Business Chapter 2 PDF

Chapter 2 : Multinational and Globalization © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  External circumstances The Industrial favored the growth of Revolution trade...

Chapter 2 : Multinational and Globalization © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  External circumstances The Industrial favored the growth of Revolution trade rapid increase in cross-border flows of capital Creating the 1st Global Economy imperialism unprecedented forced movement mobility of labor of people as slaves © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  1. THE INDUSTRIAL REVOLUTION ▪ The Industrial Revolution, which had begun in Britain and made it the world's largest manufacturing country by 1800 British exports of manufactured textiles poured into the markets of the world, dislocating the handicraft industries of China and India, formerly the world's largest manufacturers These newly industrialized regions sought markets for their products, and raw materials for their industries, and foodstuffs for their rapidly expanding populations. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  2. EXTERNAL CIRCUMSTANCES FAVORED THE GROWTH OF TRADE ▪ The end of the prolonged period of warfare between 1790 and the defeat of Napoleon in 1815 was followed by a century of relative world peace, despite major regional conflicts including the American Civil War (1861–65) ▪ International trade was further stimulated by a shift towards liberal economic policies, as monopolies were abandoned ▪ By mid-century, tariffs had fallen to low levels. ▪ Nevertheless, by the late nineteenth century international trade was still growing much faster than world output. Transport costs fell sharply © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. 3. Rapid increase in cross- Gold Standard—which fixed the value of national currencies to the price of gold—sharply reduced foreign border flows of capital exchange risks There were few restrictions on capital movements, while the widespread adoption of the Gold Standard. Britain stood at the center of this monetary system. The country was by far the largest capital exporter. London functioned as the global international financial center. Sterling, fully convertible into gold, was the world's hardest currency. The Bank of England, Britain's quasi-central bank, oversaw the functioning of the Gold Standard © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. Unprecedented mobility of labor Illustration depicting Germans emigrating to America in the 19th century Over the course of the nineteenth century 60 million Europeans emigrated to the Americas. By 1900, 14 percent of the population of the United States, which had grown from around five million in 1800 to reach 76 million, were foreign-born. There were few restrictions on immigration. Passports were unnecessary for international travel. Work visas did not exist. Falling steerage costs made emigration feasible for an unprecedented share of the world's population. The income gaps between rich and poor countries converged. Real wage dispersion declined by over a quarter between 1870 and 1910 © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  4. Forced movement of people as slaves Slavery as an institution continued in the United States until the 1860s and in Brazil till 1888. growth of cross-border movements of ‘indentured’ labor from regions of Asia to work as laborers in plantations in the Caribbean, Africa, and elsewhere, and on the many infrastructure projects undertaken at this time Between the 1830s and World War I around four million Indians,Malays, Chinese, and others were sent around the world in this capacity. In many cases, they were so restricted as to become virtual slaves, and few returned to their home countries © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  5. IMPERIALISM The United States occupied Cuba and the Philippine Islands following a war with Spain, their former colonial ruler. Japan, which had closed its borders to foreigners in the sixteenth century, was forced to open them following the arrival of an American naval force in 1853. By 1914 Japan, which had undergone rapid modernization and economic growth, had occupied neighboring Korea and Taiwan. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  5. IMPERIALISM Although the British Empire lost its North American colonies following the Declaration of Independence in 1776 and the formation of the United States, the borders of the British Empire spread over large parts of Asia and Africa during the nineteenth centurygrowth of cross-border movements of ‘indentured’ labor from regions of Asia to work as laborers in plantations in the Caribbean, Africa, and elsewhere, and on the many infrastructure projects undertaken at this time.By 1913 Britain, whose population was 45 million, had a worldwide empire of 400 million inhabitants France, Belgium, Portugal, and Germany also occupied substantial parts of Africa.France's Asian colonies included the modern states of Vietnam, Laos, and Cambodia. In southeast Asia, the Dutch East Indies (Indonesia) was a colonial possession of the Netherlands The United States occupied Cuba and thePhilippine Islands following a war with Spain, theirformer colonial ruler. