GLOBALIZATION

1
GLOBALIZATION

• What is it Really?

2
What is GLOBALIZATION

• Question What is the truest definition of
  Globalization?
• Answer Princess Diana's death.

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What is GLOBALIZATION

• Question Why?
• Or if you are from Texas youd say,
• How come, Bubba?

4
What is GLOBALIZATION

• Answer An English princess,
• with an Egyptian boyfriend,
• crashes in a French tunnel,
• driving a German car,
• with a Dutch engine, and
• driven by a Belgian who was drunk,
• on Scottish whisky, (check the bottle before you
  change the spelling).

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What is GLOBALIZATION

• They were followed closely by Italian paparazzi
  (low-life photo journalists),
• on Japanese motorcycles.
• They were treated by an American doctor,
• using Brazilian medicines .

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What is GLOBALIZATION

• This is sent to you by an American, using Bill
  Gates technology.
• You are reading this on my computer,
• that uses Taiwanese chips,
• and a Japanese monitor,
• assembled by Bangladeshi workers,
• in a Singapore plant.

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What is GLOBALIZATION

• My computer was transported by Indian
  lorry-drivers (truck drivers),
• hijacked by Indonesian pirates,
• unloaded by Sicilian longshoremen,
• and brought to you by Mexican truck drivers who
  were
• working under the auspices of the NAFTA.

8
What is GLOBALIZATION

• And that class is GLOBALIZATION.

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Chapter 1

• The International
• Business Imperative

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The Need for International Business - 1

• More and more firms around the world are going
  global, including
• Manufacturing firms
• Service companies (i.e. banks, insurance,
  consulting firms)
• Art, film, and music companies.
• But why go international?

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The Need for International Business - 2

• International business
• Propels the flow of ideas, services, and capital
  across the world
• Offers consumers new choices. (Explain.)

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The Need for International Business - 3

• International business
• Permits the purchase of a wider variety of
  products, and this leads to better prices
• Facilitates the mobility of labor, capital, and
  technology (Explain.)
• Provides challenging employment opportunities
• Reallocates resources (?), makes preferential
  choices, and shifts activities to a global level.

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The Need for International Business - 4

• International business consists of transactions
  that are conceived and consummated across
  national borders to satisfy the objectives of
  people, firms, and organizations (like NGOs
  NPOs).

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Types of International Business
Export-import trade
Foreign direct Investment (FDI)
Licensing
Franchising
Management contracts
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International Business Questions

• How will an idea, product, or service fit into
  the international market?
• Should export or investment be used to enter a
  foreign market?
• Should supplies be purchased at home or abroad?
• What product adjustments are necessary to be
  responsive to local conditions? (Coke
  McDonalds)
• What are the threats from global competitors
  (China India), and how can these threats be
  counteracted?

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International Business and the Roman Empire - 1

• Pax Romana, (Roman Peace) ensured that merchants
  were able to travel safely and rapidly throughout
  the Empire (Roman army).
• Common coinage simplified business transactions.
  (Like the EU the euro today)
• Rome developed systematic law, central market
  locations, and an effective communication system
  all of which enabled international business to
  flourish in the Roman Empire.
• The growth of the Roman Empire occurred mainly
  through the linkages of business.

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International Business and the Roman Empire - 2

• The decline of the Roman Empire can be attributed
  in part to
• Infighting and increasing decadence
• The Pax Romana was no longer enforced
• The declining use and acceptance of the common
  coinage
• Declining levels of communication.
• As a result, former Roman allies cooperated with
  invaders.

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United States A Global Leader

• The U. S. has developed a world leadership
  position due to
• Its use of market-based transactions in the
  Western world
• A broad flow of ideas, goods, and services across
  national borders
• An encouragement of international communication
  and transportation
• Pax Americana, an American sponsored and enforced
  peace (U.S. military).

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The Smoot-Hawley Act

• The the 1930s, the U.S. passed the Smoot-Hawley
  Act, which raised import duties to reduce the
  volume of goods coming into the U.S.
• The act was passed in the hope that it would
  restore domestic employment. How?
• The result was a worldwide depression and the
  collapse of the world financial system. Why?

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Expansion of International Trade

• In the past 30 years, the volume of international
  trade has expanded from 200 billion to over 7.5
  trillion.
• The sales of the foreign affiliates of
  multinational corporations (FDI by MNCs) are now
  twice as high as global exports. What does this
  last statement mean? (See next slide.)

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Expansion of International Trade

• The sales of the foreign affiliates of
  multinational corporations (FDI by MNCs) are now
  twice as high as global exports.
• Firms are manufacturing more in developing
  countries, and exporting less to these countries.
• Why, it is cheaper to export?

