International Business in Focus, 2013-14 Week 1 Globalization
Overview In this lecture we begin to explore important aspects of the international business landscape. We will: To define globalization Examine the pace of globalization Analyse the facilitators and drivers Explain the importance of globalization for business Analyse the barriers to globalization
GLOBALIZATION: A Definition Held defines globalization as: the widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritual." Thus, Held sees globalization as pervading all areas of society.
GLOBALIZATION The linkages created by globalization cause economies and societies to become: more closely integrated more interdependent
WHAT CREATES THE LINKS Cross-border movements of resources*: goods and services capital labour * resources transfer knowledge/know-how/ ideas when they move from one country to another
Top Emigration Countries 2010 Source: International Organisation for Migration Global no. of international migrants: 214m Large sources of emigrants: Between 11m and 12m emigrants: Mexico, India, Russian Federation Between 8m and 9m emigrants: China Between 5m and 7m emigrants: Ukraine, Bangladesh
Emigration Receiving Countries Large receiving countries: USA around 1m (2010) UK and Spain around 500,000 (2009)
But note that there are different interpretations of globalization Globalization can be defined as the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occuring many miles away and vice versa. Giddens 1990 Globalization should be reduced to trade, investment and financial statistics. These constitute objective' or real' globalization, and all the rest is myth or fantasy Krugman 1996
Illustration: The perils of the global spread of Western culture? http://www.dailymail.co.uk/news/article- 2039135/Chinese-X-Factor-banned-TV-westerniseddress-sense-offends-older-viewers.html This site has some interesting data on increases in Facebook usage worldwide, and a map of facebook interconnections: http://blogalize.typepad.com/micro/facebook/ CHINA!!!
Consider the following case. Do you think that it is evidence of globalization?
Foreign drugmakers, facing paltry growth in the West, are eyeing India hungrily. Rising incomes and rates of chronic disease may push sales from $12 billion in 2010 to $74 billion in 2020 But tapping this growth means having patents that protect intellectual property. India is home to a thriving generics industry, whose copycat drugs make up about 90% of the market. India s drug-patent laws are just seven years old. Its government is keen to encourage generics and keep prices down Novartis, a Swiss giant, is challenging India for denying a patent for Glivec, its blockbuster cancer drug. The fight is due to reach India s Supreme Court on September 11th The case.. will help decide how quickly India s 1.2 billion people get new drugs, and at what price.
More on the definition of globalization.. A helpful distinction: The globalization of markets and The globalization of production.. www.google.com/hostednews/ukpress/article/aleqm5j75g_vipoyhc86o6fbpo2bzdfoq?docid=n0400381346841285685a
What Is The Globalization of Markets? Historically distinct and separate national markets are merging It no longer makes sense to talk about the German market or the American market Instead, there is the global market falling trade barriers make it easier to sell globally consumers tastes and preferences are converging on some global norm firms promote the trend by offering the same basic products worldwide 1-13
What Is The Globalization of Production? Firms source goods and services from locations around the globe to capitalize on national differences in the cost and quality of factors of production like land, labor, and capital Companies can lower their overall cost structure improve the quality or functionality of their product offering 1-14
GLOBALIZATION Facilitating Factors Reduction of barriers to movement of goods, services, capital, people Improvements in transport Improvements in communications
Declining Trade And Investment Barriers Average Tariff Rates on Manufactured Products as Percent of Value 1-16
How Has World Output And World Trade Changed? In 1960, the United States accounted for over 40% of world economic activity By 2008, the United States accounted for just over 20% of world economic activity A similar trend occurred in other developed countries The share of world output accounted for by developing nations is rising and is expected to account for more than 60% of world economic activity by 2020 Link to video showing relative performance of developed and developing economies: http://www.economist.com/blogs/graphicdetail/2012/06/daily-chart-19 See videographics & choose emerging markets from the options. This is a link to a report by Goldman Sachs. Page 4 has some interesting predictions: http://www.goldmansachs.com/our-thinking/topics/brics/brics-reports-pdfs/bricsdream.pdf 1-17
SOME USEFUL DEFINITIONS The Multinational Corporation (MNC): The MNC owns AND controls production or service activities outside its country of origin Foreign Direct Investment (FDI): FDI is the acquisition, establishment or increase in production by a firm in a foreign country http://leeiwan.wordpress.com/2007/06/18/difference-between-a-globaltransnational-international-and-multinational-company/
How Has Foreign Direct Investment Changed Over Time? In the 1960s, U.S. firms accounted for about two-thirds of worldwide FDI flows Today, the United States accounts for less than one-fifth of worldwide FDI flows Other developed countries have followed a similar pattern In contrast, the share of FDI accounted for by developing countries has risen Developing countries, especially China, have also become popular destinations for FDI 1-19
GLOBALIZATION Benefits to Business Access to markets Faster growth Increased revenues Access to cheaper supplies Lower costs Access to natural resources
GLOBALIZATION Challenges to Business Increased competition Falling revenues Riskier environment More complex environment
BARRIERS TO GLOBALIZATION Legal and Regulatory Tariffs Subsidies Public procurement Border Controls Controls on Immigration
BARRIERS TO GLOBALIZATION Technical factors Technical Standards Transportation
BARRIERS TO GLOBALIZATION Culture Differences in: Language Tastes Norms, Values and Behaviour *Religion *Work Culture *Corruption
What Does Globalization Mean For Firms? Lower barriers to trade and investment mean firms can view the world, rather than a single country, as their market base production in the optimal location for that activity Technological change means lower transportation costs - firms can disperse production to economical, geographically separate locations lower information processing and communication costs - firms can create and manage globally dispersed production systems low cost global communications networks - help create an electronic global marketplace low-cost transportation - help create global markets global communication networks and global media - create a worldwide culture, and a global market for consumer products However, the range of problems confronted in an international business is wider and the problems more complex than those in a domestic business 1-25