Market Integration PDF

The Market Integration At the end of this module, you are expected to: 1. Explain the role of international financial institutions in the creation of a global economy 2. Narrate a short history of global market integration in the tw...

The Market Integration At the end of this module, you are expected to: 1. Explain the role of international financial institutions in the creation of a global economy 2. Narrate a short history of global market integration in the twentieth century 3. Identify the attributes of global corporations Role of International Financial Institutions in the creation of Global Economy The key global institution mobilizing political cooperation among nations on these issues is the United Nations (UN) system. Mobilization of economic and financial cooperation, including issues related to the transfer of resources, is one of the key responsibilities of the international financial institutions (IFIs). Together, the UN and IFIs make up the bulk of the global governance system in place today. IFIs are institutions that provide financial support and professional advice for economic and social development activities in developing countries and promote international economic cooperation and stability. The term international financial institution typically refers to the International Monetary Fund (IMF) and the five multilateral development banks (MDBs): the World Bank Group, the African Development Bank, the Asian Development Bank, the Inter-American Development Bank, and the European Bank for Reconstruction and Development. The last four of these each focus on a single world region and hence are often called regional development banks. IMF and the World Bank, in contrast, are global in their scope; they are also specialized agencies in the UN system but are governed independently of it. All IFIs admit only sovereign countries as owner- members, but all are characterized by a broad country membership, including both borrowing developing countries and developed donor countries; membership in the regional development banks is not limited to countries from the region but includes countries from around the world. Each IFI has its own independent legal and operational status, but because a considerable number of countries have membership in several IFIs, a high level of cooperation is maintained among them. Course Module The Contemporary World 2 The Market Integration Broadly speaking, IMF provides temporary financial assistance to member countries to help ease balance of payments adjustment. MDBs provide financing for development to developing countries through the following: Long-term loans (with maturities of up to 20 years) based on market interest rates. To obtain the financial resources for these loans, MDBs borrow on the international capital markets and re-lend to borrowing governments in developing countries. Very-long-term loans (often termed credits, with maturities of 30 to 40 years) at interest rates well below market rates. These are funded through direct contributions by governments in the donor countries. Grant financing is also offered by some MDBs, mostly for technical assistance, advisory services, or project preparation. All IFIs are active in supporting programs that are global in scope, in addi- tion to their primary role of financing and providing technical assistance to programs at the country level. History of Global Market Integration in the Twentieth Century Two thousand years ago, the Romans unified their far-flung empire through an extensive transportation network and a common language, legal system, and currency. One historian recently observed that "a citizen of the empire traveling from Britain to the Euphrates in the mid-second century CE would have found in virtually every town along the journey foods, goods, landscapes, buildings, institutions, laws, entertainment, and sacred elements not dissimilar to those in his own community." (Hitchner, 2003, p. 398). This unification promoted trade and economic development. A millennium and a half later, at the end of the fifteenth century, the voyages of Columbus, Vasco da Gama, and other explorers initiated a period of trade over even vaster distances. These voyages of discovery were made possible by advances in European ship technology and navigation, including improvements in the compass, in the rudder, and in sail design. The sea lanes opened by these voyages facilitated a thriving intercontinental trade--although the high costs of and the risks associated with long voyages tended to limit trade to a relatively small set of commodities of high value relative to their weight and bulk, such as  sugar, tobacco, spices, tea, silk, and precious metals. Much of this trade ultimately came under the control of the trading companies created by the English and the Dutch. These state-sanctioned monopolies enjoyed--and aggressively protected--high markups and profits. Influenced by the prevailing mercantilist view of trade as a zero-sum game, European nation-states competed to dominate lucrative markets, a competition that sometimes spilled over into military conflict. The expansion of international trade in the sixteenth century faced some domestic opposition. For example, in an interesting combination of mercantilist thought and social commentary, the reformer Martin Luther wrote in 1524: But foreign trade, which brings from Calcutta and India and such places wares like costly silks, articles of gold, and spices--which minister only to ostentation but serve no useful purpose, and which drain away the money of the land and people--would not be permitted if we had proper government and princes... God has cast us Germans off to such an extent that we have to fling our gold and silver into foreign lands and make the whole world rich, while we ourselves remain beggars. (James, 2001, p. 8) During the period between the end of the Napoleonic Wars in 1815 and the beginning of World War I. International trade again expanded significantly as did cross-border flows of financial capital and labor. Once again, new technologies played an important role in facilitating integration: Tr ansport costs plunged as steam power replaced the sail and railroads replaced the wagon or the barge, and an ambitious public works project, the opening of the Suez Canal, significantly reduced travel times between Europe and Asia. Communication costs likewise fell as the telegraph came into common