4. Global exports amounted to US$17.6 trillion, US$1.4 trillion less
than the previous year reflecting the effects ofCOVID-19.
5. Development of the World Trading System
• Economic theories since centuries support to
unrestricted free trade.
• Governments around the world have been
willing to lower their trade barriers but fear
that other nations might not follow suit.
6. Consider the problem that two neighboring countries, say,
Brazil and Argentina, face when deciding whether to lower
trade barriers between them.
In principle, the government of Brazil might favor lowering
trade barriers, but it might be unwilling to do so for fear that
Argentina will not do the same.
Instead, the government might fear that the Argentineans
will take advantage of Brazil’s low barriers to enter the
Brazilian market while continuing to shut Brazilian products
out of their market through high trade barriers. The
Argentinean government might believe that it faces the same
dilemma.
7. • Governments recognize that their respective nations
will benefit from lower trade barriers between them,
but neither government is willing to lower barriers for
fear that the other might not follow.
• The essence of the problem is a lack of trust.
• Any government would compromise its national
sovereignty as well as looking for set of rules to govern
cross-border trade and lower trade barriers.
• An international trading framework with monitor the
governments to make sure they are playing by the
trade rules and if not then to impose sanctions on a
government that cheats.
• Governments could set up an independent body to act
as a referee.
8. 1947–1979: GATT, TRADE LIBERALIZATION, AND
ECONOMIC GROWTH
• After World War II, the United States emerged from the
war both victorious and economically dominant.
• U.S. Congress had swung strongly in favor of free trade.
• Under U.S. leadership, the GATT was established in 1947.
• The GATT was a multilateral agreement whose objective
was to liberalize trade by eliminating tariffs, subsidies,
import quotas, and the like.
• The GATT liberalize trade attempts was tariff reduction
towards free trade was spread over eight rounds.
• Consistent with the theoretical arguments first advanced by
Ricardo, the move toward free trade under the GATT
appeared to stimulate economic growth.
9. 1980–1993: PROTECTIONIST TRENDS
• Trading system under GATT came under strain as
pressures for greater protectionism increased around
the world.
– the economic success of Japan during that time strained
the world trading system (much as the success of China
has created strains today) and imposed administrative
trade barriers.
– the world trading system was strained by the persistent
trade deficit in the world’s largest economy, the United
States.
– the trend toward greater protectionism was that many
countries found ways to get around GATT regulations.
10. THE URUGUAY ROUND AND THE WORLD
TRADE ORGANIZATION
The Uruguay Round contained the following provisions:
1. Tariffs on industrial goods were to be reduced by more than one-third,
and tariffs were to be scrapped on more than 40 percent of
manufactured goods.
2. Average tariff rates imposed by developed nations on manufactured
goods were to be reduced to less than 4 percent of value, the lowest
level in modern history.
3. Agricultural subsidies were to be substantially reduced.
4. GATT fair trade and market access rules were to be extended to cover a
wide range of services.
5. GATT rules also were to be extended to provide enhanced protection for
patents, copyrights, and trademarks (intellectual property).
6. Barriers on trade in textiles were to be significantly reduced over 10
years.
7. The World Trade Organization was to be created to implement the GATT
agreement.
11. The World Trade Organization
• The WTO acts as an umbrella organization that encompasses the
GATT along with two new sister bodies, one on services and the
other on intellectual property.
The WTO’s General Agreement on Trade in Services (GATS) has taken
the lead to extending free trade agreements to services.
The WTO’s Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) is an attempt to narrow the gaps in the way
intellectual property rights are protected around the world and to
bring them under common international rules.
• WTO has taken over responsibility for arbitrating trade disputes and
monitoring the trade policies of member countries.
• Provision of Arbitration on trade disputes between member
countries. Right to compensation or, to impose trade sanctions.
14. Globalization
• Globalization refers to the growing interdependencies of countries world-wide
through the increasing volume and variety of cross-border transactions in goods and
services and of international capital flows and also through the rapid and
widespread diffusion of technology.
• Globalization is the widening and deepening of interdependent relationships among
people from different nations.
• It is the elimination of barriers to international movements of goods, services,
technology, and FDI create Globalization phenomenon.
• Government liberalized in its trade policies by non restrictive flow of goods and
service and encourage competition and discourage restrictive business practices.
• Historically people’s access to more varied resources, products, services, and
markets. Falling barriers to cross-border trade and investment have made it easier to
sell internationally.
• Globalization enables us to get more variety, better quality, or lower prices.
• Our meals contain spices that aren’t grown domestically and fresh produce that may
be out of season in the local climate.
• The cars cost less than they would if all the parts were made and the labor
performed in one place.
• Globalization results in global connections between supplies and markets and all
commercial transactions (including sales, investments, and transportation) that take
place among countries.
