Opening Case: The Globalization of Health CareOpening Case: The Globalization of Health CareWhat is Globalization?Globalization of MarketsGlobalization of MarketsGlobalization of MarketsGlobalization of ProductionGlobalization of ProductionGlobalization of ProductionThe Emergence of Global InstitutionsDrivers of GlobalizationDeclining Trade and Investment BarriersAverage Tariff Rates on Manufactured ProductsGrowth TrendsAffects of Lowering Trade BarriersThe Role of TechnologyInternet Usage GrowthThe Changing Demographics of the Global EconomyThe Globalization DebateManaging in the Global MarketplaceLooking AheadChapter OneGlobalization1 - 3McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Opening Case: The Globalization of Health Care• There is a shortage of radiologists in the United States and demand for their services is growing twice as fast as the rate of graduation• Solution to the problem: Send images over the Internet to be interpreted by radiologists in India1 - 4McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Opening Case: The Globalization of Health Care• Outsourcing health care is not only limited to radiology; we are beginning to see patients travel internationally for treatments as well as surgery• In 2004 some 170,000 foreigners visited India for medical treatments; the number is expected to grow at 15% for the next several years• Question: Will demand for American health services soon collapse as work moves offshore to places like India?1 - 5McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.What is Globalization?• The shift toward a more integrated and interdependent world economy • Two components:- The globalization of markets- The globalization of production1 - 6McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Globalization of Markets• The merging of distinctly separate national markets into a global marketplace- Falling barriers to cross-border trade have made it easier to sell internationally- Tastes and preferences converge onto a global norm- Firms offer standardized products worldwide creating a world market1 - 7McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Globalization of Markets• Difficulties that arise from the globalization of markets- Significant differences still exist among national markets- Country-specific marketing strategies- Varied product mix1 - 8McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Globalization of Markets• The most global markets are not consumer markets• The most global markets are for industrial goods and materials that serve a universal need the world over1 - 9McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Globalization of Production• Refers to sourcing of goods and services from locations around the world to take advantage of- Differences in cost or quality of the factors of production• Labor• Land• Capital1 - 10McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Globalization of Production• Historically this has been primarily confined to manufacturing enterprises• Increasingly companies are taking advantage of modern communications technology, and particularly the Internet, to outsource service activities to low-cost producers in other nations1 - 11McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Globalization of Production• Outsourcing of productive activities to different suppliers results in the creation of products that are global in nature • Impediments to the globalization of production include- Formal and informal barriers to trade- Barriers to foreign direct investment- Transportation costs- Issues associated with economic risk- Issues associated with political risk1 - 12McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The Emergence of Global Institutions• Globalization has created the need for institutions to help manage, regulate and police the global marketplace- GATT- WTO- IMF- World bank- United Nations1 - 13McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Drivers of Globalization• Two macro factors seem to underlie the trend toward greater globalization- Decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II- Technological change1 - 14McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Declining Trade and Investment Barriers• During the 1920s and ‘30s, many of the nation-states of the world erected formidable barriers to international trade and foreign direct investment • Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations.1 - 15McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Average Tariff Rates on Manufactured Products1913 1950 1990 2002France 21 % 18 % 5.9 % 4.0 %Germany 20 % 26 % 5.9 % 4.0 %Italy 18 % 25 % 5.9 % 4.0 %Japan 30 % -- 5.3 % 3.8 %Holland 5 % 1 % 5.9 % 4.0 %Sweden 20 % 9 % 4.4 % 4.0 %Great Britain -- % 5.9 % 4.0 %United States 44 % 14 % 4.8 % 4.0 %1 - 16McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Figure 1.2: Growth of World Trade, Production and FDI, 1992-200401002003004005006007008001992199319941995199619971998199920002001200220032004Index 1992=100World Trade World Production FDI OutflowsGrowth Trends1 - 17McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Affects of Lowering Trade BarriersFigure 1.1: Volume of World Trade and World Production, 1950-20041006001100160021002600310019501954195819621966197019741978198219861990199419982002Index 1950=100Total Merchandise Exports World Production1 - 18McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The Role of Technology• Lowering of trade