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Globalization by Dr. mani kansal
 

Globalization by Dr. mani kansal

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    Globalization by Dr. mani kansal Globalization by Dr. mani kansal Document Transcript

    • SECTION-1 Globalization Introduction The global telecommunications industry, which was profiled in the opening case, is one industry at the forefront of this development. A decade ago most national telecommunications markets were dominated by state-owned monopolies and isolated from each other by substantial barriers to cross-border trade and investment. This is rapidly becoming a thing of the past. A global telecommunications market is emerging. In this new market, prices are being bargained down as telecommunications providers compete with each other around the world for residential and business customers. The big winners are the customers, who should see the price of telecommunications services plummet, saving them billions of dollars. The rapidly emerging global economy raises a multitude of issues for businesses both large and small. It creates opportunities for businesses to expand their revenues, drive down their costs, and boost their profits started accompany to manufacture it, and has now sold the mouse to consumers worldwide, using the Internet as his distribution channel. What is Globalization? 1. The Globalization of Markets The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. It has been argued forsome time that the tastes and preferences of consumers‘ indifferent nations are beginning to converge on some global norm, thereby helping to create a global market. The global acceptance of consumer products such as Citicorp credit cards, Coca-Cola…. By offering a standardized product worldwide, they are helping to create a global market. A company does not have to be the size of these multinational giants to facilitate, and benefit from, the globalization of markets. In the case of many products, these differences frequently require that marketing strategies, product features, and operating practices be customized to best match conditions in a country.Thusdifferentcarmodelsdependingonawholerangeoffactorssuchaslocalfuel costs, income levels, traffic congestion, and cultural values. The most global markets currently are not markets for consumer products--where national differences in tastes and preferences are still often important enough to act as a brake on globalization--but markets for industrial goods and materials that serve a universal need the world over. These include the markets for commodities such as aluminium, oil, and wheat, the markets for industrial products such as microprocessors. In many global markets, the same firms frequently confront each other as competitors in nation after nation. 2. The Globalization of Production
    • The globalization of production refers to the tendency among firms to source goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production. By doing so, companies hope to lower their overall cost structure or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. The result of having a global web of suppliers is a better final product, which enhances the chances of Boeing winning a greater share of total orders for aircraft than its global rival, Airbus. Boeing also out sources some production to foreign Countries to increase the chance that it will win significant orders from airliners based in that country. The global dispersal of productive activities is not limited to giants such as Boeing. Many much smaller firms are also getting into the act. Nevertheless, we are travelling down the road toward a future characterized by the increased globalization of markets and production. Modern firms are important actors in this drama, fostering by their very actions increased globalization. These firms, however, are merely responding in an efficient manner to changing conditions in their operating environment--as well they should. In the next section, we look at the main drivers of globalization. Aspects of Globalization Characteristics/Features of Globalization 1. Borderless Globalization is about an increasingly borderless world and its societal consequences. The causes of globalization are technological, economic and ideological. The societal consequences are very much in terms of the diminishing capacity of governance by governments and in relation to that the rebound (the counter effects both in terms of attitudes and of institutions) against aspects of globalization; against the dominance of the market (economization), against Americanization and in reaction to the diminishment of quality of life.
    • 2. Information Technology Changes Increase in information flows and greater transporter data flow between geographically remote locations. Arguably this is a technological change with the advent of fiber optic communications, satellites, and increased availability of wireless telephone and Internet. 3. Mobility The characteristic of globalization given more mobility and less transport costs means per definition more competition and more dynamism. "However, that competition does not mean per se increased trade flows. Therefore economists defining globalization in their simplified approach as increased trade flows have to conclude per definition that there is not much globalization." 4. International Cooperation The increasing of the multinational corporations, regional and global organizations leads to the members of the international community expanding from a single nation to the transnational corporations, international organizations, and international non-governmental organizations. In these three groups of actors, except for the individual international military treaty organization, only the country and country alliance have the capability of "plate movement". 5. Talents Mobility and Integration Globalization has increased the growth of the multinational corporations, and also brought the talent mobility and integration. More and more personnel dispatched by the corporations to the branches in other countries, and they learn and share the experience or do the project with the local employees. This kind of talents mobility and cooperation can increase the business performance. 6. Cultural Diversity Because of the globalization and new technology, it has been found that cultural diversity reflects on the food, music, art, life style, customs and race. The western culture has mixed with the eastern culture. For instance, McDonalds Corporation has expanded to be world wide, and you can see the logo of ―M‖ everywhere. Also, the Hollywood movies are very popular in Asia. Globalization has not only promoted cultural blending, but also driven a lot of business opportunities. 7. Liberalization: The freedom of the industrialist/businessman to establish industry, trade or commerce either in his country or abroad; free exchange of capital, goods, service and technologies between countries; 8. Free Trade: Free trade between countries; absence of excessive governmental control over trade; 9. Globalization of Economic Activities:
