International Business Module 1 about Globalization

1. Instructor: Alfredo Toledo Jr.

2. GLOBALIZATION
Chapter 1

3. GLOBALIZATION
Globalization – refers to the shift toward a more
integrated and interdependent world economy.
Globalization has two facets:
1.The globalization of markets
2.The globalization of production

4. The globalization of markets refers to the merging of
historically distinct and separate national markets into one
huge global marketplace.
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 like land, labor, and capital.
GLOBALIZATION

5. The emergence of Global Institutions
Institution are needed to help manage, regulate and police the global
marketplace. As well as promote the establishment of multinational
treaties to govern the global business system.
Institutions created over the past half century included:
 General Agreement on Tariffs and Trade (GATT)
 World Trade Organization (WTO)
 International Monetary Fund (IMF)
 World Bank
 United Nations (UN)
 Association of Southeast Asian Nations (ASEAN)

6. The emergence of Global Institutions
World Trade Organization (WTO) is primarily responsible for policing the
world trading system and making sure that nation-states adhere to the
rules laid down in trade treaties signed by WTO members. In 2007, the 150
nations that accounted for 97% of world trade were WTO members. It also
promotes lower barriers to trade and investment.
International Monetary Fund (IMF) and the World Bank were created in
1944. The IMF was established to maintain order in the international
monetary system. The World Bank was established to promote economic
development.

7. The emergence of Global Institutions
United Nations was established in 1945 to: maintain international peace and
security, develop friendly relations among nations, cooperate in solving
international problems and in promoting respect for human rights and be a center
for harmonizing the actions of nations.
ASEAN – It was established in 1967 by five Southeast Asian countries such as
Indonesia. Malaysia, Thailand, Singapore and Philippines that have the aims and
purposes of the Association are: (1) to accelerate economic growth, social progress
and cultural development in the region and (2) to promote regional peace and
stability through abiding respect for justice and the rule of law in the relationship
among countries in the SEA. Today, 11 countries are part of this institution.

8. Drivers of Globalization
Two macro factors underlie the trend toward greater
globalization:
(1) the decline in barriers to the free flow of goods, services,
and capital that has occurred since the end of WWII and
the,
(2) technological change.

9. Declining Trade and Investment Barriers:
 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.
 After WWII advanced countries made a commitment to lower barriers to
trade and investment
 Since 1950, average tariffs have fallen significantly at about 4%
 Countries have also been opening markets to FDI
Lower barriers to trade and investment means:
 That firms can view the world, rather than a single country, as their market
 That firms can base production in the optimal location for that activity

10. Role of Technological Change:
Technological change has made the globalization of markets a reality
which occurred important advances in:
 Microprocessors
 Telecommunications,
 the Internet and World Wide Web and,
 Transportation Technology.

11. Implications of technological change for the globalization of
production include:
 Lower transportation costs that enable firms to disperse
production to economical, geographically separate locations
 Lower information processing and communication costs that
enable firms to create and manage globally dispersed production
systems
Implications of technological change for the globalization of markets
include:
 Low cost global communications networks help create electronic
global marketplace
 Low cost transportation help create global markets
 Global communication networks and global media are creating a
worldwide culture and global market for consumer products.

12. The Changing Demographics of the
Global Economy
There has been a drastic change in the demographics of the
world economy in the last 30 years.
Four trends are important
- The Changing output and world trade picture
- The Changing Foreign Direct Investment Picture
- The Changing Nature of the Multinational Enterprise
- The Changing World Order

13. The Changing Output and World Trade Picture
In the early 1960s, the United States was still by far the world’s
dominant industrial power.
In 1963 the United States accounted for 40.3 percent of world economic
activity, measured by gross domestic product (GDP).
By 2008, the United States accounted for 20.7 percent of world GDP.
A similar trend occurred in other developed countries
The share of world output accounted for by developing nations is rising
and is expected to account for more than 60% of world economic
activity by 2020.

