Globalisation and Global Institutions

Prepared for class discussion

By
Prof.S.Suryanarayanan
 Learning objectives

1) Understanding term Globalisation

2) Recognize main drivers of globalizations
3) Describe changing nature of global economy
4) Debate over the impact of globalizations
5) Understand opportunities and challenges due to the process of
globaliasations
 Globalisation
 Globalization / International Business
 Jobs and income security
 Labor policies and the environment
 National Sovereignty
 Globalization - the shift toward a more integrated and
interdependent world economy
 Globalization is the ongoing process that deepens and broadens
the relationships and interdependence among countries.
 International Business is a mechanism to bring about globalization.
 National Sovereignty : The supreme right of the nations to
determine national policies; freedom from external control.
 Discuss:
 “The study of international business is fine if you are going to work in a large
multinational enterprise, but it has no relevance for individuals who are going
to work in small firms.” Evaluate this statement.

 Studying International Business is Important

 Most companies are either international or compete with international
companies
 Modes of operations may differ from those used domestically
 The best way of conducting business may differ by country
 An understanding helps you make better career decisions
 An understanding helps you decide what government policies to support
 World is flat
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
 Anti-globalization protesters now regularly show up at most major
meetings of global institutions
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
How Does Globalization Affect Labor Policies
And The Environment?
 Critics argue that firms avoid the cost of adhering to labor and
environmental regulations by moving production to countries where
such regulations do not exist, or are not enforced
 Supporters claim that tougher environmental and labor standards are
associated with economic progress
 as countries get richer from free trade, they implement tougher
environmental and labor regulations
How Does Globalization Affect National
Sovereignty?

 Is today’s global economy shifting economic power away from national

governments toward supranational organizations like the WTO, the EU,
and the UN?
 Critics argue that unelected bureaucrats have the power to impose
policies on the democratically elected governments of nation-states
 Supporters claim that the power of these organizations is limited to
what nation-states agree to grant
 the power of the organizations lies in their ability to get countries to
agree to follow certain actions
 How Is Globalization
Affecting The World’s Poor?
 Is the gap between rich nations and poor nations 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
How Does The Global Marketplace Affect
Managers?
 Managing an international business differs from managing a
domestic business because
 countries are different
 the range of problems confronted in an international business
is wider and the problems more complex than those in a
domestic business
 firms have to 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
 Globalisation 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
 Firms of all sizes benefit and contribute to the globalization of markets
 97% of all U.S. exporters have less than 500 employees
 98% of all small and mid-sized German companies participate in
international markets
 Globalisation 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, energy, and capital
 Companies can
 lower their overall cost structure
 improve the quality or functionality of their product offering
 Global institutions

 Global institutions
 help manage, regulate, and police the global marketplace
 promote the establishment of multinational treaties to govern the
global business system
 General Agreement on Tariffs and Trade (GATT)
 World Trade Organization (WTO)
 International Monetary Fund (IMF)
 World Bank
 United Nations (UN)
 G20
 The World Trade Organization (like its predecessor GATT)
 polices the world trading system
 makes sure that nation-states adhere to the rules laid down in trade
treaties
 promotes lower barriers to trade and investment
 159 members in 2013
 World Bank and IMF

 The International Monetary Fund (1944)

 maintains order in the international monetary system
 lender of last resort for countries in crisis
 Argentina, Indonesia, Mexico, Russia, South Korea, Thailand, Turkey, Ireland, and
Greece
 The World Bank (1944)
 promotes economic development via low interest loans for infrastructure
projects
 The United Nations (1945)
 maintains international peace and security
 develops friendly relations among nations
 cooperates in solving international problems and in promoting
respect for human rights
 is a center for harmonizing the actions of nations
 The G20
 forum through which major nations tried to launch a coordinated
policy response to the 2008-2009 global financial crisis
 Policy responses to changing conditions

 Tariffs
 Quotas
 Non tariff barriers
 Voluntary restraint agreements
 Anti dumping
 Export incentive
 Import restrictions
 Export pomotions

