
from national governments and
toward supranational organizations
such as the WTO, the European
Union (EU), and the UN –
The truth is -
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63. Globalization and
National Sovereignty (2)
Supporters of globalization argue
that the power of these
organizations is limited to what
nation-states collectively agree to
grant Yes, but…
The organizations must be able
to persuade members states to
follow certain actions
Without the support of members,
the organizations have no power
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64. Managing in the Global Marketplace
(1 of 2)
Question: What does the shift toward a
global economy mean for managers of
an international firms?
Managing an international business (any
firm that engages in international trade or
investment) differs from managing a
domestic business in four key ways
See next slide.
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65. Managing in the Global Marketplace
(2 of 2)
1. Countries differences require firms to
vary their practices country by country
2. Managers face a greater and more
complex range of problems Why?
3. International firms must work within the
limits imposed by governmental
intervention and the global trading
system (WTO, NAFTA, EU)
4. International transactions require
converting funds and being susceptible
to exchange rate changes (?)
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66. The end of chapter 1.
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