Globalization Chapter 1 PDF

Introduction to Globalization Chap t e r I. JAY-AR C. FLORES Nature and Issues in Globalization Globalization is a term used to describe the changes of societies and the world economy that are the result of dramatically increase trade and cultural exchange. It refers exclusively to the effects o...

Introduction to Globalization Chap t e r I. JAY-AR C. FLORES Nature and Issues in Globalization Globalization is a term used to describe the changes of societies and the world economy that are the result of dramatically increase trade and cultural exchange. It refers exclusively to the effects of trade particularly trade liberalization or free trade. Nature and Issues in Globalization Based on experiences throughout the world, several basic principles seem to underpin greater prosperity. Investment (particularly foreign direct investment The existence of a market economy Sound macroeconomic policies The spread of technology Educated workforce Strong institutions There is substantial evidence, from countries of different sizes and different regions, that as countries “globalize” their citizens benefit, in the form of access to a wider variety of goods and services, lower prices, more and better-paying jobs, improved health, and higher overall living standards. Over the past 20 years, as a number of countries have become more open to global economic forces, the percentage of the developing world living in extreme poverty - defined as living on less than $1 per day - has been cut in half. As much as has been in connection with globalization, there is much more to be done. What is Globalization? Economic “globalization” is a historical process, the result of human innovation, and technological process. It refers to the increasing integration of economies around the world, particularly to the movement of goods, services, and capital across borders. Also refers to the movement of people (labor) and knowledge (technology) across international borders.  Globalization The term “Globalization” began to be used more commonly in the 1980s, reflecting technological advances that made it easier and quicker to complete international transactions, both trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity. Village Markets HUMAN ECONOMIC Urban Industries ACTIVITY Financial Centers Indicators of Globalization of Goods, Capital, and People The value of trade (goods and Foreign direct investment The stock of international claims services) as a percentage of world increased from 6.5% of world GDP (primarily bank loans), as a GDP increased from 42.1% in 1980 in 1980 to 31.8% in 2006. percentage of world GDP, to 62.1% in 2007. increased from roughly 10% in 1980 to 48% in 2006. Indicators of Globalization of Goods, Capital, and People The number of minutes spent on The number of foreign workers has cross-border telephone calls, on increased from 78 million people per-capita basis, increased from (2.4 % of the world population) in 7.3% in 1991 to 28.8% in 2006 1965 to 191 million people (3.0% of the world population) in 2005.  Global Markets The growth of global markets has helped to promote efficiency through competition and the division of labor. Global markets also offer greater opportunity for people to tap into more diversified and larger markets around the world. They can have access to more capital, technology, cheaper imports, and larger export markets. The broad reach of Globalization In the world of health care Greater access to modern technologies could make the difference between life and death. In the world of communications Greater access to modern technologies would facilitate commerce and education, and allow access to independent media. Framework for cooperation Globalization creates a framework for cooperation among nations on a range of non-economic issues that have cross-border implications, such as immigration, the environment, and legal issues.  Globalization has reduced the sense of isolation felt in much of the developing world and has given many people in the developing world access to knowledge well beyond the reach of even the wealthiest in any country a century ago. Joseph Stiglitz A Nobel Laureate & Critic of Globalization International Trade A core element of globalization is the expansion of world trade through the elimination of reduction of trade barriers, such as import tariffs. Greater imports offer consumers a wider variety of goods at lower prices, while providing strong incentives for domestic industries to remain competitive. Trade enhances national competitiveness. It promotes economic resilience and flexibility; as higher imports help to offset adverse domestic supply shocks.  Restricting International Trade That is, engaging in protectionism, generates adverse consequences for a country that undertakes such a policy. For example, tariffs raise the prices of imported goods, harming consumers, many of which may be poor. Protectionism also tends to reward concentrated, well-organized and politically- connected groups, at the expense of those who interests may be more diffuse (such as consumers). Developing countries can benefit from an expansion in international trade.  In every case where a poor nation has significantly overcome its poverty, it has been achieved while engaging in production for export markets and opening itself to the influx of foreign goods, investment, and technology. Ernesto Zedillo Former President of Mexico International Trade Late 1980s Many developing countries began to dismantle their barriers In 1990s to international trade, as a result of poor economic performance Many former Eastern bloc countries integrated into the global trading system and developing under protectionist policies and Asia - one of the most closed regions to trade in various economic crises. 1980 - progressively dismantled barriers to trade.  