Chapter 1 INTRODUCTION OVERVIEW 2 What is globalization

Chapter 1 INTRODUCTION & OVERVIEW

2 What is globalization? n n The shift towards a more integrated and interdependent world economy Two components: n n The globalization of markets The globalization of production Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

3 Globalization of markets n The merging of distinctly separate national markets into a global marketplace n n Tastes and preferences converge onto a global norm Firms offer standardized products worldwide creating a world market Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

4 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. Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

5 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 impacted by different currencies Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

6 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 Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

7 Emergence of global institutions n Globalization has created the need for institutions to help manage, regulate and police the global marketplace n n n GATT WTO IMF World bank United Nations Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

8 Global drivers n Macro factors that underlie trend towards greater globalization n n Decline in trade barriers Technological change Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

9 Declining barriers to trade n Globalization of markets and production has been facilitated by n n Reduction in trade barriers Removal of restrictions to foreign direct investment Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

10 The role of technological change n Microprocessors and telecommunications n The internet and world wide web n Transportation technology Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

11 Globalization debate-Pro 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 Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

12 Globalization debate-Con n n 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 Mc. Graw-Hill/Irwin International Business, 5/e © 2005 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.