GLOBALIZATION

AND
INTERNALIZATION
OF BUSINESS
MAN 010- MODULE 1
Intended learning Outcomes:

At the end of the lesson the students are expected to be able to:
1. Identify key concepts of globalization;
2. Describe globalization of markets and productions;
3. Differentiate globalization from internationalization
4. Discuss the global demographic implications for the economy and policy;
5. Identify the impact of drivers of globalization; and
6. Enumerate the importance of world trade and foreign direct investment to
the economic progress of some countries.
Topics:

1. Globalization World View

2. Globalization of Markets and Productions
3. Globalization vs. Internationalization
4. The Drivers of Globalization
5. The Changing World Trade Picture and Foreign
Direct Investment
6. Managing the Global Marketplace
Globalization and Facets of Globalization
Globalization World View

Globalization
■ the process by which businesses or other
organizations develop international influence or start
operating on an international scale.
■ is the integration of world markets and where the
global economy is linked and dependent on each
market (Hill, 2011)
■ Observed both in manufacturing and service
operations
Globalization and Facets of Globalization
It also refers to the shift toward a more integrated and interdependent world
economy, including two facets:

1.Globalization of markets 2.Globalization of products

Globalization in Entertainment
Globalization and Facets of Globalization
Globalization of Markets and Productions
Globalization and Facets of Globalization
Globalization World View

What is the difference between

GLOBALIZATION and INTERNATIONALIZATION?
Globalization and Facets of Globalization
Globalization World View
Globalization means connecting the economies of the world for free
trade and economic policies to integrate the world into the global village.
Internationalization means to expand the business and enter into the
market of different countries.
-www.educba.com

Globalization refers to the processes by which a company brings its

business to the rest of the world.
Internationalization is the practice of designing products, services
and internal operations to facilitate expansion into international
markets.
-www.lionbridge.com
Globalization and Facets of Globalization
Globalization World View
Key Differences between Globalization vs Internationalization
1. Globalization is the end result while internationalization is one of
the tasks/tools/processes to achieve them.

2. Globalization is more with the nations and their economies while

internationalization is more related to the individual, firm and
corporations for doing up their businesses.

3. Globalization is a process and internationalization is part of the

process
Globalization and Facets of Globalization
Key Differences between Globalization vs Internationalization
Major example:

Globalization
• Elimination of Visa Obligations
• removing tariff and non-tariff
trade barriers
• liberalizing investment-related
obligations
Internationalization
• - is sourcing, producing or
selling materials or delivering
services from one or more
countries
• - setting up of the branches
and subsidiaries in other
countries
Globalization and Facets of Globalization
Major factors that affects:

Globalization are infrastructural and

logistics set up and telecommunications

Internationalization gets affected by

cultural tastes, and preferences, local
traditions
Globalization and Facets of Globalization
Key Differences between Globalization vs Internationalization
Globalization is an economic process as it aims in integrating the economies while Internationalization
is an improvisation process as it will lead in expanding of the business across the nations.
Organizations that observe and work to implements globalization

Institutions that boosts internationalization

 The Drivers of Globalization

■ The first is the decline in trade barriers (tariffs and

nontarrifs among countries)
■ Second is technological change (Hill, 2011).
■ The third driver is the "paradigm shift in managing the
global economy" (Johnson & Turner, 2003).

- The drivers listed above seem to be the cogent force that led
towards the trend of globalization.
 The Drivers of Globalization

■ The first is the decline in trade barriers (tariffs and

nontarrifs among countries)
■ Second is technological change (Hill, 2011).
■ The third driver is the "paradigm shift in managing the
global economy" (Johnson & Turner, 2003).

- The drivers listed above seem to be the cogent force that led
towards the trend of globalization.
 The Decline in Trade Barriers
■ Raising trade barriers (in a form of high tariffs on imported goods)
produced negative consequences like retaliation between trading
countries whose exports these countries are blocking (Hill, 2011)
(Rapley, 2002) . This experience led to the commitment of countries
to remove trade restrictions so that goods and services will be trading
freely (Hill,2011). The result is the eventual decline in trade barriers
internationally. .
The Drivers of Globalization
The Role of Technological Change in Telecommunications,
Internet, and Transportation Technology

What is the role of technological change in telecommunications,

internet, and transportation technology?
 Technology Change
■ The inventions of the microprocessor, satellite, wireless
technologies, internet, and the World Wide Web have
revolutionized global communications (Hill,2011).
The Changing Demographics of the Global Economy

The Changing World Trade Picture and Foreign Direct Investment

■ Demographic Implications for labor markets (employment), economic
growth (GDP), monetary policy (the strength of wealth effects versus
income effects), and fiscal and other government policies.

■ World Trade Organization (WTO) is the only global international

organization dealing with the rules of trade between nations.

