International Business

To be viewed together with the book

International Business- Competing in the Global Marketplace by Charles
H.W. Hill and G. Tomas M. Hult
What Is Globalization?
The Globalization of Markets
• Falling barriers to cross-border trade and investment (FB in Jio)
• Global tastes (Uber; IKEA) Q: Good or Bad?
• Global Marketplace (Starbucks/ Apple)
• Benefits small and large companies (AirBnB)
• Significant differences between national markets (Netflix?)
• Products that serve universal needs are global (Amazon)
• Competitors may not change among nations (McDonalds and Burger
King)

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What Is Globalization?
The Globalization of Production
• Sourcing goods to take advantage of differences in cost and quality of factors
of production
• Early outsourcing was confined to manufacturing
• Services?
• Technology now used for outsourcing

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What Is Globalization?
The Globalization of Production continued
• Robert Reich and “global products” (Born Global)
• Impediments
• Formal and informal barriers to trade
• Transportation costs
• Political and economic risk
• Coordination

• AOC? (Champagne/ Scotch)

• Opposition?

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The Emergence of Global Institutions
General Agreement on Tariffs and Trade (GATT)
World Trade Organization
International Monetary Fund
The World Bank
The United Nations

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The Emergence of Global Institutions
The World Trade Organization
• Polices the world trading system- facilitating dropping barriers
• Ensures nation-states adhere to the rules
• Facilitates multinational agreements among members
• 164 nations account for 98 percent of world trade

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The Emergence of Global Institutions
The International Monetary Fund
• Bretton Woods, 1944
• Established to maintain order in the international monetary system
• Lender of last resort
• Requires nation-states to adopt specific economic policies aimed at returning
their economies to stability and growth (Greece and Eurozone)

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The Emergence of Global Institutions
The World Bank
• Promotes economic development
• Focused on making low-interest loans to cash-strapped governments in poor
nations that wish to undertake significant infrastructure investments

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The Emergence of Global Institutions
The United Nations
• Peace through international cooperation and collective security
• 193 countries
• UN Charter – four basic purposes
• Maintain international peace and security (Post World War II)
• Develop friendly relations among nations
• Cooperate in solving international problems and in promoting respect for human rights
• Be a center for harmonizing the actions of nations

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The Emergence of Global Institutions
Group of Twenty (G20)
• Finance ministers and central bank governors of the 19 largest economies in
the world, plus representatives from the European Union and the European
Central Bank
• Represents 90 percent of global GDP and 80 percent of international global
trade (US Financial Crisis)

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Drivers of Globalization
• Declining Trade and Investment Barriers
• 1920s-30s: Barriers to international trade and foreign direct investment
• High tariffs resulted in retaliatory trade policies
• GATT lowered barriers
• Uruguay Round (1993)
• Established World Trade Organization (WTO)

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Drivers of Globalization
Knowledge Society and Trade Agreements
• The value of world trade in merchandised goods has grown consistently faster
than the growth rate in the world economy since 1950.
• Trade across country borders is 2.6 times higher than world production.
• Knowledge society has produced more informed consumers, driving demand.
• Removal of restrictions to FDI
• More trade agreements (Eurozone; NAFTA)

• Sustainability (SDG)

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Drivers of Globalization
Role of Technological Change
• Communications
• Development of the microprocessor
• Moore’s Law (Power 2X; CoP 1/2X)
• Internet of things
• Half the world’s population uses the Internet
• Global e-commerce sales over $2 trillion
• The Internet is an equalizer

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Drivers of Globalization
Role of Technological Change continued
• Transportation technology
• Commercial jet travel, superfreighters, and containerization (Space Travel?)
• Implications for the globalization of production
• Has become more economical (Dell Inventory)
• Worldwide communications network
• Implications for the globalization of markets
• Reduced cultural difference (SpaceX)
• Convergence of consumer tastes and preferences (Amazon- Harissa)

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The Changing Demographics of the
Global Economy
• The Changing World Output and World Trade Picture
• U.S. has experienced a relative decline reflecting the faster economic growth
of several other economies
• China and BRIC countries growing more rapidly
• Developing nations may account for more than 60 percent of world economic activity
by 2025

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The Changing Demographics of the
Global Economy
The Changing Foreign Direct Investment Picture
• Non-U.S. firms are increasingly investing across national borders
• 1960-US FDI- 66%=>
• Desire to disperse production activities to optimal locations and to build a direct presence
in major foreign markets
• Hedge against currency movement and possible trade barriers
• Largest recipient of FDI was China
• Vodafone- Huawei
• IBM- Lenovo
• CapGemini- Infosys and Cognizant