    • Control of economic activities by domestic market and international market; coordination of national economy and world economy; 10. Connectivity: Localities being connected with the world by breaking national boundaries; forging of links between one society and another, and between one country and another through international transmission of knowledge, literature, technology, culture and information. 11. A Composite Process: Integration of nation-states across the world by common economic, commercial, political, cultural and technological ties; creation of a new world order with no national boundaries; 12. A Multi-dimensional Process: Economically, it means opening up of national market, free trade and commerce among nations, and integration of national economies with the world economy. Politically, it means limited powers and functions of state, more rights and freedoms granted to the individual and empowerment of private sector; culturally, it means exchange of cultural values between societies and between nations; and ideologically, it means the spread of liberalism and capitalism. 13. A Top-Down process: Globalization originates from developed countries and the MNCs (multinational corporations) based in them. Technologies, capital, products and services come from them to developing countries. It is for developing countries to accept these things, adapt themselves to them and to be influenced by them. As a result, the values and norms of developed countries are gradually rooted in developing countries. This leads to the growth of a monoculture - the culture of the north (developed countries) being imposed on the South (developing countries). This involves the erosion and loss of the identity and the cultures of developing countries. Globalization is thus a one-way traffic: it flows from the North to the South. But this view of globalization has been contested. Some scholars have argued that globalization tends to provoke backlash at the community, local, regional and ethnic levels when the national government fails to resist or counter the invasion of globalization. In the face of aggression of globalization, the people, in protest against the failure of the national government to defend them, develop or strengthen their allegiance to their community, locality, region or ethnic group. In this process, local identity, regional identity and ethnic identity take root and get strengthened. Thus globalization goes hand in hand with localization, regionalization and multiculturalism. 14. Global State vs Global Civil Society: In protest against the harmful effects of globalization on the vast multitude of people all over the world, particularly in developing countries, protest marches, demonstrations and meetings have been organized in different countries. These protests have taken militant forms in the last decade. Protest groups have tried to disturb and paralyse the meetings of WTO, World Bank and IMF.
    • They charge that these UN-based organizations have been the agents of globalization and that they have been used by developed countries as their instruments to exploit and dominate developing countries. These protest groups-environmental groups, human rights groups, women's groups, farmers' groups and peace groups have interlocked themselves at the global level. As a result, a global civil society, though yet not fully developed, has come into being, but a global state is a distant dream. The UN and its affiliated organizations which could have been the foundation of a global state have been weakened by many forces including glo- balization. Advantages of Globalization Resources of different countries are used for producing goods and services they are able to do most efficiently. Consumers to get much wider variety of products to choose from. Consumers get the product they want at more competitive prices. Companies are able to procure input goods and services required at most competitive prices. Companies get access to much wider markets. It promotes understanding and goodwill among different countries. Businesses and investors get much wider opportunities for investment. Adverse impact of fluctuations in agricultural productions in one area can be reduced by pooling of production of different areas. Disadvantages of Globalization Exploitation of Underdeveloped Countries: Multinational Corporations (MNCs), based in developed countries, purchase at lower rates the raw materials from backward countries, process them in their own countries and sell the manufactured goods with big profit in backward countries. Increase in Unemployment: The MNCs employ machines to reduce the number of employees: they are capital intensive rather labor. Further, the governments of developing countries have started withdrawing investment from industries in the public sector. All this has led to huge unemployment in those countries. Widening of Rich-poor Gap: Globalization brings benefits to the rich who are small in number and keeps the vast majority of people in poverty and misery. It is a game of winners and losers. Those who are already rich succeed in taking advantage of privatization while the poor and weak are doomed to suffer. Harmful Effects of Consumerism: Globalization produces consumerism. People being attracted by attractive goods and advertisements, want to buy these goods. They would not hesitate to earn money for this by unfair means. This has resulted in vast increase in corruption and other social evils. Adverse Effects on Social Security and Social Welfare: Because of privatization, governments in many developing countries are withdrawing from the sector of social
    • welfare and private companies have entered educations, health and other such fields related to development. As a result of this, poor people are facing a lot of difficulties. Harmful Effects on Small Industries and Small Business: In the free economy, the big fish has got license to eat the small fish. Small-scale and cottage industries cannot grow in competition with big ones. Cultural Homogenization: Globalization would lead to cultural homogenization. Each nation/society has its own distinct culture, but under globalization the cultures of developing countries are eroded and they are required to accept the values and norms of developed countries. Hostile to Humanism: Globalization would kill humanism. It aims at accelerating economic growth, and economic growth, according to its protagonists, can be quickly attained through privatization. Pursuit of growth hardly respects human values. Erosion of Democracy: Globalization has led to the weakening, erosion and even destruction of democracy. Globalization has considerably increased the wealth and power of multinational corporations and they have tended to interfere with and control the economic policy and politics of developing countries. Gender-Insensitive: Globalization is gender-insensitive. Women have suffered a lot under globalization. In the privatized economy, the interests and concerns of women, particularly of poor women, have been seriously ignored. Destructive of Environment: Globalization would destroy environment. In the name of economic development, environment is blindly destroyed. Effects of Globalization Enhancement in the information flow between geographically remote locations The global common market has a freedom of exchange of goods and capital There is a broad access to a range of goods for consumers and companies Worldwide production markets emerge Free circulation of people of different nations leads to social benefits Global environmental problems like cross-boundary pollution, over fishing on oceans, climate changes are solved by discussions More trans-border data flow using communication satellites, the internet, wireless telephones, etc. International criminal courts and international justice movements are launched It is claimed that globalization increases the economic prosperity and opportunity in the developing world. The civil liberties are enhanced and there is a more efficient use of resources. All the countries involved in the free trade are at a profit.. In two decades from 1981 to 2001, the number of people surviving on $1 or less per day decreased from 1.5 billion to 1.1 billion. Simultaneously, the world population also increased. Thus, the percentage of such people decreased from 40% to 20% in such countries. Advantages of Global Marketing Lower Marketing Costs: If you are to consider the lump-sum cost, then, yes, it is high, but the same cost goes even higher if the company has to market a product differently in every country that it is selling.
