DRIVERS OF GLOBALIZATION

Two components of globalisation:

The globalization of markets The globalization of production

Globalization of Production
Vizio flat panel TV is
designed in a small office in California assembled in Mexico

From

panels made in South Korea electronic components made in China microprocessors made in the U.S.

Not just manufacturing

Globalization of production has historically been about manufacturing
Increasingly companies are using modern

communications to outsource service activities to low-cost nations

Globalization of markets
In the past, each country had its own companies in many industries and its own products

Today everyone knows

Nintendo
Starbucks Coca-Cola Ikea (Sweden , furniture retailer) McDonalds Samsung

But the most global markets are for standard goods

Aluminum Wheat Microprocessors Aircraft

For many consumer end-products, huge

differences still exist among national markets

Food, clothing, entertainment

Drivers of Globalization
Two factors underlie globalization
Decline in barriers to the free flow of

goods, services, and capital that has occurred since the end of World War II Technological change

Declining Trade and Investment Barriers

During the 1920s and 30s, many of nations erected formidable barriers to international trade and

foreign direct investment Advanced industrial nations of the West committed themselves after World War II to removing barriers to the free flow of goods, services, and capital between nations.

Average Tariff Rates on Manufactured Products

France Germany Italy Japan Holland Sweden UK US 1913 21 % 20 % 18 % 30 % 5% 20 % -44 % 1950 18 % 26 % 25 % -1% 9% 4% 14 % 1990 5.9 % 5.9 % 5.9 % 5.3 % 5.9 % 4.4 % 5.9 % 4.8 % 2002 4.0 % 4.0 % 4.0 % 3.8 % 4.0 % 4.0 % 4.0 % 4.0 %

Affects of Lowering Trade Barriers

Figure 1.1: Volume of World Trade and World Production, 1950-2004
3100 2600

Index 1950=100

2100 1600 1100 600 100

19 50

19 54

19 58

19 62

19 66

19 70

19 74

19 78

19 82

19 86

19 90

19 94

19 98

Total Merchandise Exports

World Production

20 02

The Role of Technology

Lowering

of trade globalization possible;

barriers

made

technology has made it a transforming

movement

Internet Usage Growth

Figure 1.3: Internet Users per 1000 People, 19902003
700.00 600.00

Internet Users per 1000 people

500.00 400.00 300.00 200.00 100.00 0.00

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Japan

United States

European Monetary Union

World

2003

Industry Globalization Drivers

Market Drivers Cost Drivers Government Drivers Competitive Drivers

Market Globalization Drivers

Convergence of per capita income, lifestyles and

tastes?? Global Customers due to increased travel and organizational buying Growing global and regional channels Increasing number of world brands and global advertising

Cost Globalization Drivers

Continuing push for economies of scale (but offset

by flexible manufacturing) Accelerating technological innovation Increasing cost of product development relative to market life Advances in transportation Emergence of newly industrialized countries with productive capability and low labor costs

Government Globalization Drivers

Reduction of tariff barriers
Reduction of non-tariff barriers Creation of new trading blocs Decline in the role of government as

producers and consumers Market liberalization and privatization Adoption of common standards

 More countries becoming key competitive battlegrounds Rise of new competitors intention on becoming global Growth of global networks making countries interdependent in particular industries More companies becoming internationally oriented rather than nationally centered New global alliances

Competitive Globalization Drivers

Business strategies for going global

To export or not to export
Checking readiness Accessing capability Considering trade barriers Considering Intellectual Property Rights

(IPR) Financing your venture

 To export or not to export

Export development is a process and not an event. Most businesses fail to understand this. It is commonly recognized that a business needs a product or services which is in demand in overseas markets. But the fact that businesses need proper skills, resources, commitment and information to support sustained exporting activities over the longer term is often overlooked. Neglecting factors such as these can be a critical exporting barrier for small and medium-sized businesses. To benefit from export market opportunities, a business needs to make a sustained commitment in resources: effort, money and time. Before rushing out to export, a business needs to find out the right reason to export and test its export readiness

CChecking readiness You may be successful in the domestic market and are now looking to export to overseas market. But are you ready? For this you need to assess the market opportunities and your business' internal capabilities It will take more time, money and resources to establish your business in an overseas market than in a domestic one. You should have a long-range view. As an exporter, you should be equipped with different skills such as finance, technical, marketing, administration and market experience.