Globalization, Income Inequality, and Poverty As some countries have embraced globalization, and experience significant income increase, other countries that have rejected globalization, or embraced it only tepidly, have fallen behind. Over the past two decades, income inequality has risen in most regions and countries. At the same time, per capita incomes have risen across virtually all regions for even the poorest segments of population, indicating that the poor are better off in an absolute sense during this phase of globalization.  Globalization, Income Inequality, and Poverty Ad discussed in the World Economic Outlook, one must keep in mind that there are many sources of inequality. The spread of technological advances and increased financial globalization - and foreign direct investment in particular - have instead contributed more to the recent rise in inequality by raising the demand for skilled labor and increasing the returns to skills in both developed and developing countries. It is important to ensure that the gains from globalization are more broadly shared across the population.  The main losers in today’s very unequal world are not those who are too much exposed to globalization. They are those who have been left out. A recent conducted poll by BBC World Service found out that on average 64% of those polled - in 27 out of 34 countries - held the view that the benefits and burdens of the economic developments of the last few years have not been shared fairly. Kofi Annan Secretary-General of the United Nations Globalization, Income Inequality, and Poverty As individuals and institutions work to raise living standards throughout the world, they must focus on Macroeconomic stability Transparency in government A sound legal system Modern infrastructure Quality education A deregulated economy Myths about Globalization Downward Pressure on Wages The “Race to the Bottom” Globalization is Irreversible Openness to Globalization will, Deliver Economic Growth The Shrinking State  Myths about Globalization Globalization is incomplete without dispelling some of the myths that have been built up around these phenomena. Downward Pressure on The “race to the bottom” Globalization is Wages Irreversible Globalization is rarely the Globalization has not caused the world’s multinational In the long run, globalization is primary factor that fosters corporations to simply scour the globe in search of the lowest- likely to be an unrelenting wage moderation in low- paid laborers. There are numerous factors that enter into phenomenon. But for significant skilled work conducted in corporate decisions on where to source products including the periods of time, its momentum can developed countries. A supply of skilled labor, economic and political stability, the local be hindered by a variety of factors, more significant factor is infrastructure, the quality of institutions, and the overall business ranging from political will to technology. climate. availability of infrastructure.  Myths about Globalization Globalization is incomplete without dispelling some of the myths that have been built up around these phenomena. Openness to Globalization will, on its own, The Shrinking State deliver economic growth Technologies that facilitate communication and commerce have curbed Integrating with the global economy, is economists like to say, a the power of some despots throughout the world, but in a globalized necessary, but not sufficient, condition for economic growth. For world governments take on new importance in one critical respect, globalization to be able to work, a country cannot be saddled namely, setting, and enforcing, rules with respect to contracts and with problems endemic to many developing countries, from a property rights. The potential of globalization can never be realized corrupt political class, to poor infrastructure, and macroeconomic unless there are rules and regulations in place, and individuals to instability. enforce them. This gives economic actors confidence to engage in business transactions  HISTORY OF GLOBALIZATION Globalization is the process of international incorporation, exemplified by the Silk Road connecting Asia, Europe, and Africa. It involves the elimination of trade barriers, communication, and cultural exchange limitations. The United States, as a leader in globalization after World War II, introduced the North American Free Trade Agreement (NAFTA) in 1993. In the 19th century, countries invested in new forms of transport and communication services, including the internet and cell phones.  HISTORY OF GLOBALIZATION These advanced forms of transport and Technological innovations provided significant benefits communication connected billions of people to developing countries, and investment and capital globally. The International Monetary Fund movements remain significant aspects of globalization. acknowledged four fundamental aspects of globalization in 2000: trade and transactions, capital and investment movements, migration, and dissemination of knowledge. In the 21st century, developing states increased their global trade share, but there was a significant disparity in trade and transactions among major regions. The movement of people to advanced economies also impacted globalization. Role of United States of American in Globalization Many US corporations have opted to move their services to other countries where operating costs are lower, a strategy commonly referred to as offshoring and outsourcing. This shift has not only affected the business landscape but has also raised concerns about the quality of education within the United States. There is evidence suggesting a decline in education standards, with subjects like intelligent design making their way into curricula. Additionally, technical jobs are increasingly being outsourced to countries where the workforce is more cost-effective. Globalization, while offering opportunities for economic growth, also presents challenges. Less developed countries often benefit from globalization, as it can improve their economic conditions. However, there are concerns about the erosion of national sovereignty and the negation of benefits traditionally associated with nation-state politics. In the past, wealthy nations like the US benefited from globalization through the establishment of new