    • Global Scope: Scope of this kind of marketing is so large that it becomes a unique experience. Brand image Consistency: Global marketing allows you to have a consistent image in every region that you choose to market. Quick and Efficient Use of Ideas: A global entity is able to use a marketing idea and mold it into a strategy to implement on a global scale. Uniformity in Marketing Practices: A global entity can keep some degree of uniformity in marketing throughout the world. Disadvantages of Global Marketing Inconsistency in Consumer Needs: American consumer will be different from the South African. Global marketing should be able to address that. Consumer Response Inconsistency: Consumer in one country may react differently than a consumer in another country. Country Specific Brand and Product: Japanese might like a product to have a traditional touch, whereas an American might like to add a retro modern look to it. In this case, a global strategy is difficult to devise. The Laws of the Land Have to be Considered: Original company policies may be according to the laws of home countries. The overseas laws may be conflicting in these policies. Infrastructural Differences: Infrastructure may be hampering the process in one country and accelerating in another. Global strategy cannot be consistent in such a scenario. Types of Globalization 1. Economic Globalization: No national economy is an island now. To varying degrees, national economies influence one another. One country which is capital-rich invests in another country which is poor. One who has better technologies sells these to others who lack such technologies. The products of an advanced country enter the markets of those countries that have demands for these products. Similarly, the natural resources of developing countries are sold to developed countries that need them. Thus, globalization is predominantly an economic process involving the transfer of economic resources form one country to another. Example: NAFTA, EU, Multinational corporations 2. Cultural Globalization: Culture has increasingly become a commodity. Popular books and films have international markets. Harry Potter has readers almost all over the world. English movies are seen almost in all countries. Western pop music has become popular in developing countries. The reverse flow of culture is insignificant. The flow of culture is mainly from the North to the South. In the last few years the media owners of the West have shown interest in entering developing countries. For example, Murdoch has opened TV channels (STAR News, STAR Movies and STAR Plus) in India. Cultural globalization has been facilitated by the information revolution, the spread of satellite communication, telecommunication networks, information technology and the Internet etc. This global flow of ideas, knowledge and values is likely to flatten out cultural differences between nations, regions and individuals. As this flow of culture is mainly
    • from the centre to the periphery, from the North to the South, and from the towns and cities to villages, it is the cultures of villages of poor countries which will be the first to suffer erosion. e.g. The Simpsons is shown in over 200 countries in the world. 3. Political Globalization: Since long, efforts have been on to bring the whole world under one government. The League of Nations and the UN have been the efforts in that direction. It is believed that the world under one government will be safer and freer from conflicts: The UN has belied expectations, but a number of regional organizations like European Union, ASEAN, APEC and SAARC, and multicultural economic organizations such as WTO have come up. The member-states remain sovereign, but through their obligations and commitments, they have, to some extent, integrated themselves to the concerned international organizations and groupings. 4. Financial globalization 1. Consolidation of financial institutions 2. Globalization of operations -Banking conglomerates extend their reach by forming strategic alliances with similar institutions in different countries. 3. New technologies -Money moves across national boundaries at the touch of a button - Advances in telecommunications are expanding foreign markets without having physical branches there. 4. Universalization of Banking -Growing competition in financial markets and increasing irrelevance of national borders and increasingly complex relationships among Interconnection of the world‘s financial systems e.g. stock markets More of a connection between large cities than of nations Example: What happens in Asian markets affects the North American markets. 5. Technological Globalization Connection between nations through technology such as television, radio, telephones, internet, etc. Was traditionally available only to the rich but is now far more available to the poor. Much less infrastructure is needed now. 6. Political Globalization: Political issues in one part of the world directly or indirectly affect many other areas Concentrated on multilateral institutions; organizations composed of many states pursuing common goals National policies of one country are intertwined with those of other countries and many national problems can be solved through global cooperation. countries are attempting to adopt similar political policies and styles of government in order to facilitate other forms of globalization e.g. move to secular governments, free trade agreements, etc 7. Ecological Globalization seeing the Earth as a single ecosystem rather than a collection of separate ecological systems because so many problems are global in nature
    • e.g. International treaties to deal with environmental issues like biodiversity, climate change or the ozone layer, wildlife reserves that span several countries 8. Sociological Globalization A growing belief that we are all global citizens and should all be held to the same standards – and have the same rights e.g. the growing international ideas that capital punishment is immoral and that women should have all the same rights as men. Positive and Negative Impacts of Globalization As mentioned above, globalization is creating numerous opportunities for sharing knowledge, technology, social values, and behavioral norms and promoting developments at different levels including individuals, organizations, communities, and societies across different countries and cultures. In particular, the advantages of globalization may include the following: 1. Global sharing of knowledge, skills, and intellectual assets that are necessary to multiple developments at different levels; 2. Mutual support, supplement and benefit to produce synergy for various developments of countries, communities, and individuals; 3. Creating values and enhancing efficiency through the above global sharing and mutual support to serving local needs and growth; 