GLOBALIZATION

PART 1: The Emergence of Global Organizations

●​ Globalization refers to the shift toward a more integrated and interdependent world
economy.
●​ Globalization has several facets, including the globalization of markets and the
globalization of production
THE GLOBALIZATION OF MARKETS
The globalization of markets refers to the merging of historically distinct and separate
national markets into one huge global marketplace.
●​ In many global markets, the same firms frequently confront each other as competitors
in nation after nation.
●​ In an increasing number of industries, it is no longer meaningful to talk about “the
German market,” “the American market,” “the Brazilian market,” or “the Japanese
market”; for many firms, there is only the global market.
THE GLOBALIZATION OF PRODUCTION
The 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 (such as labor, energy, land, and capital).

CRITICISM OF GLOBALIZATION
• The outsourcing of productive activities to different suppliers results in the creation of
products that are global in nature - that is, “global products.”
• Substantial impediments still make it difficult for firms to achieve the optimal dispersion of
their productive activities to locations around the globe.
• Nevertheless, the globalization of markets and production will probably continue. Modern
firms are important actors in this trend, their actions fostering increased globalization.
WORLD TRADE ORGANIZATION
The World Trade Organization (WTO) is primarily responsible for policing the world trading
system and making sure nation - states adhere to the rules laid down in trade treaties signed
by WTO member states.
• The WTO is also responsible for facilitating the establishment of additional multinational
agreements among WTO member states.
INTERNATIONAL MONETARY FUND
• The IMF was established to maintain order in the international monetary system.
• The IMF is often seen as the lender of last resort to nation-states whose economies are in
turmoil and whose currencies are losing value against those of other nations.
WORLD BANK
• The World Bank was set up to promote economic development.
• The World Bank has focused on making low- interest loans to cash-strapped governments in
poor nations that wish to undertake significant infrastructure investments (such as building
dams or roads).
UNITED NATIONS

The UN has four purposes:

●​ to maintain international peace and security;
●​ to develop friendly relations among nations;
●​ to cooperate in solving international problems and in promoting respect for human
rights;
●​ to be a center for harmonizing the actions of nations.
One of the organization’s central mandates is the promotion of higher standards of living, full
employment, and conditions of economic and social progress and development.

PART 2: Motives of Globalization

MOTIVES OF GLOBALIZATION
Two macro factors underlie the trend toward greater globalization:
1. The decline in barriers to the free flow of goods, services, and capital that has occurred in
recent decades
2. Technological change, particularly the dramatic developments in communication,
information processing, and transportation technologies
DECLINING TRADE AND INVESTMENT BARRIERS
• During the 1920s and 1930s, many of the world’s nation-states erected formidable barriers
to international trade and foreign direct investment.
• 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.
• Many of the barriers to international trade took the form of high tariffs on imports of
manufactured goods. The typical aim of such tariffs was to protect domestic industries from
foreign competition.
DECLINING TRADE AND INVESTMENT BARRIERS
DECLINING TRADE AND INVESTMENT BARRIERS