 You need to research the target market and find out

the weakness & strength of your product in terms of quality, price & uniqueness Research why the product will attract sales in the destination market. Also analysis whether your company has the capacity to tailor it to the requirements of the target market? AAccessing capability Another key test in determining your export capability is to analysis why your business is successful at the domestic level, what are your competitive advantages, and how these competitive advantages could help you in grabbing success in the international market as well

 Considering trade barriers

P . C .

The risks in exports are totally different from those encountered domestically, and they are unavoidable to some extent Political risk Legal risk Credit related risk Internet frauds

 Considering Intellectual Property Rights (IPR)

Copyrights: Copyright acts protect a creator from having his creation (literary work, dramatic work, musical work, artistic work, cinematographic film, sound recording, etc.) copied or exploited by someone without the creator's permission.
2. Trade marks: In simple term, a trade mark (or brand name) is nothing but a visual symbol or sign such as signature, name, device, label, numerals, etc. which distinguishes the creator's goods or services or other articles from other similar goods or services created by others.

 Patents: Patents allow the inventor of an invention to

exert monopoly of the invention and thus to fetch adequate commercial value for a period of 20 years. To gain patent, an invention must be new, inventive and capable of industrial application.
4. Geographical indications: The term 'geographical indication' (in relation to goods) means an indication which identifies goods as originating, or manufactured in the territory of a country, or a region or locality in that territory, where a given quality, reputation or other characteristic of such goods is essentially attributable to its geographical origin.

5. Industrial designs: The term 'design' is defined as "only the features of shape, configuration, pattern, ornament or composition of lines or colours applied to any article whether in two dimensional or three dimensional or in both forms, by any industrial process or means, whether manual, mechanical or chemical, separate or combined, which in the finished article appeal to and are judged solely by the eye.
6. Trade secrets or know hows: Trade Secrets or Know Hows are confidential information which may be commercially or technically valuable, and therefore, they need protection.

 Financing your venture

To grab success in export business, it usually requires a financial commitment over a long period until one's export venture is paid off. Besides initial investments, exporters also need to offer credit to win overseas customers. Hence, you must pay careful attention to cashflow management before or even after starting your export business.

The Emergence of Global Institutions

Notable global institutions include 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

The 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

The Changing Roles of Countries in the Global Economy

In the 1960s: the U.S. dominated the world economy and the world trade picture 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 World Output and World Trade Picture

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 Nature of the Multinational Enterprise

Since the 1960s,
there has been a rise in non-U.S.

multinationals there has been a rise in minimultinationals

Mini-multinational means Growth of medium size and small multinationals Eg. Bharat Forge - an Indian maker of steel car components, the company recently bought forges in the United States and Germany Another mini-multinational is Videsh Sanchar NigamLtd., or VSNL, the former state monopoly for international telephone calls that was privatized in 2002.
The company had certain business deal with US giant Tyco International. The company's ambitions stretch beyond India. VSNL wants to establish itself, as a"onestop telecommunications provider for globalbusinesses."

The Globalization Debate

Pro
Lower prices for goods

Con
Destroys manufacturing

and services Economic growth Increase in consumer income Creates jobs (for many) Countries specialize in production of goods and services that are produced most efficiently

jobs in wealthy nations Wage rates of unskilled in advanced countries decline Companies move to countries with fewer labor and environment regulations Loss of sovereignty Homogenized cultures

Managing in the Global Marketplace

Much of this course is concerned with

managing an international business

i.e., any business with international

sales, sourcing, or Investment

Managing an international business is different

Countries are different International transactions involve converting

money into different currencies Range of problems in an international business is wider and problems are more complex International business must cope with different, conflicting government rules and systems Different strategic approaches required

Key terms
An international business any business with international sales, sourcing, or investment A multinational business any business with productive activities in 2 or more countries
A global business a business that takes a

global approach to production and sourcing

(Coca-Cola, Intel)