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Kdqt eng chap001


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Kdqt eng chap001

  1. 1. InternationalBusiness 7e by Charles W.L. HillMcGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Chapter 1 Globalization
  3. 3. What Is Globalization?The world is moving away from self-contained nationaleconomies toward an interdependent, integrated globaleconomic systemGlobalization refers to the shift toward a more integratedand interdependent world economyGlobalization has two facets:1) the globalization of markets2) the globalization of production 1-3
  4. 4. The Globalization Of MarketsThe globalization of markets refers to the merging ofhistorically distinct and separate national markets into onehuge global marketplaceIn many industries, it is no longer meaningful to talkabout the “German market” or the “American market”Instead, there is only the global market 1-4
  5. 5. The Globalization Of MarketsFalling trade barriers make it easier to sell internationallyThe tastes and preferences of consumers are convergingon some global normFirms help create the global market by offering the samebasic products worldwide 1-5
  6. 6. Classroom Performance SystemThe shift toward a more integrated and interdependentworld economy is referred to asa) economic integrationb) economic interdependencyc) globalizationd) internationalization 1-6
  7. 7. The Globalization Of ProductionThe globalization of production refers to the sourcing ofgoods and services from locations around the globe to takeadvantage of national differences in the cost and quality offactors of production like land, labor, and capitalCompanies compete more effectively by lowering theiroverall cost structure or improving the quality orfunctionality of their product offering 1-7
  8. 8. Classroom Performance SystemThe merging of historically distinct and separatenational markets into one huge global marketplace isknown asa) global market facilitationb) cross-border tradec) supranational market integrationd) the globalization of markets 1-8
  9. 9. Classroom Performance SystemFirms that are involved in international business tend tobea) largeb) smallc) medium-sizedd) large, small, and medium-sized 1-9
  10. 10. The Emergence Of Global InstitutionsInstitutions are needed to:help manage, regulate, and police the global marketplacepromote the establishment of multinational treaties togovern the global business system 1-10
  11. 11. The Emergence Of Global InstitutionsInstitutions created over the past half century include:the General Agreement on Tariffs and Trade (GATT)the World Trade Organization (WTO)the International Monetary Fund (IMF)the World Bankthe United Nations (UN) 1-11
  12. 12. The Emergence Of Global InstitutionsThe World Trade Organization (like its predecessorGATT) is primarily responsible for policing the world tradingsystem and making sure that nation-states adhere to therules laid down in trade treaties signed by WTO membersIn 2007, the 150 nations that accounted for 97% of worldtrade were WTO membersThe WTO promotes lower barriers to trade andinvestment 1-12
  13. 13. The Emergence Of Global InstitutionsThe International Monetary Fund and the World Bankwere created in 1944The IMF was established to maintain order in theinternational monetary systemThe World Bank was established to promote economicdevelopment 1-13
  14. 14. The Emergence Of Global InstitutionsThe United Nations was established in 1945 to:maintain international peace and securitydevelop friendly relations among nationscooperate in solving international problems and inpromoting respect for human rightsbe a center for harmonizing the actions of nations 1-14
  15. 15. Classroom Performance SystemWhich is not a factor of production?a) tradeb) landc) capitald) energy 1-15
  16. 16. Drivers Of GlobalizationTwo macro factors underlie the trend toward greaterglobalization:the decline in barriers to the free flow of goods, services,and capital that has occurred since the end of World War IItechnological change 1-16
  17. 17. Declining Trade And Investment BarriersInternational trade occurs when a firm exports goods orservices to consumers in another countryForeign direct investment (FDI) occurs when a firminvests resources in business activities outside its homecountryAfter World War II, advanced countries made acommitment to lower barriers to trade and investmentSince 1950, average tariffs have fallen significantly andare now at about 4%Countries have also been opening markets to FDI 1-17
  18. 18. Classroom Performance SystemThe sourcing of good and services from around the worldto take advantage of national differences in the cost andquality of factors of production is calleda) economies of scaleb) the globalization of productionc) global integrationd) global sourcing 1-18
  19. 19. Declining Trade And Investment BarriersTable 1.1: Average Tariff Rates on Manufactured Productsas Percent of Value 1-19
  20. 20. Declining Trade And Investment BarriersLower barriers to trade and investment mean:that firms can view the world, rather than a singlecountry, as their marketthat firms can base production in the optimal location forthat activity 1-20
  21. 21. Classroom Performance SystemWhich organization is responsible for policing the worldtrading system?a) the International Monetary Fundb) the United Nationsc) the World Trade Organizationd) the World Bank 1-21
  22. 22. The Role Of Technological ChangeTechnological change has made the globalization ofmarkets a realityImportant advances have occurred in:microprocessors and telecommunicationsthe Internet and World Wide Webtransportation technology 1-22
  23. 23. The Role Of Technological ChangeImplications of technological change for the globalization ofproduction include:lower transportation costs that enable firms to disperseproduction to economical, geographically separatelocationslower information processing and communication coststhat enable firms to create and manage globally dispersedproduction systems 1-23
  24. 24. The Role Of Technological ChangeImplications of technological change for the globalization ofmarkets include:low cost global communications networks help createelectronic global marketplacelow-cost transportation help create global marketsglobal communication networks and global media arecreating a worldwide culture, and a global market forconsumer products 1-24
  25. 25. The Changing Demographics Of The Global EconomyThere has been a drastic change in the demographics ofthe world economy in the last 30 yearsFour trends are important:the Changing World Output and World Trade Picturethe Changing Foreign Direct Investment Picturethe Changing Nature of the Multinational Enterprisethe Changing World Order 1-25
  26. 26. The Changing World Output And World Trade PictureIn 1960, the United States accounted for over 40% ofworld economic activityBy 2006, the United States accounted for less than 20%of world economic activityA similar trend occurred in other developed countriesThe share of world output accounted for by developingnations is rising and is expected to account for more than60% of world economic activity by 2020 1-26
  27. 27. The Changing World Output And World Trade PictureTable 1.2: The Changing Demographics of World GDP andTrade 1-27
  28. 28. The Changing Foreign Direct Investment PictureIn the 1960s, U.S. firms accounted for about two-thirds ofworldwide FDI flowsToday, the United States accounts for less than one-fifthof worldwide FDI flowsOther developed countries have followed a similarpatternIn contrast, the share of FDI accounted for by developingcountries has risen from less than 2% in 1980 to almost12% in 2005Developing countries, especially China, have alsobecome popular destinations for FDI 1-28
  29. 29. The Changing Foreign Direct Investment PictureFigure 1.2: Percentage Share of Total FDI Stock 1980-2005 1-29
  30. 30. The Changing Foreign Direct Investment Picture Figure 1.3: FDI Inflows 1988-2006 1-30
  31. 31. Classroom Performance SystemWhat is the single most important innovation to theglobalization of markets and production?a) advances in transportation technologyb) the development of the microprocessorc) advances in communicationd) the Internet 1-31
  32. 32. The Changing Nature Of The Multinational EnterpriseA multinational enterprise (MNE) is any business that hasproductive activities in two or more countriesSince the 1960s, there has been a rise in non-U.S.multinationals, and a growth of mini-multinationals 1-32
  33. 33. The Changing World OrderMany former Communist nations in Europe and Asia arenow committed to democratic politics and free marketeconomies and so, create new opportunities forinternational businessesChina and Latin America are also moving toward greaterfree market reforms 1-33
  34. 34. The Global Economy Of The Twenty-first CenturyThe world is moving toward a more global economicsystem, but globalization is not inevitableGlobalization also brings risks like the financial crisis thatswept through South East Asia in the late 1990s 1-34
  35. 35. Classroom Performance SystemWhich of the following trends is true?a) the United States is accounting for a greater percentageof world trade than ever beforeb) the United States is accounting for a greater percentageof foreign direct investment than ever beforec) the share of world trade accounted for by developingcountries is risingd) the share of foreign direct investment by developingcountries is declining 1-35
  36. 36. The Globalization DebateIs the shift toward a more integrated and interdependentglobal economy a good thing?Supporters believe that increased trade and cross-borderinvestment mean lower prices for goods and services,greater economic growth, higher consumer income, andmore jobsCritics worry that globalization will cause job losses,environmental degradation, and the cultural imperialism ofglobal media and MNEs 1-36
  37. 37. Anti-Globalization ProtestsMore than 40,000 anti-globalization protesters took to thestreet at the WTO meeting in Seattle in 1999Protesters now regularly show up at most majormeetings of global institutions 1-37
  38. 38. Globalization, Jobs, And IncomeGlobalization critics argue that falling barriers to trade aredestroying manufacturing jobs in advanced countriesSupporters of globalization contend that the benefits ofthis trend outweigh the costs—that countries will specializein what they do most efficiently and trade for other goods—and all countries will benefit 1-38
  39. 39. Globalization, Labor Policies, And The EnvironmentGlobalization critics argue that firms avoid costly effortsto adhere to labor and environmental regulations by movingproduction to countries where such regulations do not exist,or are not enforcedGlobalization supporters claim that tougherenvironmental and labor standards are associated witheconomic progress, so as countries get richer from freetrade, they get tougher environmental and labor regulations 1-39
  40. 40. Globalization And National SovereigntyCritics of globalization worry that today’s interdependentglobal economy is shifting economic power away fromnational governments toward supranational organizationslike the WTO, the EU, and the UNSupporters of globalization contend that the power ofthese organizations is limited to what nation-states agree togrant, and that the power of the organizations lies in theirability to get countries to agree to follow certain actions 1-40
  41. 41. Globalization And The World’s PoorCritics of globalization argue that the gap between richnations and poor nations is getting widerSupporters of globalization claim that the best way for thepoor nations to improve their situation is to reduce barriersto trade and investment and implement economic policiesbased on free market economies, and to receive debtforgiveness for debts incurred under totalitarian regimes 1-41
  42. 42. Classroom Performance SystemWhich of these is not a concern of anti-globalizationprotesters?a) globalization raises consumer incomeb) globalization contributes to environmental degradationc) globalization is causing a loss of manufacturing jobs indeveloping countriesd) globalization implies a loss of national sovereignty 1-42
  43. 43. Managing In The Global MarketplaceAn international business is any firm that engages ininternational trade or investment 1-43
  44. 44. Managing In The Global MarketplaceManaging an international business differs from managinga domestic business because:countries are differentthe range of problems confronted in an internationalbusiness is wider and the problems more complex thanthose in a domestic businessfirms have to find ways to work within the limits imposedby government intervention in the international trade andinvestment systeminternational transactions involve converting money intodifferent currencies 1-44