Introduction and Overview

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Global Business Today
10e
by Charles W.L. Hill
and G. Tomas M. Hult

Chapter 1: Globalization

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Learning Objectives Opening Case:

Uber: Going Global from Day One
LO 1-1 Understand what is meant by the term globalization.
 Disrupted the existing taxi business
LO 1-2 Recognize the main drivers of globalization.
 Started in 2009
LO 1-3 Describe the changing nature of the global economy.
 By 2016, in 68 countries and 375 cities
LO 1-4 Explain the main arguments in the debate over the
impact of globalization.  Established service first then fought regulator attempts to
shut service down
LO 1-5 Understand how the process of globalization is creating
opportunities and challenges for management practice.  Used social networks to gain rider support
 Vancouver, Canada and other cities banned Uber
 Local rivals emerging

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Introduction 1 of 2 Introduction 2 of 2
The world economy today Today’s world reflects globalization
 Fewer self-contained national economies with high  Declining barriers to cross-border trade and investment
barriers to cross-border trade and investment
 Advances in transportation and telecommunications
A more integrated global economic system with lower
barriers to trade and investment  Material culture similar all over the world

Over $5 trillion in foreign exchange transactions daily  National economies merging into integrated global
economic system
Over $19 trillion of goods and $5 trillion of services being
sold across national borders
The establishment of international institutions

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Basic Marketing – Chapter 6

Handout 6-1
 What Is Globalization? 1 of 4 What Is Globalization? 2 of 4
 Globalization refers to the trend towards a more The Globalization of Markets
integrated and interdependent world economy  The merging of historically distinct and separate national
 Two key facets of globalization markets into one huge global marketplace
 The globalization of markets  In many markets today, the tastes and preferences of
 The globalization of production consumers in different nations are converging upon some
global norm
 Coca Cola, McDonald’s, IKEA, Starbucks, Apple

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What Is Globalization 3 of 4 Did You Know?

The Globalization of Production
Did you know why your
 Sourcing of goods and services from locations around the
iPhone was assembled in
globe to take advantage of national differences in the cost
China? It’s not what you
and quality of factors of production (labor energy, land,
might think.
and capital)
 Lower overall cost structure
 Improve the quality or functionality of the product to Click to play video
compete more effectively
 Boeing only undertakes engineering design, marketing and
sales, final assembly – everything else is outsourced
globally
 Currently rethinking this strategy

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What Is Globalization 4 of 4 The Emergence of Global Institutions 1 of 3

The Globalization of Production continued  Global institutions
 Early outsourcing was primarily for manufacturing  Manage, regulate, and police the global market place
 Today, modern communications technology allows  Promote the establishment of multinational treaties to
companies to outsource services govern the global business system
 Impediments to globalization
 World Trade Organization (WTO)
 Formal and informal trade barriers
 Barriers to foreign direct investment  Polices world trading system and ensures nations adhere
 Transportation costs to the rules established in WTO treaties
 Economic and political risk  Succeeded the General Agreement on Tariffs and Trade
 Managerial challenge (GATT)
 162 nations accounted for 98% of world trade (2016)

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Basic Marketing – Chapter 6

Handout 6-2
 The Emergence of Global Institutions 2 of 3 The Emergence of Global Institutions 3 of 3
 International Monetary Fund (IMF)  The United Nations (UN)
 Promotes order in the international monetary system  Maintains international peace and security
 Lender of last resort  Develops friendly relations among nations
 The World Bank  193 member countries
 Promotes economic development using low-interest loans  Promotes respect for human rights
 Is a center for harmonizing the actions of nations
 The Group of 20 (G20)
 Finance ministers and central bank governors of 19 largest
world economies
 Represents 90% of global BDP
 A forum for a coordinated policy response to the financial
crisis of 2008-2009

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Can the International Court of Justice be Effective? Drivers of Globalization 1 of 6

The International Court of Justice (www.icj-cij.org) is the Two factors driving the move toward greater
principal judicial organ of the United Nations (UN). Of the six globalization
principal organs of the UN, it is the only one not located in New
York (United States); instead, the seat of the Court is at the  Decline in barriers to free flow of goods, services, and
Peace Palace in The Hague (Netherlands). The court’s role is to capital
settle, in accordance with international law, legal disputes  Technological change
submitted to it by countries and to give advisory opinions on
legal questions referred to it by authorized United Nations
organs and specialized agencies. But, how effective can the UN
International Court of Justice really be in the global
marketplace with its many legal systems?
Source: www.icj-cij.org/court.

