Chapter 1 Globalization The end of chapter 1. 1-* Multimedia

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Chapter 1

• Globalization

2
Introduction

• In the world economy today, we see
• 1. a shift away from self-contained national
  economies with high barriers to cross-border
  trade and investment - examples
• 2. a move toward a more integrated global
  economic system with lower barriers to trade and
  investment
• 3. about 3 trillion in foreign exchange
  transactions taking place everyday
• 4. over 12 million of goods and some 3 trillion
  of services being sold across national borders
• 5. the establishment of international institutions

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Introduction

• The effects of this trend can be seen in
• 1. the cars we drive
• 2. the food we eat
• 3. the jobs where we work
• 4. the clothes we wear
• 5. many other ways

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What Is Globalization?(Explained in 5 slides)

• Question What is globalization?
• Globalization refers to the trend towards a more
  integrated global economic system
• Two key facets of globalization are
• 1. the globalization of markets (?)
• 2. the globalization of production
• Why do produce in other countries(?)

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Outsourcing Medical Work (1 of 8)

• What do you think of the practice of outsourcing
  medical work to other countries?
• In recent years, pressures to cut medical costs
  have led to the practice of outsourcing. Today,
  not only is medical transcription (?) outsourced
  to countries such as India, but also radiology (?)

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Outsourcing Medical Work (2 of 8)

• In some cases, patients, in an effort to curb
  costs, are now choosing to have medical
  procedures conducted in foreign countries.
• In recent years advances in technology are a
  primary key to making the outsourcing of medical
  work possible

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Outsourcing Medical Work (3 of 8)

• In particular, the Internet makes it possible for
  US doctors to quickly transmit large amounts of
  data to countries such as India and Mexico where
  the data can be processed and returned.
• In addition, the high cost of medical care in
  countries like the US is prompting people to
  consider cheaper alternatives.

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Outsourcing Medical Work (4 of 8)

• The cost to repair a leaky heart valve in India
  is about 10,000 including airfare. While in the
  US the same surgery could cost 60,000.
• So, when considered from a strictly economic
  perspective, the globalization of health care
  should result in a more efficient industry.

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Outsourcing Medical Work (5 of 8)

• Certain medical procedures, illegal in the US,
  are done in Mexican border towns like Tijuana,
  which is close to San Diego.
• Ive seen some of this.
• Pros cons.

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Outsourcing Medical Work (6 of 8)

• Prices in the US should fall as countries like
  India and Mexico offer their services as an
  alternative to higher-priced US ones. It would
  follow then, that Americans would have more
  disposable income which could then be spent in
  other parts of their economy.

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Outsourcing Medical Work (7 of 8)

• Maybe the outsourcing of medical procedures to
  nations where salaries of medical professional
  are lower clearly benefits consumers.
• However, we might say that the level of care in
  countries such as India and Mexico may not be up
  to the standards found in the US.
• (See the next slide.)

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Outsourcing Medical Work (8 of 8)

• Think about this Where do rich people from
  Mexico go for their medical care?
• Houston.
• And not just people from Mexico. Ive seen
  Japanese, Saudis, Egyptians, and Syrians too.

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Canadian Humor - 1
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Canadian Humor - 2
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The Globalization of Markets(1)

• The globalization of markets refers to the
  merging of historically distinct and separate
  national markets into one huge global marketplace
  
• In many markets today, the tastes and preferences
  of consumers in different nations are converging
  upon some global norm
• Examples of this trend include Coca Cola,
  McDonalds hamburgers, Starbucks, and iPhones

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The Globalization of Markets(2)

• There are still some country-wide differences
• Germans drink more beer
• Italians eat more pasta
• Russians drink more of anything alcoholic.
• Alcoholism is rampant.

