International Business

By Charles W.L. Hill

 Chapter 1

Globalization

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
 What Is Globalization?
The world is moving away from self-
contained national economies toward an
interdependent, integrated global economic
system
Globalization refers to the shift toward a
more integrated and interdependent world
economy

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 What Is The
Globalization of Markets?
 Historically distinct and separate national markets
are merging
 It no longer makes sense to talk about the
“German market” or the “American market”
 Instead, there is the “global market”
 falling trade barriers make it easier to sell globally
 consumers’ tastes and preferences are converging on
some global norm
 firms promote the trend by offering the same basic
products worldwide

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 What Is The
Globalization of Production?
Firms source goods and services from
locations around the globe to capitalize on
national differences in the cost and quality
of factors of production like land, labor,
and capital
Companies can
lower their overall cost structure
improve the quality or functionality of their
product offering

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 Why Do We Need
Global Institutions?
 Institutions
 help manage, regulate, and police the global
marketplace
 promote the establishment of multinational treaties to
govern the global business system

 Examples include
 the General Agreement on Tariffs and Trade (GATT)
 the International Monetary Fund (IMF)

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 What Does Globalization
Mean For Firms?
 Lower barriers to trade and investment mean firms can
 view the world, rather than a single country
 base production in the optimal location for that activity
 Technological change means
 lower transportation costs - firms can separate locations
 lower information processing and communication costs - firms can
create and manage production systems
 low-cost global communications networks - help to create an
electronic global marketplace
 low-cost transportation - help create global markets
 global communication networks and global media - create a
worldwide culture

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 The Changing Demographics
Of The Global Economy
 There has been a change in the demographics of
the world economy in the last 30 years
 Four trends are important:
1. the Changing World Output and World Trade
Picture
2. the Changing Foreign Direct Investment Picture
3. the Changing Nature of the Multinational
Enterprise
4. the Changing World Order

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 What Is A
Multinational Enterprise?
A multinational enterprise (MNE) is any
business that has productive activities in
two or more countries
Since the 1960s, there has been a rise in
non-U.S. multinationals, and a growth of
mini-multinationals

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 The Changing World Order
 Many former Communist nations in Europe and
Asia are now committed to democratic politics and
free market economies
 so, there are new opportunities for international
businesses

 China and Latin America are also moving toward

greater free market reforms
 between 1983 and 2008, FDI in China increased from
less than $2 billion to $90 billion annually

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How Will The Global Economy
Of The 21st Century Look?
 The world is moving toward a more global
economic system
 But globalization is not inevitable
 there are signs of a retreat from liberal economic
ideology in Russia
 Globalization brings risks
 the financial crisis that swept through Southeast Asia in
the late 1990s
 the recent financial crisis that started in the U.S. in
2008, and moved around the world

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 Is An Interdependent Global
Economy A Good Thing?
 Supporters believe that increased trade and cross-
border investment mean
 lower prices for goods and services
 greater economic growth
 higher consumer income, and more jobs

 Critics worry that globalization will cause

 job losses
 environmental degradation
 the cultural imperialism of global media and MNEs

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 How Does Globalization Affect
Jobs And Income?
Critics argue that falling barriers to trade
are destroying manufacturing jobs in
advanced countries
Supporters contend that the benefits of this
trend outweigh the costs
countries will specialize in what they do most
efficiently and trade for other goods—and all
countries will benefit

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 How Is Globalization
Affecting The World’s Poor?
 Is the gap between rich nations and poor nations
is getting wider?
 Critics believe that if globalization was beneficial
there should not be a divergence between rich and
poor nations
 Supporters claim that the best way for the poor
nations to improve their situation is to
 reduce barriers to trade and investment
 implement economic policies based on free market
economies
 receive debt forgiveness for debts incurred under
totalitarian regimes

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 How Does The Global
Marketplace Affect Managers?
 Managing an international business differs from
managing a domestic business because

 countries are different

 firms must find ways to work within the limits imposed
by government intervention in the international trade
and investment system
 international transactions involve converting money
into different currencies

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 Review Question
The shift toward a more integrated and
interdependent world economy is referred to
as

a) economic integration
b) economic interdependency
c) globalization
d) internationalization
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 Review Question
The merging of historically distinct and
separate national markets into one huge
global marketplace is known as

a) global market facilitation

b) cross-border trade
c) the globalization of markets
d) supranational market integration
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 Review Question
Firms that are involved in international
business tend to be

a) large
b) small
c) medium-sized
d) large, small, and medium-sized

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 Review Question
Which is not a factor of production?

a) land
b) capital
c) trade
d) energy

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 Review Question
The sourcing of good and services from
around the world to take advantage of national
differences in the cost and quality of factors of
production is called

a) economies of scale
b) global integration
c) the globalization of production
d) global sourcing

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 Review Question
Which organization is responsible for policing
the world trading system?

a) the International Monetary Fund

b) the United Nations
c) the World Trade Organization
d) the World Bank

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 Review Question
Which of the following trends is true?

a) the United States is accounting for a greater

percentage of world trade than ever before
b) the United States is accounting for a greater
percentage of foreign direct investment than ever
before
c) the share of world trade accounted for by
developing countries is rising
d) the share of foreign direct investment by
developing countries is declining

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 Review Question
Which of these is not a concern of anti-globalization
protesters?

a) globalization is causing a loss of manufacturing

jobs in developing countries
b) globalization contributes to environmental
degradation
c) Globalization raises consumer income
d) globalization implies a loss of national
sovereignty
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