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Chapter 1 What Is The

Globalization of Markets?
Globalization
• Globalization of markets - the merging of
Introduction historically distinct and separate national
markets into one huge global marketplace
In the world economy today, we see
• It no longer makes sense to talk about the
• fewer self-contained national economies with “German market” or the “American market”
high barriers to cross-border trade and
investment • Instead, there is the “global market”
** isolated from each other with barrier  falling trade barriers make it easier to
sell globally
** by distance, time zones, language, different
 In many markets today, the tastes and
regulation, culture and business system preferences of consumers in different
• a more integrated global economic system nations are converging upon some
with lower barriers to trade and investment global norm

• over $4 trillion in foreign exchange  firms promote the trend by offering


transactions daily the same basic products worldwide

• over $12 million of goods and $3.3 trillion of The Globalization of Markets
services being sold across national borders  A company do not have to be the size
• the establishment of international institutions of these multinational giants to
facilitate and benefit from
globalization market

What Is Globalization? • Significant differences still exist at national


and regional level
• The world is moving away from self-contained
national economies toward an interdependent, • The global market currently are not the market
integrated global economic system for consumer products, but market for
industrial good and material that serve a
• Globalization refers to the shift toward a more universal
integrated and interdependent world economy
 Coca Cola, Starbucks, Sony
• A world which products are made from input PlayStation, and McDonald’s
that come from all over the world. hamburgers, IKEA furniture

• Produced many opportunities for a firm to What Is The Globalization of Production?


expand their revenue
• Globalization of production - the sourcing of
• Created new threats for business accustomed goods and services from locations around the
to dominating their domestic market globe to take advantage of national differences
in the cost and quality of factors of
• Two key facets of globalization are: production (labor, land, and capital)
 the globalization of markets • Goal:
 the globalization of production Companies can..

 lower their overall cost structure

 improve the quality or functionality of


their product and gain competitive
advantage

 Boeing and Vizio


What Is Driving Globalization?  base production in the optimal
location for that activity
1. Declining trade and investment
barriers This has led to acceleration in the volume of
world trade and investment since the early
The decline in barriers to the free flow 1980s
of goods, services, and capital that has
occurred since the end of World War
II
2. The Role of Technological Change
Since 1950, average tariffs have fallen
significantly and are now at 4 percent Since World War II, there have been major
advances in communication, information
Countries have opened their markets processing, and transportation
to FDI
 The microprocessor - lowered the cost
2. Technological change of global communication and the cost
of coordinating and controlling a
• Microprocessors and global organization
telecommunications
 U.S. web-based transactions - $133
- Telecommunications is creating a global billion in 2008
audience
 1.6 billion Internet users in 2009
• the Internet and World Wide Web

• transportation technology  Commercial jet aircraft and super


freighters and the introduction of
- Transportation is creating a global village containerization - simplify trans-
1. Declining Trade and Investment Barriers shipment from one mode of transport
to another
International trade occurs when a firm
exports goods or services to consumers in Question 1: What are the implications of
another country technological change for the globalization of
production?
Foreign direct investment (FDI) occurs
when a firm invests resources in business Answer:
activities outside its home country • Lower transportation costs make a
During the 1920s and 1930s, many nations geographically dispersed production system
erected barriers to international trade and FDI more economical and allow firms to better
to protect domestic industries from foreign respond to international customer demands
competition • Lower information processing and
After WWII, advanced Western countries communication costs - firms can
began removing trade and investment barriers create and manage globally dispersed
production systems
Under GATT (the forerunner of the WTO),
over 100 nations negotiated further decreases Question 2: What are the implications of
in tariffs and made significant progress on a technological change for the globalization of markets?
number of non-tariff issues Answer:
Under the WTO, a mechanism now exists for • Low cost communications networks help
dispute resolution and the enforcement of create electronic global marketplaces
trade laws, and there is a push to cut tariffs on
industrial goods, services, and agricultural • Low cost transportation enable firms to create
products global markets, and facilitate the movement of
people from country to country promoting a
Lower barriers to trade and investment mean convergence of consumer tastes and
firms can preferences
 view the world, rather than a single
country, as their market
What Is A Multinational Enterprise? • The Globalization Debate

• A multinational enterprise (MNE) is any Question: Is the shift toward a more integrated and
business that has productive activities in two interdependent global economy a good thing?
or more countries
Answer:
• Since the 1960s:
• Supporters believe that increased trade and
 there has been a rise in non-U.S. cross-border investment mean
multinationals
 lower prices for goods and services
 there has been a rise in mini-
multinationals  greater economic growth

The Changing Multinational Enterprise  higher consumer income, and more


jobs
• Globalization has resulted in a decline in the
dominance of U.S. firms in the global • Others feel that globalization is not beneficial
marketplace
Anti-globalization Protests
 In 1973, 48.5 % of the world’s 260
largest MNEs were U.S. firms Question: What are the concerns of critics of
globalization?
 By 2008, just 19 of the world’s 100
largest non-financial MNEs were from Answer:
the U.S., 13 were from France, 13 • Critics worry that globalization will cause
from Germany, 14 were from Britain,
and 10 were from Japan  job losses
• Small and medium-size firms are now  environmental degradation
expanding internationally (environment pollution, employ child
labor, ignore workplace safety and
 easier to build international sales via health issue)
the Internet
 the cultural imperialism of global
The Global Economy in the 21st Century media and MNEs
• The world is moving toward a more integrated • Anti-globalization protesters now regularly
global economic system show up at most major meetings of global
 new opportunities for firms institutions

 but, political and economic disruptions • Protesters fear that globalization is forever
can throw plans into disarray changing the world in a negative way

• Globalization is not inevitable

 there are signs of a retreat from liberal


economic ideology in Russia

• 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
How Does Globalization Affect Jobs And Income? How Does Globalization Affect National
Sovereignty?
• Critics argue that falling barriers to trade are
destroying manufacturing jobs in advanced • Critics worry economic power is shifting away
countries from national governments and toward
supranational organizations such as the WTO,
 Critics claim jobs in advanced the European Union (EU), and the UN
economies are being lost to low-wage
nations • Critics argue that unelected bureaucrats have
the power to impose policies on the
 Supporters claim while some jobs may democratically elected governments of nation-
be lost, the economy as a whole is states
better off
• Supporters claim that the power of these
 free trade will result in countries organizations is limited to what nation-states
specializing in the production of those agree to grant
goods and services that they can
produce most efficiently, while  the organizations must be able to
importing goods and services that they persuade members states to follow
cannot produce as efficiently, and that certain actions
in doing so, all countries will gain
 without the support of members, the
How Does Globalization Affect Labor Policies And organizations have no power
The Environment?
How Is Globalization Affecting The World’s Poor?
• Critics argue that firms avoid costly efforts to
adhere to labor and environmental regulations • Is the gap between rich nations and poor
by moving production to countries where such nations is getting wider?
regulations do not exist, or are not enforced
• Critics argue the gap between rich and poor
• Supporters claim that tougher environmental has gotten wider and the benefits of
and labor standards are associated with globalization have not been shared equally
economic progress
• Supporters claim that the best way for the poor
 as countries get richer as a result of nations to improve their situation is to
globalization, they raise their
environmental and labor regulations  reduce barriers to trade and investment

 free trade does not lead to more  implement economic policies based on
pollution and labor exploitation, it free market economies
leads to less  receive debt forgiveness for debts
incurred under totalitarian regimes

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