15. What factors have contributed to the growth of
globalization in recent decades?
Most analysts cite the following interrelated factors:
1. Rise in and application of technology
2. Liberalization of cross-border trade and resource
movements
3. Development of services industries
4. Growth of consumer pressures
5. Increase in global competition
6. Changes in political situations and government policies
7. Expansion of cross-national cooperation
8. Rise of emerging markets and multination Companies
(MNCs)
16. 1. Rise in and application of Technology
• Mechanical to electrical than electronic and hence communication
technology
• Semi conductor & Personal computing devices ( Moore’s Law).
• CAD,CAM and CIMS
• Software and internet ,EDI, Bar Code ,RFID, ERP
• Population growth & rising productivity & development of new
products
• Average people can buy more, including the new products, by the
same period of time.
• New products in global market with value addition of global
company from many countries.
• when new products are developed, the optimum scale of
production for global market demand.
• Advances in Communications and Transportation
17. Advances in Transportation
The large, standardized containers provide a number of advantages over more
traditional methods, including:
1. Standardization: Standardized containers, which are typically stacked up
to seven high on container ships, allow for easy transfer of goods from
one mode of transportation to another (called intermodal
transportation), like ship to rail or rail to truck, as the containers can
easily be lifted and moved.
2. Efficiency: Moving containers with cranes is more efficient than “ break-
bulk ” handing— moving barrels and containers individually. The result is
increased economies of scale, lower costs, substantial time savings, and
far less labor requirements.
3. Reduced Risk: The reduction in dock times and the difficulty in manually
handling one of the large containers lessened the amount of pilfering,
which had been a major problem of globalized trade.
4. Reduced damage: Large containers protected goods from damage much
better than sticking them loosely in a ship ’ s hull.
18. 2. Liberalization and Resource movements
• Promotion of free flow of goods, services & resources,—
workers, capital, tools—needed to produce them.
• Most governments have reduced such restrictions,
primarily for three reasons:
1. Their citizens want a greater variety of goods and services at
lower prices.
2. Competition spurs domestic producers to become more
efficient.
3. They hope to induce other countries to lower their barriers in
turn.
19. Deregulation & Privatization
– Changing economic controls empowered creativity and
competition.
– Changes in transportation – fewer or no economic controls
over rates and services.
– Change in financial institutions blurred traditional differences
and increased competition.
– Change in the communications industry also resulted in more
competition.
– Changes in the utility industry allows more competition.
Privatization is the process of transferring an enterprise or
industry from the public sector to the private sector. The
public sector is the part of the economic system that is run
by government agencies.
20. 3. Fostering Services industry
• Companies and governments have developed
services that facilitate global commerce.
• Easy transaction between businesses
– bank credit agreements
– clearing arrangements that convert one currency
into another
– insurance that covers such risks as nonpayment
and damage en route
21. 4. Growth in Consumer Pressures
• Consumers today know more about products and services
available in other countries, can afford to buy them, and want
the greater variety, better quality, and lower prices.
• However, this demand is spread unevenly because of uneven
affluence, both among and within countries as well as from
year to year.
• Consumer pressure has also spurred companies to spend more
on research and development (R&D) and to search worldwide
for innovations and products they can sell to evermore-
demanding consumers.
• By the same token, consumers are more proficient today at
scouring the globe for better deals, such as searching the
Internet for lower-priced prescription drugs abroad.
22. 5. Increase in Global Competition
• Increased competitive pressures can persuade companies to buy
or sell abroad.
• A firm might introduce products into markets where competitors
are already gaining sales, or seek supplies where competitors are
getting cheaper or more attractive products.
• Once a few companies respond to foreign opportunities, others
inevitably follow suit. And they learn from each other’s foreign
experiences. (Flying Geese)
• Regardless of industry, most firms and individuals have to become
more global; in today’s competitive business environment, failure
to do so can be disastrous.
23. 6. Changes in Political Situations and
Government Policies
• After World War II, business between communist countries and the rest of
the world was minimal.
• Today, only a few countries are heavily isolated economically or do
business almost entirely within a political bloc.
• The political changes sometimes open new frontiers, such as diplomatic
relations between the United States and Cuba.
• Governments still deny business with others for political reasons, such as
sanctions against North Korea.
• Governments support programs, such as improving airport and seaport
facilities, to foster efficiencies for delivering goods internationally.
• They also now provide an array of services to help domestic companies
sell more abroad, such as collecting information about foreign markets,
furnishing contacts with potential buyers, and offering insurance against
nonpayment in the home-country currency.
24. 7. Expansion of Cross-Nations Cooperation
• Governments have come to realize that their own
interests can be addressed through international
cooperation by means of treaties, agreements, and
consultation.
