International BusinessGlobalization & businessProfessor: Marc Arza email@example.com
1. Globalization and businessGlobalization refers to the reduction and removal ofbarriers between national borders in order to facilitatethe flow of goods, capital, services and labour...A fundamental shift is occurring in the world economy.Moving progressively further away from a world in whichnational economies were relatively isolated from eachother by barriers to cross-border trade and investment; bydistance, time zones, and language; and by nationaldifferences in government regulation, culture, andbusiness systems. Moving toward a world in which nationaleconomies are merging into an interdependent globaleconomic system. The global context.
1. Globalization and businessThe rapidly emerging global economy raises a multitude of issues for businessesboth large and small. It creates opportunities for businesses to expand theirrevenues, drive down their costs, and boost their profits.While the emerging global economy creates opportunities such as this for newentrepreneurs and established businesses around the world, it also gives rise tochallenges and threats that yesterdays business managers did not have to dealwith in a new and complex context. And managers have to decide how best todeal with the threat posed by efficient foreign competitors entering their homemarketplace.
2. Drivers of globalizationDifferent macro factors seem to underlie the trend toward greater globalization.The first is the decline in barriers to the free flow of goods, services, and capitalthat has occurred since the end of World War II. Together with the fall of politicalbarriers that divided the world and made global business all but impossible untilrecently. The second factor is technological change, particularly the dramaticdevelopments in recent years in communications, information processing, andtransportation technologies. > Decline in barriers to international economic activity > Political changes and the fall of international divisions > Innovations in communications > Innovations in transportation
2. Drivers of globalizationAfter World War II and during most of thecold war the world was divided in betweenthe free market capitalist world, mainlyincluding North America, Western Europe,Japan and Australia and a socialist blocunder the influence of the Soviet Union andcommunist Eastern Europe. Other vastlypopulated countries like China, India orBrazil, lived under autarchic regimes withscarce economic contact with the rest of theworld.China opennes to the world, starting in 1972and increased in the eighties, and with thefall of the Berlin wall in 1989 the businessworld grew to become global.
2. Drivers of globalizationAfter World War II, the advanced industrial nations of the West--under USleadership--committed themselves to removing barriers to the free flow of goods,services, and capital between nations. This goal was enshrined in the treaty knownas the General Agreement on Tariffs and Trade (GATT). Under the umbrella ofGATT, there have been eight rounds of negotiations among member states--whichnow number over 130--designed to lower barriers to the free flow of goods andservices. The Uruguay Round further reduced trade barriers; extended GATT tocover services as well as manufactured goods; provided enhanced protection forpatents, trademarks, and copyrights; and established the World TradeOrganization (WTO) to police the international trading system. Average tariff rateshave fallen dramatically since 1950.In addition to reducing trade barriers, many countries have also been progressivelyremoving restrictions to foreign direct investment (FDI). The desire to facilitate FDIhas also been reflected in a dramatic increase in the number of bilateralinvestment treaties designed to protect and promote investment between twocountries.
2. Drivers of globalizationFrom the telegraph to the telephone andthen faxes, the internet, e-mailand mobile phones, advances incommunications make it possible togenerate and manage businesses at aglobal scale in ways that were impossibleonly twenty years ago.As an example a 5 minute call betweenNew York and London used to costhundreds of dollars only fifty yers agoand is extremely cheap, even free,nowadays.
2. Drivers of globalizationIn addition to developments in communications technology, several majorinnovations in transportation technology have occurred since World War II.In economic terms, the most important are probably the development ofcommercial jet aircraft and superfreighters and the introduction ofcontainerization, which simplifies transshipment from one mode oftransport to another.Containerization has revolutionized the transportation business, significantlylowering the costs of shipping goods over long distances. Before the adventof containerization, moving goods from one mode of transport to anotherwas very labor intensive, lengthy, and costly. It could take days and severalhundred longshoremen to unload a ship and reload goods onto trucks andtrains. With the advent of widespread containerization in the 1970s and1980s, the whole process can be executed by a handful of longshoremen ina couple of days.
3. Globalization and regionalizationOne of the most notable trends in the global economy in recent years has been theaccelerated movement toward regional economic integration. By regional economicintegration, we mean agreements among countries in a geographic region to reduce,and ultimately remove, tariff and nontariff barriers to the free flow of goods, services, andfactors of production between each other. By entering into regional agreements, groups ofcountries aim to reduce trade barriers more rapidly than can be achieved under theauspices of the World Trade Organization (WTO).Nowhere has the movement toward regional economic integration been more successfulthan in Europe where the European Union has consolidated an integrated market wheremost members even share a single currency, the Euro.Similar moves toward regional integration are being pursued elsewhere in the world.Canada, Mexico, and the United States have implemented the North American FreeTrade Agreement (NAFTA). Argentina, Brazil, Paraguay, and Uruguay startedMERCOSUR as the first step in a move toward creation of a South American Free TradeArea (SAFTA). There is also talk of establishing a hemispherewide Free Trade Agreementof the Americas (FTAA). Along similar lines, ASEAN in South East Asia and the project ofa free trade area in Africa are other examples of this trend.
3. Globalization and regionalizationAlthough there is a trend towards globalization asrecently as 2005 most Fortune500 companies (biggestglobal multinationals) showed that most of thosecompanies still concentrated a high percentage of theirbusiness in a single economic region of the world(Europe, Norht America or Asia). Source: McGrawHill magazine
4. Globalization, risks and threatsGlobalization is not a new phenomenon as there havebeen previous waves of global economic and socialintegration. In the XIXth century innovations incommunications and transport (the telegraph, railroadsand the steamship) shaked the world. International trademultiplied as the globe shrinked and economic growthseemed unstoppable.World War I and the Great Depression put an end to thatfirst wave of globalization as countries started protectingtheir markets after the infamous Smoot-Hawley act in theUS multiplied the tariffs on any import arriving to the US.Another war was needed to start opening markets andpushing for trade again after the Bretton Woodsagreements.Nowadays protectionism is a threat and the currenteconomic crisis turns it into a clear and present danger.
5. Consumers, global or local?As globalization advances some pretended that globalconsumer preferences would start converging. Asdifferences in between consumers from different regionswould be similar products and services could target similarconsumers all around the globe. Making global operationseasier as great economies of scale would unveil.At the same time a flat world would make it possible for anycompany around the world to jump into global marketoperations. This view was summed up by Americanjournalist Thomas Friedman in his book “The World is Flat”.
5. Consumers, global or local?Other, more realistic, views understandthat although globalization softens somedifferences and levels the playfield, localparticularities (culture, geography, history, economy, ...) still matter a great deal.Pankaj Ghemawat summed up that viewin “Redefining global strategy” and pre-stented a tool (the CAGE framework) toevaluate the importance of those localdifferences in different markets aroundthe world.
5. Consumers, global or local?The CAGE framework (P. Ghemawat)
5. Consumers, global or local?A conclusion could be that different markets(countries and products) require differentapproaches to the global/local mix. Globalizationis a reality by a mixed concept asGLOCALIZATION helps sum up and understandthe necessary approach when managinginternational business.
6. The growing importance of international businessAs the world shifts toward a truly integrated global economy, more firms,both large and small, are becoming international businesses.Managers need to recognize that the task of managing an internationalbusiness differs from that of managing a purely domestic business in manyways.This differences and the management tools to face them are going to becovered during this course.
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