Title: Globalization of Markets and the Internationalization of the Firm
1 Chapter 2 Globalization of Markets and the
Internationalization of the Firm
International Business Strategy Management
the New Realities by Cavusgil, Knight and
Riesenberger
2Globalization of Markets A Macro Concept
- Two mega trends have altered the international
business landscape globalization and
technological advances. - Market globalization refers to the
interconnectedness of national economies and
growing interdependence of buyers, producers,
suppliers, and governments in different
countries. - Globalization allows firms to view the world as
one large marketplace for goods, services,
capital, labor, and knowledge.
3Globalization Index 2006
4The World Competitiveness Scoreboard 2007
(2006 rankings are in brackets) Source IMD World
Competitiveness Yearbook 2007
Blah
5Global Competitiveness Index 2006-2007
6Relationship Between Globalization and Growth in
Per Capita Gross Domestic Product, 1990s
7Phases of Globalization
1st Phase 1830, peaking around 1880Aided by
railroads, ocean transport resulting in the rise
of mass production and growing trade 2nd Phase
1900, peaking late 1920sFueled by electricity
and emergent modern technologies early MNEs 3rd
Phase 1948, peaking around 1970End of WW II
Marshall Plan Gradual reduction of trade
barriers, especially under General Agreement on
Tariffs and Trade (GATT) 4th Phase 1980, peaking
around 1997Fueled by information and
communications technologies. Rapid
liberalization in Emerging Markets
8The Death of Distance
9The Drivers and Consequences of Market
Globalization
10Firms are Compelled to Internationalize
- Firms implement internationalization proactively
are more successful than those reactively
engaging. - E.g., Vodafone has established production and
marketing operations all around the world. Has
some 200 million customers in 30 countries.
11Technological Advances as a Driver of Market
Globalization
- Advances in technology provide the means for
internationalization of firms - Advances in technology
- Reduces cost of doing international business
- Enables even small firms to go international
- Helps coordinate worldwide activities
- Mitigates geographic distance
12Information Technology
- Cost of computer processing fell by 30 per year
since late 1980s, and continues to fall. - Increases productivity across the firm
- Impact of IT on our daily lives has been profound
laptops, intelligent cell phones, Internet,
Google, etc.
13Declining Cost of Global Communication and
Growing Number of Internet Users
14Communications Technology
- Especially important. Includes
telecommunications, satellites, optical fiber,
wireless technology, and the Internet. - The Internet, and Internet-dependent systems such
as intranets, extranets, and e-mail, connect
millions of people across the globe. - The Internet opens up the global marketplace to
all firms, large and small
15Manufacturing and Transportation Technologies
- Revolutionary developments now permit
manufacturing that is both low-scale and low
cost, with the support of computer-aided-design
of products (CAD), robotics, and production lines
managed and monitored by microprocessor-based
controls. - In the 1960s, technological advances have led to
the development of fuel-efficient jumbo jets,
giant ocean-going freighters, and containerized
shipping. - Thus, the cost of transportation has declined
substantially, spurring rapid growth in
international trade.
16Societal Consequences of Market Globalization
- Positive consequences
- More jobs
- Economic development and growing prosperity
- Technology and knowledge transfer
- Negative consequences
- Natural environment
- Disruptive effects in national economies
- Human rights violations abroad (e.g., sweatshops)
- Job losses at home
17Economic Freedom Enhances Income Growth
- In the long run, globalization generally leads
to - higher living standards
- more efficient resource usage
- greater access to technology, products, and
services - In particular, liberalization of markets appears
to enhance income levels
18(No Transcript)
19(No Transcript)
20(No Transcript)
21Unintended Consequences of Market Globalization
- Loss of national sovereignty
- Power shifts to MNEs and larger countries
- Offshoring and the flight of jobs
- Dislocation of jobs
- Effect on the poor
- Benefits of globalization are not evenly
distributed - Effect on the natural environment
- Effect on national culture
- Loss of national cultural values and identity
22(No Transcript)
23Corporate Social Responsibility
- Over time, governments pass legislation that
promotes improved environmental conditions. - In addition, many firms now consider the societal
consequences of their actions -- Corporate Social
Responsibilty (CSR) - Examples Benetton in Italy (clothing), Alcan in
Canada (aluminum), and Starbucks have attempted
to embrace practices that protect the
environment, often at the expense of profits.
24Firm Level Consequences of Market Globalization
- Countless new business opportunities for
internationalizing firms - New risks and intense rivalry from foreign
competitors - More demanding buyers who source from suppliers
worldwide - Greater emphasis on proactive internationalization
- Internationalization of firms value chain
25Examples of How Firms Value Chain Activities
Can Be Internationalized
Value Chain Sequence of value adding activities
performed in the course of developing, producing,
marketing, and servicing a product.
26Implications for Management
- Global orchestration of value-chain activities
(e.g., in order to cut costs, access resources,
target new markets) - Exploit knowledge acquired worldwide
- Increase productivity
- Collaborate with foreign partners
27Implications for Managers Acquiring Global
Competence is a Requirement
- Open-mindedness
- Tolerance for ambiguity
- Perceptiveness
- Premium on personal relationships
- Flexibility, adaptability, and self-reliance
- Good sense of humor
- Warmth in human relationships
- A curious mind