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International Business

MMS- Sem III

Globalization

What is Globalization

the process by which businesses or other


organizations develop international influence
or start operating on an international scale:
Oxford
the state of being globalized;especially:the
development of an increasingly
integratedglobaleconomy marked especially by free
trade, free flow of capital, and the tapping of cheaper
foreign labor markets
Merriam Webster
Globalization refers to the shit toward a more
integrated and interdependent world economy.
Globalization has

History of Globalization
Since Western
discovery of Americas
1492 Christopher Columbus
Old World (Europe, Asia,
Africa) meets New World
Literally global relations:
- trade, war, migration, etc.

History of Globalization
Since beginnings of human history
- mankind spreads out from East Africa
- one million years ago
- humans reach every part of the planet
- reach southern tip of South America
c. 10,000 BC

Globalization Of Markets
The globalization of markets refers to
the merging of historically distinct
and separate national markets into
on huge global marketplace . .
1)In US ,nearly 90percent of
firms that export are small
business that employ less than
100 people,and their share of
total US exports has grown
steadily over the last decade
and now exceeds 20 percent..
2) Firms with less than 500
employees accounted for 97
percent of all U>S exporters and
almost 30 percent of all exports

KFC China

Kentucky Fried Chicken (KFC) is one of the


most successful international businesses in
China due to its adaptation and appeal to
the Chinese market.

Mac Europe

The most global markets


currently are not
markets for consumer
products where
national differences in
tastes and preferences
are still often important
enough to act as a brake
on globalization but
markets for industrial
goods and materials
that serve a universal
need the world over.
These include the
markets for commodities
such as :

The Globalization Of
Production
It 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.
I. This helps the companies to lower their
overall cost structure.
II. Improve the quality or functionality of
their product offering , therby allowing
them to compete more effectively.

8 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 wings flaps
.
In total 30 percent of the
777 by value is built by
foreign companies .
With 787 Boeing is
pushing this trend
even further with
some 65 percent
of the total value
of the aircraft
outsourced to
foreign
comapanies ,35
percent given to
Japan based

For another example of a global web


of activites consider the IBM
Thinkpad X31 laptop computer.
a) Designed in US .
b) The case,
keyboard and
hard drive were
made in
Thailand.
c) Display ,screen
and memory
were made in
South Korea .
d) Assembled in
Mexico (low
labour cost).

As once truly said by Robert Reich


Its irrelevant to talk about
American ,Japanese ,German or
Korean products , the outsourcing of
productive activities to different
suppliers results in the creation of
products that are global in nature;
that is global product.

The Emergence Of Global


Institutions
As markets globalize and an increasing
proportion of business activity transcends
national borders , institutions are needed to help
manage ,regulate the global market place,and to
promote the establishment of multinational
treaties to govern the global business system.
These institutions includes:
I. WTO
II. World Bank
III. United Nations (UN)

As of 2 March 2013
WTO has 159
members.
Total merchandise
trade value
$18,323,000
billion.
Indias contribution
$2,93,213.5 billion.
WTO accounts for
97% of world

USD Billion
20000000
18000000
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0

World
EU
China
US
India

The IMF and World Bank were both


created in 1944 by 44 nations that met
at Bretton Woods , New Hampshire.
Task of IMF was to maintain order in
the international monetary system.
The world bank was to promote
economic development
The IMF has lent money to the
governments of troubled states
,including Argentina ,Indonesia ,
Mexico, Thailand

Drivers Of Globalization
Two macro factors seem to underline
the trend toward greater
globalization.
Decline Trade and Investment
Barriers
Technological change

Declining Trade and Investment Barriers


International trade occurs
when a firm exports goods or
services to consumers in
another country.
Foreign Direct Investment
occurs when a firm invests
resources in business
activities outside its home
country.
Most of the countries adopted
ISI in the initial phase .
This depressed world demand
and contributed to the Great
Depression of the 1930s.

After WWII industrial nations of the West


committed to removing barriers to the free
flow of goods , services and capital between
nations .
Then came the General Agreement on Tariffs
and Trades(GATT) and latter on it modified to
WTO.
In late 2001 ,the WTO launched a new round
of talks aimed at further liberalizing the global
trade and investment framework(DOHA).

DOHA AGENDA
I. Cutting Tariffs on industrial
goods , services , and
agricultural producers
II. Reducing barriers to crossborder investment
III. Limiting the use of
antidumping laws .
The biggest gain may come
from discussion on
agricultural products.
The rich nations spend some
$300 billion a year in
subsidies to support their
farm sectors .

As Chair of the Trade Negotiations Committee,


Pascal Lamy reported regularly on the
state of play in the Doha Round negotiations.

456

in 2012.

By the end of 2012, WTO


members had filed 456
disputes since the WTO
was created in 1995

27

WTO members

filed 27 new
disputes

The Role Of Technological


Change
Telecommunications
is creating a global
audience.
Transportation is
creating a global
village .
From Boston to Delhi
people are watching
They are listening to
iPods

Microprocessors
The single most
important innovation
has been development
of the microprocessor.
It enable the explosive
growth of high power ,
low-cost computing .

The Internet and World Wide


Web

It is the latest
expression of
development .
In 1990 fewer than
1million users.
In 2012, 39% of world
population uses
internet.