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The Changing Demographics of the
Global Economy
The Changing Nature of the Multinational Enterprise
• Non-U.S. multinationals
• In 2003, 38.8 percent of the world’s 2000 largest multinationals were U.S. firms
• By 2017, 27 percent of the top 2000 global firms are now U.S. multinationals, a drop of
236 firms
• European- German (Cars), French (Energy); British (Virgin, Vodafone); Swiss (Nestle)
• Indian- Tata (Acquisitions), Reliance; Infosys/TCS
• Chinese- Huawei, Alibaba, Tencent
• Japanese (Sony)
• Korean (Hyundai)

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The Changing Demographics of the
Global Economy
The Changing Nature of the Multinational Enterprise continued
• The rise of mini-multinationals
• Medium- and small-sized businesses
• Internet is lowering barriers
• Respecting of Intellectual Property Rights
• GW Barth (German Coffee Roasting Machinery)

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The Changing Demographics of the
Global Economy
The Changing World Order
• 1989?
• Former communist countries present export and investment opportunities
• Signs of growing unrest and totalitarianism (Dictatorial Regimes)
• China moving to industrial superpower
• World Trade?
• Geo-Politics in Africa/ BRI
• Latin America debt and inflation are down, more private investors, expanding
economies
• Venezuela

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The Changing Demographics of the
Global Economy
Global Economy of the Twenty-First Century
• Barriers to the free flow of goods, services, and capital have been coming
down
• Strengthened by the widespread adoption of liberal economic policies by
countries that had firmly opposed them
• Globalization is not inevitable
• Countries may pull back (UK; Turkey?)
• Risks are high (Spreading of crisis- Thailand; US Financial Crisis)

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The Globalization Debate
• Is Globalization good?
• For all?
• Anti-globalization Protests
• Critics
• 1999 protests at WTO meeting (Seattle)
• Detrimental effects on living standards, wage rates, and the environment.
• France and McDonalds
• India? McDonaldisation?

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The Globalization Debate
Globalization, Jobs, and Income
• Critics of globalization argue:
• Falling trade barriers allow firms to move manufacturing activities to countries
where wage rates are much lower
• Destroy manufacturing jobs in wealthy advanced economies
• Services also being outsourced
• Contributing to higher unemployment and lower living standards in their home nations
• Donald Trump (America’s Rust Belt)

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The Globalization Debate
Globalization, Jobs, and Income continued
• Supporters argue:
• Benefits outweigh the costs
• Free trade will result in countries specializing in the production of goods and
services that they can produce most efficiently, while importing goods and
services that they cannot produce as efficiently
• As a result, the whole economy is better off
• Companies can reduce their cost structure, and consumers benefit

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The Globalization Debate
Globalization, Jobs, and Income continued
• Data suggests the share of labor in national income has declined
• Share of national income by skilled labor has increased
• Unskilled labor experienced a fall in income, but not necessarily standard of living
due to economic growth
• The weak growth rate in real wage rates for unskilled workers is likely due
to a technology-induced shift within advanced economies
• Technological change has a bigger impact than globalization on declining share of
national income enjoyed by labor (Gig Economy; Amazon’s Drone)

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The Globalization Debate
• Globalization, Labor Policies, and the Environment
• Critics argue:
• Labor and environmental regulations (Rana Plaza)
• Lack of regulation can lead to abuse
• Adhering to regulations increases costs
• As countries get richer, they enact tougher environmental and labor
regulations
• Supporters argue:
• Tougher environmental regulations and stricter labor standards go hand in hand with
economic progress

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The Globalization Debate
• Globalization and National Sovereignty
• Critics argue:
• Shift of power from national governments toward supranational organizations
• WTO, EU, United Nations
• Supporters argue:
• The power of supranational organizations is limited to what nation-states
collectively agree to grant
• These organizations exist to serve the collective interests of member states

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The Globalization Debate
• Globalization and the World’s Poor
• Critics argue:
• Gap between the rich and poor nations has gotten wider
• Totalitarian governments
• Poor economic policies
• Corruption and lack of property rights
• Expanding populations in developing countries
• Debt burdens (High Public Debt and No Infra Investment Cycle)
• Supporters argue:
• The best way to change the situation is to lower barriers to trade and
investment and promote free market policies
• South Korea, Thailand and Malaysia

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Managing in the Global Marketplace
• Managers
• Managing an international business differs from managing a purely
domestic business
• Need to vary practices from country to country
• More complex decisions required (Manufacturing; Supply Chains, JV’s, etc)
• Need to understand the international trading and investment system,
• Currency exchange

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Questions?

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