■ Foreign direct investment (FDI) is an investment in a business by an

investor from another country for which the foreign investor has control
over the company purchased.
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Types of Foreign direct investment (FDI)

1. Platform FDI
2. Horizontal FDI
3. Vertical FDI
4. Conglomerate FDI
 Types of Foreign direct investment (FDI)
Platform Foreign Direct Investment:
■ It is simply known as a foreign direct investment or export-
platform FDI
■ It refers to from a source country into a destination country (and
for the purpose of exporting to a third country). This results in the
impact of foreign direct investment on economic growth in the
retail sector of these countries. This is also referred to as export-
platform FDI.
■ For example, if Ford purchased manufacturing plants in Ireland
with the primary purpose of exporting cars to other countries in
the EU.
 Types of Foreign direct investment (FDI)
Horizontal Foreign Direct Investment:
■ It is said to arise when a firm duplicates its home
country-based activities (at the same value chain
stage) in a host country through FDI.
■ For Example: Starbucks coffee shop operates
business in other countries as Starbucks coffee
shop.
 Types of Foreign direct investment (FDI)
Vertical Foreign Direct Investment:
■ The Vertical FDI is said to take place when a firm
(through FDI), moves upstream (or downstream) in
different value chains.
■ It refers to a business expands into a foreign country by
moving to a different level of the supply chain. A firm
conducts different activities abroad but these activities
are still related to the main business.
■ For example, McDonald’s could purchase a large-scale
farm in Canada to produce meat for their restaurants.
 Types of Foreign direct investment (FDI)
Conglomerate Foreign Direct Investment
■ It is one where a company or individual makes a
foreign investment in a business that is unrelated to
its existing business in its home country.
■ For example: Samsung a Korean based company,
acquires Toothpick factory in the Philippines.
 Foreign Direct Investment: Methods
1. Acquiring voting stock in a foreign company
2. Merger and Acquisition
3. Joint venture with foreign corporations
4. Starting a subsidiary of a domestic firm in a
foreign country
The following are some of the benefits of
FDI for the host country:
■ Economic stimulation
■ Development of human capital
■ Increase in employment
■ Access to management expertise, skills, and
technology
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Advantages Foreign Direct Investment (FDI)

■ Access to markets: FDI can be an effective way for
you to enter into a foreign market. Some countries
may extremely limit foreign company access to their
domestic markets. Acquiring or starting a business in
the market is a means for you to gain access.
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Advantages Foreign Direct Investment (FDI)

■ Access to resources: FDI is also an effective
way for you to acquire important natural
resources, such as precious metals and fossil
fuels.
■ For example: Oil companies often make
tremendous FDIs to develop oil fields.
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Advantages Foreign Direct Investment (FDI)

■ Reduces cost of production: FDI is a means for you
to reduce your cost of production if the labor market is
cheaper and the regulations are less restrictive in the
target foreign market.
■ For example, it's a well-known fact that the shoe and
clothing industries have been able to drastically
reduce their costs of production by moving operations
to developing countries.
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Disadvantages Foreign Direct Investment (FDI)

■ Uncertainty in Government Policies – Change in
government policies is unpredictable sometimes and
it may have an adverse effect on FDIs. Policy
changes can either be in the home country of the
investor,
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Disadvantages Foreign Direct Investment (FDI)

■ Loss of Domestic Investment – As overseas
investment gets more and more lucrative to
investors, the domestic country loses out on
domestic capital and this will have an adverse effect
on it’s GDP, employment, etc.
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Disadvantages Foreign Direct Investment (FDI)

■ The Exploitation of the Resources of Host Countries –

This usually happens when the host country is a developing
or underdeveloped economy. The investors exploit the
human as well as other natural resources without keeping in
mind the long-term adverse effect this may have on the host
country. For example – Underpaying the labor, large-scale
deforestation for setting up industries, releasing untreated
wastewater into streams/rivers, etc.
The Changing Demographics of the Global Economy
The Changing World Trade Picture and Foreign Direct Investment

Disadvantages Foreign Direct Investment (FDI)

■ Risk of the Unknown – Even in the case where the
investor possesses rich experience in the industry in
which the company operates, this experience might
fall flat on its face in a foreign (host) country owing to
differences in the culture and preferences of the
consumers there. Hence, detailed and
comprehensive market research of the target
demographic is imperative before deciding on foreign
investment.
The Changing Demographics of the Global Economy
Managing the Global Marketplace

According to Hill (2011,p.87), there are four reasons for the difference in
managing international business compared to domestic business.
1. "countries are different"
2. the range of problems confronted by the managers of international
business is wider and more complex
3. "international business need to look for ways to work within the limits
imposed by government intervention in the international trade and
investment system"
4. "international transaction involves converting money into different
currencies"
for listening