Course Note 1: Globalization

1. Define Globalization
- The Globalization of Markets: merging of historically distinct and separate national markets into huge
global market place.
o Failing barriers to cross-border trade and investment have made it easier to sell
internationally.
o The tastes and preferences of consumers in different nations converge on some global norm
 global market.
o All size of company benefit from the globalization of market.
o Significant differences still exist among national markets.
o The most global of markets are not typically markets for consumer products, they are markets
for industrial goods and materials that serve universal needs the world over.
- The Globalization of Production: 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.
o Early outsourcing efforts were primarily confined to manufacturing activities
o The outsourcing of productive activities to different suppliers results in the creation of
products that are global in nature- that is, “global products”.
o Substantial impediments still make it difficult for firms to achieve the optimal dispersion of
their productive activities to locations around the globe, including: formal and informal
barriers to trade between countries, barriers to foreign direct investment, transportation
costs, economic and political risk issues, and globally dispersed supply chain
coordinating challenge
2. Two Drivers of Globalization
- Declining trade and investment barriers
o During the 1920s and 1930s, many of the world’s nation-states erected formidable barriers to
international trade and foreign direct investment
 International trade: when a firm exports goods or services to consumers in another
country.
 Foreign direct investment: when a firm invests resources in business activities outside its
home country.
o Under GATT, eight rounds of negotiations among member states worked to lower barriers to the
free flow of goods and services
 Uruguay round (December 1993) reduced trade barriers, extended GATT to cover
services as well as manufactured goods, enhanced protection for patents, trademarks, and
copyrights, established WTO
o Between 1960 and 2018 the value of the world economy increased 9.4 times, while the value of
international goods increased 22.4 times.
 Trade in goods and services and the value of foreign direct investment have all been
growing faster than world output.
 More firms dispersing production process to different locations around the globe.
 Economies of the world’s nation-states are becoming more intertwined.
  World has become significantly wealthier in the past two decades.
- Role of Technological Change
o Communication

 The single most important innovation since World War II has been development of
microprocessor
 The cost of microprocessors continues to fall, while their power increase (Moore’s law:
microprocessors technology doubles and its cost of production falls in half every 18
months)
o The Internet

 More than half of the world’s population uses the Internet.

 Global e-commerce sales over $2.5 trillion.
 The Internet acts as an equalizer.
o Transportation Technology: Commercial jets,’ super freighters, and containerization have all
“shrunk the globe.”
o Implications for the Globalization of Production: Locating production in geographically separate
locations has become more economical.
o Locating production in geographically separate locations has become more economical.
o Implications for the Globalization of Markets: Cultural distance has been reduced and has brought
some convergence of consumer tastes and preferences.
3. How to manage the Global 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:
o Countries are different: cultures, political systems, economic systems, legal systems, and level
of economic development
o The range of problems confronted by a manager in an international business is wider and the
problems themselves more complex than those confronted by a manager in a domestic
business.
o An international business must find ways to work within the limits imposed by government
intervention in the international trade and investment system.
o International transactions involve converting money into different currencies.
*IN-CLASS ASSIGNMENT 1
Theory Business Case Author
 New trade theory and - Countries specialize in the production and export Paul Krugman
strategic trade policy of particular products not because of underlying
differences in factor endowments but because in
certain industries the world market can support only
a limited number of firms. In such industries, firms
that enter the market first are able to build a
competitive advantage that is subsequently difficult
to challenge
- In the commercial aircraft industry, the fact that
Boeing and Airbus are already in the industry and
have the benefits of economies of scale discourages
new entry and reinforces the dominance of America
and Europe in the trade of midsize and large jet
aircraft.
 Economic Development - Development should be seen as a process of Amartya Sen

