Globalization PDF

INTERNATIONAL BUSINESS & TRADE Prepared by: Ms. Luzvilyn C. Tan  WHAT IS INTERNATIONAL BUSINESS?  INTERNATIONAL BUSINESS ▪ Commercial transaction that crosses the borders of two or more nations. ▪ It is a business that takes place outside the border, that is, between...

INTERNATIONAL BUSINESS & TRADE Prepared by: Ms. Luzvilyn C. Tan  WHAT IS INTERNATIONAL BUSINESS?  INTERNATIONAL BUSINESS ▪ Commercial transaction that crosses the borders of two or more nations. ▪ It is a business that takes place outside the border, that is, between two countries. This includes the international movement of goods and services, capital, personnel, technology, and intellectual property rights such as patents, trademarks, and know- how. It refers to the purchase and sale of goods and services that exceed the geographical limits of the country. Imports- Goods and services purchased abroad and brought into a country. Exports- Goods and services sold abroad and sent out of a country.  WHO ARE THE KEY PLAYERS IN INTERNATIONAL BUSINESS? KEY PLAYERS IN INTERNATIONAL BUSINESS Multinational Corporations (MNC)- ▪ a business that has direct investments abroad in multiple countries. ▪ Multinationals generate significant jobs, investments, and tax revenue for the regions and nations they enter. Entrepreneurs and Small Businesses Born global firm- company that adopts a global perspective and engages in international business from or near its inception. ▪ Have innovative cultures and knowledge-based organizational capabilities.  WHAT IS GLOBALIZATION? ▪ Trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. ▪ Globalization refers to the spread of the flow of financial products, goods, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe. ▪ Is characterized by denationalization (national boundaries becoming less relevant). GLOBALIZATION OF MARKETS ▪ Refers to the convergence in buyer preferences in markets around the world. ▪ This trend is occurring in many product categories, including consumer goods, industrial products, and business services. ▪ E.g. of global products- Nike and Apple Benefits: ▪ Reduce marketing costs ▪ Creates new market opportunities ▪ Levels uneven income streams ▪ Local buyers’ needs ▪ Global sustainability ▪ Reduce marketing costs- Companies that sell global products can reduce costs by standardizing certain marketing activities. ▪ Creates new market opportunities- A company that sells a global product can explore opportunities abroad if its home market is small or becomes saturated. ▪ Levels uneven income streams- A company that sells a product with universal, but seasonal, appeal can use international sales to level its income stream. By supplementing domestic sales with international sales, the company can reduce or eliminate wide variations in sales between seasons and steady its cash flow. ▪ Local buyers’ needs- In the pursuit of the potential benefits of global markets, managers must constantly monitor the match between the firm’s products and markets in order to not overlook the needs of buyers. ▪ Global sustainability- Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. FOR EXAMPLE, IN FRANCE, MCDONALD'S REPLACED ITS FAMILIAR RONALD MCDONALD MASCOT WITH ASTERIX, A POPULAR FRENCH CARTOON CHARACTER.  GLOBALIZATION OF PRODUCTION ▪ Refers to the dispersal of production activities to locations that help a company achieve its cost-minimization or quality- maximization objectives for a good or service. Benefits: ▪ Access lower-cost workers ▪ Access technical expertise ▪ Access production inputs ▪ Access lower-cost workers- Global production activities allow companies to reduce overall production costs through access to low- cost labor. ▪ Access technical expertise- Companies also produce goods and services abroad to benefit from technical know-how. ▪ Access production inputs- Globalization of production allows companies to access resources that are unavailable or more costly at home.  FORCES DRIVING GLOBALIZATION 1. Falling barriers to trade and investment ▪ General Agreement on Tariffs and Trade (GATT)- treaty designed to promote free trade by reducing both tariffs and nontariff barriers to international trade. World Trade Organization (WTO)- is the international organization that enforces the rules of international trade. ▪ The 3 main goals of the WTO: are to help the free flow of trade, help negotiate the further opening of markets, and settle trade disputes among its members. Other International Organizations: World Bank and International Monetary Fund (IMF) ▪ World Bank- is an agency created to provide financing for national economic development efforts. The Bank focus to the general financial needs of developing countries, and today it finances many economic development projects in Africa, South America, and Southeast Asia. ▪ International Monetary Fund (IMF)- is an agency created to regulate fixed exchange rates and to enforce the rules of the international monetary system. Among the purposes of the IMF (www.imf.org) are promoting international monetary cooperation, facilitating the expansion and balanced growth of international trade, avoiding competitive exchange devaluation, and making financial resources temporarily available to members. Regional Trade Agreements- In addition to the WTO, smaller groups of nations are integrating their economies by fostering trade and boosting cross-border investment. For example: NAFTA, EU, APEC Trade and National Output- Trade theory tells us that openness to trade helps a nation produce a greater amount of output. NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) ▪ Established a free-trade zone in North America. ▪ NAFTA immediately lifted tariffs on the majority of goods produced by the signatory nations. ▪ Increased trade, economic output, foreign investment, and better consumer prices. ▪ The (USMCA)- U.S. – Mexico – Canada Agreement entered into force on July 1, 202, replacing the (NAFTA). EUROPEAN UNION (EU) ▪ Promote peace, its values and the well-being of its citizens. offer freedom, security and justice without internal borders, while also taking appropriate measures at its external borders to regulate asylum and immigration and prevent and combat crime. ▪ The EU countries are: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden. ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN) ▪ To accelerate economic growth, social progress and cultural development in the region. ▪ To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries. ▪ Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam and East Timor. NATIONAL OUTPUT: ▪ The total market value of all final goods and services produced and sold during a particular year. ▪ To measure the national output, we use the Gross Domestic Product (GDP) and Gross National Product (GNP). ▪ GDP- Value of all goods and services produced by a domestic economy over a one-year period. ▪ GNP- the value of all goods and services produced by a country’s domestic and international activities over a one-year period. 2. Technological Innovation- innovations in information technology and transportation methods are making it easier, faster, and less costly to move data, goods, and equipment around the world. Several innovations that have had a considerable impact on globalization: ▪ E-mail and videoconferencing ▪ The internet ▪ Company intranets and extranets ▪ Advancements in transportation technologies