4. Promoting international understanding, collaboration, harmony and acceptance to cultural diversity across countries and regions; and 5. Facilitating multi-way communications and interactions, and encouraging multi-cultural contributions at different levels among countries. But at the same time, it is potentially creating serious negative impacts on the indigenous developments, particularly those developing or underdeveloped countries. This is also the major reason why there have been so many ongoing social movements in different parts of the world to against the trends of globalization particularly in economic and political areas. The potential negative impacts of globalization are various types of political, economic, and cultural colonization and overwhelming influences of advanced countries to developing countries and rapidly increasing gaps between rich areas and poor areas in different parts of the world. In particular, the potential negative impacts include the following: (Table 1) 1. Increasing the technological gaps and digital divides between advanced countries and less developed countries that are hindering equal opportunities for fair global sharing; 2. Creating more legitimate opportunities for a few advanced countries to economically and politically colonize other countries globally; 3. Exploiting local resources and destroying indigenous cultures of less advanced countries to benefit a few advanced countries; Fostering Local Knowledge & Wisdom in Globalized Education 4. Increasing inequalities and conflicts between areas and cultures; and 5. Promoting the dominant cultures and values of some advanced areas and accelerating cultural transplant from advanced areas to less developed areas
    • Table 1: Potential Positive and Negative Impacts of Globalization Clearly, the management and control of the impacts of globalization are related to some complicated macro and international issues that may be far beyond the scope of this paper. But in general, many people believe, education is one of key local factors that can be used to moderate some impacts of globalization from negative to positive and convert threats into opportunities for the development of individuals and local community in the inevitable process of globalization. How to maximize the positive effects but minimize the negative impacts of globalization is a major concern in current educational reform for national and local developments. Specifically, what is the relationship between the local knowledge systems and the global knowledge system in globalization? How can we foster local knowledge and wisdom for individual and local developments through globalization in education and from the global knowledge system, particularly in those developing countries that are facing the challenges of losing local identity in overwhelming globalization? Why are Globalization and International Business Important?
    • As people, firms, and other organizations have expanded their access to resources, goods, services, and markets across wider geographical areas, they have also become more deeply affected (positively and negatively) by conditions outside their home countries. Globalization refers to the ongoing social, economic, and political process that deepens the relationships and broadens the interdependencies amongst nations—their people, their firms, their organizations, and their governments. International business involves all commercial transactions—private and governmental—between parties of two or more countries. Global events and competition affect almost all firms—large or small. However, the international environment is more complex and diverse than a firm‘s domestic environment. There are many reasons which make globalization important: 1. Globalization is transforming our societies and commercial activities. The drivers of globalization are increasing competition everywhere, and companies must remain vigilant. 2. Each national business environment consists of unique cultural, political, legal, and economic characteristics. Companies must be attentive to nuances and adapt products and practices as needed. 3. International business environment directly and indirectly influences how business is conducted. Firms must closely monitor events here. 4. Context of international business management is defined by the characteristics of national business environments. Managers must abide by the rules in every market in which they conduct business. Why Companies Engage in International Business When engaging in international business, a firm should consider its mission, its objectives, and its possible strategies. Primary objectives would include the following: A. To Expand Sales: Companies may increase the potential market for their sales by pursuing international consumer and industrial markets. B. Acquire Resources: Foreign-sourced goods, services, components, capital, technology, and information can make a firm more competitive both at home and abroad. C. Minimize Risk: Firms seek foreign markets in order to minimize cyclical effects on sales and profits. Defensively, they may also wish to counter the potential advantages that competitors might gain from participating in foreign market opportunities. The Forces Behind Globalization Globalization is a difficult concept to measure. Currently, about 25 percent of world production is sold outside of its country of origin, restrictions on imports continue to decline, the foreign ownership of assets as a percent of world production continues to increase, and world trade continues to grow more rapidly than world production. That said, on a value basis, only a few countries (mainly very small nations) either sell more than half of their production abroad or source more than half of their consumption from foreign countries. Further, the principal source
    • of capital in almost all nations is still domestic. Following are seven interrelated factors that have contributed to the spiraling growth in globalization. A. Increase in and Expansion of Technology: Vast improvements in transportation and communications technology—including the development of the Internet—have significantly increased the effectiveness and efficiency of international business operations. B. Liberalization of Cross-Border Trade and Resource Movements: Over time most governments have lowered restrictions on trade and foreign investment in response to the expressed desires of their citizens and producers. In addition, the General Agreement on Tariffs and Trade, the development of economic blocs such as the European Union, and other such facilitating mechanisms has provided increased access to many foreign markets. C. Development of Services: That Support International Business Services provided by government, banks, transportation companies, and other businesses greatly facilitate the conduct and reduce the risks of doing business