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 expanding the real freedoms that people experience
- Requires the removal of major impediments to
freedom
- Emphasize basic health care, especially for
children, and basic education, especially for women
- UN developed the Human Development Index
(HDI) to measure the quality of human life in
different nations.
 Growth Theory of The growth theory of economic development refers Paul Romer and
Economic Development to a framework that seeks to explain the Gene Grossman
determinants of long-term economic growth, such as
capital accumulation, technological progress, and
human capital. The authors explore the
sustainability of economic growth, the determinants
of long-run growth rates, and the policies that can
accelerate advances in living standards. They
discuss the neoclassical growth theory, which has
dominated economists' thinking about long-term
movements in per capita income for more than three
decades, as well as alternative models of
endogenous technological progress that incorporate
factors such as imperfect competition, incomplete
appropriability, and increasing returns to scale
 International trade and - A measure of how “open” to international trade an Jeffrey Sachs and
economic growth economy was and then looked at the relationship Andrew Warne
between “openness” and economic growth for a
sample of more than 100 countries from 1970 to
1990
- A strong association between openness and
growth, both within the group of developing and the
group of developed countries. Within the group of
developing countries, the open economies grew at
4.49 percent per year, and the closed economies
grew at 0.69 percent per year. Within the group of
developed economies, the open economies grew at
2.29 percent per year, and the closed economies
grew at 0.74 percent per year
 Competitive Advantage of - The essential task was to explain why a nation Michael Porter
Nations achieves international success in a particular
industry. Why does Japan do so well in the
automobile industry? Why does Switzerland excel
in the production and export of precision
instruments and pharmaceuticals? Why do Germany
and the United States do so well in the chemical
industry?
 Core Competencies, - In every case in which a Japanese company C. K. Prahalad and
global competition and emerged from an alliance stronger than its Western Gary Hamel
global strategic alliances partner, the Japanese company had made a greater
effort to learn. Few Western companies studied
seemed to want to learn from their Japanese
partners. They tended to regard the alliance purely
as a cost sharing or risk-sharing device, rather than
as an opportunity to learn how a potential
competitor does business.
- To maximize the learning benefits of an alliance, a
firm must try to learn from its partner and then
apply the knowledge within its own organization.
 International business
strategy that can be
derived from the resource-
based view of the firm

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 and complementary
theories

CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 1: Describe the shifts in the world economy over the last 30 years. What are the implications of
these shifts for international businesses based in Great Britain? North America? Hong Kong?
o According to UN data, some 80 percent of the more than 1,500 changes made to national laws
governing foreign direct investment since 2000 have created a more favorable environment. Partly due
to such liberalization, the value of FDI has grown significantly over the last 30 years.
o Over the past 30 years, global communications have been revolutionized by developments in satellite,
optical fiber, wireless technologies, and of course the Internet.
o Over the past 30 years, U.S. dominance in export markets has waned as Japan, Germany, and a number
of newly industrialized countries such as South Korea and China have taken a larger share of world
exports. As emerging economies such as Brazil, Russia, India, and China—coined the BRIC countries
—continue to grow, a further relative decline in the share of world output and world exports accounted
for by the United States and other long-established developed nations seems likely.
o Most forecasts now predict a continued rise in the share of world output accounted for by developing
nations such as China, India, Russia, Indonesia, Thailand, South Korea, Mexico, and Brazil, and a
commensurate decline in the share enjoyed by rich industrialized countries such as the United
Kingdom, Germany, Japan, and the United States
From ChatGPT:
- Globalization and Trade Liberalization:
o Rise of Emerging Markets: Emerging economies, such as China, India, Brazil, and several Southeast
Asian countries, have experienced rapid economic growth. This has shifted economic power from
traditional Western economies to the East.
 Implications: International businesses in Great Britain, North America, and Hong Kong have
had to adapt to increased competition from emerging market companies. These regions have
also sought to expand their market presence in these growing economies.
o Global Supply Chains: The world has become more interconnected through global supply chains.
Companies source components and services from multiple countries, creating complex networks.
 Implications: Businesses in all three regions have benefited from access to a broader range of
suppliers and consumers. However, they face increased risks related to supply chain disruptions
and geopolitical tensions.
- Technological Advancements:
o Digital Revolution: Advances in technology, especially the internet and mobile devices, have
transformed industries and created new business models.
 Implications: Companies in Great Britain, North America, and Hong Kong have had to embrace
digitalization and innovation to remain competitive. E-commerce, data analytics, and AI have
become essential tools.
- Financial Market Changes:
o Financialization: Financial markets have grown in size and complexity, with increased trading in
derivatives, global financial centers, and the rise of fintech.
 Implications: Businesses in these regions have benefited from access to sophisticated financial
services but have also faced heightened financial market volatility.
- Geopolitical Shifts:

