International Business 9eChapter 1What Is Globalization?What Is The Globalization of Markets?Slide 5What Is The Globalization of Production?Why Do We Need Global Institutions?Slide 8What Do Global Institutions Do?Slide 10Slide 11What Is Driving Globalization?What Does Globalization Mean For Firms?Declining Trade And Investment BarriersSlide 15The Changing Demographics Of The Global EconomyHow Has World Output And World Trade Changed?Slide 18How Has Foreign Direct Investment Changed Over Time?Slide 20Slide 21What Is A Multinational Enterprise?The Changing World OrderHow Will The Global Economy Of The 21st Century Look?Is An Interdependent Global Economy A Good Thing?How Does Globalization Affect Jobs And Income?How Does Globalization Affect Labor Policies And The Environment?How Does Globalization Affect National Sovereignty?How Is Globalization Affecting The World’s Poor?How Does The Global Marketplace Affect Managers?International Business 9eBy Charles W.L. HillMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 1Globalization1-3What Is Globalization?Globalization - the shift toward a more integrated and interdependent world economyThe world is moving away from self-contained national economies toward an interdependent, integrated global economic system1-4What Is The Globalization of Markets?Historically distinct and separate national markets are merging It no longer makes sense to talk about the “German market” or the “American market”Instead, there is the “global market”falling trade barriers make it easier to sell globallyconsumers’ tastes and preferences are converging on some global normfirms promote the trend by offering the same basic products worldwide1-5What Is The Globalization of Markets?Firms of all sizes benefit and contribute to the globalization of markets97% of all U.S. exporters have less than 500 employees98% of all small and mid-sized German companies participate in international markets1-6What Is The Globalization of Production?Firms source goods and services from locations around the globe to capitalize on national differences in the cost and quality of factors of production like land, labor, energy, and capitalCompanies can lower their overall cost structure improve the quality or functionality of their product offering1-7Why Do We Need Global Institutions?Global institutionshelp manage, regulate, and police the global marketplacepromote the establishment of multinational treaties to govern the global business system1-8Why Do We Need Global Institutions?Examples includethe General Agreement on Tariffs and Trade (GATT)the World Trade Organization (WTO)the International Monetary Fund (IMF)the World Bankthe United Nations (UN)the G201-9What Do Global Institutions Do?The World Trade Organization (like its predecessor GATT) polices the world trading systemmakes sure that nation-states adhere to the rules laid down in trade treaties promotes lower barriers to trade and investment154 members in 20111-10What Do Global Institutions Do?The International Monetary Fund (1944)maintains order in the international monetary systemlender of last resort for countries in crisisArgentina, Indonesia, Mexico, Russia, South Korea, Thailand, Turkey, Ireland, and GreeceThe World Bank (1944) promotes economic development via low interest loans for infrastructure projects1-11What Do Global Institutions Do?The United Nations (1945)maintains international peace and securitydevelops friendly relations among nationscooperates in solving international problems and in promoting respect for human rightsis a center for harmonizing the actions of nationsThe G20forum through which major nations tried to launch a coordinated policy response to the 2008-2009 global financial crisis1-12What Is Driving Globalization?Declining barriers to the free flow of goods, services, and capital average tariffs are now at just 4%more favorable environment for FDIglobal stock of FDI was $15.5 trillion in 2009facilitates global productionTechnological change microprocessors and telecommunicationsthe Internet and World Wide Webtransportation technology1-13What Does Globalization Mean For Firms?Lower barriers to trade and investment mean firms canview the world, rather than a single country, as their marketbase production in the optimal location for that activityBut, firms may also find their home markets under attack by foreign firms1-14Declining Trade And Investment BarriersAverage Tariff Rates on Manufactured Products as Percent of Value1-15What Does Globalization Mean For Firms?Technological change meanslower transportation costs help create global markets and allow firms to disperse production to economical, geographically separate locations low cost information processing and communicationfirms can create and manage globally dispersed productionlow cost global communications networks help create an electronic global marketplaceglobal communication networks and global mediacreate a worldwide culture and a global consumer product market1-16The Changing Demographics Of The Global EconomyFour trends are important: 1. The changing world output and world trade picture2. The changing foreign direct investment picture3. The changing nature of the multinational enterprise4. The changing world order1-17How Has World Output And World Trade Changed?In 1960, the U.S. accounted for over 40% of world economic activity, but by 2009, the U.S. accounted for just 24% a similar trend occurred in other developed countriesIn contrast, the share of world output accounted for by developing nations is risingexpected to account for more than 60% of world economic activity by 20201-18How Has World Output And World Trade Changed?The Changing Demographics of World GDP and Trade1-19How Has Foreign Direct Investment Changed Over Time?In the 1960s, U.S. firms accounted for about two-thirds of worldwide FDI flows Today, the United States accounts for less than one-fifth of worldwide FDI flowsOther developed countries have followed a similar patternIn contrast, the share of FDI accounted for by developing countries has risen Developing countries, especially China, have also become popular destinations for FDI1-20How Has Foreign Direct Investment