1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 6 The Challenges of Globalization

2. 6-2 Ch. 6 Key Learning Objectives  Defining globalization and classifying the major ways in which companies enter the global marketplace  Recognizing the major drivers of the globalization process and the international financial and trade institutions that have shaped this process in recent decades  Analyzing the benefits and costs of the globalization of business  Identifying the major types of political and economic systems in which companies operate across the world, and the special challenges posed by doing business in diverse settings  Assessing how businesses can work collaboratively with governments and the civil sector to address global social issues

3. 6-3 The Process of Globalization  Refers to the increasing movement of goods, services, and capital across national borders  Is considered a process – an ongoing series of interrelated events  International trade and financial flows integrate the world economy, leading to the spread of technology, culture, and politics  Globalization is not simply a trend or a fad but, rather, an international system

4. 6-4 Entering and Competing in the Global Marketplace  Develop global market channels  First build a successful business in their home country, then export products or services to buyers in other countries  Establish global operations  Locate manufacturing plants or service operations in other countries as a way to cut costs; work may also be subcontracted  Develop global supply chains  Purchase raw materials, components, or other supplies from sellers in other countries

5. 6-5 Major Transnational Corporations (TNCs)  Defined by the United Nations as firms that control assets abroad  79,000 TNCs operate in the modern global economy  They, in turn, have ten times that number of affiliates (suppliers, subcontractors, and other entities with which they have some business relationship)  Most global commerce is carried out by a small number of powerful firms  Next slide lists top 10 non-financial transnational corporations, ranked in order of the value of the foreign assets they control

6. 6-6 The World’s Top 10 Nonfinancial Transnational Corporations Figure 6.1

7. 6-7 The Acceleration of Globalization  The world’s economy is becoming increasingly integrated  Higher share of output is being exported across national borders  One-fourth of all goods and services produced worldwide is sold to other nations, rather than domestically  This is almost double the percentage of 1960  In earlier years, most exports were of goods. An important recent trend is the globalization of services, such as travel, insurance, financial, and information services.

8. 6-8 The Acceleration of Globalization  Driven by several factors:  Technological innovation Easier to communicate with employees, partners, and suppliers all over the globe in real time  Transportation systems Improvements enable the fast and cheap movement of goods and services from one place to another  The rise of major transnational corporations Bigger, well-capitalized, firms are better equipped to conduct business across national boundaries than smaller firms  Social and political reforms Rise of Pacific Rim growth economies, collapse of communism in Central and Eastern Europe have opened new regions to world trade

9. 6-9 International Financial and Trade Institutions  World Bank (WB), International Monetary Fund (IMF), and World Trade Organization (WTO) are the three institutions that set the rules by which international commerce is transacted  No business can operate across national boundaries without complying with rules set by the WTO  Many businesses in developing countries are dependent on WB and IMF loans to survive

10. 6-10 The World Bank  Established in 1944  Provides economic development loans to its member nations  Funds used mainly for roads, dams, power plants, pipelines, and other infrastructure projects  Funding provided by member countries and international capital markets  Negotiates “structural adjustment plans” with countries it loans to  Applies conditions on these countries  Conditions are considered by critics to lead to unfair burden on developing countries

11. 6-11 International Monetary Fund  “Sister” organization to World Bank, created at same time  Purpose is to make currency exchange easier for member countries so that they can participate in global trade  Lends foreign exchange to member countries  Imposes conditions on governments that receive its loans  Has begun to offer debt relief to some nations

12. 6-12 World Trade Organization  Founded in 1995, successor to General Agreement on Tariffs and Trade (GATT)  International body that establishes the ground rules for trade among nations  Its major objective is to promote free trade; attempts to eliminate barriers to trade (e.g. quotas, duties and tariffs)  Conducts “rounds” of negotiations on various topics  “Most favored nation” rule means members countries cannot discriminate against foreign products for any reason

13. 6-13 The Benefits and Costs of Globalization  Globalization is highly controversial  Clearly, some benefit form globalization, while others do not  What are some of the major arguments advanced by both side in the debate over this important issue?

14. 6-14 Benefits and Costs of Globalization Figure 6.2

15. 6-15 Comparative Political and Economic Systems  Nations differ greatly in their political, social and economic systems  First important dimension to consider is how power is exercised and degree of democratic rights  Past century has been marked by spread of democratic rights to many nations for the first time

16. 6-16 Comparative Political Systems  Democracy – The presence of political freedom  Four defining features of democracy (according to the U.N.)  Fair elections  An independent media  Separation of powers among the executive, legislative, and judicial branches of government  An open society where citizens have the right to form their own independent organizations to pursue social, religious, and cultural goals

17. 6-17 Comparative Political Systems  Military dictatorships Repressive regimes ruled by dictators who exercise total power through control of the armed forces  Examples include Myanmar (Burma), Belarus  Some countries have reverted to authoritarian rule after a period of democracy  Example - Pakistan  Rights of citizens to organize for cultural or religious freedoms is restricted in others  Examples include Iran, Saudi Arabia

18. 6-18 Comparative Political Systems  Degree to which human rights are protected differs greatly among nations  Several international codes of human rights exist  Most important one is United Nations Universal Declaration of Human Rights of 1948  Over half world’s nations have adopted these human rights covenants  Still, many violations of human rights still occur:  Recent genocides in Rwanda, Sudan  Systems where minority groups and indigenous peoples lack basic human rights, example of Nepal

19. 6-19 Comparative Economic Systems  Free enterprise systems  Based on the principle of voluntary association and exchange  Members of society satisfy most of their economic needs through voluntary market transactions  Central state control  Economic power is concentrated in the hands of government officials and political authorities  The central government owns the property that is used to produce goods and services

20. 6-20 Challenges of Global Diversity  Diversity and complexity of systems that transnational corporations face creates challenges  If a company does business in a nation that does not grant women equal rights, should that company hire and promote women at work, even if it violates local laws and customs?  Should a company enter into a business venture with a government-owned enterprise if that government has a reputation for violating its citizens’ human rights?

21. 6-21 Meeting the Challenges of Global Diversity  Notion of constructive engagement  By operating with strong moral principles, transnational corporations can be a force for positive change in nations where they operate  In some circumstances this is not possible due to extreme conditions, provoking dilemma  At what point do violations of political, human, and economic rights become so extreme that a company cannot morally justify doing business in that country?

22. 6-22 Collaborative Partnerships for Global Problem Solving  Emerging trend for development of collaborative, multi- sector partnerships focused on particular social issues or problems in the global economy  Involves 3 sectors  Business  Government  Civil society  Collaborative partnerships across all 3 sectors can draw on unique capabilities of each, as well as overcome particular weaknesses

23. 6-23 Distinctive Attributes of the Three Major Sectors Figure 6.3