15. The Changing Foreign Direct Investment Picture
- In the 1960s, US firms accounted for about two-thirds of
worldwide FDI flows
- Today, the United States accounts for less than one-fifth of
worldwide FDI flows
- Other developed countries have followed a similar pattern
- In contrast, the share of FDI accounted for by developing countries
has risen from less than 2% in 1980 to almost 12% in 2005
- Developing countries especially China have also become popular
destinations for FDI

16. The Changing Nature of the Multinational Enterprise
- A multinational enterprise (MNE) is any business that has
productive activities in two or more countries
- Since the 1960s, there has been a rise in non-US
multinationals and a growth of mini- multinationals

17. The Changing World Order
- Many former Communist nations in Europe and Asia are now
committed to demographic politics and free market economies
and so, create new opportunities for international business
- China and Latin America are also moving toward greater free
market reforms

18. The Global Economy of the Twenty-first Century
- The world is moving toward a more global
economic system, but globalization is not
inevitable.
- Globalization also bring risks like the financial
crisis that swept through South East Asia in the
late 1990s

19. The Globalization Debate
Is the shift toward a more integrated and
interdependent global economy a good thing?
- Supporters believe that increased trade and cross-
border investment mean lower prices for goods and
services, greater economic growth, higher consumer
income, and more jobs
- Critics worry that globalization will cause job losses,
environmental degradation and cultural imperialism
of global media and MNEs

20. Anti-Globalization Protests
- More than 40,000 anti-globalization
protesters took the street at the WTO
meeting in Seattle in 1999
- Protesters now regularly show up at the
most major meetings of global
institutions.

21. Globalization: Jobs and Income
- Globalization critics argue that falling barriers to
trade are destroying manufacturing jobs in
advanced countries
- Supporters of globalization contend that all
benefits of this trend outweigh the costs (that
countries will specialize in what they do most
efficiently and trade for other goods) and all
countries will benefit.

22. Globalization: Labor Policies and the
Environment
- Globalization critics argue that firms avoid costly efforts to
adhere to labor and environmental regulations by moving
production to countries where such regulations do not
exist, or are not enforced.
- Globalization supporters claim that tougher environmental
and labor standards are associated with economic progress,
so as countries get richer from free trade, they get tougher
environmental and labor regulations

23. Globalization: National Sovereignty
- Critics of globalization worry that today’s interdependent
global economy is shifting economic power away from
national governments toward supranational organizations
like the WTO, the EU and the UN
- Supporters of globalization contend that the power of
these organizations is limited to what nation-states agree
to grant and that the power of the organizations lies in
their ability to get countries to agree to follow certain
actions.

24. Globalization And the World’s Poor
- Critics of globalization argue that the gap between rich
nations and poor nations is getting wider
- Supporters of globalization claim that the best way for
the poor nations to improve their situations is to
reduce barriers to trade and investment and
implement economic policies based on free market
economies, and to receive debt forgiveness for debts
incurred under totalitarian regimes

25. Managing in the Global Marketplace
An international business is any firm that engages in international trade
or investment.
Managing an international business differs from managing a domestic business
because:
- Countries are different
- The range of problems confronted in an international business is wider and the
problems more complex than those in a domestic business.
- Firms have to find ways to work within the limits imposed by the government
intervention in the international trade and investment system
- International transactions involve converting money into different currencies

26. NATIONAL DIFFERENCES
IN POLITICAL ECONOMY
Chapter 2

27. The political economy of a nation refers to how the political, economic
and legal systems of a country are interdependent; they interact and
influence each other and in doing so they affect the level of economic
well-being.
Political System refers to the system of government in a nation
Political systems can be assessed according to two dimensions
- The degree to which they emphasize collectivism as opposed to
individualism
- The degree to which they are democratic or totalitarian
POLITICAL SYSTEM

28. Collectivism and Individualism
- Collectivism refers to a political system that stresses the
primacy of collective goals over individual goals
- Collectivism can be traced back to the Greek Philosopher
Plato (427-347 BC) but in modern times, collectivism is
equated with socialists.
- Socialists advocate state ownership of the basic means of
production, distribution and exchange
- State-owned enterprises are managed to benefit society as a
whole, rather than individual capitalists

29. In the early 20th century, socialism split into:
- Communism – socialism can only be achieved through violent
revolution and totalitarian dictatorship
- Social Democrats - socialism is achieved through democratic
means
- By the mid-1990s, communism was in retreat worldwide
- Social democracy is also retreating as many countries move
toward free market economies
- State-owned enterprises have been privatized
Collectivism and Individualism

30. Collectivism and Individualism
- Individualism refers to philosophy that an individual should have
freedom in his own economic and political pursuits.
- Individualism can be traced to Greek Philosopher, Aristotle (384-
322 BC) who argued that individual diversity and private
ownership are desirable
- Under individualism, individual economic and political freedoms
are the ground rules on which a society should be based
- More practically, individualism means democratic political
systems and free market economies

31. Democracy and Totalitarianism
- Democracy refers to a political system in which government is by the
people, exercised either directly or through elected representatives
- Totalitarianism is a form of government in which one person or political
party exercises absolute control over all spheres of human life and
prohibits opposing political parties.
- Democracy is usually associated with individualism and communism is
usually associated with collectivism and totalitarianism
- Pure democracy is based on the belief that citizens should be directly
involved in decision making
- Most modern democratic states practice representative democracy
where citizens periodically elect individuals to represent them.