internationally. D. Growing Consumer Pressures: Because of innovations in transportation and communications technology, consumers are well-informed about and often able to access foreign products. Thus competitors the world over have been forced to respond to consumers‘ demand for increasingly higher quality, more cost-competitive offerings. E. Increased Global Competition: The pressures of increased foreign competition often persuade firms to expand internationally in order to gain access to foreign opportunities and to improve their overall operational flexibility and competitiveness. F. Changing Political Situations: The transformation of the political and economic policies of the former Soviet Union and the People‘s Republic of China has led to vast increases in trade between those countries and the rest of the world. In addition, the improvements in national infrastructure and the provision of trade-related services by governments the world over have further led to substantial increases in foreign trade and investment levels. G. Expanded Cross-National Cooperation: Governments have increasingly entered into cross- national treaties and agreements in order to gain reciprocal advantages for their own firms, to attack problems jointly that one country cannot solve alone, and to deal with areas of concern that lie outside the territory of all countries. Often, such cooperation occurs within the framework of international organizations such as the United Nations, the International Monetary Fund, the World Trade Organization, and the International Bank for Reconstruction and Development (World Bank). Criticisms of Globalization Anti globalization forces have protested both peacefully and violently as they press for legislation and other means to stop or slow the globalization process. Issues of threats to national sovereignty, increasing income inequality, and environmental harm are addressed in the Point—Counterpoint sections found throughout the text. A. Threats to National Sovereignty: Many citizens fear that a country‘s participation in multilateral agreements will diminish its sovereignty and freedom from external control and curtail its ability to act in its own best interests. In particular, people in small countries worry that dependence on larger countries for sales and/or supplies, as well as the presence of large international firms, will make them vulnerable to the demands of parties against which they are
    • essentially powerless. In addition, people the world over are concerned that globalization will bring the homogenization of products and traditional ways of life—including language and social structure. B. Economic Growth: Clearly, economic growth can result in both positive and negative consequences, including damage to society and the environment. While globalization can, in fact, support the sustenance of natural resources and the maintenance of an environmentally sound planet, unless the positive consequences of globalization keep pace with the negative costs of economic growth, the sustainability of economic improvement on a worldwide basis will, at best, be problematic. C. Growing Income Inequality: Off shoring, the process of shifting domestic production to a foreign country for the purpose of serving the home market at a reduced cost speeds up the process of altering the relative economic discrepancies between the two countries involved. Thus, even if the overall global gains from globalization are positive, there remains a continuing challenge to bring about the positive gains in ways that minimize costs to the losers. Process of Globalization The process of Globalization originated as early as the 15th century with the evolution of capitalism, and subsequently spread itself to different countries across the world. In fact, the subjugation and exploitation of Third World countries like Latin America, Asia, Australia and North American white colonial settlements and Africa can be cited as the examples where the process of Globalization initially started. From the initial stage, the process of Globalization had its roots in imperialism. Economies opened up for accumulation in the First World countries at the cost of exploitation of the Third World countries. At this stage, the nature of Globalization depended largely on the mentalities of the imperialist rulers. It was essential for the rulers to create distinctions among
    • people on the basis of their social strata, This facilitated them to exploit these Third World countries by extracting raw materials, labor forces, and manpower for meeting their administrative and military requirements. This way, the richer countries continued to prosper while the poor nations were pushed more towards poverty. The second step of Globalization centered on inter-imperial commercial activities. The mutual trade between the European nations, United States of America and of late, Japan formed a series of groups on regional level, together with the governing powers. This gave birth to cooperation and competitions in the commercial spheres, making the multinational corporations struggle for gaining control over the market shares. They also joined hands to exploit the markets of the Third World countries more effectively. Foreign trade is an intrinsic part of Globalization. Exchanges of goods on an international level are closely knitted with the various classes of the social hierarchy as well as the commercial markets. It is this association which helps Globalization attains class character. As far as the form of Globalization is concerned, it is essentially ―cyclic‖ in nature, changing with various phases of national economic developments. In fact, Globalization derives its ascending quality from the capital forces, which defeats the farmers, the labor class and small political parties. This results in the conquest of states, where lifestyles are lowered and there is promotion of export strategies. The development of the concept of Globalization is closely associated with the beginning of class conflict and the constriction of profits during the formation of 'welfare state'. In fact, the process of Globalization is not a new phenomenon; Its historical cycle of rise, integration and decline is an outcome of the socio-political scenario of a particular nation. Drivers of Globalization 1. Declining Trade and Investment Barriers International trade occurs when a firm exports goods orservices to consumers in another country. Foreign direct investment occurs when a firm invests resources in business activities outside its home country. Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods. The typical aim of such tariffs was to protect domestic industries from "foreign competition." One consequence, however, was "beggar thy neighbor" retaliatory trade policies with countries progressively raising trade barriers against eachother. In addition to reducing trade barriers, many countries have also been progressively removing restrictions to foreign direct investment .Such trends facilitate both the globalization of markets and the globalization of production. The lowering ofbarriers to international trade enables firms to view the world, rather than a single country, as their market. The lowering of trade and investment barriers also allows firms to base production at the optimal location for that activity, serving the world market from that location. Thus, a firm might design a product in one country, produce component parts in two other countries, assemble the Finally, the globalization of markets and production and the resulting growth of world trade, foreign direct investment, and