DECLINING TRADE AND INVESTMENT BARRIERS

The globalization of markets and production and the resulting growth of world trade, foreign
direct investment, and imports all imply that firms are finding their home markets under
attack from foreign competitors.
• Examples: 1. In China, U.S. companies such as Apple, General Motors, and Starbucks are
expanding their presence.
2. In the United States, where Japanese automobile firms have taken market share away from
General Motors and Ford over the past three decades
DECLINING TRADE AND INVESTMENT BARRIERS
• The growing integration of the world economy into a single, huge marketplace is increasing
the intensity of competition in a range of manufacturing and service industries.
• However, declining barriers to cross-border trade and investment cannot be taken for
granted. Demands for “protection” from foreign competitors are still often heard in countries
around the world, including the United States. It is not clear whether the political majority in
the industrialized world favors further reductions in trade barriers.
ROLE OF TECHNOLOGICAL CHANGE
• The lowering of trade barriers made globalization of markets and production a theoretical
possibility. Technological change has made it a tangible reality.
• Every year that goes by comes with unique and oftentimes major advances in
communication, information processing, and transportation technology, including the
explosive emergence of the “Internet of Things.”
ROLE OF TECHNOLOGICAL CHANGE
Communications
• Over the past 30 years, global communications have been revolutionized by developments
in satellite, optical fiber, wireless technologies, and of course the Internet.
• These technologies rely on the microprocessor to encode, transmit, and decode the vast
amount of information that flows along these electronic highways.
The Internet
• The explosive growth of the Internet since 1994, when the first web browser was
introduced, has revolutionized communications and commerce. It is no surprise that the
Internet has developed into the information backbone of the global economy.
• In North America alone, e-commerce retail sales were $517 billion in 2018 (up from almost
nothing in 1998), while global e-commerce sales reached $2.5 trillion.
• Viewed globally, the Internet has emerged as an equalizer. The Internet makes it much
easier for buyers and sellers to find each other, wherever they may be located and whatever
their size. It allows businesses, both small and large, to expand their global presence at a
lower cost than ever before.
• Just as important, the Internet enables enterprises to coordinate and control a globally
dispersed production system in a way that was not possible 25 years ago.
Transportation Technology
• In economic terms, the most important are probably the development of commercial jet
aircraft and superfreighters and the introduction of containerization, which simplifies
transshipment from one mode of transport to another.
• The advent of commercial jet travel, by reducing the time needed to get from one location
to another, has effectively shrunk the globe.
• Containerization has revolutionized the transportation business, significantly lowering the
costs of shipping goods over long distances.
• As a result of the efficiency gains associated with containerization, transportation costs have
plummeted, making it much more economical to ship goods around the globe, thereby
helping drive the globalization of markets and production.

PART 3: The Changing Demographics of the

Global Economy
PAST WORLD OUTPUT AND WORLD TRADE PICTURE
Four facts described the demographics of the global economy:
1. U.S. dominance in the world economy and world trade picture
2. U.S. dominance in world foreign direct investment
3. The dominance of large, multinational U.S. firms on the international business scene
4. Roughly half the globe was off-limits to Western international businesses
THE CHANGING WORLD OUTPUT AND WORLD TRADE PICTURE
• The United States was not the only developed nation to see its relative standing slip. The
same occurred to Germany, France, Italy, the United Kingdom, and Canada. All were nations
that were among the first to industrialize globally
• The change in the U.S. position was a relative decline, reflecting the faster economic
growth of several other economies, particularly China, and several other nations in Asia.
CHANGING DEMOGRAPHICS OF WORLD OUTPUT AND WORLD EXPORTS

THE CHANGING WORLD OUTPUT AND WORLD TRADE PICTURE

• As emerging economies continue to grow, a further relative decline in the share of world
output and world exports accounted for by the United States and other long-established
developed nations seems likely.
• The relative decline of the United States reflects the growing economic development and
industrialization of the world economy, as opposed to any absolute decline in the health of the
U.S. economy.
THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE
• As the barriers to the free flow of goods, services, and capital fell, and as other countries
increased their shares of world output, non-U.S. firms increasingly began to invest across
national borders.
• The motivation for much of this foreign direct investment by non-U.S. firms was the desire
to disperse production activities to optimal locations and to build a direct presence in major
foreign markets.
THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE
THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE

THE CHANGING NATURE OF THE MULTINATIONAL ENTERPRISE

• A multinational enterprise (MNE) is any business that has productive activities in two or
more countries.
• In the last 50 years, two notable trends in the demographics of the multinational enterprise
have been (1) the rise of non-U.S. multinationals and (2) the growth of mini- multinationals.

