1 1 Introduction to globalization 1 2 Chapter

1 -1 Introduction to globalization

1 -2 Chapter 1: Introduction & Overview Introduction: A fundamental shift is occurring in the world economy i. e. there is a movement from a world in which national economies were relatively self-contained, isolated from each other by barriers to cross-boarder trade and investment; by distance, time zones, and language, and by national differences in government regulation, culture and business systems toward

1 -3 Introduction a world in which barriers to cross-boarder trade and investment are declining; perceived distance is shrinking due to advances in transportation and telecommunications technology, material culture is starting to look similar the world over and national economies are merging into an independent, integrated global economic systems.

1 -4 What is globalization? The shift towards a more integrated and interdependent world economy from isolated and disintegrated economy for increasing efficiency and productivity and decreasing production, transportation and marketing costs of goods and services is termed as globalization. There are two components of this globalization such as: n The globalization of markets n The globalization of production

1 -5 Globalization of markets The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-boarder trade have made it easier to sell internationally. n Tastes and preferences converge into a global norm, n Firms offer standardized products worldwide creating a world market,

1 -6 Globalization of markets n Significant differences still exist between national markets on many relevant dimensions, n These differences require that marketing and operating strategies and product features be customized to best match conditions in a country,

1 -7 Globalization of markets n n Countries are different, Range of problems are wider and more complex, Government intervention in trade and investment creates problems, International investment is affected by different currencies.

1 -8 Globalization of production n Refers to sourcing of goods and services from locations around the world to take advantage of n Differences in cost or quality of the factors of production n Labor n Land n Capital

1 -9 Emergence of global institutions Globalization has created the need for institutions to help, manage, regulate and police the global marketplace and to promote the establishment of multinational treaties to govern the global business system. A number of important global institutions have been created to help perform these functions including: n n n GATT WTO IMF World bank United Nations

1 -10 Global drivers Macro factors that underlie trend towards greater globalization n n Decline in trade ( import and export of goods and services) and investment ( foreign direct investment) barriers, The role of technological change i. e. change in telecommunications, internet & worldwide web, transportation technology etc.

1 -11 Pattern of declining tariffs Country France Germany Italy Japan Holland Sweden Britain US 1913 21% 20 18 1950 18% 26 25 1990 5. 9% 5. 9 2000 3. 9% 3. 9 30 5 20 44 11 9 23 14 5. 3 5. 9 4. 4 5. 9 4. 8 3. 9 3. 9

1 -12 Declining barriers to trade and investment n Globalization of markets and production has been facilitated by n n Reduction in trade barriers Removal of restrictions to foreign direct investment

1 -13 Globalization debate-Pro (For) n n n 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 -14 Globalization debate-Con (Against) n n n Destroys manufacturing jobs in wealthy, advanced countries Wage rates of unskilled workers in advanced countries declines Environmental degradation The cultural imperialism Companies move to countries with fewer labor and environment regulations Loss of sovereignty

1 -15 Managing in the Globalization Marketplace An international business is any firm that engages in international trade or investment. As the world shifts toward a truly integrated global economy, more firms both large and small are becoming international business. As organizations increasingly engage in crossboarder trade and investment

1 -16 Managing in the Globalization Marketplace managers need to recognize that the task of managing an international business differs from that of managing a purely domestic business in many ways such as: Differences in cultures, tastes & preferences, attitudes of the government, attitudes of customers, political systems, economic systems, legal systems and levels of economic development.