    • imports all imply that firms are finding their home markets under attack from foreign competitors. The bottom line is that the growing integration of the world economy into a single, huge marketplace is increasing the intensity of competition in a range of manufacturing and service industries. Having said all this, declining trade barriers can't be taken for granted. As we shall see in the following chapters, demands for "protection" from foreign competitors are still often heard in countries around the world, including the United States. 2. The Role of Technological Change Microprocessors and Telecommunications Perhaps the single most important innovation has been development of the microprocessor, which enabled the explosive growth of high-power, low-cost computing, vastly increasing the amount of information that can be processed by individuals and firms. The microprocessor also underlies many recent advances in telecommunications technology. These technologies rely on the microprocessor to encode, transmit, and decode the vast amount of information that flows along these electronic highways. The cost of microprocessors continues to fall, while their power increases. As this happens, the costs of global communications are plummeting, which lowers the costs of coordinating and controlling a global organization. The Internet and World Wide Web The phenomenal recent growth of the Internet and the associated World Wide Web is the latest expression of this development. The Internet and World Wide Web (WWW) promise to develop into the information backbone of tomorrow‘s global economy. Companies such as Dell Computer are booking over $4 million a day in Web-based sales, while Internet equipment giant Cisco Systems books more than$20 million per day in Web-based sales. Includedinthisexpandingvolumeof Web-based electronic commerce--or e-commerce as it is commonly called--is a growing percentageofcross-borderPackardhasnew-product development teams composed of individuals based indifferent countries. When developing new products, these individuals use videoconferencing to "meet" on a weekly basis. They also communicate with each other daily via telephone, electronic mail, and fax. Communication technologies have enabled Hewlett-Packard to increase the integration of its globally dispersed operations and to reduce the time needed fordeveloping newproducts. Implications for the Globalization of Markets In addition to the globalization of production, technological innovations have also facilitated the globalization of markets. As noted above, low-cost transportation has made it more economical to ship products around the world, thereby helping to create global markets. Low- cost global communications networks such as the World Wide Web are helping to create electronic global marketplaces. In addition, low-cost jet travel has resulted in the mass movement of people between countries. This has reduced the cultural distance between countries and is bringing about some convergence of consumer tastes and preferences. At the same time, global communications networks and global media are creating a worldwide culture. We must be careful not to overemphasize this trend. While modern communications and
    • transportation technologies are ushering in the "global village," very significant national differencesremaininculture,consumerpreferences,and business practices. The Changing Demographics of the Global Economy 1. The Changing World Output and World Trade Picture In the same occurred to Germany, France, and the United Kingdom, all nations that were among the first to industrialize. This decline in the US position was not an absolute decline, since the US economy grew at a relatively robust average annual rate of close. Rather, it was a relative decline, reflecting the faster economic growth of several other economies, particularly in Asia. 2. The Changing Foreign Direct Investment Picture Reflecting the relative decline in US dominance, its position as the world's leading exporter was threatened. Over the past thirty years, US dominance in export markets has waned as Japan, Germany, and a number of newly industrialized countries such as South Korea and China have taken a larger share of world exports. In 1997 and 1998 the dynamic economies of the Asian Pacific region were hit by a serious financial crisis that threatened to slow their economic growth rates for several years. Despite this, their powerful growth may continue over the long run, as will that of several other important emerging economies in Latin America. Notwithstanding the financial crisis that is gripping some Asian economies, most forecasts now predict a rapid rise intheshareof world output accounted for by developing nations such as China. For international businesses, the implications of this changing economic geography are clear; many of tomorrow's economic opportunities maybe found in the developing nations of the world, and many of tomorrow's most capable competitors will probably also emerge from these regions. However, as the barriers to the free flow of goods, services, and capital fell, and as other countries increased their shares of world output, non-US firms increasingly. 3. The Changing Nature of the Multinational Enterprise A multinational enterprise is any business that has productive activities in two or more countries. Non-US Multinationals Global business activity was dominated by large US multinational corporations. With US firms accounting for about two-thirds of foreign direct investment one would expect most multinationals to be US enterprises. The large number of US multinationals reflected US economic dominance in the three decades after World War II, while the large number of British multinationals reflected that country's industrial dominance in the early decades. Looking to the future, we can reasonably expect growth of new multinational enterprises from the world‘s developing nations. As the accompanying Country Focus demonstrates, South Korean firms are starting to invest outside their national borders. The South Koreans may soon be followed by firms from countries such as Mexico.