32. Democracy and Totalitarianism
There are four major forms of totalitarianism:
 Communist Totalitarianism – found in states where the communist
party monopolizes power
 Theocratic Totalitarianism – found in states where political power is
monopolized by a party, group or individual that governs according to
religious principles
 Tribal Totalitarianism – found in states where a political party that
represents the interests of a particular tribe monopolizes power
 Right-wing Totalitarianism – permits some individual economic
freedom but restricts individual political freedom

33. ECONOMIC SYSTEM
- Political ideology and economic systems are connected
- In countries where individual goals are given primacy we are more
likely to find free market economies
- In countries where collective goals are given pre-eminence, the state
may have taken control over many enterprises and most likely to be
restricted
There are three types of economic systems:
 Market economies
 Command economies
 Mixed economies

34. Market Economy
- In a market economy all productive activities are
privately owned and production is determined by
the interaction of supply and demand.
- The role of the government is to encourage free
and fair competition between private producers.

35. Command Economy
- In a command economy, the government plans the goods
and services that a country produces, the quantity that is
produced and the prices as which they are sold.
- All business are state-owned and governments allocate
resources for “the good of society”
- However, because there is little incentive to control costs
and be efficient, command economies tend to stagnate

36. Mixed Economy
- In a mixed economy, certain sectors of the
economy are left to private ownership and free
market mechanisms while other sectors have
significant state ownership and government
planning
- Governments tend to own firms that are
considered important to national security.

37. LEGAL SYSTEM
- The legal systems of a country refers to the rules that regulates
behavior along with the processes by which the laws are
enforced and through which redress for grievances is obtained
There are three types of legal systems:
 Common Law – based on traditions, precedent and custom
 Civic Law – based on detailed set of laws organized into codes
 Theocratic Law – Law is based on religious teachings

38. Differences in Contract Law
- Depending on the legal system, contracts are
approached in different ways
- A contract is a document that specifies the conditions
under which an exchange is to occur and details the
rights and obligations of the parties involved.
- Contract Law is the body of law that governs contract
enforcement

39. Differences in Contract Law
- Under a common law system, contracts tend to be very
detailed with all contingencies spelled out
- Under a civil law system, contracts tend to be much shorter
and less specific because many issues are already covered in
the civil code.
- Many countries have ratified the United Nations Convention on
Contracts for the International Sale of Goods (CISG) which establishes a
uniform set of rules governing certain aspects of the making and
performance of everyday commercial contracts between buyers and
sellers who have their places of business in different nations

40. Property Rights and Corruption
- Property Rights refer to the legal rights over the use to which
a resource is put and over the use made of any income that
may be derived from that resource
- Countries differ in terms of how their legal systems define
and protect property rights
Property rights can be violated through:
 Private Action
 Public action

41. Property Rights and Corruption
- Public Action and private action to violate property rights
occurs when public officials extort income, resources or the
property itself from property holders
- This can be done legally through mechanisms like excessive
taxation or illegally through corrupt mechanisms like
demanding bribes or blackmailing
- High levels of corruption reduce foreign direct investment, the
level of international trade and the economic growth rate in a
country

42. Property Rights and Corruption
- The Foreign Corrupt Practices Act makes it illegal for US
companies to bribe foreign government officials to obtain
or maintain business over which that foreign official has
authority
- The OECD has also adopted a convention that obliges
member states to make the bribery of foreign public
officials a criminal offense – OECD stands for Organization
for Economic Cooperation and Development

43. The Protection of Intellectual Property
Rights
- Intellectual property refers to property that is the product of intellectual
activity
Intellectual Property can be protected using:
- Patents – exclusive rights for a defined period to the manufacture, use,
or sale of that invention
- Copyrights – exclusive legal rights of authors, composers, playwrights,
artists and publisher to publish and disperse their work as they see fit.
- Trademarks – design and names by which merchants or manufacturers
designate and differentiate their products.