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The Globalization of Production

• 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 (labor, energy, land, and capital)
• The goal for firms is to lower their overall
  costs or improve the quality or functionality of
  their product to gain competitive advantage
• Example auto manufacturers in Mexico

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The Emergence of Global Institutions (1)

• Several global groups have emerged to
• 1. help manage, regulate, and police the global
  market place (WTO)
• 2. promote the establishment of multinational
  treaties to govern the global business system

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The Emergence of Global Institutions

• Global institutions that work include
• 1. the World Trade Organization (WTO) which is
  responsible for policing the world trading system
  and ensuring that nations adhere to the rules
  established in WTO treaties
• In 2008, 151 nations accounting for 97 of world
  trade were members of the WTO

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The Emergence of Global Institutions

• 2. the International Monetary Fund (IMF) which
  maintains order in the international monetary
  system
• 3. the World Bank which promotes economic
  development

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The Emergence of Global Institutions

• A notable global institution that does not work
  is
• The United Nations (UN) which maintains
  international peace and security, develops
  friendly relations among nations, cooperates in
  solving international problems and promotes
  respect for human rights, and is a center for
  harmonizing the actions of nations

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Drivers of Globalization

• Question What is driving the move toward
  greater globalization?
• There are two macro factors underlying the trend
  toward greater globalization
• 1. declining barriers to trade and investment
• 2. technological change

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Declining Trade and Investment Barriers (1)

• 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

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Declining Trade and Investment Barriers (2)

• During the 1920s and 1930s, many nations erected
  barriers to international trade and FDI to
  protect domestic industries from foreign
  competition, which should have protected jobs
• How do barriers protect jobs?
• Further explained on the next slide.

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Smoot-Hawley Act (2)

• The Smoot-Hawley Tariff Act increased tariffs on
  imports to the US by up to 50. Why?
• It was enacted on June 1930 by the Republican
  congress under Pres. Hoover. An example of Law of
  Unintended Consequences.
• Why?.
• What was the real result?
• A.
• B.

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Declining Trade and Investment Barriers

• After WWII, advanced Western countries began
  removing trade and investment barriers Why?
• Under GATT (the forerunner of the WTO) over 100
  nations negotiated further decreases in tariffs
  and made significant progress on a number of
  non-tariff issues
• What is the big difference between the WTO GATT?

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Declining Trade and Investment Barriers

• Lower trade barriers enable firms to view the
  world as a single market and establish production
  activities in optimal locations around the globe
• What does this accomplish?
• HP in Viet Nam
• This has led to an acceleration in the volume of
  world trade and investment since the early 1980s

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The Role of Technological Change

• The lowering of trade barriers made globalization
  of markets and production a theoretical
  possibility technological change made it a
  tangible reality
• Since WW II, there have been major advances in
• 1. communication, phone Internet
• 2. information processing,
• 3. transportation

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SUPERFREIGHTER (1)
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SUPERFREIGHTER (2)
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CONTAINER SHIP (1)(2 weeks Hong Kong to Long
Beach)
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CONTAINER SHIP (2)(2 weeks Hong Kong to Long
Beach)

• What is the advantage of shipping large
  quantities of stuff on a 747 or a cargo ship?
• What are the implications for a US firm
  manufacturing in China or Mexico?
• Waterpic next 2 slides

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Hauling Products from Mexico
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Hauling Products from Mexico

• Tell the Waterpic story.

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The Role of Technological Change

• Question What are the implications of
  technological change for the globalization of
  production?
• Lower transportation costs make a geographically
  dispersed production system more economical (?)
  and allow firms to better respond to
  international customer demands

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The Role of Technological Change

• Question What are the implications of
  technological change for the globalization of
  markets?
• 1. Low-cost communications networks have helped
  create electronic global marketplaces (?)
• 2. Low-cost transportation has enabled firms to
  create global markets, and has facilitated the
  movement of people from country to country
  promoting a convergence of consumer tastes and
  preferences

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The Changing Demographics of the Global Economy

• In the 1960s
• 1. the US dominated the world economy and the
  world trade picture
• 2. the US dominated world FDI
• 3. US multinationals dominated the international
  business scene
• 4. About half the world-- the centrally planned
  economies (?) of the communist world-- were off
  limits to Western international business Why?
• Today, much of this has changed.

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Indias IT Industry (2 of 4 )

• Four key factors have contributed to the growth
  of Indias software industry.
• 1. Is the huge number of engineers in India.
  Some 400,000 engineers graduate from Indian
  universities every year.
• The US does not graduate enough.