    • The Rise of Mini-Multinationals Another trend in international business has been the growth of medium-sized and small multinationals. When people think of international businesses they tend to think of firms such as Exxon, General Motors… complex multinational corporations with operations that span the globe. Although it is certainly true that most international trade and investment is still conducted by large firms, it is also true that many medium-sized and small businesses are becoming increasingly involved in international trade and investment. The point is, international business is conducted not just by large firms but also by medium-sized and small enterprises. 4. The Changing World Order Many of the former communist nations of Europe and Asia seem to share a commitment to democratic politics and free market economics. If this continues, the opportunities for international businesses may be enormous. For the best part of half a century, these countries were essentially closed to Western international businesses. Now they present a host of export and investment opportunities. The economies of most of the former communist states are in very poor condition, and their continued commitment to democracy and free market economics cannot be taken for granted. Disturbing signs of growing unrest and totalitarian tendencies are seen in many Eastern European states. Thus, the risks involved in doing business in such countries are very high, but then, so may be the returns. In sum, the last quarter of century has seen rapid changes in the global economy. Barriers to the free flow of goods, services, and capital have been coming down. The volume of cross-border trade and investment has been growing more rapidly than global output, indicating that national economies are become more closely integrated into a single, interdependent, global economic system. As their economies advance, more nations are joining the ranks of the developed world. Thus, follow more permanent and widespread, the liberal vision of a more prosperous global economy based on free market principles might not come to pass as quickly as many hope. Clearly, this would be a tougher world for international businesses to compete in. For now it is simply worth noting that even from a purely economic perspective, globalization is not all good. The Globalization Debate: Prosperity or Impoverishment? People view globalization from sometimes vastly different perspectives. A. Today’s Globalization in Context 1. First age of globalization extended from the mid-1800s to the 1920s. Migration levels reached record highs, domestic workers faced competition from cheaper labor abroad, and trade and capital flowed more freely than ever before. Drivers of that first age of globalization were the steamship, telegraph, railroad, telephone, and airplane. 3. World War I, the Russian Revolution, and the Great Depression abruptly ended that first age of globalization. Globalization backlash led to high tariffs and other barriers. 4. Geographic divide between East and West became an ideological divide between communism and capitalism. International capital flows regained their prior pace not until the 1990s.
    • 5. Drivers of this second age of globalization are communication satellites, fiber optics, microchips, and the Internet. B. The Current Globalization Backlash 1. Protesters say the world does not fairly share fruits of globalization. 2. The violence began in Seattle, Washington, in December 1999 at a meeting of the World Trade Organization, and reached a low point in July 2001 in Genoa, Italy, when one protestor died. 3. Two key institutions in coverage of the debate. a. The World Bank is an agency created to provide financing for national economic development efforts. b. The International Monetary Fund (IMF) is an agency created to regulate fixed exchange rates and enforce the rules of the international monetary system. C. Globalization’s Impact on Jobs and Wages 1. Against: Globalization Costs Jobs and Lowers Wages a. Eliminates jobs in developed nations as good-paying manufacturing jobs go abroad to developing countries. Low-priced goods are not worth lost jobs. b. Forces wages lower in developed countries by causing worker dislocation that lowers wages. New jobs that replace lost manufacturing jobs often pay less. c. International outsourcing exploits workers in developing nations that work cheaply servicing western consumers. d. Summary: although globalization eliminates jobs in some economic sectors, it creates jobs in other sectors. 2. For: Globalization Creates Jobs and Boosts Wages a. Raises overall wealth in developed and developing nations because trade openness raises output. Firms grow more efficient and pass savings on to consumers. b. Generates labor market flexibility that allows an economy to rapidly deploy labor where demand is relatively great. c. Creates jobs in developed nations as outsourcing lowers labor costs and firms instead use capital to expand operations. d. Advances developing nations‘ economies by injecting capital that creates higher- paying jobs, which expands the middle class and raises standards of living. e. Summary: gains to national economies are worth lost livelihoods that individuals may suffer. D. Globalization’s Impact on Labor and Environmental Regulation 1. Labor Standards a. Trade unions claim that firms continually move to nations with low labor standards, which reduces labor‘s bargaining power and forces overall labor standards lower. b. But studies of developing nations‘ export processing zones instead find evidence that contradicts such claims. 2. Environmental Protection a. Globalization opponents say it creates a ―race to the bottom‖ in environmental conditions and regulations: countries compete in reducing environmental protection laws.
    • b. But evidence shows pollution-intensive U.S. firms tend to invest in countries with stricter environmental standards. Also, closed economies historically are the worst polluters. 3. Developing Future Markets a. Protesters claim international firms pay locals the lowest possible wage and export their goods back to the home country. b. Today, firms want to build local markets in developing nations, not simply exploit workers and foment local animosity. E. Globalization and Income Inequality 1. Income Inequality within Nations a. Globalization critics claim that income disparity in rich nations is increasing as firms move factory jobs to poor nations. b. Evidence is mixed, but poor people in developing nations seem to benefit from an open economy. 2. Inequality between Nations a. Globalization opponents say it is widening the gap in average incomes between rich and poor nations. b. Looking closely at the evidence, we see that open nations are benefiting from trade while closed ones are not. 3. Global Inequality a. Opponents of globalization say it is widening income inequality between all people of the world. b. Studies tend to agree that global inequality has fallen in recent decades, though they disagree on the extent of the decline. F. Globalization and National Sovereignty 1. Globalization: Menace to Democracy a. Supranational institutions with international goals and appointed officials undermine national sovereignty and democracy. b. Elected officials undercut democracy and local and regional authority with ‗inter- national‘ agreements on citizens‘ behalf. 2. Globalization: Guardian of Democracy a. Globalization has helped spread democracy worldwide (e.g., more democratic nations than ever). b. Some losses of sovereignty have had positive social impacts, as in human rights, workers‘ rights, and discrimination. G. Globalization’s Impact on Cultures 1. Critics say globalization homogenizes our world and lets MNCs destroy cultural diversity and wipe out small local businesses. 2. Yet globalization allows nations to: (1) Specialize and trade for goods they do not produce, (2) Import other peoples‘ cultural goods, and (3) Still protect deeper moral and cultural norms.