Transportation technology
In addition to developments in
communication technology, several major
innovations in transportation technology
have occurred since world war II.in economic
terms the most important are probably: development of commercial jet aircraft &
superfighters.
Introduction to containerization, which
simplifies transshipment from one mode of
transport to another.

Containerization

period before containerization

Containerization has revolutionized the


transportation business, significantly lowering
the cost of shipping goods over long
distances.
before the advent of containerization,
moving goods from one mode of transport to
another was very labor intensive, lengthy &
costly.
It could take days and several hundred
longshoremen to unload a ship and reload
goods onto trucks & trains.

Advent of widespread containerization


in the 1970s & 1980s
Initially the whole process of
containerization was executed by
handful of longshoremen in a couple
of days.
Since 1980, the worlds containership
fleet has more than quadrupled,
reflecting in part the growing volume
of international trade & in part switch
to this mode of transportation.

Implication for the globalization of


production
As transportation costs associated with the
globalization of production declined, dispersal of
production to geographically separate locations
became more economical.
As a result of technological innovations discussed
above, the real costs of information processing and
communication have fallen dramatically in the past
two decades.
These developments makes it possible for a firm to
create and then manage a globally dispersed
production system, further facilitating the
globalization of production.

Dell
A world communications network has become
essential for many international businesses.for
example: Dell uses the internet to coordinate and control a
globally dispersed production system to such an
extent that it holds only three days worth of
inventory at its assembly locations.
Dells internet based system records orders for
computer equipment as they are submitted by
customers via the companys website,then
immediately transmits the resulting orders for
components to various suppliers around the world,
which have real time look at dells order flow &
can adjust their production scedules accordingly.

Given the low cost of airfreight, dell can


use air transportation to speed up the
delivery of critical components to meet
unanticipated demand shifts without
delaying the shipment of final product to
consumers.
Dell also has used modern communications
technology to outsource its customer
service operations to India.
When U.S. customers call dell with a
service inquiry, they are routed to
Bangalore in India, where English speaking
service personnel handle the call.
Contd..

Implications for the Globalisation of


markets
In addition to the globalization of production,
technological innovations have facilitated the
globalization of markets.
Low cost global communication networks such as the
world wide web are helping to create electronic
global marketplaces. For example: Due to the tumbling costs of shipping goods by air,
roses grown in Ecuador can be cut & sold in new york
two days later while they are still fresh.
This has given rise to an industry in Ecuador that
did not exist 20 yrs ago & now supplies a global
market for roses.

The changing nature of multinational enterprise

The multinational enterprise(MNE) is any business that


has productive activities in two or more countries.
Since the 1960s, two notable trends in the
demographics of the multinational enterprise have
been the rise of:-

Non-U.S. MNCs
In the 1960s, global business activity
was dominated by large
U.S.multinational corporations.
With the U.S. firms accounting for
about 2/3rds of FDI during the 1960s,
one would expect most MNCs to be
U.S. enterprises.

The Changing Foreign Direct


Investment
Global and regional investment
trends:

The road to foreign direct investment (FDI) recovery is


bumpy. Global FDI fell by 18 per cent to $1.35 trillion in
2012. The recovery will take longer than expected, mostly
because of global economic fragility and policy
uncertainty.
UNCTAD forecasts FDI in 2013 to remain close to the 2012
level, with an upper range of $1.45 trillion. As investors
regain confidence in the medium term, flows are expected
to reach levels of $1.6 trillion in 2014 and $1.8 trillion in
2015. However, significant risks to this growth scenario
remain.

Developing countries take the

In 2012 for the first time ever developing economies


absorbed more FDI than developed countries, accounting
for 52 per cent of global FDI flows. This is partly because
the biggest fall in FDI inflows occurred in developed
countries, which now account for only 42 per cent of global
flows. Developing economies also generated almost one
third of global FDI outflows, continuing a steady upward
trend.

FDI Inflows (USD Billion)


Chart Title
World
Developing economies

Developed Countries
Asia

1652
1409

1351
820 735

696 637

436

401

2010

2011

561

703

2012

407

FDI Outflows(USD Billion)


Chart Title
World
Developing Economies

Developed economies
Asia

1678

1505

1391
1183

1030
413

2010

909
284

422

2011

311

426

2012

308

Top 20 host economies,2012(USD


Billion)
Ranking
India(15)
Brazil(4)
HK(3)

Ranking

China(2)
US (1)
0

20

40

60

80 100
120 140
160 180

Anti Globalization Protests

Negative Effects
Globalization has been one of the
most hotly debated topics in
international economics over the
past few years.

Inequality

Environment Degradatio

Export Poverty Where a country has little


material or physical product harvested or
mined form its own soil, large corporations
see an opportunity to take advantage of the
export poverty of such a nation.
Sweat Shops concepts example of nike . It
operates in those countries where employees
agree to work for low wages . But as the
labour changes stricter rules are placed
then factories are closed down and relocated
to other nations .

Brain drain has cost the


African continent over $4.1
billion in the employment of
1.5lakh expatriate
professionals annually.

Indian students going abroad


for their higher studies costs
India a foreign exchange
outflow of $10 billion
annually .

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