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Indias IT Industry (3 of 4 )

• 2. Is Indias low wage structure. Indian
  engineers make about 12 of what an US colleague
  might make.
• 3. Is coordination between Western firms and
  Indian firms is facilitated by the large number
  of English-speaking Indians.

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Indias IT Industry (4 of 4 )

• 4. Because of the differences in time zones,
  Indian firms operate while US firms are closed.
• So what?

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The Changing World Output and World Trade Picture

• In the early 1960s the US was the world's
  dominant industrial power accounting for about
  40.3 of world manufacturing output
• By 2007, the US accounted for only 20.7
• Other developed nations experienced a similar
  decline
• What happened?

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The Changing World Output and World Trade
Picture (1)

• Rapid economic growth is now being experienced by
  countries such as China, Thailand, Malaysia, and
  India.
• Further, relative decline in the US share of
  world output and world exports seems likely

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The Changing World Output and World Trade
Picture (2)

• Forecasts predict a rapid rise in the share of
  world output accounted for by developing nations
  such as China, India, Indonesia, Thailand, and
  So. Korea, and a decline in the share by
  industrialized countries such as Britain, Japan,
  and the US
• So firms may find both new markets and new
  competitors in the developing regions of the
  world

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The Changing Foreign Direct Investment Picture

• The share of world output generated by developing
  countries has been steadily increasing since the
  1960s
• The stock of FDI (total cumulative value of FDI)
  generated by rich industrial countries has been
  on a steady decline
• There has been a sustained growth in cross-border
  flows of FDI
• The largest recipient of FDI has been China.

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The Changing Nature of the Multinational
Enterprise

• A multinational enterprise (MNE) is any firm that
  has business activities in two or more countries
  
• MNE does not connote BIG.
• Since the 1960s,
• there has been a rise in non-US MNCs
• there has been a rise in mini-multinationals - WOC

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The Changing Nature of the Multinational
Enterprise

• The globalization of the world economy has
  resulted in a decline in the dominance of US
  firms in the global marketplace
• In 1973, 48.5 of the worlds 260 largest MNEs
  were US firms
• By 2006, just 24 of the worlds 100 largest
  non-financial MNEs were from the US, 13 were from
  France, 12 from Germany, 12 were from Britain,
  and 9 were from Japan, and 7 of the worlds
  largest 100 MNEs were from developing economies

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The Changing Nature of the Multinational
Enterprise

• While most international trade and investment is
  conducted by large MNEs, many small and
  medium-size firms are expanding internationally
• The Internet has made it easier for many smaller
  firms to build international sales
• Why?
• Tell story of Australian mining equipment firm -
  egalitarian

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The Changing World Order

• Today, many markets that had been closed to
  Western firms are open
• The collapse of communism in Eastern Europe has
  created a host of export and investment
  opportunities Why now?
• Economic development in China has created huge
  opportunities despite continued Communist control
• Free market reforms and democracy in Latin
  America have created opportunities for new
  markets and new sources of materials and
  production exceptions are Bolivia, El
  Salvador, Venezuela Why these?

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The Global Economy of the Twenty-First Century

• A more integrated global economy presents new
  opportunities for firms, but it can also result
  in political and economic disruptions that may
  throw plans into disarray
• Describe the present global economic collapse in
  terms of global economy.

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The Globalization Debate

• Question Is the shift toward a more integrated
  and interdependent global economy a good thing?
• Many experts believe that globalization is
  promoting greater prosperity in the global
  economy, more jobs, and lower prices for goods
  and services
• Others feel that globalization is not beneficial
  Why not?

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Antiglobalization Protests

• Tell about Bill Clinton's review of the effects
  of The NAFTA on the US economy.

