Globalization Chapter 1 PDF

Because learning changes everything. ® Globalization Chapter 1 © 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without th...

Because learning changes everything. ® Globalization Chapter 1 © 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill.  Learning Objectives 1-1 Understand what is meant by the term globalization. 1-2 Recognize the main drivers of globalization. 1-3 Describe the changing nature of the global economy. 1-4 Explain the main arguments in the debate over the impact of globalization. 1-5 Understand how the process of globalization is creating opportunities and challenges for management practice. © McGraw Hill  What Is Globalization? 1 The Globalization of Markets Refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade and investment. Global tastes. Benefits small and large companies. Significant differences between national markets. Products that serve universal needs are global: oil. Competitors may not change among nations. © McGraw Hill  What Is Globalization? 2 The Globalization of Production Sourcing goods to take advantage of differences in cost and quality of factors of production. Factors of production include labor, energy, land, capital. Early outsourcing was confined to manufacturing. Modern communications technology has advanced outsourcing today for service activities. © McGraw Hill  What Is Globalization? 3 The Globalization of Production continued Robert Reich and “global products.” Impediments prevent optimal dispersion of activities: Formal and informal barriers to trade. Barriers to foreign direct investment. Transportation costs. Political and economic risk. Challenge of coordinating globally dispersed supply chain. © McGraw Hill  The Emergence of Global Institutions 1 Institutions needed to help manage, regulate, and police global marketplace. General Agreement on Tariffs and Trade (GATT). World Trade Organization. International Monetary Fund. The World Bank. The United Nations. © McGraw Hill  The Emergence of Global Institutions 2 The World Trade Organization Polices the world trading system. Ensures nation-states adhere to the rules. Facilitates multinational agreements among members. 164 nations that account for 98 percent of world trade were members as of 2019. © McGraw Hill  The Emergence of Global Institutions 3 The International Monetary Fund Established to maintain order in the international monetary system. Often seen as the lender of last resort. In return for loans, requires nation-states to adopt specific economic policies aimed at returning their economies to stability and growth. © McGraw Hill  The Emergence of Global Institutions 4 The World Bank Promotes economic development. Focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments. Considered less controversial than the IMF. © McGraw Hill  The Emergence of Global Institutions 5 The United Nations Promotes peace through international cooperation and collective security. 193 member countries. UN Charter – four basic purposes: Maintain international peace and security. Develop friendly relations among nations. Cooperate in solving international problems and in promoting respect for human rights. Be a center for harmonizing the actions of nations. © McGraw Hill  The Emergence of Global Institutions 6 Group of Twenty (G20) Finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank. Represents 90 percent of global GDP and 80 percent of international global trade. © McGraw Hill  Drivers of Globalization 1 Declining Trade and Investment Barriers 1920s to 1930s: Many barriers to international trade and foreign direct investment. International trade: when a firm exports goods or services to consumers in another country. Foreign direct investment: when a firm invests resources in business activities outside its home country. GATT lowered barriers. Uruguay Round extended GATT and established WTO. © McGraw Hill  Drivers of Globalization 2 Declining Trade and Investment Barriers continued Between 1960 and 2018 the value of the world economy increased 9.4 times, while the value of international goods increased 22.4 times. Trade in goods and services and the value of foreign direct investment have all been growing faster than world output. More firms dispersing production process to different locations around the globe. Economies of the world’s nation-states are becoming more intertwined. World has become significantly wealthier in the past two decades. © McGraw Hill  Figure 1.1 Value of world merchandised trade and world production 1960 to 2019 Access the text alternative for slide images © McGraw Hill Sources: World Bank, 2019; World Trade Organization, 2019; United Nations, 2019.  Drivers of Globalization 3 Role of Technological Change Communications. Development of the microprocessor single most important innovation since World War II. Moore’s Law predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months. The Internet. More than half of the world’s population uses the Internet. Global e-commerce sales over $2.5 trillion. The Internet acts as an equalizer. © McGraw Hill  Drivers of Globalization 4 Role of Technological Change continued Transportation Technology. Commercial jets, superfreighters, and containerization have all “shrunk the globe.” Implications for the Globalization of Production. Locating production in geographically separate locations has become more economical. Implications for the Globalization of Markets. Cultural distance has been reduced and has brought some convergence of consumer tastes and preferences. © McGraw Hill  The Changing Demographics of the Global Economy 1 The Changing World Output and World Trade Picture 1960s: U.S. accounted for 38.3 percent of world output. 