Lecture 1

Chapter
1
INTRODUCTION
&
OVERVIEW
1-2
Case: Wal-mart’s global expansion

 Largest retailer in the world –Over 4500 stores
 International expansion in 1991begins with Mexico
in response to market saturation in the US
 Localization strategy adopted after trial and error
 Global buying power has allowed it to reap
economies of scale
 Wal-mart faces significant competition from other
global retailers, but has the first mover advantage in
some markets
McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

International Business, 5/e
1-3
What is globalization??
 Question: What is the truest definition of Globalization?
Answer: Princess Diana's death.
Question: How come?
Answer: An English princess , with an Egyptian boyfriend ,
crashes in a French tunnel, driving a German car, with a
Dutch engine, driven by a Belgian who was drunk on
Scottish whisky , followed closely by Italian Paparazzi,

1-4
Globalization
 on Japanese motorcycles; treated by an
American doctor, using Brazilian medicines.
This is posted by an Indian, using Bill Gates
's technology, and you're probably reading
this on your computer, that use Taiwanese
chips, and a Korean monitor, assembled by
Bangladeshi workers in a Singapore plant,

1-5
Globalization
 transported by Pakistan lorry-drivers, hijacked
by Indonesians, unloaded by Sicilian
longshoremen, and trucked to you by
Mexican illegals.....
That is Globalization

1-6
What is globalization?
 The shift towards a more integrated and

interdependent world economy
 Two components:
 The globalization of markets
 The globalization of production

1-7
Globalization of markets
 The merging of distinctly separate national

markets into a global marketplace
 Tastes and preferences converge onto a global
norm
 Firms offer standardized products worldwide
creating a world market

1-8
 Significant differences still exist between

national markets on many relevant dimensions
 These differences require that marketing and

operating strategies and product features be
customized to best match conditions in a
country.

1-9
 Countries are different

 Range of problems are wider and more
complex
 Government intervention in trade and
investment creates problems
 International investment is impacted by
different currencies

1-10
Globalization of production
 Refers to sourcing of goods and services from

locations around the world to take advantage
of
 Differences in cost or quality of the factors of
production
 Labor
 Land
 Capital

1-11
Global Production
Swan Optical
Manufacturing
Example 1
Design
McGraw-Hill/Irwin 1-5
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
1-12
Volume of world trade and production,

1950-2002
Fig: 1.1

1-13
Emergence of global institutions
 Globalization has created the need for

institutions to help manage, regulate and
police the global marketplace
 GATT
 WTO
 IMF
 World bank
 United Nations

1-14
Global drivers
 Macro factors that underlie trend towards

greater globalization
 Decline in trade barriers

 Technological change

1-15
Pattern of declining tariffs

1-16
Declining barriers to trade
 Globalization of markets and production has

been facilitated by
 Reduction in trade barriers
 Removal of restrictions to foreign direct
investment

1-17
The changing pattern of world output and

trade

1-18
Percentage share of total FDI stock
Fig: 1.3

1-19
Volume of FDI inflows, 1994-2002

($ billions)
Fig: 1.4

1-20
The role of technological change
 Microprocessors and telecommunications
 The internet and world wide web
 Transportation technology

1-21
The shrinking globe
Fig: 1.2

1-22
Changing demographics of the world

economy
 World output and trade

 Changing foreign direct investment
 Changing nature of multinationals
 Mini multinationals
 Non US multinationals

1-23
National origin of largest multinational

corporations
Fig: 1.5

1-24
Globalization debate-Pro
 Lower prices for goods and services

 Economic growth stimulation
 Increase in consumer income
 Creates jobs
 Countries specialize in production of goods
and services that are produced most
efficiently
1-25
Environmental performance and

income
Fig 1.6

1-26
Globalization debate-Con
 Destroys manufacturing jobs in wealthy,

advanced countries
 Wage rates of unskilled workers in advanced
countries declines
 Companies move to countries with fewer
labor and environment regulations
 Loss of sovereignty


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Chapter

Case: Wal-mart’s global expansion

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 The shift towards a more integrated and

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 The merging of distinctly separate national

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 Significant differences still exist between

 These differences require that marketing and

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 Countries are different

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 Refers to sourcing of goods and services from

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Volume of world trade and production,

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Emergence of global institutions

 Globalization has created the need for

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 Macro factors that underlie trend towards

 Decline in trade barriers

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Pattern of declining tariffs

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Declining barriers to trade

 Globalization of markets and production has

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

The changing pattern of world output and

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Percentage share of total FDI stock

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Volume of FDI inflows, 1994-2002

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

The role of technological change

 Microprocessors and telecommunications

 The internet and world wide web

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

The shrinking globe

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Changing demographics of the world

 World output and trade

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

National origin of largest multinational

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 Lower prices for goods and services

Environmental performance and

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

 Destroys manufacturing jobs in wealthy,

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

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