Lecture On Contemporary World: Prmalit Iii

LECTURE ON
CONTEMPORARY WORLD
PRMALIT III
WHAT IS GLOBALIZATION?
• Globalization represents the global integration
of international trade, investment, information
technology and cultures. Government policies
designed to open economies domestically and
internationally to boost development in poorer
countries and raise standards of living for their
people are what drive globalization. However,
these policies have created an international free
market that has mainly benefited multinational
corporations in the Western world to the
detriment of smaller businesses, cultures and
common people.
BREAKING DOWN 'GLOBALIZATION'
• Through globalization, corporations can gain a competitive advantage from lower
operating costs, and access to new raw materials and additional markets. In addition,
multinational corporations can manufacture, buy and sell goods worldwide. For
example, a Japan-based car manufacturer can manufacture auto parts in several
developing countries, ship the parts to another country for assembly and sell the
finished cars to any nation.
• Globalization is not a new concept. In ancient times, traders traveled vast distances
to buy rare commodities such as salt, spices and gold, which they would then sell in
their home countries. The 19th century Industrial Revolution brought advances in
communication and transportation that have removed borders and increased cross-
border trade. In the last few decades, globalization has occurred at an
unprecedented pace.
• Public policy and technology are the two main driving factors behind the
current globalization boom. Over the past 20 years, governments worldwide
have integrated a free market economic system through fiscal policies and
trade agreements. This evolution of economic systems has increased
industrialization and financial opportunities abroad. Governments now focus
on removing barriers to trade and promoting international commerce.
• Technology is a major contributor to globalization. Advancements in IT and

the flow of information across borders have increased awareness among
populations of economic trends and investment opportunities. Technological
advancement such as digitalization has simplified and accelerated the transfer
of financial assets between countries.
THE BROADER MEANING OF GLOBALIZATION
• Globalization is also a social, cultural, political and legal phenomenon.

In social terms, globalization represents greater interconnectedness
among global populations. Culturally, globalization represents the
exchange of ideas and values among cultures, and even a trend toward
the development of a single world culture. Politically, globalization has
shifted countries' political activities to the global level through
intergovernmental organizations like the United Nations and the World
Trade Organization. With regard to law, globalization has altered how
international law is created and enforced.
THE STRUCTURES OF GLOBALIZATION
PRMALITIII
THE GLOBAL ECONOMY
• The world economy or global economy is the economy of the

world, considered as the international exchange of goods and
services that is expressed in monetary units of account (money). In
some contexts, the two terms are distinguished: the
"international" or "global economy" being measured separately
and distinguished from national economies while the "world
economy" is simply an aggregate of the separate countries'
measurements. Beyond the minimum standard concerning value
in production, use and exchange the definitions, representations,
models and valuations of the world economy vary widely. It is
inseparable from the geography and ecology of Earth.
20 LARGEST ECONOMIES PIE
CHART
THE GLOBAL ECONOMY
GLOBAL ECONOMY
• Common to buy clothing anywhere in US which has a tag
labeled, ‘Made in Malaysia, China or Sri Lanka’
• Simple observation reminds us that our consumption of
goods has a strong international character
• Increasingly true to speak not only of national economies
but a larger, highly inter-connected and interdependent-
GLOBAL ECONOMY
• Before discussing basic mechanisms of industrialization
and economic change within Third World, important to
look at the broader global industrial environment within
which these nations are forced to compete
SETTING THE STAGE: ORIGINS OF THE GLOBAL ECONOMY
• Since 1970s world economy hit by turbulent forces

• Unemployment in western countries
• Traditional industries (iron and steel) have declined
• LDCs bearing huge financial debts which threaten drive for
development
• Trading tensions have emerged between industrial
countries and the newly industrializing countries
CAUSES OF THESE CONDITIONS?
• Some argue that continuing OPEC escalation of
oil prices through limited production is root
cause
• Had some effect but too simple an answer
• More profound changes in world economic
structure were underway before this
• Increasingly growing consensus that world
economy has become more volatile, complex
and tightly connected
• Countries affected by what is happening
abroad and at larger geographical scale
INTERNATIONALIZATION OF TRADE AND LABOR
• As with Japanese autos, American computers and

Taiwanese calculators there is an emergence of a “new
international division of labor”
• Basically a change in geographical pattern of specialization
at the global scale-constantly changing and very dynamic
• Example: movement of textile and shoe production from
Indonesia to China
INTERNATIONAL DIVISION OF LABOR
• Division of labor has taken on spatial dimensions- some areas

come to specialize in certain types of economic activity
• At broad scale : industrialized countries --- manufactured goods
while non-industrialized countries --- raw materials
• However this simple pattern no longer exists
• Now much more complex structure involving fragmentation of
many processes and their geographical relocation on a global scale
FORCES SURROUNDING GLOBAL SYSTEM OF PRODUCTION
• These five factors are affecting production patterns:

• 1. Trans-national or multi-national corporations
(MNCs)-firms that operate in many nations
• Increasingly these firms have local production points
and suppliers that operate across national boundaries
providing and securing labor, capital and other resources
from a variety of places and which have become very
powerful and important influences in the global
economy
SEQUENTIAL MODEL OF TNC DEVELOPMENT
• Stage I- Serve domestic market only

• Stage II- Export to overseas markets through independent
channels (sales agents)
• Stage III- Establish sales outlets in overseas markets by acquiring
local firm and/or setting up new facility
• Stage IV- Establish production facility overseas by acquiring local
firm and/or setting up new facility
GEOGRAPHICAL GROWTH OF A MULTINATIONAL
CORPORATION
1 2
Penetration of a National Market

Basic Enterprise
Nation
Center
Factory
Distribution center
Representative
Penetration of Foreign Markets
Multinational Corporation
3 4
• 2. National governments- through their industrial, trade and

foreign policies especially liberalization policies
• Liberalization refers to the way in which policies facilitate
transactions (trade and sales) of a variety of products and services
• Deregulation refers to the easing of taxation, entry and pricing of
products or services dictated by government policy
• Privatization refers to the ownership of former public sector
operations and firms by private corporations and enterprises
• 3. Enabling Technologies- transport, communications, production

and organizational improvements
• Explosion of enhanced transport and communication services such
as air cargo, integrators offering definite time delivery (FedEx and
UPS), electronic mail and electronic data interchange (EDI)
• Advanced inventory management such (just-in-time (JIT)) and new
systems of distribution such as third party logistics (3PL)
JUST-IN-TIME AND ITS LOGISTIC
Delivery units for Production Unit Delivery units for
parts finished goods
Old warehouse before

Just-in-Time
FACTORY
Assembly Line
Moving storage Assembly and warehousing Moving storage

units place units
% OF PRODUCTS SHIPPED FOR “JUST-IN-TIME”
MANUFACTURING
50
45
40
35
30
25
20
15
10
5
0
1990 1994 1996 1998 2000
• 4. Shifts in Market Conditions and Demand
• Economic cycles affect markets and production, e.g. the Asian
financial crisis
• Dramatic shifts in demand affect over time influence type of good
being produced and production schedules
• Application of new technology can mean product obsolescence
• These changes can be described in part through product life cycle
PRODUCT LIFE CYCLE
• Essence of PLC is that growth in sales

of product follows systematic path,
from initial introduction to market
through development, growth,
maturity, decline and obsolescence
PRODUCT LIFE CYCLE
Monopoly Competition
Sales
Decline of
Idea Promotion First competitors Mass production production
Research and
Growth Maturity Decline
development
Stage 1 Stage 2 Stage 3 Stage 4
CELLULAR PHONES OF NOKIA
• Evolution of basic Cellular

phones are an example of a
product which is especially
applicable to the notion of
the product life cycle
• phone to color
enhancement to camera and
email device
GLOBAL FINANCIAL CENTERS
Hinterland
Telecommunications
Space
Time
London
Tokyo
New York
Los Angeles
Hong Kong
Singapore
Stock Market Opening Period

GLOBAL PRODUCTION CHAINS AND NETWORKS
• Production Chain: Materials > Procurement > Transformation > Marketing and Sales
>Distribution > Service
• Definition: transactionally linked sequence of functions where each stage adds
value to the process of goods and services production
• Two aspects important: coordination and regulation and geographical configuration
• Production chains may be very localized but increasingly are global in scale to take
advantage of international division of labor
KIA AUTO PARTS FLOW
• Assembled in S Korea KIA Sorrento clear example of global supply chain

• Uses 30K parts from all around world
• Parts shipped from places as diverse as Wales and Mexico—but very risky
• War in Iraq and piracy in Malacca Straits
• Demonstrate surprising adaptability due to advance planning, multiple sourcing of
parts and ability to shift routes on short notice
KIA AUTO PARTS FLOW
• Communicates regularly with suppliers-at least once a week

• Order several months in advance
• If necessary use air freight instead of sea freight
• Greater demand forced KIA to air freight airbags from Swedish company which
makes them in the U.S.
• Greater expense of trans-Pacific flight better than slowing down production line

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LECTURE ON

• Technology is a major contributor to globalization. Advancements in IT and

• Globalization is also a social, cultural, political and legal phenomenon.

• The world economy or global economy is the economy of the

• Since 1970s world economy hit by turbulent forces

• As with Japanese autos, American computers and

• Division of labor has taken on spatial dimensions- some areas

• These five factors are affecting production patterns:

• Stage I- Serve domestic market only

Penetration of a National Market

• 2. National governments- through their industrial, trade and

• 3. Enabling Technologies- transport, communications, production

Old warehouse before

Moving storage Assembly and warehousing Moving storage

• Essence of PLC is that growth in sales

• Evolution of basic Cellular

Stock Market Opening Period

• Assembled in S Korea KIA Sorrento clear example of global supply chain

• Communicates regularly with suppliers-at least once a week

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