GLOBALIZATION

ATTY. EARL LOUIE M. MASACAYAN, LL.M.

  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.
  refers to the merging of historically distinct and separate
national markets into one huge global marketplace.
 Falling barriers to cross-border trade have made it easier to sell
internationally.
Globalization  It has been argued for some time that the tastes and preferences
of Markets of consumers in different nations are beginning to converge on
some global norm, thereby helping to create a global market.
 Consumer products such as Citigroup credit cards, Coca-Cola
soft drinks, Sony PlayStation video games, McDonald’s
hamburgers, Starbucks coffee, and IKEA furniture are
frequently held up as prototypical examples of this trend.
  refers to sourcing 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).
 By using global sourcing, companies hope to lower their

Globalization overall cost structure or improve the quality or functionality of

their product offering, thereby allowing them to compete more
of Production effectively.
 Consider the Boeing’s 777, a commercial jet airliner. Eight
Japanese suppliers make parts for the fuselage, doors, and
wings; a supplier in Singapore makes the doors for the nose
landing gear; three suppliers in Italy manufacture wing flaps;
and so on.
  As markets globalize and an increasing proportion of business
activity transcends national borders, institutions are needed to
help manage, regulate, and police the global marketplace, and
to promote the establishment of multinational treaties to govern
the global business system.

Emergence of  Over the past half century, a number of important global

institutions have been created to help perform these functions,
Global including the General Agreement on Tariffs and Trade

Institutions (GATT) and its successor, the World Trade Organization

(WTO); the International Monetary Fund (IMF) and its sister
institution, the World Bank; and the United Nations (UN).
 All these institutions were created by voluntary agreement
between individual nation- states, and their functions are
enshrined in international treaties.
  The World Trade Organization (like the GATT before it) 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. As of 2009, 153 nations that collectively
accounted for 97 percent of world trade were WTO members, thereby
giving the organization enormous scope and influence.
 The WTO is also responsible for facilitating the establishment of
World Trade additional multinational agreements between WTO member states.

Organization  Over its entire history, and that of the GATT before it, the WTO has
promoted lowering barriers to cross-border trade and investment. In
doing so, the WTO has been the instrument of its member states,
which have sought to create a more open global business system
unencumbered by barriers to trade and investment between countries.
Without an institution such as the WTO, it is unlikely that the
globalization of markets and production could have proceeded as far
as it has.
  were both created in 1944 by 44 nations that met at Bretton
Woods, New Hampshire.
 The IMF was established to maintain order in the international
monetary system; the World Bank was set up to promote
International economic development. In the 65 years since their creation,
Monetary both institutions have emerged as significant players in the
global economy.
Fund and the  The World Bank is the less controversial of the two sister
World Bank institutions. It 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).
  was established October 24, 1945, by 51 countries committed
to preserving peace through international cooperation and
collective security.
 Today nearly every nation in the world belongs to the United
Nations; membership now totals 191 countries. When states
become members of the United Nations, they agree to accept

United Nations the obligations of the UN Charter, an international treaty that

establishes basic principles of international relations.
 According to the charter, 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, and to be a center
for harmonizing the actions of nations.
  Established in 1999, the G20 comprises the 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.
 Originally established to formulate a coordinated policy
G20 response to financial crises in developing nations, in 2008 and
2009, G20 became the forum through which major nations
attempted to launch a coordinated policy response to the global
financial crisis that started in America and then rapidly spread
around the world, ushering in the first serious global economic
recession since 1981.
  Two macro factors underlie the trend toward greater
globalization.
 The first is the decline in barriers to the free flow of goods,
Drivers of services, and capital that has occurred since the end of World
War II.
Globalization  The second factor is technological change, particularly the
dramatic developments in recent years in communication,
information processing, and transportation technologies.
  During the 1920s and 30s 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.
Declining Trade  Many of the barriers to international trade took the form of high tariffs

and Investment on imports of manufactured goods.

 The typical aim of such tariffs was to protect domestic industries from
Barriers foreign competition.
 One consequence, however, was “beggar thy neighbor” retaliatory trade
policies, with countries progressively raising trade barriers against each
other.
 Ultimately, this depressed world demand and contributed to the Great
Depression of the 1930s.
  Lowering trade barriers made globalization of markets and
production a theoretical possibility.
 Technological change has made it a tangible reality. Since the
end of World War II, the world has seen major advances in
communication, information processing, and transportation
technology, including the explosive emergence of the Internet
The Role of and World Wide Web.

Technological  Telecommunications is creating a global audience.

Change Transportation is creating a global village.

 From Buenos Aires to Boston, and from Birmingham to
Beijing, ordinary people are watching MTV, they’re wearing
blue jeans, and they’re listening to iPods as they commute to
work.
  The rapid growth of the World Wide Web is the latest expression of this
development.
 In 1990, fewer than 1 million users were connected to the Internet.
 By 1995, the figure had risen to 50 million.
 By May 2009 the Internet had 1.6 billion users.

The Internet
 The WWW has developed into the information backbone of the global
economy.

and World  In the United States alone, e-commerce retail sales reached $133 billion in
2008, up from almost nothing in 1998.
Wide Web  Viewed globally, the Web is emerging as an equalizer.
 It rolls back some of the constraints of location, scale, and time zones.
 The Web 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.
  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
Transportation shrunk the globe.

Technology  In terms of travel time, New York is now “closer” to Tokyo

than it was to Philadelphia in the Colonial days.
 Containerization has revolutionized the transportation business,
significantly lowering the costs of shipping goods over long
distances.
  As transportation costs associated with the globalization of
production declined, dispersal of production to geographically
separate locations became more economical.

Implications for  As a result of the technological innovations discussed above,

the real costs of information processing and communication
the have fallen dramatically in the past two decades.

Globalization  These developments make it possible for a firm to create and

of Production then manage a globally dispersed production system, further

facilitating the globalization of production.
 A worldwide communications network has become essential
for many international businesses.
  In addition to the globalization of production, technological
innovations have also facilitated the globalization of markets.
 Low-cost global communications networks such as the World Wide
Web are helping to create electronic global marketplaces.
 As noted above, low-cost transportation has made it more economical

Implications for to ship products around the world, thereby helping to create global
markets.
the  In addition, low-cost jet travel has resulted in the mass movement of
Globalization people between countries.

of Markets  This has reduced the cultural distance between countries and is
bringing about some convergence of consumer tastes and preferences.
 At the same time, global communication networks and global media
are creating a worldwide culture.
 Many countries now receive U.S. television networks such as CNN,
MTV, and HBO, and people watch Hollywood films the world over.