1. 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

2. 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

3. Phases of Globalization
1st Phase: 1830, peaking around 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 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 Fueled by information and communications technologies. Rapid liberalization in Emerging Markets

4. The Drivers and Consequences of Market Globalization

5. 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

6. 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

7. 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 , 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

8. 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

9. 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

10. 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

13. International Business: Strategy, Management, and the New Realities
Partial Index of Economic Freedom, 2010
source:
International Business: Strategy, Management, and the New Realities

14. What inferences can you make from this chart?

15. 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

16. 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

17. 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

18. 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.

19. 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

20. 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