use. One observer in the late 1860s described the just completed trans-Atlantic telegraph cable as having "annihilated both space and time in the transmission of intelligence" (Standage, 1998, p. 90). Trade expanded the variety of available goods, both in Europe and elsewhere, and as the trade monopolies of earlier times were replaced by intense competition, prices converged globally for a wide range of commodities, including spices, wheat, cotton, pig iron, and jute (Findlay and O'Rourke, 2002). For the most part, government policies during this era fostered openness to trade, capital mobility, and migration. Britain unilaterally repealed its tariffs on grains (the so-called corn laws) in 1846, and a series of bilateral treaties subsequently dismantled many barriers to trade in Europe. A growing appreciation for the principle of comparative advantage, as forcefully articulated by Adam Smith and David Ricardo, may have made governments more receptive to the view that international trade is not a zero-sum game but can be beneficial to all participants. Course Module The Contemporary World 4 The Market Integration Attributes of Global Corporations Value Opportunity to Expand: High-growth companies view international markets as untapped markets full of potential. These are the companies that become successful on a higher scale than those that stunt the growth of their company by not seeing the value in this opportunity. Unde rstand Different Cultures: American companies that have a strong presence internationally often have a founder or leading executive on their team who is from a foreign country or a first-generation American. These executives’ worldly experience helps prioritize the global market and answer any unknowns. Companies without this knowledge should research and understand the different cultures they are tapping into in order to be successful in not only building key relationships that will open up doors down the road, but connecting with the right consumers as well. According to a study by The Partnership for a New American Economy, more than 40% of the 2010 Fortune 500 companies were founded by foreign-born immigrants or first-generation Americans. A great example of this can be found in Google’s very own co-founder, Sergey Brin, from Russia. Companies that adopt an outside perspective will have a more globally focused marketing strategy, better cultural understanding and have a wider scope of expansion goals, making it easier to propel their business outside of their home market Turbo-charged by the Internet: Companies that invest in the Internet and produce web-based products are more likely to grow globally because there is less money involved in their international expansion. The most successful of these businesses is Amazon. This company is solely based on the Internet and was able to reach a global market with ease. Carefully Chosen International Partners: Choosing the right partners to help you grow your company in other countries is vital. Without the right people to vouch for you in that country and build trust with the consumers, becoming the market leader could be close to impossible. Again, this means companies must be aware of different cultures and business practices among countries in order to connect, be efficient, and stay on the same page. Example is Apple made a strategic partnership with China Mobile, the largest wireless network in the world. This partnership enabled Apple to become the number one smartphone maker in China and beat out the previously dominating five local competitors. Before becoming business partners, know what you want and have clear expectations. Sticking with these goals will help you choose the right partners and tap into the right markets.  Measure Success: When expanding to other countries it is important to keep track of the success and make sure it is worth the company’s resources. According to Albert Subbloie, CEO and Founder of Tangoe, a good benchmark of whether your company should continue efforts in a country is when 20-50 percent of your business is coming from outside the United States. Companies that are successful outside their home base are those that act fast. By keeping track of their numbers, they can act fast and learn from failures. By reevaluating the current strategy and finding new ways to innovate, it becomes easier to reap the benefits of the company’s successes. Think Globally: The most essential characteristic of any successful international business is implementing a global way of thinking. If this is the main thought process behind a company’s decisions, the rest of their international marketing strategies can be implemented with ease. One company that has mastered their international strategy is Redbull. They have created such a global brand that most think that it is from America or their home country, yet Redbull calls Austria home. Its most successful tactic has been to host extreme sports events all over the world. From the Red Bull Indianapolis Grand Prix to the Red Bull Soapbox Race in Jordan, the brand’s powerful event marketing strategy takes them all over the globe and makes their brand an international product. If companies support and welcome globalization, it becomes intertwined with their culture. Employees become globally- minded, engineers build software with other countries in mind, and the rest of the team follows. Going global is the key to ensuring your company’s growth and future are indomitable. Course Module  The Contemporary World 6 The Market Integration References and Supplementary Materials Books and Journals 1. Manfred Steger, Paul Battersby, and Joseph M. Siracusa; ed.2014; The SAGE Handbook of Globalization. Two vols. Thousand Oaks: SAGE; 2. Chapter 2 of Textbook: “Approaches to the Study of Globalization “ by Manfred B. Steger. 3. Manfred Steger, “Ideologies of Globalization.” 2005. Journal of Political Ideologies 10(1):11-30 Online Supplementary Reading Materials 1. https://study.com/academy/lesson/what- is-globalization-definition-effects-examples.html "N2Growth"; The Impact of Globalization on Business; Mike Myatt; May 2010, The Kansas State Collegia 2. https://study.com/academy/lesson/zero-population- growth-definition-countries.html 3. http://economistsview.typepad.com/economistsview/2006/08/bernanke_a_shor.html 4.https://graduatedegrees.online.njit.edu/resources/mba/mba-articles/the-essential- characteristics-of-successful- international-businesses/