GLOBALIZATION

Group 5

ENDONILA
GALON
GARCIA
GAYATIN
INESORIA
JERUTA
GOMEZ
PENTOJO
INTRODUCTION
In the world economy today, we see

a shift away from self-contained national economies with high barriers to

cross-border trade and investment

a move toward a more integrated global economic system with lower

barriers to trade and investment

about $2 trillion In foreign exchange transactions taking place everyday

over $12 million goods and some $3 trillion of services being sold across
national borders

the establishment of international institutions

WHAT IS GLOBALIZATION?

refers to the trend towards a more integrated global

economic system
Two key facets of
globalization are:
the globalization of markets
the globalization of production

 GLOBALIZATION OF
MARKETS
refers to the merging of historically distinct and
separate national markets into one huge global
marketplace
In many markets today, the tastes and preferences of consumers
in different nations are converging upon some global norm
Examples of this trend include Coca Cola, Starbucks, Sony
PlayStation, and McDonald’s hamburgers
GLOBALIZATION OF PRODUCTION

refers to the sourcing of goods and services from locations around

the globe to take advantage of national differences in the cost and
quality of factors of production (labor energy, land, and capital)

The goal for companies is to lower their overall cost structure or improve the
quality or functionality of their product and gain competitive advantage
Examples of companies doing this include Boeing and Vizio
THE EMERGENCE OF
GLOBAL INSTITUTIONS
Several global institutions have emerged to
help manage, regulate, and police the global
market place
promote the establishment of multinational
treaties to govern the global business system
EMERGENCE OF GLOBAL INSTITUTIONS

examples of global institutions

World Trade Organization (WTO)

International Monetary Fund (IMF)
World Bank
United Nations (UN)
G20
EMERGENCE OF GLOBAL INSTITUTIONS

the World Trade Organization (WTO) which is responsible

for policing the world trading system and ensuring that
nations adhere to the rules established in WTO treaties
In 2008, 151 nations accounting for 97% of world trade
were members of the WTO
the International Monetary Fund (IMF) which maintains
order in the international monetary system
EMERGENCE OF GLOBAL INSTITUTIONS

the World Bank which promotes economic development

the United Nations (UN) which maintains international

peace and security, develops friendly relations among
nations, cooperates in solving international problems and
promotes respect for human rights, and is a center for
harmonizing the actions of nations
DRIVERS OF GLOBALIZATION
What is driving the move toward
greater globalization?

1 2
declining trade technological
and investment change
barriers
 DECLINING TRADE AND
INVESTMENT BARRIERS
International trade occurs when a firm exports goods or
services to consumers in another country

Foreign direct investment (FDI) occurs when a firm invests

resources in business activities outside its home country

During the 1920s and 1930s, many nations erected barriers to

international trade and FDI to protect domestic industries
from foreign competition
 DECLINING TRADE AND
INVESTMENT BARRIERS
After WWII, advanced Western countries began removing trade
and investment barriers

Under GATT (the forerunner of the WTO), over 100 nations

negotiated further decreases in tariffs and made significant
progress on a number of non-tariff issues

Under the WTO, a mechanism now exists for dispute resolution

and the enforcement of trade laws, and there is a push to cut
tariffs on industrial goods, services, and agricultural products
 DECLINING TRADE AND
INVESTMENT BARRIERS
Lower trade barriers enable companies to view the world as a
single market and establish production activities in optimal
locations around the globe

This has led to an acceleration in the volume of world trade and

investment since the early 1980s
TECHONOLOGICAL CHANGE

The lowering of trade barriers made globalization of

markets and production a theoretical possibility,
technological change made it a tangible reality
Since World War II, there have been major advances in
communication, information processing, and
transportation
TECHONOLOGICAL CHANGE

The development of the microprocessor has lowered the cost of

global communication and therefore the cost of coordinating and
controlling a global organization
Web-based transactions have grown from virtually zero in 1994 to
$250 billion in 2007 in the U.S. alone, and Internet usage is up from
fewer than 1 million users in 1990 to 1.3 billion users in 2007
Commercial jet aircraft and super freighters and the introduction of
containerization have greatly simplified trans-shipment from one
mode of transport to another
 THE CHANGING DEMOGRAPHICS OF THE
GLOBAL ECONOMY