2018: U.S. accounted for 24 percent of world output. This reflects the faster economic growth of several other economies, particularly China. China and BRIC countries growing more rapidly. Developing nations may account for more than 60 percent of world economic activity by 2025. © McGraw Hill  The Changing Demographics of the Global Economy 2 The Changing Foreign Direct Investment Picture As barriers to the free flow of goods and services fell, non- U.S. firms increasingly invested across national borders. Desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets. Outward stock of foreign direct investment: the total cumulative value of foreign investments by firms domiciled in nations outside of that nation’s borders. © McGraw Hill  Figure 1.2 FDI outward stock outward as a percentage of GDP Access the text alternative for slide images © McGraw Hill Sources: OECD data 2019, World Development Indicators 2019, UNCTAD data base, 2019  Figure 1.3 FDI inflows (in millions of dollars) Access the text alternative for slide images © McGraw Hill Source: United Nations Conference on Trade and Development, World Investment Report 2019. (Data for 2019–2020 are forecast.)  The Changing Demographics of the Global Economy 3 The Changing Nature of the Multinational Enterprise Multinational enterprise (MNE) is any business that has productive activities in two or more countries. Non-U.S. Multinationals. In 2003, 38.8 percent of the world’s 2000 largest multinationals were U.S. firms. By 2019, 28.8 percent of the top 2000 global firms were U.S. multinationals, a drop of 201 firms. © McGraw Hill  Figure 1.4 National share of the largest 2,000 multinational corporations in 2019 Access the text alternative for slide images © McGraw Hill Source: Forbes Global 2000 in 2019  The Changing Demographics of the Global Economy 4 The Changing Nature of the Multinational Enterprise continued The Rise of Mini-Multinationals. Growth in the number of medium- and small-sized businesses. Internet is lowering barriers that smaller firms faced in international trade. © McGraw Hill  The Changing Demographics of the Global Economy 5 The Changing World Order Former communist countries present export and investment opportunities. Signs of growing unrest and commitment to market-based economic systems cannot be assumed. Risks of doing business in these countries are high. China moving to industrial superpower. In Latin America debt and inflation are down, more private investors, expanding economies. © McGraw Hill  The Changing Demographics of the Global Economy 6 Global Economy of the Twenty-First Century Barriers to the free flow of goods, services, and capital have been coming down. Strengthened by the widespread adoption of liberal economic policies by countries that had opposed them. Globalization is not inevitable: Countries may pull back. Risks are high. © McGraw Hill  The Globalization Debate 1 Antiglobalization Protests Began with 1999 protests at WTO meeting in Seattle. Protestors now typically show up at major meetings of global institutions. Protestors believe globalization causes detrimental effects on living standards, wage rates, and the environment. Theory and evidence suggest these fears may be exaggerated. © McGraw Hill  The Globalization Debate 2 Globalization, Jobs, and Income Critics of globalization argue: Falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower. Destroy manufacturing jobs in wealthy advanced economies. Services also being outsourced: Contributing to higher unemployment and lower living standards in their home nations. © McGraw Hill  The Globalization Debate 3 Globalization, Jobs, and Income continued Supporters argue: Benefits outweigh the costs. Free trade will result in countries specializing in the production of goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently. As a result, the whole economy is better off. Companies can reduce their cost structure, and consumers benefit. © McGraw Hill  The Globalization Debate 4 Globalization, Jobs, and Income continued Data suggests the share of labor in national income has declined over the past two decades. Share of national income by skilled labor has increased. Unskilled labor experienced a fall in income, but not necessarily standard of living due to economic growth. The weak growth rate in real wage rates for unskilled workers is likely due to a technology-induced shift within advanced economies. Technological change has a bigger impact than globalization on declining share of national income enjoyed by labor. © McGraw Hill  The Globalization Debate 5 Globalization, Labor Policies, and the Environment Critics argue: Labor and environmental regulations increase manufacturing costs. Lack of regulation can lead to abuse. Firms move production to nations that do not have regulations. Supporters argue: Tougher environmental regulations and stricter labor standards go hand in hand with economic progress. Free trade leads to less labor exploitation and less pollution. © McGraw Hill  Figure 1.5 Income levels and environmental pollution Access the text alternative for slide images © McGraw Hill Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018  The Globalization Debate 6 Globalization and National Sovereignty Critics argue: Shift of power away from national governments toward supranational organizations. WTO, EU, United Nations. Supporters argue: The power of supranational organizations is limited to what nation- states collectively agree to grant. These organizations exist to serve the collective interests of member states. © McGraw Hill  The Globalization Debate 7 Globalization and the World’s Poor Critics argue gap between the rich and poor nations has gotten wider. Totalitarian governments. Poor economic policies. Corruption and lack of property rights. Expanding populations in developing countries. Debt burdens. Supporters argue best way to change the situation is to lower barriers to trade and investment and promote free market policies. © McGraw Hill  Figure 1.6 Percentage of the world’s population living in poverty during 1981 to 2015 Access the text alternative for slide images Access the text alternative for slide images © McGraw Hill Source: World Bank Data Base on Poverty and Equity, World Development Indicators, 2019  Managing in the Global Marketplace Managers International business is any firm that engages in international trade or investment. Managing an international business differs from managing a purely domestic business. Countries are different. Range of problems is wider and problems more complex. Must find ways to work within limits imposed by government. Transactions involve converting money into different currencies. © McGraw Hill Because learning changes everything. ® www.mheducation.com © 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill.