De La Salle University

COBIBAC – INTERNATIONAL BUSINESS AND OPERATIONS

INTERNATIONAL
BUSINESS
1.1. Globalization

• Definition of globalization
• Drivers of globalization
• The changing demographics of the global economy
1.1. Globalization: Learning Objectives

• Understand what is meant by the term globalization.

• Recognize the main drivers of globalization.
• Describe the changing nature of the global economy.
• Explain the main arguments in the debate over the impact
of globalization.
• Understand how the process of globalization is creating
opportunities and challenges for management practice.
Globalization
Globalization is defined as “the inexorable integration of
markets, nation-states, and technologies… in a way that is
enabling individuals, corporations and nation-states to reach
around the world farther, faster, deeper and cheaper than ever
before.”
Globalization
Globalization has several facets:
 Globalization of markets refers to the merging of historically
distinct and separate national markets into one huge global
marketplace.
 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).
The Emergence of Global Institutions
Institutions needed to help manage, regulate, and police global
marketplace.
 General Agreement on Tariffs and Trade (GATT)
 World Trade Organization (WTO)
 International Monetary Fund (IMF)
 World Bank
 United Nations (UN)
The Emergence of Global Institutions
Group of Twenty (G20)
 Comprises finance ministers and central bank governors of the 19 largest
economies in the world, plus representatives from the European Union and the
European Central Bank.
 The members of the G20 are: Argentina, Australia, Brazil, Canada, China, France,
Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi
Arabia, South Africa, Turkey, the United Kingdom, the United States, and the
European Union.
 Represents 90 percent of global GDP and 80 percent of international global trade.
Drivers of Globalization
Strategic Imperatives
 To leverage core competencies (distinctive strength or advantage) to
increase revenues and profits
 To acquire resources and supplies (materials, labor, capital or
technology)
 To seek new markets (less dependent on its sales in one country)
 To better compete rivals (e.g. Coca-Cola and Pepsi)
Drivers of Globalization
Environmental Causes (Macro-Factors)
 Changes in the political environment (less barrier against foreign trade
and investment – for example, reductions in tariffs and quotas by
major trading powers and major economies)
 Technological changes (improvements in communication, Internet,
transportation, and information processing)
The Changing Demographics of the
Global Economy
The Changing Demographics of the Global
Economy (World Output and Trade)
The Changing Demographics of the Global
Economy (Foreign Direct Investment)
As barriers to the free flow of goods and services fell, non-U.S. firms
increasingly invested across national borders.
 Desire to disperse production activities to optimal locations
and to build a direct presence in major foreign markets.
The Changing Demographics of the Global
Economy (Foreign Direct Investment)
FDI Outward Stock* as a Percentage of GDP

Outward stock of foreign

direct investment (FDI):
the total cumulative value of
foreign investments by firms
domiciled in nations outside
of that nation’s borders.
The Changing Demographics of the Global
Economy (Foreign Direct Investment)
FDI Inflows (in Millions of Dollars), 1990 to 2020

Two other important trends:

the long-term growth in
cross-border flows of
foreign direct investment
that has occurred since 1990,
and the increasing
importance of developing
nations as the destination of
foreign direct investment.
The Changing Demographics of the Global
Economy (Multinational Enterprise)
Multinational enterprise (MNE) is any business that has productive
activities in two or more countries.
Two notable trends in the
demographics of the multinational
enterprise: rise of non-U.S.
multinationals and the growth of
mini-multinationals (small and
medium-sized multinationals.
The Changing Demographics of the Global
Economy (World Order)
 Many of the former communist nations of Europe and Asia
(former Soviet Union countries) have seemed to share a
commitment to democratic politics and free market economics.
 China continues to move progressively toward greater free market
reforms and is moving to industrial superpower (faster than Japan).
 In Latin America, debt and inflation are down, more private
investors and foreign investors are welcomed, and economies
expand (Brazil, Mexico, Chile).
The Globalization Debate
Antiglobalization Protest
 Began with 1999 protests at WTO meeting in Seattle.
 Protestors now typically show up at major meetings of global
institutions.
 Protestors believe globalization causes detrimental effects on
living standards, wage rates, and the environment.
The Globalization Debate
Globalization, Jobs, and Income
Critics: Falling trade barriers allow firms to move manufacturing activities
to countries where wage rates are much lower. Destroy manufacturing
jobs and service jobs (also being outsourced) in wealthy advanced
economies and contributing to higher unemployment and lower living
standards in their home nations.
Supporters: Free trade will result in countries specializing in the
production of goods and services that they can produce most efficiently,
while importing goods and services that they cannot produce as efficiently.
As a result, the whole economy is better off.
The Globalization Debate
Globalization, Labor Policies, and the Environment
Critics:
 Labor and environmental regulations increase manufacturing costs.
 Firms move production to nations that do not have regulations.
 Lack of regulation can lead to abuse.
Supporters:
 Tougher environmental regulations and stricter labor standards go hand in
hand with economic progress.
 Free trade leads to less labor exploitation and less pollution.
The Globalization Debate
Globalization and National Sovereignty
Critics: Shift of power away from national governments toward
supranational organizations

Supporters: The power of supranational organizations is limited to what

nation-states collectively agree to grant. These organizations exist to serve
the collective interests of member states.
The Globalization Debate
Globalization and the World’s Poor
Critics: The gap between the rich and poor nations has gotten wider—but
has been due to totalitarian governments, poor economic policies,
corruption and lack of property rights, expanding populations in developing
countries, debt burdens.
Supporters: Richest nations can help by reducing barriers to the
importation of products from the world’s poorest nations. Data also shows
that the percentage of world’s population living in poverty has declined
substantially over the last three decades.
The Globalization Debate
Percentage of the World’s Population Living in Poverty (1981 to 2015)
Managing in the Global Marketplace
Managing international business differs from managing purely
domestic business:
 Countries are different.
 Range of problems is wider and problems more complex.
 Must find ways to work within limits imposed by government.
 Transactions involve converting money into different currencies.
Reference

Hill, C. (2023). International Business:

Competing in the Global Marketplace
14th edition. New York: McGraw Hill LLC