• The willingness to pursue such policies is due largely to
these three needs:
1. To gain reciprocal advantages
2. To attack problems jointly that one country acting
alone cannot solve.
3. To deal with areas of concern that lie outside the
territory of any nation.
25. Gain Reciprocal Advantages
• Companies want to protected when operating internationally,
so they lobby their governments to act on their behalf.
• Governments join international organizations and sign treaties
and agreements with other governments for a variety of
commercial activities.
• Some treaties and agreements allow countries’ commercial
ships and planes to use each other’s seaports and airports;
• Some cover commercial-aircraft safety standards and flyover
rights; and some protect property, such as foreign-owned
investments, patents, trademarks, and copyrights.
• Countries also enact treaties for reciprocal reductions of
import restrictions.
26. Multi-Nations Problem Solving
• Governments often act to coordinate activities along their mutual borders by
building highways, railroads, and hydroelectric dams that serve the interests of
all parties.
• They also cooperate to solve problems that they either can’t or won’t solve
alone.
1. the needed resources may be too great for one country to manage.
– Further, sometimes no single country is willing to pay all the cost for a project that will also
benefit another country.
– In any case, many problems are inherently global—think of countering global climate change
or terrorism.
2. One country’s policies may affect those of others.
– Higher real-interest rates in one country, for example, can attract funds very quickly from
individuals and firms in countries with lower rates, thus creating a shortage of investment
funds in the latter. This movement is particularly disruptive to small developing economies.
– A country may weaken the value of its currency so that its products are cheaper in foreign
markets. Thus buyers may switch to the newly cheaper country hence contributing to
unemployment in the country they forsook.
• To coordinate economic policies in these and other areas, countries meet
regularly to share information and pool ideas.
27. Areas Outside National Territories
• Three global areas belong to no single country:
1. the noncoastal areas of the oceans,
2. Outer space, and
3. Antarctica.
• Commercial viability interest on it by either nations .
• The oceans and its food and mineral resources, oil resources below the
Arctic Ocean, and to deal with the piracy of ships.
• Commercial satellites, for example, pass over countries that receive no
direct benefit from them but argue that they should.
• Antarctica, with minerals and abundant sea life along its coast, attracts
thousands of tourists each year, has a highway leading to the South Pole
and a Russian Orthodox church.
• Thus, it has been the subject of agreements to limit commercial
exploitation.
28. Economic Integration and Cooperation
• In the mid- to late 1940s, many nations decided that if they were
going to emerge from the wreckage of World War II and promote
economic growth and stability within their borders, they would
have to assist—and get assistance from—nearby countries. How do
nations and regions combine forces to give and gain the assistance
they need to prosper together?
• Economic integration is a term used to describe the political and
monetary agreements among nations and world regions in which
preference is given to member countries. There are three major
ways to approach such agreements:
• Global integration—Countries from all over the world decide to
cooperate through the World Trade Organization (WTO)
• Bilateral integration—Two countries decide to cooperate more
closely together, usually in the form of tariff reductions
• Regional integration—A group of countries located in the same
geographic proximity decide to cooperate, as with the European
Union
30. 1.Free Trade Agreement
• Eliminates tariff between countries in a region
specially FTA is defined:
• Each participant in the FT Area expects to gain
by specializing in the production of goods and
services in which it possesses comparative
advantages and by importing from other
countries in the group products and service in
which it faces comparative disadvantages.
• Thus, trade should be created among member
countries, giving them less expansive access to
more goods .
31. • The trade agreements and rules are negotiated
and signed by governments, and their purpose
is to help exporters and importers conduct
business
• North American Free Trade Agreement (NAFTA),
formed in August 1992 and which by 2007 saw
the abolishment of all tariffs and trade barriers.
• Most-favored-nation trade (MFN) status is an
arrangement in which WTO member countries
must extend to other members the most
favorable treatment given to any trading
partner.
32. 2. Custom Union
• Eliminates tariffs between member countries
and establishes a common external tariffs
structure towards other regions and non
members countries.
• Member countries requires to gives some
control over economic policies to the group
• Advantage is none of the member nation in
the union can position themself to gain tariff
advantage at the expanse of other country
33.
34. 3. Common Market
• Same tariff policy as custom union
• Common Markets allows factors of production
such as labour, capital as well as goods and
people, to move freely between member
countries as dictated by the market conditions
35. 4. Economic Union
• It implies the harmonization of economic policy
beyond a common market
• It Standardizes monitory and fiscal policy among
member countries and harmonized tax
structures.
• It implies all goods and production factors can
move freely according to market condition and
that know major fluctuations in monitory
exchange and interest rate will occur.
