Global Business Today 6e

by Charles W.L. Hill

McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 1

Globalization

What Is Globalization?
Question: What is globalization?
Globalization refers to the trend towards a more integrated global economic system Two key facets of globalization are: the globalization of markets the globalization of production
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What Is Globalization?
The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace The globalization of production 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 (labor energy, land, and capital)
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The Emergence of Global Institutions

Several global institutions have emerged to help manage, regulate, and police the global market place promote the establishment of multinational treaties to govern the global business system Notable global institutions include the World Trade Organization (WTO) the International Monetary Fund (IMF) the World Bank the United Nations (UN)
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Drivers of Globalization
Question: What is driving the move toward greater globalization?
There are two macro factors underlying the trend toward greater globalization 1. declining trade and investment barriers 2. technological change

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Drivers of Globalization
Growth in World Merchandise Trade and Production, 1950 - 2006

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Drivers of Globalization
International trade occurs when a firm exports goods or services to consumers in another country Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country

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The Changing Demographics of the Global Economy

In the 1960s: the U.S. dominated the world economy and the world trade picture the U.S. dominated world FDI 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.
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The Changing Demographics of the Global Economy

The Changing Demographics of World GDP and Trade

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The Changing Demographics of the Global Economy

The share of world output generated by developing countries has been steadily increasing since the 1960s The stock of foreign direct investment (total cumulative value of foreign investments) generated by rich industrial countries has been on a steady decline There has been a sustained growth in cross-border flows of foreign direct investment The largest recipient of FDI has been China
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The Changing Demographics of the Global Economy

Percentage Share of Total FDI Stock, 1980 - 2006

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The Changing Demographics of the Global Economy

FDI Inflows, 1988 - 2007

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The Changing Demographics of the Global Economy

A multinational enterprise is any business that has productive activities in two or more countries Since the 1960s, there has been a rise in non-U.S. multinationals there has been a rise in minimultinationals

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The Changing Demographics of the Global Economy

Today, many markets that had been closed to Western firms are open The collapse of communism in Eastern Europe has created a host of export and investment opportunities Economic development in China has created huge opportunities despite continued Communist control Free market reforms and democracy in Latin America have created opportunities for new markets and new sources of materials and production
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The Changing Demographics of the Global Economy

A more integrated global economy presents new opportunities for firms, but it can also result in political and economic disruptions that may throw plans into disarray

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The Globalization Debate

Question: Is the shift toward a more integrated and interdependent global economy a good thing? Many experts believe that globalization is promoting greater prosperity in the global economy, more jobs, and lower prices for goods and services Others feel that globalization is not beneficial
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Managing in the Global Marketplace

Question: What does the shift toward a global economy mean for managers within an international business? Managing an international business (any firm that engages in international trade or investment) differs from managing a domestic business in four key ways

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Managing in the Global Marketplace

1. Countries differences require companies to vary their practices country by country 2. Managers face a greater and more complex range of problems 3. International companies must work within the limits imposed by governmental intervention and the global trading system 4. International transactions require converting funds and being susceptible to exchange rate changes
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