IB The World Economy PDF

Sept. 19, 2024 IB the world economy Brexit and anti-globalization Globalization debate  What is unique about IB?  Global Scope of Competition  Country Differences in Political Economy  National Differences in Culture  Resource Variations across Countri...

Sept. 19, 2024 IB the world economy Brexit and anti-globalization Globalization debate  What is unique about IB?  Global Scope of Competition  Country Differences in Political Economy  National Differences in Culture  Resource Variations across Countries  Different Currencies  Competing in a Global Marketplace  IB and Globalization International Business (IB) any activities involving two or more countries e.g. International Trade and Foreign Direct Investment (FDI) any firms that engage in FDI i.e. Multi-National Corporations (MNCs) Globalization previously isolated national economies merging into a global economy; world economy becoming more integrated and interdependent Globalization is facilitated by IB activities; globalization makes it easier for firms to go abroad.  Brexit and Globalization @ Ted Discussion Questions What does Brexit represent for a global economy? What are the pros and cons of a more globalized world? Why Brexit happened – and what to do next? (~10:00) https://  Drivers of Globalization World economy becoming more integrated and interdependent Q: How do we know? National economies less isolated due to: Declining trade and investment barriers (e.g., WTO) Technological advances in communications and transportation (1) Transportation is quicker; Communications enable control from afar (2) Transportation and communications costs are more conducive for international business (via containerization; mobile-phones, e-mail, internet etc.) The lowering trade & investment barriers made globalization a theoretical possibility. Technological advances has made globalization as more feasible reality.  Facets of Globalization (1) Globalization of Markets Historically distinct and separate national markets are merging into a global market place – “the global market” (2) Globalization of Production Sourcing resources from different locations around the globe to take advantage of national differences in the cost and quality of production factors i.e. location economies – “the global product” e.g. Apple’s iPhone Global competition: MNCs compete one another for inputs in the product, labor, and capital market, as well as for consumers in the products or services market.  The Globalization Debate Despite the trend toward a globalized world economy, globalization is not without controversy. Q: is it a good thing? Pro-globalization Anti-globalization resource utilization income inequality economic growth national sovereignty create jobs labor issues consumer options environments etc. Globalization makes an economic sense, but there is a down-side of globalization in non-economic aspects.  Pro-globalization argument Is a more integrated and interdependent global economy a good thing? Experts believe globalization promotes greater prosperity in the global economy, more jobs, and higher incomes. Supporters of globalization also say that globalization of production allows an international firm to reduce its cost structure and prices for goods and services. Slowdown of globalization nowadays is one of the reasons for a world-wide inflation (e.g., a high inflation in the U.S.).  Anti-globalization argument Critics fear globalization has detrimental effects on inequality, national sovereignty, labor and the environment. The gap between rich and poor is wider, and the benefits of globalization are not shared equally. Critics worry economic power is shifting away from national governments and toward supranational organizations such as WTO and EU. Critics argue that adhering to environmental regulations increases costs and the lack of labor and environmental regulations in less developed countries attract investment. The new phase of globalization Case: Apple moves production out of China Apple’s initial decision to assemble the iPhone in China in 2007 depended on a number of factors. Labor costs are lower in China, but more importantly, China had the ability to respond very quickly to requests from Apple to scale production up and down. Another critical advantage of China for Apple was that it was much easier to hire engineers there. After 2016, however, Apple started to look for ways to reduce its dependence on China. The initial reason was the decision by the Trump administration to place a 25 percent tariff on imports from China. The Russian invasion of Ukraine and the COVID-19 pandemic raised additional questions about the wisdom of concentrating production in China. However, manufacturing associated with new-product introduction is likely to remain in China for the time being, primarily because only the Chinese production ecosystem has the skill set required to execute the large-scale rollout of high-quality new products, such as new versions of the iPhone.