markets. However, current economic realities, such as foreign debt, raise questions about the sustainability of these benefits. The US economy, while still one of the largest globally, faces challenges such as widening account deficits and significant foreign ownership of national debt. The establishment of the United Nations after World War II aimed to foster international cooperation, promote human rights, and resolve disputes. During the Cold War era, the US pursued a strategy of quasi-globalization, promoting free trade among its allies and engaging in cultural exchanges. This period also saw the creation of international trade agreements like the General Agreement on Tariffs and Trade and the subsequent formation of the World Trade Organization, which furthered globalization efforts. Communication initiatives like the Voice of America radio network were established to promote cultural exchange and influence during the Cold War era. These efforts underscored the importance of communication in shaping global perceptions and fostering international relations.  THE IMPACT OF GLOBALIZATION Globalization is a multifaceted phenomenon encompassing economic, financial, social, cultural, political, market, and environmental On the positive side, globalization allows firms to interdependencies among nations. It outsource and access customers worldwide, leading impacts virtually everyone and leads to a to benefits like economies of scale and scope. The borderless world, prompting changes in globalization of production and operations has lifestyles, business practices, and national significantly transformed business practices. policies. Events in one part of the world can However, the extent of globalization varies among now have rapid and far-reaching countries, with some small developing nations like consequences globally, as seen in examples Singapore and Malaysia ranking among the most like the Asian financial crisis of 1997 and the globalized. This underscores the importance of SARS outbreak in 2003. recognizing and understanding globalization's impact on every nation, regardless of size or level of development. Effects of globalization are classified into two broad categories Global market opportunities Global market threats Global market opportunities Global market opportunities encompass increases in market potential, trade, investment potential, and resource accessibility, while global market threats involve rises in competition levels and uncertainty. Firms responding to these dynamics adapt organizational structures and strategies, often leading to improved performance. Despite scholarly discussion, empirical research on these effects remains limited. Therefore, this dissertation aims to analyze how global market opportunities and threats impact: Overall firm performance. Firms' cooperation in marketing alliances and international marketing performance. Given the limited exploration of these effects, the dissertation seeks to examine the relationships between global market opportunities and threats and firms' performance, as well as their international marketing cooperation and performance. It is suggested that global market opportunities facilitate access to resources and expansion into new markets, thereby enhancing firm performance. Threats & Opportunities in 1. Intensely nationalistic countries like Iran and New the Global Marketplace Guinea often deter foreign investment, while governments in less radical nationalist environments may take actions hindering foreign operations. Politics, cultural differences, and the economic 2. In France, a law mandates that pop music stations environment can represent both opportunities play at least 40 percent of songs in French, impacting and pitfalls in the global marketplace. These American music sales due to French preference for threats and opportunities must be recognized in their own culture. order to be successful in a foreign market. 3. Dutch politicians opposed a foreign takeover bid by U.S.-based PPG of Netherlands-based AkzoNobel NV, 1. Political considerations such as tariffs, a Dutch paint manufacturer, citing nationalism. The exchange controls, and governmental government warned of defending AkzoNobel from actions can threaten foreign producers' hostile takeover attempts. success in international trade. A country's political structure can also impact a In a hostile climate, a government may expropriate a foreign producer's success, as intense foreign company's assets, taking ownership and nationalism can lead to difficulties, as compensating the former owners. Even worse is confiscation, when the owner receives no nationalism boosts one country's culture compensation. This happened during rebellions in and interests over others. several African nations during the 1990s and 2000s. Threats & Opportunities in the Global Marketplace Example of cultural differences 1. Walmart's marketing strategies vary in China and South Korea, hosting live fishing contests and food competitions respectively, reflecting cultural preferences. Language nuances are crucial for marketers to avoid unintended meanings in product names and promotional messages. 2. Cultural Differences 2. Mitsubishi Motors and Toyota Motor had to alter product names in certain regions due to cultural sensitivities. Coca- Culture is a fundamental aspect of any Cola's Chinese translation illustrates the importance of linguistic considerations in global branding. society, influencing values, family, education, religion, and social class. It 3. Doing business in Western Europe during the first two weeks of August is challenging due to widespread vacation shapes the roles and status positions of closures. individuals within social organizations, 4. Personal relationships often outweigh financial which in turn significantly influence considerations in many countries, such as Mexico, where skipping social engagements may impact sales. people's preferences and marketers' options. 