1. International Business Lecture 2: Perspectives on globalization

2. Aims of the lecture
To define and contrast globalization of markets and globalization of production
To identify methods of internationalizing operations
To apply theories of internationalization and foreign direct investment (FDI)
To follow trends in FDI outflows and inflows, highlighting the growing influence of emerging economies
To outline the impacts of globalization on societies, together with the roles (actual and potential) of MNEs

3. What is globalization?
Definition: Increasing and deepening interactions between individuals and organizations across the globe.
Processes are ongoing, at varying pace between countries and between sectors.
Globalization of markets, implying growing uniformity, has been partially realized, but local preferences predominate in many sectors.
Globalization of production, implying co-ordination of operations across borders, has transformed manufacturing, but country differences are important.

4. Classifying countries in terms of economic development
Developed countries – Industrialized and economically advanced countries, with high levels of prosperity.
Developing countries – Countries changing from mainly agricultural or natural resource-based economy to industrial production.
Transition economies – Countries moving from communist or state-planned systems to market-based systems. (They overlap with developing countries, as modernization of their industries is a priority.)
Emerging economies or markets – Fast-growing developing and transition economies.

5. Figure 2.1: Globalization

6. Table 2.1: What does globalization mean for business, society and government?

7. Methods of internationalizing operations
Outsourcing – contracting with another company to carry out operations, usually more cheaply than the firm can do ‘in-house’. Includes:
Business process outsourcing (BPO)
Offshoring (contracting out of a function to a low-cost location)
FDI – ownership and control of foreign assets. Includes:
Greenfield investment
Acquisition of an existing business
Joint venture

8. Figure 2.2: Methods of internationalizing operations

9. Theories of internationalization
Early theories of FDI were based on location and ownership advantages
Product life cycle theory
Theory of incremental internationalization
Concept of ‘psychic distance’
Dunning’s eclectic paradigm, known as the OLI paradigm – configuring ownership, location and internalization advantages

10. Figure 2.3: Product Life Cycle

11. Figure 2.4: Incremental internationalization

12. Production/ manufacturing
Export
Sales subsidiaries
Production/ manufacturing
Psychic distance
Market knowledge
Experiential knowledge
Size of market
Incremental internationalization

13. Figure 2.5: Dunning’s eclectic paradigm

14. GLOBALIZATION THEORIES 1. World-System Theory: Synopsis and Analysis
2. World Polity Theory: Synopsis and Analysis
3. World Culture Theory: Synopsis and Analysis
Globalization and Its Discontents - Wikipedia, the free encyclopedia
Globalization and Its Discontents is a book published in 2002 by the 2001 Nobel Still Discontent with Globalization, article by Stiglitz in Aspenia k - Cached - Similar pages

15. Changing patterns of FDI
FDI has been a driver of globalization.
FDI inflows …
into developed countries have focused on proximity to large markets.
into to developing and emerging economies are growing, due to the benefits of globalized production and growth in emerging markets.
Outward investors have been predominantly from the developed countries, but emerging MNEs are now rapidly internationalizing – investing in both developed and developing countries.

16. Figure 2.6: Growth in value of FDI stock
Source: UN, World Investment Reports and 2007 (Geneva: UN)

17. Figure 2.7: FDI inflows,
Source UN, World Investment Reports and 2007 (Geneva: UN)

18. Figure 2.8: Number of MNEs based in developed, developing and transition economies
Source UN, World Investment Report 2007 (Geneva: UN)

19. Figure 2.9: FDI outflows from developing and transition countries
Source UN, World Investment Reports 2005, 2006 and 2007 (Geneva: UN)

20. Major FDI Indicators (WIR 2010)
Flow
256465
40715
3588
32779
18098
887
5286
501755
698224
724878
15280
313997
380859
16959
Stock
193348
16339
122250
97170
43451
54444
72878
143752
478349
95000
34613
25949
12522
5696
61620
565892
276181
361949
378388
15831
129883
148753
22920
473083
163959
400808
309523
125085
412229
271399
394724
100.0%
27.6%
2.7%
0.9%
2.3%
1.7%
0.7%
69.6%
29.0%
42.0%
45.3%
1.5%
17.6%
20.6%
2.2%
% of 2009 World FDI
2000
2009
Major FDI Indicators (WIR 2010)
World
Developing economies
China:
India:
Brazil
Mexico
South Africa
Commonwealth of Independent States (CIS)
Developed economies
Euro area
European Union (EU)
Developed economies: Europe
Developed economies: Asia
United States
Developed economies: America
Developed economies: Oceania
US Dollars at current prices and current exchange rates in millions

21. Impacts of globalization on societies
Economic impacts:
For host societies, FDI and outsourcing bring jobs and prosperity in favoured sectors but, especially in low-skill sectors, work is insecure as investors may shift production to another country
Loss of low-skill jobs in home countries of investors
Widening inequality – both within and between countries.
Diffusion of technology:
Host societies benefit from technology transfer and spillover effects, but risk of stifling local innovative capacity.

22. Source ILO (2004) A Fair Globalization (Geneva : ILO)
Figure 2.10: Share of the top 1% of earners in gross income in selected industrialized countries

23. Figure 2.11: Number of internet users per thousand people
Source UNDP (2007) Human Development Report (Basingstoke: Palgrave Macmillan)

24. Figure 2.12: Globalized production and social impacts

25. Global financial markets
Global finance is often cited as at the forefront of globalization, facilitated by:
The revolution in IT and the internet
Liberalization of national financial systems, opening up to outside investors.
The benefits for emerging economies have been rapid economic integration, capital investment and economic growth.
However, risks of global financial volatility have grown.

26. Cultural and environmental impacts of globalization
Culture change through industrialization and urbanization.
Convergence in lifestyles as consumer societies grow.
On the other hand, cultural differences persist.
Environmental
Industrialization, power generation and extraction of natural resources have gathered pace, bringing environmental degradation and hastening climate change.
Developed and emerging countries have differing perspectives of on the need to promote environmental protection

27. Conclusions
Globalization has ‘shrunk’ the world – due to IT, communications and modern transport, combined with opening up of countries to outside investors.
Globalization of production has transformed manufacturing, but markets, especially in consumer products, remain localized.
MNEs have been at the forefront of internationalization of production, especially through FDI, now increasingly encompassing emerging MNEs and markets.
New jobs and greater consumer choice have resulted, but negative social impacts represent the ‘dark’ side of globalization.