To d a y Charles W. L. Hill Global Business Second Edition

ONE PART Globalization Part One

One C h a p t e rC h a p t e r Globalization Part One Globalization

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Globalization: Trend to more integrated and interdependent World Economy  Accelerating rate of change of this trend Trend away from national economies isolated through barriers due to:  Cross-border trade and investment  Geographic and time (zones) distance  National government regulations  Idiosyncratic business systems  National cultures Slide 1-1

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Globalization of Markets Historically distinct and separate markets are merging into on huge global marketplace  Mostly NOT consumer product markets  Mostly industrial products  Tastes and preferences of consumers converging (??) MNCs creating global marketplace? MNCs around the world becoming more vulnerable to competition in their home markets Slide 1-2

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Globalization of Production Source goods and services from narrow set of locations around the world National advantages in factors of production a key driver to “where to produce?” decision  Labor, land, capital, energy, expertise Global web of suppliers Stake of foreign governments in MNC operations Slide 1-3

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. “Drivers” of Globalization: Declining Trade and Investment Barriers GATT, WTO; Removal of FDI restrictions/barriers Average Tariff Rates on Manufactured Products (% value) France Germany Italy Japan30– Holland Sweden Britain– USA Slide 1-4

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. More evidence of Globalization World trade increase x 20 since 1950, FDI increase x 10 from ’84 to ’98 By 1998:  60,000 parent companies operated away from home markets through 500,000 subsidiaries/affiliates  Produced US$11 trillion in global sales, 25% of global output  US, Japanese, Western European companies the major investors in Europe, Asia, and North America Slide 1-5

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. “Drivers” of Globalization: Technological Change Globalization of markets and production  is the result of lowering of trade barriers and  is enabled by technological change Telecommunications and microprocessors The internet and the world-wide web Transportation technology Slide 1-6

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Globalization and the Global Economy  Changing pattern in % share of world output and trade outputoutput exports United States Japan Germany9.7 (West)4.810 France United Kingdom Italy Canada ChinaNA South KoreaNA Slide 1-7

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Globalization and the MNE A multinational enterprise (MNE) is any business that has productive activities in two or more countries The national heritage of the largest MNEs 1976 (of 260)1997 (of 500) United States126 (45%)162 (25.2%) Japan9 (3.5)126 (25.2) United Kingdom49 (18.8)34 (6.8) France19 (7.3)42 (8.4) Germany21 (8.1)41 (8.2) “Mini-multinationals” now a factor in the world economy Slide 1-8

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Globalization: Prosperity or Impoverishment? Impact of barrier removal on jobs and incomes  Do jobs move away from wealthy advanced economies in search of lower wage rates? Impact of trade liberalization on labor policies and the environment  Do manufacturing facilities move to developing countries with weaker labor laws and environmental protection? Its impact on national sovereignty  WTO, EU, UN: supplanting national governments? Slide 1-9

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Managing the Global Marketplace An international business is any firm that engages in international trade or investment An MNE engages in international investment over which it has managerial control International business involves managing across:  Differences in cultures, political, legal and economic systems and levels of economic development  Such differences endure in spite of globalization trends International managers confronted with a greater range of complexity Slide 1-10