Globalization and Recent Economic Developments Chapter 1

Overview of MGMT 529 The Global Business Environment Culture and International Management International Strategic Management Global Human Resources Management Motivating and Leading a Global Work Force

International Management The process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Firms Involved in International Business Multinational corporations (MNC's) Operations in more than one country International sales, Nationality mix of managers and owners Small and medium-sized enterprises (SME's) McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Globalization of Business Globalization of business functions Marketing Manufacturing and service operations Finance Purchasing and supplier networks Business process outsourcing: call centers, technical service, financial research Global business environment with global competition

Globalization as an Integration Process Process of integration among countries around the world Social Political Economic Cultural Technological

Arguments for Globalization Wealth creation Job creation Technology is more widely available Lower prices

Criticisms of Globalization Offshoring of business services jobs to lower- wage countries Growing trade deficits Slow wage growth Environmental impacts Social impacts Example: child labor Loss of local and national culture

World Trade Organization More than 150 member countries Has removed many barriers to free trade in goods 70 countries have agreed to remove barriers to free trade in financial services and telecommunications Protects intellectual property rights Removes some restrictions on foreign investment There is a dispute resolution process. Most countries have negotiated some exceptions to the rules. (EU negotiates as a unit.)

World Trade Organization (2) More lenient policies for developing countries 31 WTO members are considered to be developing countries. Developing countries Can impose more tariffs than developed countries Did not have to comply with intellectual property rights agreement until 2005 Can impose more restrictions on foreign investment

Trends in International Investment and Trade International investments 80 percent of foreign direct investment (FDI) is from developed countries Investments are made in developed countries and in developing countries Over one-half of world trade is accounted for by the United States, European Union (EU), and Japan

Gross Domestic Product Largest Economies RankCountryBillion $ 1United States10,882 2Japan4,326 3Germany*2,401 4United Kingdom*1,795 5France*1,748 6Italy*1,466 7China1,410 8Spain*836 9Canada834 10Mexico626 TOTAL26,324 * EU member

GoodsServices Goods & Services Exports ,020.5 Imports (1,260.7)(256.3)(1,517.0) Trade balance (547.6)51.1(496.5) Country U. S. merchandise trade balance China(124.0) Japan(66.0) Canada(54.7) Mexico(40.6) Germany(39.2) U. S. Trade Balance – 2003 (Billion $) 5 Largest U. S. Merchandise Trade Deficits

Economic Power of the EU 450 million people 25 member countries 2002 GDP exceeded 9.1 trillion dollars 5 members in the top 10 economies 11 members in the top 25 economies Most new members are not as prosperous as those who joined earlier Receive development assistance from the EU

European Union – A Single Market Free trade in goods and services among member countries Common tariffs on goods imported from outside the EU Common trade policy Common (minimum) product standards – CE mark is required to sell many goods Many regulations that must be met

EU – A Single Market (2) Free movement of capital among member countries Rights of EU citizens Travel freely among EU countries To live and work in other EU countries Citizens of new EU member countries will not have full work and residence rights until 2011

EU Members (1) EU-15 (joined the EU between 1956 and 1999) (dark blue on map) Total population of 375 million Located primarily in western Europe 12 members of the EU-15 use the euro currency United Kingdom, Denmark, and Sweden do not use the euro

New EU Members (10 total) Total population of 75 million Post-Communist countries (8) Central Europe: Poland, Hungary, Czech Republic, Slovakia, and Slovenia Major recipients of foreign direct investment Large automotive industry Financial services industry Poland has a population of 38.6 million people (6 th largest population in the EU)

New EU Members (slide 2) Post-Communist countries (continued) Baltic countries: Estonia, Latvia, Lithuania Formerly part of the Soviet Union Small countries Large Russian minorities Large agricultural sectors Also members of the WTO and NATO

New EU Members (slide 3) Other new members: Cyprus and Malta Mediterranean islands with small populations Also WTO members All the new members hope to join the euro currency by 2010 Slovenia and Estonia will probably meet requirements for the euro by 2007

Requirements to Join the EU Be a stable democracy, respecting human rights, the rule of law, and the protection of minorities. Have a functioning market economy that can compete in the EU. Adopt EU law – more than 10,000 laws, product standards, and regulations. Show that the government can enforce EU law and control immigration.

Requirements to Join the Euro Currency Control inflation. Control the annual budget deficit of the government. Control the national debt. Control long-term interest rates. Currency must be stable with respect to the euro for 2 years.

EU Candidate Countries Scheduled to join in 2007 if all requirements are met (Bulgaria and Romania) Scheduled to start membership negotiations in October: Turkey Can start membership negotiations if a war criminal is turned over to the International Court of Justice: Croatia