Globalization of Markets and the Internationalization of the Firm Chapter 2 Globalization of Markets and the Internationalization of the Firm International Business: Strategy, Management, and the New Realities

Globalization of Markets: A Macro Concept Two mega trends have altered the international business landscape: globalization and technological advances. Market globalization refers to the interconnectedness of national economies and growing interdependence of buyers, producers, suppliers, and governments in different countries. Globalization allows firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge. International Business: Strategy, Management, and the New Realities

Phases of Globalization 1st Phase: 1830, peaking around 1880 Aided by railroads, ocean transport; resulting in the rise of mass production and growing trade 2nd Phase: 1900, peaking late 1920s Fueled by electricity and emergent modern technologies; early MNEs 3rd Phase: 1948, peaking around 1970 End of WW II; Marshall Plan; Gradual reduction of trade barriers, especially under General Agreement on Tariffs and Trade (GATT) 4th Phase: 1980, peaking around 1997 Fueled by information and communications technologies. Rapid liberalization in Emerging Markets

The Drivers and Consequences of Market Globalization

Firms are Compelled to Internationalize Firms implement internationalization proactively are more successful than those reactively engaging. E.g., Vodafone has established production and marketing operations all around the world. Has some 200 million customers in 30 countries. International Business: Strategy, Management, and the New Realities

Technological Advances as a Driver of Market Globalization Advances in technology provide the means for internationalization of firms Advances in technology: Reduces cost of doing international business; Enables even small firms to go international Helps coordinate worldwide activities; Mitigates geographic distance International Business: Strategy, Management, and the New Realities

Communications Technology Especially important. Includes telecommunications, satellites, optical fiber, wireless technology, and the Internet. The Internet, and Internet-dependent systems such as intranets, extranets, and e-mail, connect millions of people across the globe. The Internet opens up the global marketplace to all firms, large and small International Business: Strategy, Management, and the New Realities

Manufacturing and Transportation Technologies Revolutionary developments now permit manufacturing that is both low-scale and low cost, with the support of computer-aided-design of products (CAD), robotics, and production lines managed and monitored by microprocessor-based controls. Transportation Fuel-efficient jumbo jets, giant ocean-going freighters, and containerized shipping. Thus , the cost of transportation has declined substantially, spurring rapid growth in international trade. International Business: Strategy, Management, and the New Realities

Societal Consequences of Market Globalization Positive consequences More jobs Economic development and growing prosperity Technology and knowledge transfer Negative consequences Natural environment Disruptive effects in national economies Human rights violations abroad (e.g., sweatshops) Job losses at home International Business: Strategy, Management, and the New Realities

Economic Freedom Enhances Income Growth In the long run, globalization generally leads to: higher living standards more efficient resource usage greater access to technology, products, and services In particular, liberalization of markets appears to enhance income levels International Business: Strategy, Management, and the New Realities

International Business: Strategy, Management, and the New Realities Partial Index of Economic Freedom, 2010 source: http://www.heritage.org/index/ranking.aspx International Business: Strategy, Management, and the New Realities

What inferences can you make from this chart?

Unintended Consequences of Market Globalization Loss of national sovereignty Power shifts to MNEs and larger countries Offshoring and the flight of jobs Dislocation of jobs Effect on the poor Benefits of globalization are not evenly distributed Effect on the natural environment Effect on national culture Loss of national cultural values and identity QEUST International Business: Strategy, Management, and the New Realities

Corporate Social Responsibility Over time, governments pass legislation that promotes improved environmental conditions. Question: How, when, why? In addition, many firms now consider the societal consequences of their actions -- Corporate Social Responsibility (CSR) Discuss how this works in a global environment vs. a national environment. International Business: Strategy, Management, and the New Realities

Firm Level Consequences of Market Globalization Countless new business opportunities for internationalizing firms New risks and intense rivalry from foreign competitors More demanding buyers who source from suppliers worldwide Greater emphasis on proactive internationalization Internationalization of firm’s value chain International Business: Strategy, Management, and the New Realities

Examples of How Firms’ Value Chain Activities Can Be Internationalized Value Chain: Sequence of value adding activities performed in the course of developing, producing, marketing, and servicing a product.

International Business: Strategy, Management, and the New Realities Implications for Management Global orchestration’ of value-chain activities (e.g., to cut costs, access resources, target new markets) Exploit knowledge acquired worldwide Increase productivity Collaborate with foreign partners International Business: Strategy, Management, and the New Realities

International Business: Strategy, Management, and the New Realities Implications for Managers: Acquiring Global Competence is a Requirement Open-mindedness Tolerance for ambiguity Perceptiveness Premium on personal relationships Flexibility, adaptability, and self-reliance  Good sense of humor Warmth in human relationships A curious mind International Business: Strategy, Management, and the New Realities