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  The growth of multinationals The webs of the first global economy were built by firms and entrepreneurs. As shown earlier, this was not new, but here was a new scale and durability to the business structures which began to be created in the nineteenth century Later entrepreneurs began to erect During the 1830s factories across 1. Merchants and 2.From the 1820s British merchants and borders. These were bankers despatched business enterprises bankers began not large representatives across began to make cross- forming specialist investments, but borders - employed border investments ‘overseas’ banks to their real family members, as the which were sustained introduce banking into significance was that concept of without the benefit of the Australian, they were ‘professional managers’ monopoly rights Canadian, and West sustained.They did not exist, Indies colonies continue to be manage in home greatly constrained the size of economies use people who could be ‘trusted’ not to act opportunistically any organization © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  While entrepreneurs had made one-off cross- In border transfers of knowledge in the past, the more sustained investments meant that there international was a continuous flow of knowledge and other resources across borders within the trade boundaries of firms Discovered and exploited natural resources and food supplies over much of the world. By 1914 multinational manufacturing was also undertaken in a wide range of manufactured products, including, chemicals, pharmaceuticals, electricals, machinery, motor cars, tires, branded food products, and cigarettes. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. Figure 2.1 portrays in an illustrative fashion the role of business enterprises in cross-border integration.  4.Foreign Direct Investment (FDI) In 1914 Western Europe as a region, and Britain as a single country, were the dominant sources of world FDI. The FDI as widely dispersed around the globe. Latin America and Asia were especially important as host economies, even though the largest individual host countries seem to have been Possibly one-half of world FDI was invested in natural resources, and a further one third in services, especially financing, insuring, transporting commodities, and foodstuffs. Multinational manufacturing was overwhelmingly located in the industrial economies of Western Europe and North America.  5. DIVERSITY OF Organizational form Entrepreneurs sought to take advantage of the opportunities of the rapidly globalizing world economy Firms such as Siemens and Singer began by undertaking value-added activities in their home market, and then expanded abroad. The managerial and technological competences developed at home helped these firms sustain their investments. abroad. In fact, firms employed diverse organizational forms when they crossed borders. Many ventures were formed to undertake business activities exclusively or mainly abroad without prior domestic business. These have been termed free-standing companies FREE STANDING COMPANIES ❑ During the nineteenth century thousands of British, and hundreds of Dutch and other European, companies were formed exclusively to operate internationally with no prior domestic business. Free-standing companies were legally incorporated in their home economy small head office where a part-time board of directors met, supported by a handful of other clerical staff specialized on a single commodity, product or service, often in a single overseas country were predominantly located in the natural resource and service sectors, and occasionally in processing Although many British freestanding firms were formed to conduct business in the United States. Three-fourths of the 200 Dutch freestanding companies active in 1914 operated in the Dutch colony of Indonesia, then known as the Dutch East Indies. Policy environment Absence of major international wars reduced the risks of cross-border business The spread of international property law guaranteed property rights virtually worldwide. 17 th century governments had started the process of reducing the risks of trade by signing bilateral commercial treaties that protected alien property- 19th century -these treaty standards hardened into international law, the core principle of which was that the property of foreigners could not be taken without prompt, full compensation Uncompensated seizure was considered robbery,and the use of unilateral force was considered a legal and legitimate response The principles of this law were strongly supported by European governments, and enforced on much of the rest of the world © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. The drivers of multinational growth 1. The diffusion of modern economic growth created an accelerating search for raw materials and foodstuffs and for markets for manufactured products Industrial Revolution in Britain, capital-intensive industries such as chemicals, machinery, and packaged food products chemicals and electricals production consumed large amounts of minerals such as copper,aluminum, and zinc The automobile industry which appeared in the early twentieth century needed tin for solder and for the alloys used in bearings petroleum, initially used as kerosene for lighting and heating, began to be used as an alternative to coal to drive trains and steamships, while it was the only fuel that could be used in automobiles United States had a rapidly increasing market and was rich in resources and land for growing food, European countries, including Britain,had to seek markets and resources across borders. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. Liberal economic policies governments with drew from economic activities-Government intervention was, by later standards, minimal Most governments treated foreign-owned firms more or less like domestic firms The growth of trade protectionism from mid-century represented a partial departure from liberalism. William The McKinley Act of 1890 raised US tariffs McKinley (January to an average level on protected 29, 1843 –September commodities of 50 percent but the 14, 1901) was the 25th president of the restrict foreign goods but not foreign United States from companies (multinational respond by 1897, until his opening factories in international market. assassination in 1901 IMPROVEMENT IN TRANSPORT AND COMMUNICATION International spread of railroads from the 1830s brought a new speed and reliability. During the first half of the century improvements in sailing-ship technology produced a sharp fall in ocean freight rates From the mid-century the use of steamships also expanded. The opening of the Suez Canal in 1869 provided a shorter route between Europe and Asia Sea journey times and costs continued to fall with the opening of the Panama Canal in 1915. The telegraph was the most important nineteenth-century innovation. In 1852 London and Paris were joined by electric telegraph The first successful trans-Atlantic cable connection was in 1866. In 1870 Bombay and London were linked by cable. The cable from Europe reached Australia in 1872. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  18th century In the eighteenth century most firms everywhere were small and family- owned. Owners were usually responsible for APPEARANCE paying all of a firm's debts(High volatility ). The largest private enterprises of the OF NEW eighteenth century were the European chartered trading companies TYPES OF 19th century legal reforms permitted new FIRMS forms of corporate governance. Many states in United States Limited liability facilitated capital raising, permitted limited liability. and opened the way for the growth of larger firms. Limited liability became fully available in Britain in 1861. partnerships, persisted Emergence of the modern industrial enterprise was also important The modern industrial enterprise came to play a central role in creating the most technologically advanced fast-growing manufacturing industry of each generation. Changes in technology and in markets as two crucial variables in explaining the shift from personally managed enterprises to the modern corporation The coming of modern transportation and communication in the nineteenth century— especially railroads, telegraphs, steamships and cables—made possible mass production and mass marketing for the first time  Globalization challenged and reversed, 1914–50 The outbreak of World War I In 1914 began a process which saw the beginning of the end of the first global economy By 1914 Britain, the Netherlands, and Denmark were the only free-trading countries left. Backlash against immigration. The United States began to Shift towards trade attempt to control Asian immigration from the 1880s protectionism. In 1901 Australia implemented its ‘White Australia’ policy which virtually blocked immigration from Asia or the Pacific Islands. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author.  Globalization challenged and reversed, 1914–50 The world economy became progressively unstable There was a severe recession soon after the end of World War I in 1918, although countries such as the United States, Australia, Canada, Brazil, and India saw a rapid growth in manufacturing as a result of import substitution. The onset of the Great Depression in 1929 resulted in a worldwide economic shock. US real GDP fell by almost a third between 1929 and 1933. While much of the industrialized world in the 1930s experienced high levels of unemployment, declining primary commodity prices caused sharp falls in real incomes for the producer countries in Latin America, Asia, Africa, and Australia. © 2019, University of Cyberjaya. Please do not reproduce, redistribute or share without the prior express permission of the author. The international monetary system was severely disrupted by inflation and the suspension of the Gold Standard - (The Great Depression ) Though many countries returned to the Gold Standard in the mid-1920s, world finance and economic conditions had changed greatly. Countries both overvalued and undervalued their currencies in relation to gold, providing a further source of instability The Great Depression was followed by the collapse of the international financial system. The Gold Standard was fatally undermined when Britain abandoned it in September of that year, followed by the United States two years later. Regional currency blocs developed, each supported by extensive exchange controls(UD dollar, Sterling, Yen)  Backlash against the global economy The nationality of firms was identified as an issue during World War I, as governments sequestrated affiliates of enemy-owned companies in their countries The Russian Revolution in 1917 was followed by the sequestration of foreign property. During the 1920s there was an increase in the growth of restrictions on foreign companies. By the following decade political nationalism was rampant Xenophobic dictatorships ruled Germany, Italy, and Japan. Many governments of developing countries began to question foreign control over their natural resources The Mexican nationalization of foreign oil companies in 1938 was a landmark event which asserted national sovereignty over natural resources.  Trade protectionism spread After World War I, trade protectionism spread By the early 1920s, US tariffs had been raised to their highest-ever levels by the Fordney- McCumber tariff. Australia, India, and some Latin American countries were among those that used tariffs, import quotas and other trade barriers to help infant industries and foster their manufacturing sectors by import substitution Great Depression led to the collapse of the international trading system. The Smoot- Hawley Act of June 1930 substantially increased the US tariff level, and other countries followed in the classic ‘beggar my neighbor’ pattern. By the end of the 1930s almost half of the world's trade was restricted by tariffs.  Backlash against area of migration During World War I many countries, including the United States, made the use of passports for entering and leaving countries compulsory for the first time. Work restrictions dated from the same period In 1917 the United States required foreign nationals to have visas issued by US census offices. In 1921 an Immigration Act reduced the annual number of immigrants from over one million to a maximum of 357 803