Globalization Drivers

Declining Trade and Investment

Barriers
International Trade
FDI
High Tariffs
Domestic Protection
Having experiences of industrial nations
World War II-GATT
WTO
2001-new talk –lower tariff, agricultural
subsidies, cross border investment,
Countries 1913 1950 1990 2003
France 21 % 18 5.9 4
Germany 20% 26 5.9 4

Italy 18% 25 5.9 4

Japan 30 5.3 3.8

Holland 5 11 5.9 4
Sweden 20 9 4.4 4
Britain 23 5.9 4
U.S. 44 14 4.8 4
Bilateral Trade
In year 1980-181 treaties
In year 2003-2265 treaties
1975 average FDI inflow-$25 billion
$1.3 trillion -2004
2001-$620 billion
1992-2004-average FDI flow 360 percent
World trade 35 %
As a result of strong FDI flow in 2003 global stock FDI exceeded
$8.1 trillion
Total 61000 parent companies head 900000 affiliates in foreign
markets that collectively employed some 54 million people abroad
and generated value accounting for about one tenth of global GDP
The foreign affiliates and heads had estimated 17.6 trillion sales
Japan and U.S.- Kodak and P & G
U.S. market share has been taken by
Japan of GM and Ford
Europe –one dominance Dutch company
Philips has seen its market share in
consumer electronics taken by Japan JVC,
Matsushita and Sony
The role of technological Change
High Power
Low cost computing
Vastly increasing the amount of
information
Satellite
Optical fiber
Wireless technologies
Internet world wide web
 Micro Processors and
Telecommunications
These technologies rely on the microprocessor to
encode, transmit, and decode the vast amount of
information that flows along these electronic highways.
The cost of microprocessor continues to fall, while their
power increases (Moore’s Law)
The cost of global communication plummets, which
lowers the costs of coordinating and controlling a global
organization.
Thus between 1930 and 1990, the cost of a three minute
phone call between New York and London fell from
$244.65 to $3.32.
By 1998 it had plunged to just 36 cents for consumers,
and much lower rates were available for businesses.
Internet and World wide Web
In 1990 fewer than 1 million users were connected to the internet.
By 1995, this had risen to 50 million.
In 2004 it grew about 945 million.
By 2007, the internet have 1.47 billion users or about 25 percent of
world population.
In july 1993, some 1.8 million host computers were connected to the
internet
By January 2005, the number of host computers had increased to
317 million, and the number is still growing rapidly.
In the united states where internet usage is most advanced, almost
60 percent of the population was using the internet by 2003.
10 years ago no one would have thought that a small
British company based in Stafford could have built a
global market for its product by utilizing the internet, but
that is exactly what Bridgewater Pottery has done.
Bridgewater traditionally sold premium pottery through
exclusive distribution channels, but the company found it
difficult and laborious to identify new retail outlets.
Since establishing an internet presence in 1997,
Bridgewater has conducted a significant amount of
business with consumers in other countries who could
not be reached through existing distribution channels or
could not be reached cost effectively.
 Transportation Technology
Commercial jet aircraft
Super freighters
Containerization
Between 1920 and 1990, the average ocean
freight and port charges per ton of U.S. export
and import cargo fell from $95 to $29. The cost
of shipping freight per ton mile on rail roads in
the united states fell from 3.04 cents in 1985 to
2.3 cents in 2000
 The changing World Output and
World Trade Picture
Country Share of world Output Share of World Share of World
1963 Output 2004 Exports 2004
United States 40.3% 20.9% 10.4%

Germany 9.7 4.3 9.5

France 6.3 3.1 4.8

United Kingdom 6.5 3.1 4.7

Japan 5.5 6.9 5.7

Italy 3.4 2.9 3.8

Canada 3.0 3.5 3.4

China NA 13.2 5.9

 The Changing Foreign Direct
Investment Picture
Dominance of The United States in the global
economy
66.3 % of world wide foreign investment in year
1960s
British firms were second with 10.5 percent
share
Japanese were eight with 2 % share only
In 1980s and 1990s Japanese invested in North
America and Europe
Rapidly increase investment in Toyota
In 2000s, investment by developing
nations – averaging about $200 billion
annually –China has taken first place
Changing nature of Multinational
Enterprises
Since 1960s, two notable trends in the
demographics of the multinational
enterprises have been:
1. The rise of non-US multinationals
2.The growth of mini multinationals
 Non-U.S. Multinationals
In year 1960s U.S. Multinationals were
dominated with two third share of FDI
48.5 % of World’s 260 largest multinationals
Second largest source was UK with 18.8 %
By 2002, U.S. firms accounted for 28% of the
world’s 100 largest multinationals
France 14 %
Germany 13%
Britain 12%
In the early 2000s, the largest 50
multinationals from developing economies
had foreign sales of $103 billion out of
total sales of $453 billion and employed
483,129 people outside of their home
countries
Some 22 % of these companies were from
Hong Kong, 16.7 % from Korea, 8.8 %
from China and 7.6 % from Brazil
 The Rise of Mini-Nationals
When people think of international business, they tend to
think of Exxon, General Motors, Ford, Fuji, Kodak,
Matsushita, Procter & Gamble, Sony and Unilever
Consider Lubricating systems, Inc., of Kent, Washington.
This manufactures lubricating fluids for machine tools,
employs 25 people and generates sales of $6.5 million.
More than $2 million sales are generated by exports to a
score of countries, including Japan, Israel, and the
United Arab Emirates. Lubricating system also has set
up a joint venture with a Germany company to serve the
European market.
Consider also Lixi, Inc., a small U.S.
manufacturer of industrial X- ray equipment , 70
% of Lixi $4.5 million in revenues comes from
exports to Japan.
Take G.W.Barth, a manufacturer of cocoa bean
roasting machinery based in Ludwigsburg,
Germany. Employing just 65 people, this small
company has captured 70 % of the global
market for cocoa bean roasting machines.