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Global Links Today

• International business has created a network of
  global links that bind countries, institutions,
  and individuals with trade, financial markets,
  technology, and living standards.
• For example
• A reduction in Brazil coffee production would
  affect individuals and economies worldwide. Why?
• A reduction in oil production in Russia has
  increased the world price for oil. Why?
• Russia defaulted on its international debt and
  almost bankrupted Argentina. Why?

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Recent Changes in International Business

• Total world trade declined dramatically after
  2000, but is again on the rise.
• The rate of globalization is accelerating.
• Regionalization is taking place, resulting in
  trading blocs (NAFTA the EU).
• The participation of countries in world trade is
  shifting. (More are joining in free, global
  trade.)

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The Composition of Trade

• Between the 1960s and the 1990s the importance
  of manufactured goods increased while the role of
  primary commodities (i.e. rubber or mining) had
  decreased. What effect does this have on
  countries like Jamaica and workers?
• More recently, there has been a shift of
  manufacturing to countries with emerging
  economies (China India). Why?
• There has been an increase in the area of
  services trade in recent years.

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The Effect of World Trade Patterns on the U.S.
Economy - 1

• All these changes have affected the international
  financial position of countries and the ownership
  of economic activities.
• For example, the U. S., after having been a net
  creditor to the world for many decades, has been
  a world debtor since 1985.

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The Effect of World Trade Patterns on the U.S.
Economy - 2

• This means that the U.S. owes more to foreign
  institutions and individuals than to U.S.
  entities.
• How does this debt happen?

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The Effect of World Trade Patterns on the U.S.
Economy - 2

• We purchase more abroad than we sell to them.
• These countries end up with a lot of
• U.S.
• Foreign countries purchase U.S. government bonds
  with these U.S.

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The Effect of World Trade Patterns on the U.S.
Economy - 3

• The shifts in financial flows have had major
  effects on FDI into plants as well.
• U.S. FDI in 2002 had a market value of more than
  2.3 trillion FDI here had grown to 2.8
  trillion.
• Why would foreign firms invest in a developed
  nation rather than in developing countries?

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The Effect of World Trade Patterns on the U.S.
Economy - 3

• More than 1.1 million of the workers in the U.S.
  chemical, computer, and transportation industries
  toil for foreign owners.
• The opening of plants abroad (FDI) increasingly
  takes the place of trade (exports).
• All of these developments make countries more and
  more dependent on each other.
• Is this good?

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The Effect of World Trade Patterns on the U.S.
Economy - 4

• This interdependence, however, is not permanent.
• On an ongoing basis, realignments take place on
  both micro and macro levels that make past
  orientations at least partially obsolete.
• For example, for its first 200 years, the U. S.
  looked to Europe for markets and sources of
  supply.

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The Effect of World Trade Patterns on the U.S.
Economy - 5

• Despite the maintenance of this orientation by
  many individuals, firms, and policymakers, the
  reality of trade relationships has changed.
• U.S. two-way merchandise trade across the Pacific
  totaled 650 billion in 2002, 225 billion more
  than trade across the Atlantic.

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The Effect of World Trade Patterns on the U.S.
Economy - 6

• At the same time, entirely new areas for
  international business activities have started.
• The East-West political position had for more
  than 40 years effectively separated the "Western"
  economies from the centrally planned ones
  (communist).
• The lifting of the Iron Curtain presents a new
  array of trading and investment partners.

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The Effect of World Trade Patterns on the U.S.
Economy - 7

• Concurrently, an increasing regionalization is
  taking place around the world, resulting in the
  split up of countries in some areas of the world
  and the development of country and trading blocs
  in others.
• Over time, firms may find that the free flow of
  goods, services, and capital encounters new
  impediments as regions become more inward
  looking.

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The Current U.S. International Trade Position
Exports and Imports of Goods and Services per
Capita for Selected Countries
Country
Exports per Capita
Imports per Capita
Australia Brazil China Japan Kenya United
Kingdom United States
4,296 379 222 4,165 91
4,767 3,472
4,525 428 199 3,622 125
5,500 4,962
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The Impact of International Business on the
United States

• U.S. international business outflows are
  important on the macroeconomic level in terms of
  balancing the trade account.
• On the microeconomic level, participation in
  international business can help firms achieve
  economies of scale that cannot be achieved in
  domestic markets. Why?

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Average Plant Salary and Wages (per worker,
dollars per hour)
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Globalization

• Because of globalization, for the first time in
  history, the availability of international
  products and services can be accessed by people
  in many countries, from diverse economic
  backgrounds.

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• The end of chapter 1.