 Discuss: Harley-Davidson, Blaming E.U. Tariffs, Will Move So

me Production Out of U.S.
 Drivers to Globalisation
 Declining barriers to the free flow of goods, services, and capital
 average tariffs are now at just 4%
 more favorable environment for FDI
 global stock of FDI was $20.4 trillion in 2011
 facilitates global production
 Technological change
 microprocessors and telecommunications
 Internet: information backbone of the global economy
 transportation technology
The World Is Flat: A Brief History of the Twenty-first Century
by Thomas L. Friedman
 The title is a metaphor for viewing the world as a level playing field in terms
of commerce, wherein all competitors have an equal opportunity.
 Friedman defines ten "flatteners" that he sees as leveling the global playing
field:
1. Collapse of Berlin wall, 11/9/1989—fall of communism; IBM PCs, Windows
2. Netscape, 1995, Internet use by early adopters
3. Wok flow software. "Genesis moment of the flat world." ; "the people can
work with other people on more stuff than ever before.“
4. Uploading. Involves communities that upload and collaborate on online
projects. Examples are open source software, blogs, and Wikipedia. Friedman
considers the phenomenon "the most disruptive force of all.“
5. Outsourcing. To split service and manufacturing activities into components
that can be subcontracted and performed in the most efficient, most-cost-
effective way.
6. Offshoring. This is the internal relocation of a company's manufacturing or other processes
to a foreign land to take advantage of less costly operations there.
7. Supply-chaining: Friedman compares the modern retail supply chain to a river by pointing
to Wal-Mart as the best example of a company that uses technology to streamline item sales,
distribution, and shipping.
8. Insourcing: Friedman uses UPS as a prime example for insourcing, whereby the company's
employees perform services – beyond shipping – for another company. For example, UPS
repairs Toshiba computers on behalf of Toshiba. The work is done at the UPS hub by UPS
employees.
9. Informing: Google and other search engines and Wikipedia are the prime examples. Google
is “ now processing roughly one billion searches per day, up from 150 million just three years
ago.“ ( two trillion searches in 2012)
10. "The Steroids": The steroids are wireless, Voice over Internet Protocol, and file sharing and
are used on personal digital devices like mobile phones, iPods, and personal digital assistants;
on instant messaging; and on Voice over Internet Protocol (VoIP). Digital, mobile, personal,
and virtual as well as all analog content and processes (from entertainment to photography,
to word processing) can be digitized and therefore shaped, manipulated, and transmitted; and
these processes can be done at high speed with total ease; mobile can be done anywhere and
anytime by anyone; and can be done by anyone.
 Dell theory of Conflict Prevention
 "The Dell Theory stipulates: No two countries that are both part of a major
global supply chain, like Dell's, will ever fight a war against each other as long
as they are both part of the same global supply chain.“

 One critique of the book:

 "Friedman is right that there have been dramatic changes in the global
economy, in the global landscape; in some directions, the world is much
flatter than it has ever been, with those in various parts of the world being
more connected than they have ever been, but the world is not flat […] Not
only is the world not flat: in many ways, it has been getting less flat."
 — Joseph E. Stiglitz (2007): Making Globalization Work. p.56–57

 ←←
“Ultimately, the study of international business is no different from
the study of domestic business. Thus, there is no point in having
a separate course on international business.” Evaluate this
statement.

 There are at least four reasons why studying international business is important.
1. First, countries are different; and managers must understand the reasons
for the differences and their implications for business.
2. Second, 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.
3. Third, international companies must find ways to work within the limits
imposed by government intervention in the international trade and
investment system.
4. Finally, international transactions involve converting money into different
currencies. Managers who fail to appreciate these basic differences greatly
increase their chance for failure.
The Role of the Macro environment

 Changes in one or more forces in the macro environment can affect:

• Competitiveness of the industry (Porter’s Five Forces)
• Attractiveness of the industry
• Relative strengths (or weaknesses) of a given company
 Digital five forces
1. Mobility
2. Big data
3. Cloud computing
4. Social media
5. Robotics
 The four global forces breaking all the trends
1. Beyond Shanghai-the age of urbanization
2. The tip of the iceberg: Accelerating technological change
3. Getting old isn’t what it used to be: Responding to the challenges of an aging
world
4. Trade, people, finance, and data: Greater global connections
 Some important terms
international business
business (firm) that engages in international (cross-border) economic activities or the
action of doing business abroad

global business
business around the globe including both international (cross-border) activities and
domestic business activities
Note that global business also addresses domestic firms competing and/or collaborating
with foreign entrants
multinational enterprise (MNE)
firm that engages in foreign direct investments
foreign direct investment (FDI) investments in, controlling, and managing value-added
activities in other countries
Global business is not limited to firms competing in developed economies

emerging economies (emerging markets)

a term that has gradually replaced the term “developing countries” since
the 1990s
gross national product (GNP) - measured as the sum of value added by
resident firms, households, and government operating in an economy

gross domestic product (GDP) - total market value of all final goods and
services produced within a country in a given period of time usually a
calendar year

gross national income (GNI) - GDP plus income from nonresident

sources abroad – the term used by the World Bank and other international
organizations to supersede the GNP term

purchasing power parity (ppp) - adjustment made to the GDP to reflect

differences in the cost of living