INTERNATIONAL BUSINESS

An Introduction

CHAPTER 2
LEARNING OBJECTIVES
At the end of this chapter, the reader should be able to:

1. Describe the significance of globalization

2. Explain ages and phases of globalization
3. Discuss the effect of globalization in international
business
Basic Concepts and Definition
Globalization can be described as an ongoing process by which
regional economies, societies and cultures have become integrated and
interdependent into one another.

 These multi-faceted and irreversible phenomenon within the system of the

market economy are being expressed as:

 Economic globalization, namely, the opening and deregulation of commodity, capital and
labor markets which led to the present form of neoliberal globalization
 Political globalization, e.g. the emergence of a transnational elite and the phasing out o
the all powerful nation state during the statist period (the statist period was characterized
by state domination of the economic system, an inward-looking economic strategy and
heavy reliance on plan-based public investments as the main engine of growth)
 Cultural globalization, e.g. the worldwide homogenization of culture; and ideological
globalization; technological globalization; social globalization
Ages and Phases of Globalization
 Early stage of globalization

 An early form of globalization in the trade links between the Roman Empire, the
Parthian empire, and the Han Dynasty - development of the Silk Road.
 The Islamic Golden Age was also an important early stage of globalization.
 Muslim traders and explorers established a sustained economy across the Old World resulting in a
globalization of crops, trade, knowledge and technology, while the necessity of learning Arabic and
completing the Hajj created a cosmopolitan culture.
 Mongol Empire, allowed travelers and missionaries such as Marco Polo to journey
successfully from one end of Eurasia to the other.
 Creation of the firs international postal service
 Rapid transmission of disease outbreaks such as bubonic plague across the newly-

unified regions of Central Asia.

 In the 17th century, globalization became a business phenomenon when the British
East India Company (founded in 1600), which is often described as the first
multinational corporation.
 The final death knell for this phase of globalization came during the gold standard
crisis and Great Depression in the late 1920s and early 1930s.
Ages and Phases of Globalization-cont.
Modern globalization
 Since World War II, globalization is largely seen as the result of
planning by politicians to break down borders that hamper trade.
 Bretton Woods conference, an agreement by the world's leading politicians
to lay down the framework for international commerce and finance, and the
beginning of several international institutions intended to administer the
processes of globalization.
 These institutions include the:
 International Bank for Reconstruction and Development (the World Bank)

 International Monetary Fund (IMF).

 Since World War II, barriers to international trade have been considerably

lowered through international agreements - GATT. Particular initiatives

carried out as a result of GATT and the World Trade Organization (WTO),
for which GATT is the foundation.
 Industrial
Negative
Financial
effects

Effect to poor
Economic
countries

Legal and
Ethical issues
The Effect of Political

Globalization
in
International
Cultural
Business Informational

Technical Language

Social Competition
Environment
The Effect of Globalization in International
Business
 Industrial
 Globalization has resulted in the emergence of global production markets and
broader access to a range of foreign products for consumers and industries. It also
increases the movement of materials and goods inside and outside the national
boundaries.
 Financial
 Globalization has resulted in the emergence of worldwide financial markets and
better access to external financing for borrowers.
 Economic
 Globalization has resulted in the increasing in the realization of a global common
market, based on the freedom of exchange of goods and capital.
 Political
 Globalization may affect the way the term "globalization" is used. It could mean the
creation of a world government which regulates the relationships among
governments and guarantees the rights arising from social and economic
globalization e.g. the United States has enjoyed a position of power among other
world powerhouse (i.e. U.K., France, Japan, China, Germany, Russia).
The Effect of Globalization in International
Business-cont.
 Informational
 Globalization may augment information flows between geographically remote
locations because of the improvement in communication tools such as satellites and
the availability of telephone and Internet.
 Language
 Globalization has increased the usage of various languages in the world. For example,
the most popular business language in the world is English. About 50% of all Internet
traffic uses English. In addition, Mandarin is the most widely spoken language in the
world.
 Competition
 Since the world market has becoming more integrated and creates a level of playing field,
companies in various industries have to keep up the intense competition by continuously
upgrading their technology.
 Environment
 Many factories are built in developing countries with less or non existence environmental
regulations that have resulted in the raise of pollution level.
The Effect of Globalization in International
Business-cont.
Social
 Globalization has resulted in the catapult of a system of nongovernmental organization that
becomes the main agents of global public policy, including humanitarian aid and
developmental efforts.
Technical
 The Internet is associated with the process of cultural globalization because it allows
interaction and communication between people with very different lifestyles and from very
different cultures. Social networking websites such as facebook.com and twitter.com allow
interaction even when language would otherwise become a barrier.
 Globalization has contribute to the development of a global telecommunication
infrastructure and greater trans-border data flow, using such technologies as the Internet,
communication satellites, submarine fiber optic cable, and wireless telephones, and boost in
the number of standards applied globally e.g. copyright, patents and world trade agreements.
Cultural
 Globalization has contributed to the growth of cross-cultural contacts through cultural
diffusion. Some of the examples can be seen in the food-Now Malaysian people can easily
enjoy French food anytime.
The Effect of Globalization in International
Business-cont.
 Legal and Ethical issues
 Globalizations has resulted in the creation of the international criminal court and
international justice movements, and raising awareness on global crime-fighting
efforts and cooperation. It also contributes to the emergence of global administrative
law.
 Effect to poor countries
 It can be said that globalization is the gateway that opens up a resource poor country
to the international market. Where the majority of the earliest occurrences of
economic globalization are recorded as being the expansion of businesses and
corporate growth, to many poorer nations, globalization is actually perceived as the
outcome of the foreign businesses investing in a country by taking advantage of the
lower wage rate e.g. Nike setup factories in Vietnam, Indonesia etc. This eventually
will lead to raise their standard of living.
 Negative effects
 Globalization has also garnered significant international opposition over concerns
that it may have increased inequality and environmental degradation.
 In Midwest of United States, globalization has taken away its competitive edge in
once prolific industry and agriculture area, and at the same time lowering the quality
of life in locations that have not been able to adapt to the changes.