5. Business negotiations in Japan typically involve extended periods of socializing to build personal relationships before formal discussions begin. Each country has its own customs and traditions that determine business practices and influence negotiations with foreign customers Threats & Opportunities in the Global Marketplace 3. Economic Environment Economic development varies greatly, from struggling countries like Sudan and Eritrea to highly developed countries like Switzerland and Comprehension Check. Japan. Complex industries are found in developed countries, while less developed 1. How globalization affect nations have more basic industries. Higher family the foreign relations of incomes in developed countries lead to greater different countries in terms of: purchasing power and demand for consumer ⚬ a. Economic aspect goods and services. Business opportunities are ⚬ b. Security aspect and better in countries with an economic ⚬ c. Military aspect? infrastructure, including money, banking, 2. What are the positive and education, transportation, communications, negative impact of energy, and the market system. globalization? Global market threats Global market threats pose challenges to firm performance by intensifying competition and increasing market uncertainty. Despite scholarly recognition of this, no empirical studies have conclusively examined how these threats, along with global market opportunities, relate to firm performance.  The Six Core Claims of Globalization 1. Globalization is about the liberalization and global integration of market (not an ideology). 2.Globalization is inevitable and irreversible. 3.Nobody is in charge of globalization. 4.Globalization benefits everyone. 5.Globalization furthers the spread of democracy in the world. 6.Globalization requires war on terror.  Globalization vs. Neoliberalism Neoliberalism is an updated version of the classical liberal economic thought prevalent in the US and UK prior to the Great Depression Neoliberalism has dominated economic (1930s). policymaking in the US and UK for about two decades. While it has advocates in From mid-1930s to the mid-1970s a new continental Western Europe and Japan, interventionist approach replaced classical popular resistance limits its influence liberalism, and it became the accepted belief there. that capitalism requires significant state regulation in order to be viable. In much of the Third World and transition countries (except China), the In the 1970s, classical liberalism experienced a US has successfully imposed neoliberal resurgence in academic economics and public policies through institutions like the IMF policy. and World Bank, as well as direct pressure. THE Encompasses both an economic theory and a NEOLIBERALISM policy stance, advocating for a largely unregulated capitalist system. It posits that such a system embodies ideals like free individual choice and achieves optimum economic performance in terms of efficiency, growth, progress, and justice. The state's role in neoliberalism is limited to defining property rights, enforcing contracts, and regulating the money supply. Neoliberalism views state intervention to correct market failures with suspicion, preferring deregulation and privatization. In the international sphere, it promotes the free movement of goods, services, capital, and money across borders, excluding free movement for individuals. THE NEOLIBERALISM The resurgence of neoliberalism is attributed to changes in the competitive structure of world capitalism, driven by global economic integration. Its dominance has persisted beyond the 1970s/1980s, enduring through various political administrations. Its resurgence cannot be solely explained by its favorable effects on capitalist economic performance; rather, it has been harmful in the long run. Changes in the competitive structure of capitalism have shifted big business's stance on economic policy, turning them from supporters of state-regulated capitalism into opponents. The Problematic Character of Neoliberalism Neoliberalism is problematic as a dominant theory for contemporary capitalism due to its impact on capital accumulation. The stability and survival of capitalism rely on vigorous capital accumulation, which includes economic expansion and technological progress. It fails to promote rapid capital accumulation in contemporary capitalism for several reasons: It leads to insufficient aggregate demand over the long run by lowering real wages and public spending. Neoliberal policies create macroeconomic instability by renouncing counter-cyclical spending and taxation policies, reducing the effectiveness of automatic stabilizers, and loosening financial sector regulation. Neoliberalism intensifies class conflict, potentially discouraging capitalist investment. The Problematic Character of Neoliberalism Historical evidence casts doubt on neoliberalism's ability to promote rapid capital accumulation. Examination of GDP growth rates and labor productivity growth rates illustrates neoliberalism's limitations in fostering capital accumulation and developing productive forces. The Structure of Competition and Economic Policy The dominant economic ideology and policies in a capitalist system are influenced by the competitive structure of capitalism in a given era. Unconstrained period = liberalism Constrained, oligopolistic market = interventionist ideas and policies Government intervention in the economy has varied throughout US history, with periods of intervention followed by anti-interventionist eras. The Progressive Era (1900-1916) saw the emergence of a regulationist state, supported by big business and a popular movement seeking to restrain corporate power. Political compromise during the Progressive Era and the New Deal era (1930s) favored the interests of big business, reflecting their relative power. Large corporations, with significant market power, tend to support interventionist policies as they focus on long-term profits and see the state as a potential ally. Small businesses, facing immediate survival concerns, favoring a laissez-faire approach that prioritize avoiding short-term costs of taxation and regulation, leading to their opposition to interventionist policies. Thank You!