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 o Rise of China: China has become a major global player economically and politically, challenging the
dominance of Western powers.
 Implications: Companies in Great Britain, North America, and Hong Kong must navigate a
complex geopolitical landscape, including trade tensions and intellectual property issues with
China.
- Environmental and Social Concerns:
o Sustainability and ESG: Environmental, Social, and Governance (ESG) factors have gained
prominence, leading to increased corporate responsibility and sustainable business practices.
 Implications: Businesses in these regions must incorporate sustainability into their strategies to
meet consumer and investor demands and comply with evolving regulations.
- COVID-19 Pandemic:
o Global Health Crisis: The COVID-19 pandemic disrupted economies worldwide, leading to supply
chain disruptions and changes in consumer behavior.
 Implications: Companies in all three regions had to adapt rapidly to remote work, online sales,
and health-related challenges.
Implications for International Businesses:
- Great Britain: As a post-Brexit economy, British businesses have faced the dual challenges of
navigating new trade relationships while adapting to global economic shifts. They must focus on trade
diversification, digital transformation, and ESG integration.
- North America: North American companies have benefited from their strong technological and
financial sectors, but they face intense competition from emerging markets. They need to leverage
innovation, foster trade relationships, and address environmental and social concerns.
- Hong Kong: Hong Kong has a unique position as a global financial hub, but its political environment
has become more complex due to tensions with mainland China. Businesses in Hong Kong should
maintain agility, diversify their markets, and adapt to changing geopolitical dynamics.
QUESTION 2: How does the Internet affect international business activity and the globalization of the world
economy?
- The Internet makes it much easier for buyers and sellers to find each other, wherever they may be
located and whatever their size. It allows businesses, both small and large, to expand their global
presence at a lower cost than ever before. Just as important, it enables enterprises to coordinate and
control a globally dispersed production system in a way that was not possible 25 years ago.
ChatGPT
- Global Market Access: The Internet has eliminated geographical barriers, allowing businesses of
all sizes to reach a global audience. Companies can now market and sell their products and
services to customers worldwide through websites, e-commerce platforms, and online
marketplaces.
- Reduced Communication Costs: Online communication tools, such as email, video conferencing,
and instant messaging, have significantly reduced the cost and time required for international
communication. This enables businesses to collaborate with partners, customers, and suppliers
across borders more efficiently.
- E-commerce: The rise of e-commerce has revolutionized the way goods are bought and sold
internationally. Online marketplaces and payment gateways have made it easier for businesses to
enter foreign markets and for consumers to access a wider range of products from around the
world.
- Market Research and Data Analysis: The Internet provides access to vast amounts of data and
market research resources. Companies can gather valuable insights into international markets,
consumer behavior, and competitors, enabling informed decision-making and targeted marketing
strategies.

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 - Global Supply Chains: Businesses can optimize their supply chains by using the Internet to track
inventory, monitor production, and coordinate logistics across multiple countries. This has
improved the efficiency and resilience of global supply chains.
- Cross-Border Collaboration: The Internet enables companies to collaborate with partners and
experts from different countries seamlessly. Virtual teams and international collaborations have
become common, fostering innovation and knowledge exchange.
- Digital Marketing: Online advertising and digital marketing techniques allow businesses to tailor
their marketing efforts to specific international markets and demographics, reaching a global
audience more effectively.
- Customer Support and Service: Companies can provide customer support and service to
international customers through online channels, including chatbots, social media, and email,
offering round-the-clock assistance regardless of time zones.
- Payment and Currency Exchange: Online payment systems and currency exchange platforms make
international transactions easier and more secure, reducing the complexities associated with
currency conversion and cross-border financial transactions.
- Regulatory Compliance: The Internet facilitates compliance with international regulations and
standards. Companies can access up-to-date information on trade regulations, export-import laws,
and customs procedures, helping them navigate the complexities of international trade.
- Challenges and Risks: While the Internet offers numerous benefits, it also presents challenges
related to cybersecurity, data privacy, and online fraud. Businesses engaged in international
activities must address these risks to protect their operations and customers.
- Cultural Sensitivity: The global reach of the Internet necessitates cultural sensitivity in marketing,
content localization, and customer interactions. Understanding and respecting cultural differences
is crucial for international business success.