Globalization and its Impact

Sessions 1-3
 Globalization

Refers to shift toward a more integrated and

interdependent world economy.

Globalization of Globalization of
Markets Production

Sourcing of goods / services

Merging of historically
from locations around the
distinct & separate national
globe to take advantage of
markets into one huge global
national differences in the cost/
market place
quality of factors of production.
International Trade occurs when a firm exports
goods /services to consumers in another country

Foreign Direct Investment (FDI) occurs when a firm

Invests resources in business activities outside its
home country.
 Drivers of Globalization

1.) Decline in barriers to the free flow of

goods, services,and capital.
2.) Technological change.
3.) Industrialization and economic development.
4.) Integration of world financial markets &
development of institutions that support & faciilitate
International trade.
5.) Increased global competition.
 Cutting tariffs on import
Allows a firm to
of industrial goods,
base production
services & agricultural
at the optimal
products.
location to drive
Phasing out subsidies to down production
agricultural producers costs / increase
Declining Trade & product quality
Reducing barriers to
Investment
cross-border invetsment World economies
Barriers
becoming more
Limiting use of anti- inter-twined.
dumping laws

World is
Reducing barriers to becoming
Foreign Direct Investment wealthier.
 Development of micro-
Dispersal of
processors & advances
production/markets to
In telecommunication
geographically separate
technology.
locations has become
economical.

Rapid growth of internet

and world-wide web Real costs of processing
Technological
and communication have
Change fallen.

Innovations in
Mass movement of
transportation
people across countries.
technology.

Worldwide culture created

through global media
 Changing Demographics of the Global Economy
Changing World Output and World Trade Picture
¤ Share in the world output /exports of U.S., Germany,
France & U.K. has slipped.
¤ China's share has increased.

Changing Foreign Direct Investment Picture

¤ Share in FDI flows of U.S.declined from 66.3% in 1960 to
30% in 2003.
¤ Increased flow of foreign investment into developing nations.

Changing Nature of Multi-national Enterprises

¤ Rise of non-U.S. multi-nationals(drop of U.S. from 48.5 in
1973 to 28% in 2002.)
¤ Rise of mini-multi-nationals.
 Changing Demographics of the Global Economy

The Changing World Order and the 21st century

¤ Former Communist nations of Europe and Asia are moving
towards democratic politics and free market economies.
¤ China is progressively moving towards free market reforms.
¤ Latin America moving towards democracy & free market
Reforms.
¤ Privatization of state-owned businesses, widespread adoption
of deregulation, opening of markets to more competition,
removing of barriers to cross-border trade/investment.
 International Companies

Multi-national / Globally Multi-

Transnational Integrated Domestic
Companies Company Company
 Risks in International Business
Commercial
Risk

Currency
Cross-Cultural Risks
(Financial)
Risk Risk

Country
Risk
 PROS AND CONS OF GLOBALIZATION
JOBS AND INCOME
Loss of jobs in developed
nations by out-sourcing Leads to cost-effectiveness
of jobs to low-wage and reduction of product
nations, thereby leading prices
to higher unemployment
and and lower living
standards in home
nations.

LABOR POLICIES AND THE ENVIRONMENT

¤More pollution
¤ Rising income levels lead to lesser
¤Exploitation of labor of less
Pollution.
developed countries.
¤ Labor well-treated /
¤ Tougher environmental /
ethical standards.
labor regulations.
 NATIONAL SOVEREIGNTY

¤ Power shifts away from national

Governments to supranational ¤ Existence of WTO and UN rests on
Organziations such as the WTO, the support received from member
UN. states.

WORLD'S POOR

¤Divide between the rich and

the poor nations increases.
 Global Institutions
World Trade Organization ( Previously GATT)
¤ Policing the world trading system & ensuring nation-states adhere to the rules laid
down in trade treties signed by member states.
¤Facilitating the establishment of additional multinational agreements between
member states. Objective is to liberalize trade.

International Monetary Fund / World Bank

¤ To maintain order in the international monetary system.
¤ Lender of last resort to nation-states in economic turmoil.
¤ To promote economic development.

United Nations
¤ To maintain international peace & security.
¤ To develop friendly relations among nations.
¤ To cooperate in solving international problems / promoting respect for human rights.
¤ Be a centre for harmonizing the actions of nations.