37. 8. Rise of emerging markets
• The term emerging markets was first used by Antoine W.
van Agtmael of the International Finance Corporation back
in the early 1980s.
• These days it is used loosely. Some observers include only
extremely low-income economies under the emerging-
market umbrella; some include only countries that are
expected to experience high economic growth; and others
include all countries that are not considered developed.
• in 2005: their combined economic output of emerging
markets was just over 50% of total global output. This was
calculated on a purchasing power parity basis.
• At market exchange rates the emerging world is still smaller
than the developed world, accounting for just under 30% of
total world GDP or about $11 trillion–12 trillion.
39. Strategic importance of emerging markets
• In 2005 they accounted for more than 80% of the world
population.
• Every month, the population of emerging markets grows by
more than 6m people. At the same time, the developed world
adds only 300,000.
• Emerging markets’ share of world exports is now just under
45% of total global export activity compared with around 18%
in the late 1960s.
• In 2005, emerging markets consumed 48% of the world’s oil.
• 70% of all foreign exchange reserves are now held by central
banks in emerging markets, demonstrating their new
economic strength and an unprecedented cushion against
unwelcome economic crises and sudden currency.
40. • More than 50% of developed world exports are now
sold in emerging markets, an all-time high.
• If emerging markets continue to grow three times
faster than the developed world in the next three
decades – which is a plausible scenario – their share of
global output at purchasing power parity will rise to
over 65% in 20–25 years.
• More and more companies are thinking of emerging
markets in a strategic, systematic way and are
recognising that emerging markets must be an integral
part of their long-term global strategy.
• Indeed, for some companies emerging markets are
now central to their strategy.
41. Reasons for strategic focus on emerging
markets are
• Achieving growth in the developed world has become harder so companies
have been forced to look for growth outside the big markets of the United
States, the European Union and Japan.
• More and more companies now realise that even their most opportunistic
endeavours in emerging markets are yielding better sales growth than can
be found in the developed world.
• Companies that have been taking emerging markets seriously for years say
that sales and profits in absolute terms are also becoming large and
interesting for the total global business.
• This has prompted many companies already involved in them to start
talking about “step-up” efforts – how to go faster and what is needed to do
that. “If we could get some good returns without doing much, think of the
returns we could get if we do it more systematically,” the thinking goes.
• Emerging markets are quickly becoming commercially mature despite a still
much lower average standard of living than in the developed world. This is
driven by booming competition as both international and domestic
companies expand at unprecedented speed.
42. Reasons for strategic focus on
emerging markets are
• Economic growth in emerging markets outpaced growth in
the developed world.
• Despite rising commercial maturity in emerging markets, it is
still easier to capture market share more quickly in them than
in the developed world. Because,
– competition is still not as fierce
– brand loyalties are not as entrenched as in the developed world.
– Buyers are still easier to influence than in, say, Germany or the United
States, even though there is much more loyalty to brands in emerging
markets than there was a decade ago. This means that it will not be
long before it becomes as difficult and costly to acquire market share
as in the developed world.
– For any company wishing to strengthen its market presence, the
window of opportunity for systematic stepping up is closing fast.
43. 8. The Rise of Multinational Corporations
Multinational firms played a big role in
globalization’s spread. These firms, with the
capital, technology, and production capabilities
necessary to operate globally, have acted as
globalization ’ s agents.
They have capitalized on liberalized financial and
trade markets through increased foreign direct
investment, increased cross - border mergers and
acquisitions, increased use of foreign affiliates,
and more joint ventures.
Higher energy costs, the ability to source goods
locally, and increased foreign product demand
have also led to decentralization of
manufacturing.
44. As a consequence, by 2020 the value of world trade is expected to be 167 times larger
than it was in 1960, whereas the world economy will be 65 times larger. This trend has
continued into the modern era. Between 2000 and 2020, the value of world trade increased
3.3 times whereas the world economy has increased 2.6 times. Perhaps the most obvious
difference is between world trade and world production. Trade across country borders is
2.6 times higher than world production, a figure that has gone up drastically since 2000.
The forecast is also that world trade will continue to increase more rapidly than world
production for the foreseeable future.
Difference in the growth rates of world
45. • 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.
• Evidence also suggests that foreign direct investment is playing an
increasing role in the global economy as firms increase their
cross-border investments.
• The average yearly outflow of FDI increased from $14 billion in
1970 to $1.45 trillion in the most recent year, 2016, audited by
the United Nations Conference on Trade and Development
(UNCTAD).
• As a result of the strong FDI flow, by 2016 the global stock of FDI
was about $27 trillion.
• More than 80,000 parent companies had more than 800,000
affiliates in foreign markets that collectively employed more than
75 million people abroad and generated value accounting for
about 11 percent of global GDP