NON U.S. MULTINATIONALS

THE RISE OF MINI MULTINATIONALS

• Although most international trade and investment is still conducted by large firms, many
medium-sized and small businesses are becoming increasingly involved in international trade
and investment.
• The rise of the Internet is lowering the barriers that small firms face in building
international sales.
THE CHANGING WORLD ORDER
• Many of the former communist nations of Europe and Asia have seemed to share a
commitment to democratic politics and free market economics.
• In addition to these changes, quieter revolutions have been occurring in China, other
countries in Southeast Asia, and Latin America.
PART 4: Arguments on Globalization &
Management in Global Markets
ANTIGLOBALIZATION PROTESTS
●​ Popular demonstrations against globalization are due to a wide range of issues,
including job losses in industries under attack from foreign competitors, downward
pressure on the wage rates of unskilled workers, environmental degradation, and the
cultural imperialism of global media and multinational enterprises.
●​ Many protests against globalization are tapping into a general sense of loss at the
passing of a world in which barriers of time and distance, and significant differences
in economic institutions, political institutions, and the level of development of
different nations produced a world rich in the diversity of human cultures.
GLOBALIZATION, JOBS, AND INCOME
• One concern frequently voiced by globalization opponents is that falling barriers to
international trade destroy manufacturing jobs in wealthy advanced economies such as the
United States and Western Europe. Critics argue that falling trade barriers allow firms to
move manufacturing activities to countries where wage rates are much lower.
• Supporters of globalization reply that critics of these trends miss the essential point about
free trade agreements - the benefits outweigh the costs.
• Free trade will result in countries specializing in the production of those goods and services
that they can produce most efficiently, while importing goods and services that they cannot
produce as efficiently.
• The outsourcing of services supports low-wage countries. Supporters of globalization argue
that free trade benefits all countries that adhere to a free-trade regime.
• The share of national income received by labor, as opposed to the share received by the
owners of capital (e.g., stockholders and bondholders), should have declined in advanced
nations as a result of downward pressure on wage rates. Second, even though labor’s share of
the economic
• Even though labor’s share of the economic pie may have declined, this does not mean lower
living standards if the size of the total pie has increased sufficiently to offset the decline in
labor’s share - in other words, if economic growth and rising living standards in advanced
economies have offset declines in labor’s share.
• The decline in labor’s share of national income must be due to moving production to
low-wage countries, as opposed to improvement in production technology and productivity.
GLOBALIZATION, LABOR POLICIES, AND THE ENVIRONMENT
• Free trade encourages firms from advanced nations to move manufacturing facilities to less
developed countries that lack adequate regulations to protect labor and the environment from
abuse by the unscrupulous.
• Globalization critics often argue that adhering to labor and environmental regulations
significantly increases the costs of manufacturing enterprises and puts them at a competitive
disadvantage in the global marketplace vis-à- vis firms based in developing nations that do
not have to comply with such regulations.
GLOBALIZATION AND NATIONAL SOVEREIGNTY
• Today’s increasingly interdependent global economy shifts economic power away from
national governments and toward supranational organizations such as the World Trade
Organization, the European Union, and the United Nations.
• As perceived by critics, unelected bureaucrats now impose policies on the democratically
elected governments of nation-states, thereby undermining the sovereignty of those states and
limiting the nation’s ability to control its own destiny.
GLOBALIZATION AND THE WORLD’S POOR
• Despite the supposed benefits associated with free trade and investment, over the past 100
years or so the gap between the rich and poor nations of the world has gotten wider.
• Many of the world’s poorest countries have suffered from totalitarian governments,
economic policies that destroyed wealth rather than facilitated its creation, endemic
corruption, scant protection for property rights, and prolonged civil war.
• Many of the world’s poorer nations are being held back by large debt burdens. Free trade
alone, some argue, is a necessary but not sufficient prerequisite to help these countries
bootstrap themselves out of poverty. Instead, large-scale debt relief is needed for the world’s
poorest nations to give them the opportunity to restructure their economies and start the long
climb toward prosperity.