44. The Protection of Intellectual Property
Rights
- Protection of Intellectual Property rights differs from country to
country – when intellectual property protection is lax, piracy is
common
- Many countries are members of the World Intellectual Property
Organization and have signed international treaties to protect
intellectual property including the Paris Convention for the protection
of Industrial Property
- To avoid piracy, firms can stay away from countries where intellectual
property laws are lax, file lawsuits and lobby governments for
international property rights agreements and enforcement

45. Product Safety and Product Liability
- Property safety laws set certain standards to which a
product must adhere
- Product Liability involves holding a firm and its officers
responsible when a product causes injury, death or damage.
- When product safety laws are stricter in a firm’s home
country than in a foreign country, or when liability laws are
more lax, the firm has to decide whether to adhere to home
country or host country standards

46. The Determinants of Economic
Development
- Countries have different levels of economic
development
- Gross National Income (GNI) per person is a
common measure of economic development
- Purchasing Power Parity (PPP) involves adjusting
GNI by purchasing power

47. The Determinants of Economic
Development
GDP per capita:
does not factor cost of living differences
•Purchasing Power Parity (PPP) index: adjusts per capita
GDP by cost-of-living
•Human Development Index:
life expectancy, literacy, PPP based average incomes

48. Broader Conceptions of
Development: AMARTYA SEN
- Nobel Prize winning economist Amartya Sen argues that development
should be seen as a process of expanding the real freedoms that people
experience
- So, development requires the removal of major impediments to freedom like
poverty, tyranny and neglect of public facilities
- Sen emphasizes basic health care and education
- The United Nations used Sen’s ideas to develop the Human Development
Index (HDI) which is based on three measures: life expectancy at birth,
educational attainment, and whether average incomes are sufficient to meet
the basic needs of life in a country.

49. Political Economy and Economic
Progress
Innovation >> Engine for Growth
(products, processes, strategies, organizations,
management practices)
•Innovation requires:
-market economy
-strong property rights
-the “right” political system
•Economic progress is related to Democracy

50. States in Transition
•Democratic systems spread in the ‘80s and ‘90s
•Totalitarian regimes failed to deliver economic
progress
•Spread of information trough new communication
technologies
•Emergence of prosperous middle classes

51. The Spread of Democracy
There are three main reasons for the spread of democracy:
1. Many totalitarian regimes failed to deliver economic progress to
the vast bulk of their population
2. New information and communication technologies, have broken
down the ability of the state to control access to uncensored
information
3. The economic advances of the past quarter century have led to
the emergence of increasingly prosperous middle and working
classes who have pushed for democratic reforms

52. Implications For International
Business
- The political, economic and legal systems of a country raise
important ethical issues that have implications for the
practice of International business
- The political, economic and legal environment of a country
clearly influences the attractiveness of that country as a
market/ investment site.

53. DIFFERENCES IN CULTURE
Chapter 3

54. What is Culture?
Culture is a system of values and norms that are
shared among a group of people and that when
taken together constitute a design for living
Society refers to of a group of people who share a
common set values and norms.

56. Minimizing Cultural Differences
In international business, it may be very difficult for a
businessperson to learn each and every
counterpart’s culture and deal with them according to
their expectation. However, the following
recommendations may be instrumental in minimizing
cultural differences in international business
encounters:

57. Minimizing Cultural Differences
Cultural awareness
Develop a sense of cultural heterogeneity
Be flexible but retain your own identity
Believe in win-win game.
Task-and purpose related focus
Create cultural synergy: Eastern cultures
differ from Western cultures

58. The Effects of Cultural
Differences on Global Business
Cross-cultural challenges
As you learn more about cultural differences, you will encounter
several more concepts, such as low-context and high-context
cultures. In low-context cultures like the United Kingdom, the United
States and Canada, communication is explicit and clear while in a
high-context culture like Russia, communication is nuanced and
implicit and there is more shared content. However, the opposite
happens when negative feedback is to be given. Russia becomes
direct, while low-context cultures tend to be indirect when negative
feedback is called for.

59. Gaining benefits from
cultural differences
You have to understand that cultural differences affect global
business in three primary areas – organizational hierarchy,
etiquette, and communication.
1. Communication-
2. Interactions.
4. Etiquette in the workplace
3. Hierarchy in the organization
5. Differences in negotiating styles
6. Remain competitive and
successful in the global
market

60. Thank you