In the 1960s:
the U.S. dominated the world economy and the world trade picture
the U.S. dominated world FDI
U.S. multinationals dominated the international business scene
about half the world-- the centrally planned economies of the
communist world-- was off limits to Western international business
Today, much of this has changed.
THE CHANGING DEMOGRAPHICS OF THE
GLOBAL ECONOMY

In the early 1960s, the U.S. was the world's dominant industrial power
accounting for about 40.3% of world manufacturing output

By 2007, the U.S. accounted for only 20.7%

Other developed nations experienced a similar decline

THE CHANGING DEMOGRAPHICS OF THE
GLOBAL ECONOMY
Rapid economic growth is now being experienced by countries such
as China, Thailand, and Malaysia
Further relative decline in the U.S. share of world output and world
exports seems likely
Forecasts predict a rapid rise in the share of world output accounted
for by developing nations such as China, India, Indonesia, Thailand,
and South Korea, and a decline in the share by industrialized
countries such as Britain, Japan, and the United States
So companies may find both new markets and new competitors in
the developing regions of the world
CHANGING WORLD OUTPUT AND WORLD
TRADE PICTURE
the Changing Demographics of World GDP and Trade
 CHANGING FOREIGN DIRECT
INVESTMENT PICTURE
The share of world output generated by developing countries has
been steadily increasing since the 1960s
The stock of foreign direct investment (total cumulative value of
foreign investments) generated by rich industrial countries has been
on a steady decline
There has been a sustained growth in cross-border flows of foreign
direct investment
The largest recipient of FDI has been China
CHANGING FOREIGN DIRECT
INVESTMENT PICTURE
Percentage Share of Total FDI Stock, 1980 - 2006

CHANGING FOREIGN DIRECT

INVESTMENT PICTURE
 NATURE OF THE
MULTINATIONAL ENTERPRISE
A multinational enterprise is any business that has productive
activities in two or more countries
Since the 1960s,
there has been a rise in non-U.S. multinationals
there has been a rise in mini-multinationals
 CHANGING WORLD ORDER

Today, many markets that had been closed to Western firms are
open
The collapse of communism in Eastern Europe has created a
host of export and investment opportunities
Economic development in China has created huge opportunities
despite continued Communist control
Free market reforms and democracy in Latin America have
created opportunities for new markets and new sources of
materials and production
GLOBAL ECONOMY OF THE
TWENTY-FIRST CENTURY
A more integrated global economy
presents new opportunities for firms, but
it can also result in political and
economic disruptions that may throw
plans into disarray

GLOBALIZATION DEBATE
Is the shift toward a more integrated and
interdependent global economy a good thing?

Many experts believe that globalization is

promoting greater prosperity in the global
economy, more jobs, and lower prices for goods
and services
Others feel that globalization is not beneficial
GLOBALIZATION, LABOR POLICIES AND
THE ENVIRONMENT
Free trade, according to critics of globalization, encourages
advanced-country businesses to shift production plants offshore to
less developed countries with low environmental and labor
restrictions.
Supporters of free trade argue that stronger environmental regulation
and labor standards are integrally linked to economic growth, and
that as nations get wealthier as a consequence of globalization, they
increase their environmental and labor standards.
 GLOBALIZATION AND NATIONAL
SOVEREIGNTY
Critics of globalization worry that economic power is shifting away
from national governments and toward supranational organizations
such as the WTO, the European Union (EU), and the UN
Supporters of globalization argue that the power of these
organizations is limited to what nation-states collectively agree to
grant
-The organizations must be able to persuade members states to
follow certain actions
-Without the support of members, the organizations have no
power
 GLOBALIZATION AND THE WORLD'S
POOR
Critics of globalization argue that the gap between rich and poor has
gotten wider and that the benefits of globalization have not been
shared equally
Supporters of free trade suggest that the actions of governments
have made limited economic improvement in many countries
-Many of the world’s poorest nations are under totalitarian
regimes, suffer from endemic corruption, have few property rights, are
involved in war, and are burdened by high debt
MANAGING IN THE GLOBAL MARKET
What does the shift toward a global economy mean for
managers within an international business?

Managing an international business (any firm that

engages in international trade or investment)
differs from managing a domestic business in
four key ways
MANAGING IN THE GLOBAL MARKET

1. Countries differences require companies to vary their

practices country by country
2. Managers face a greater and more complex range of
problems
3. International companies must work within the limits imposed
by governmental intervention and the global trading system
4. International transactions require converting funds and being
susceptible to exchange rate changes
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