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Globalization, Jobs, and Income (1)

• Critics of globalization worry that jobs in
  advanced economies are being lost to low-wage
  nations Remedy?
• Supporters of globalization disagree, claiming
  that the benefits of free trade outweigh its
  costs
• While some jobs may be lost, the economy as a
  whole is better off See next slide.
• Supporters argue that free trade will result in
  countries specializing in the production of those
  goods and services that they can produce most
  efficiently, while importing goods and services
  that they cannot produce as efficiently, and that
  in doing so, all countries will gain

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Globalization, Jobs, and Income (2)

• The US has lost textile jobs to China, Vietnam,
  and Malaysia. But according to the next slides
  unemployment has not gone up.
• Why not?

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IS SOUTHERN EMPLOYMENT TANKING (1 of 6)
Fortune, 12/13/2004
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IS SOUTHERN EMPLOYMENT TANKING (2 of 6 )

• Complaints about the loss of U.S. textile jobs
  are heard across the land, not to mention in the
  halls of Congress.
• lt's true that garment makers and their suppliers
  have suffered. In the decade after 1992,
  shipments by U.S. apparel plants dropped from
  97.6 billion a year to 455 billion due to
  cheap, imported garments.

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IS SOUTHERN EMPLOYMENT TANKING (3 of 6 )

• Employment in garment plants and the fabric mills
  that supply them declined from 1,594,000 workers
  to 618,000.
• That happened partly because of improved
  productivity in the milts, but mostly from
  imports of formerly US made garments.

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IS SOUTHERN EMPLOYMENT TANKING (4 of 6 )

• But take a closer look at the confederacy of
  traditional textile states.
• The unemployment rate in Alabama, No. Carolina,
  Georgia, Mississippi, Tennessee, and Virginia is
  lower today than it was at the end of 1992.
• The only exception is So. Carolina, where
  unemployment is no worse than it was in 1993.

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IS SOUTHERN EMPLOYMENT TANKING (5 of 6 )

• Even in that state, many workers are earning good
  pay at BMW, Bosch, and Michelin plants, to name
  just a few foreign firms that have created jobs
  there.
• At least in gross terms, the economy is absorbing
  textile job losses

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IS SOUTHERN EMPLOYMENT TANKING (6 of 6 )

• Which is not to say, Nobodys hurting? The new
  jobs require up-to-date skills. Many unemployed
  textile workers, meanwhile, have 20-year old
  diplomas from 2nd rate high schools.
• These people are the victims of shortsighted
  textile firms that chose protection (?) over
  adjustment to the global economy and the
  federal and local officials who abetted these
  firms.

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Globalization, Labor Policies, and the
Environment (1 of 2)

• Critics of globalization argue that that free
  trade encourages firms from advanced nations to
  move manufacturing facilities offshore to less
  developed countries with lax environmental and
  labor regulations

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Globalization, Labor Policies, and the
Environment (2 of 2)

• Supporters of free trade point out that tougher
  environmental regulation and stricter labor
  standards go hand in hand with economic progress
  and that as countries get richer as a result of
  globalization, they raise their environmental and
  labor standards
• Free trade does not lead to more pollution and
  labor exploitation, it leads to less Do you
  believe this? Chinas story _at_ 4 rivers dam the
  Nike story

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Globalization and National Sovereignty (1)

• Critics of globalization worry that economic
  power is shifting away from national governments
  and toward supranational organizations such as
  the WTO, the European Union (EU), and the UN
• The truth is -

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Globalization and National Sovereignty (2)

• Supporters of globalization argue that the power
  of these organizations is limited to what
  nation-states collectively agree to grant Yes,
  but
• The organizations must be able to persuade
  members states to follow certain actions
• Without the support of members, the organizations
  have no power

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Managing in the Global Marketplace(1 of 2)

• Question What does the shift toward a global
  economy mean for managers of an international
  firms?
• Managing an international business (any firm that
  engages in international trade or investment)
  differs from managing a domestic business in four
  key ways
• See next slide.

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Managing in the Global Marketplace(2 of 2)

• 1. Countries differences require firms to vary
  their practices country by country
• 2. Managers face a greater and more complex range
  of problems Why?
• 3. International firms must work within the
  limits imposed by governmental intervention and
  the global trading system (WTO, NAFTA, EU)
• 4. International transactions require converting
  funds and being susceptible to exchange rate
  changes (?)

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• The end of chapter 1.