BUSN 361 International Business Dr. Kokila Doshi Professor of Economics

Chapter 1 Learning Objectives What is meant by globalization? Globalization of markets Globalization of production Are the tastes & preferences converging? Factors affecting globalization Transportation costs Technology- Innovations & information technology Tariffs

Learning Objectives Is globalization good? Pros & cons Relate the topics to companies, current trends or countries

International Business, Charles W.L. Hill Chapter 1 What are the differences between international business and domestic business? 1.Countries are different 2. Problems faced by a manager are more complex and wider in range 3. More countries, more rules, more competition 4. Fluctuations in currency values 5. International business operates within the limits of government regulations of international trade and investment

What is globalization? Globalization refers to the shift toward a more integrated and interdependent economy. It has two components: 1. Globalization of Market 2. Globalization of Production

Globalization of Markets Globalization of markets refers to the merging of distinct and separate national markets into a huge global marketplace. 1. Markets for Consumer Goods Levi’s, McDonald’s, Nike Converging tastes and preferences? 2. Market for Industrial Goods Aluminum, Computer Memory Chips, Oil 3. Market for Financial Assets Eurobonds, U.S. Treasury Bills

Globalization of Production Globalization of production refers to the tendency among firms to source goods and services from locations around the globe to take advantage of national differences in costs and quality of factors of production. Example: Honda, Boeing Aircraft Boeing aircraft has 132,500 parts and 545 suppliers from countries like Italy, Japan, Singapore Even small companies are globalizing their production. Example: Swan Optical

Drivers of Globalization 1. Declining Barriers to International Trade and Investment 2. Technology Change

Declining Trade Barriers (A) Tariffs Tariff rates since 1950 have gone down significantly. GATT and WTO have played an important role in helping countries liberalize their trade and reduce trade barriers. Example: Avg. Tariff Rates in 1950Germany-26% Italy-25% Britain-23% U.S.A.-14% If GATT agreements are fully implemented, average tariff rates in these countries will be reduced to 3.9% (2000). (B) Liberalization and Deregulation Many countries have relaxed regulation controlling the inflow of FDI.

Technological Change Transportation Technology and Shrinking Globe Information Technology Technological change has helped both globalization of markets and globalization of production

Changing Global Economy Declining share of U. S. in FDI % % Increasing share of FDI received by developing countries 1991-$42 billion (26%) 1997-$149 billion (37%) China alone received $45 billion Changing nature of Multinationals Rise in non-U.S. multinationals Growth of mini-multinationals 1973: of 260 multinationals, U.S. (48.5%) Japan (3.5%) 1997: of 500 multinationals, U.S. (32.4%) Japan (25.2%)