    • Managing in the Global Marketplace An international business is any firm that engages in international trade or investment. A firm does not have to become a multinational enterprise, investing directly in operations in other countries, to engage in international business, although multinational enterprises are international businesses. As their organizations increasinglyengageincross-bordertradeand investment, it means managers need to recognize that the task of managing an international business differs from that of managing a purely domestic business in many ways. At the most fundamental level, the differences arise from the simple fact that countries are different. Countries differ in their cultures, political systems, economic systems, legal systems, and levels of economic development. Despite all the talk about the emerging global village, and despite the trend toward globalization of markets and production, as we shall see in this book, many of these differences are veryprofoundandenduring.Differences between countries require that an international business vary its practices country by country. A further way in which international business differs from domestic business is the greater complexity of managing an international business. In addition to the problems that arise from the differences between countries, a manager in an international business is confrontedwitharangeofotherissuesthatthemanagerin a domestic business never confronts. An international business must decide where in the world to site its production activities to minimize costs and to maximize value added. Conducting business transactions across national borders requires understanding the rules governing the international trading and investment system. Managers in an international business must also deal with government restrictions on international trade and investment. They must find ways to work within the limits imposed by specific governmental interventions. As this book explains,eventhoughmanygovernmentsarenominally committed to free trade, they often intervene to regulate cross-border trade and investment. Managers within international businesses must develop strategies and policies for dealing with such interventions. Cross-border transactions also require that money be converted from the firm's home currency into a foreign currency and vice versa. Since currency exchange rates vary in response to changing economic conditions, an international business must develop policies for dealing with exchange rate movements. A firm that adopts a wrongpolicycanloselargeamountsof money, while affirm that adopts the right policy can increase the profitability of its international transactions. Globalization -- The Balancing Act Globalization is an extremely controversial issue for the modern world. It has become increasingly important for the young adults of the world to fully understand what globalization is and how it is affecting our cultures in order for them to form educated opinions. Globalization is defined as the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets. More and more corporations are taking the world by storm in an attempt to insert themselves into our everyday lives. Their reason for doing this is to not only make their nation feel dependent on their product, but to make the rest of the world dependent as well. Most Americans do not take the time to realize how dependent we are for these corporation's products. For example, 90% of all Americans drink coffee. A large portion of those sales are made by the Starbucks Corporation.
    • Now with Starbuck's worldwide expansion, it has established itself in 40 different countries with a yearly revenue of $10.383 billion USD (as of 2008). Another example of a worldwide corporation is McDonalds fast food. McDonalds is the worlds largest fast food chain in the world inhabiting 109 different countries and serving nearly 47 million customers every day. With corporations like these becoming more powerful and influential in our everyday lives and in our experiences of other cultures, globalization is a topic that must be broken down and defined for the masses to understand its dramatic impact on modern society. Economists who are in support of this process argue that utilizing the fundamental idea that trade is good means that foreign trade through corporations is absolutely necessary. In today‘s world, that has translated to corporations moving internationally in order to manipulate the cheap work force in foreign countries. An example of this would be Nike, an American shoe company, who originated in Oregon in 1970; however, most of Nike's shoe factories were found in Southeast Asian countries like Indonesia, China, and, most recently, Vietnam. While trade of cheap labor for more job opportunities seemed like a fair agreement, Nike's strive towards industrialization at whatever means necessary has hurt the southeast countries in asia and has compromised the credibility of the western modernized world. In this way, the benefits of globalization do not outweigh the costs. On the other hand, critics of this modernization process say that globalization is just an excuse for "Americanization" (the spreading of American culture in an attempt to take over the world, more or less). While this has become a side effect of globalization, I do not believe that globalization must result in America rising to power over all other countries. We, as a planet, can unify through our trade and free market economies to make a stronger, more cohesive world. We can integrate our cultures while protecting the tradition, religion, and history of our origins. With these portrayals of the pros and cons of globalization, I believe that it takes a steady balance of globalization and maintaining countries individuality in order to help the world's economy while still keeping cultures free from "Americanization". Bottom Line for Business A. Harnessing the Benefits of Globalization 1. The most global nations tend to have the greatest equality, robust environmental protection, inclusive political systems, lowest levels of corruption, healthiest lifestyles, and where women have achieved the most social, educational, and economic progress. 2. The debate has opened a dialogue, moving from an argument of total stoppage versus the belief that it is unstoppable, to how globalization can be harnessed to make its benefits exceed its costs. B. Globalization of Markets and Production 1. Continued globalization is taking companies into previously isolated markets and increasing competitive pressures worldwide. 2. As it gets easier and less costly to manage widely dispersed marketing and production activities, new opportunities and threats emerge.
    • C. Jobs, Wages, and Inequality 1. Low wages is not all that draws investment by multinationals. A location must offer low-cost, adequately skilled workers in an environment with acceptable levels of social, political, and economic stability. 2. Labor mobility is increasing with globalization depressing wages in some job categories but developing new job opportunities in others. D. The Policy Agenda 1. Rich nations could open their markets, slash agricultural subsidies, and increase development aid. Poor nations could improve their investment climates, and improve social protection for the poor. 2. Rich nations could offer workers their wage insurance, subsidized health insurance if out-of- work, and improve education. Rich nations could help the ILO enforce labor standards, help clarify environmental agreements, and research the environmental implications of trade agreements.