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 mini-
multinationals

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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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