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Table 1.1 Average Tariff Rates on Manufactured

Drivers of Globalization 2 of 6 Products as Percentage of Value
Declining Trade and Investment Barriers
1913 1950 1990 2014
 International trade: when a firm exports goods or services
France 21% 18% 5.9% 1.5%
to consumers in another country
Germany 20 26 5.9 1.5
 Foreign direct investment: when a firm invests resources
Italy 18 25 5.9 1.5
in business activities outside its home country
Japan 30 -- 5.3 1.3
 During 1920s and 1930s, many nations put up barriers to Holland 5 11 5.9 1.5
international trade to protect domestic industries
Sweden 20 9 4.4 1.5
 After WWII, advanced Western countries reduced barriers United -- 23 5.9 1.5
 GATT, Uruguay Round, and WTO Kingdom
United States 44 14 4.8 1.5
Sources: The 1913–1990 data are from “Who Wants to Be a Giant?,” The Economist: A Survey of the Multinationals,
June 24, 1995, pp. 3–4. The 2014 data are from World Development Indicators 2015, World Bank.

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Basic Marketing – Chapter 6

Handout 6-3
 Drivers of Globalization 3 of 6 Figure 1.1 Value of World Trade and World
Declining Trade and Investment Barriers continued Production 1950-2014
 We produce more goods and services than ever before but
a greater proportion being traded across national borders
 Consumers more knowledgeable which drives demand
 Volume of world trade growing faster than GDP
 More companies dispersing parts production
 Economies are becoming even more intertwined
 World has become significantly wealthier

Source: World Trade Organization, 2016.

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Drivers of Globalization 4 of 6 Drivers of Globalization 5 of 6

The Role of Technological Change The Role of Technological Change continued
 Since World War II, there have been major  Implications for the Globalization of Production
advances in communication, information  Lower transportation costs
processing, and transportation  Geographically dispersed production system more
Microprocessors and Telecommunications economical
 Moore’s Law  Allow firms to better respond to customer demands
The Internet
 Currently, 3.3 billion users (46% of global population)
Transportation Technology
 Containerization

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Improved Transportation has Shrunk the Globe Drivers of Globalization 6 of 6

Commercial jet travel The Role of Technological Change continued
has reduced the time  Implications for the Globalization of Markets
needed to get from  Low cost communication networks help create
one location to electronic global marketplace
another, effectively  Low cost transportation makes it economical to ship
shrinking the globe. products around the world
 A reduction in cultural distance
 A convergence of consumer tastes and preferences

© Glow Images RF

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Basic Marketing – Chapter 6

Handout 6-4
 The Changing Demographics of the Global The Changing Demographics of the Global
Economy 1 of 7 Economy 2 of 7
 In the 1960s: The Changing World Output and World Trade Picture
 U.S. dominated the world economy, world trade, and world  Early 1960s:
FDI  U.S. - dominant industrial power accounting for about 38.3%
of world manufacturing output
 U.S. MNEs dominated the international business scene
 By 2014:
 About half the world-- the centrally planned economies of
 U.S. accounted for only 22.4%
the communist world-- was off limits to Western
international business  Germany, France, and the U.K. had a similar decline
 Rapid economic growth now in countries like China, India,
 Today, much of this has changed Russia, and Brazil
 Further relative decline by the U.S. is likely

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Table 1.2 The Changing Demographics of World The Changing Demographics of the Global
Output and Trade Economy 3 of 7
Share of World Share of World Share of World
Country Output 1960 (%) Output 2014 (%) Exports 2015 (%)
United States 38.3 22.4 9.2
The Changing Foreign Direct Investment Picture
Germany 8.7 5.0 8.4  The share of world output generated by developing
France 4.6 3.6 3.1 countries has been steadily increasing since the 1960s
Italy 3.0 2.8 2.9  The stock of foreign direct investment (total cumulative
United Kingdom 5.3 3.0 2.7 value of foreign investments) generated by rich industrial
Canada 3.0 2.3 2.7 countries is declining
Japan 3.3 5.9 3.9  Cross-border flows of foreign direct investment are rising
China NA 13.3 13.2  The largest recipient of FDI is China, followed by Brazil,
Mexico, and India
Sources: Output data from World Bank database, 2016. Trade data from WTO Statistical Database, 2015.

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Figure 1.2 Percentage Share of Total FDI Stock Figure 1.3 FDI Inflows 1980-2014

Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the Global Marketplace. (New York, NY: McGraw-Hill Education, 2017).
Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the Global Marketplace. (New York, NY: McGraw-Hill Education, 2017).

Jump to Appendix 1 long image Jump to Appendix 2 long image

description description

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Basic Marketing – Chapter 6

Handout 6-5
 The Changing Demographics of the Global Figure 1.4 National Share of Largest
Economy 4 of 7 Multinationals 1973 and 2012
The Changing Nature of the Multinational Enterprise
 Non-U.S. Multinationals
 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 there has been a rise in mini-
multinationals
 By 2012, largest nonfinancial multinationals were found in
U.S., Britain, France, Germany and Japan

Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the Global Marketplace. (New York, NY: McGraw-Hill Education, 2017).

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The Changing Demographics of the Global The Changing Demographics of the Global
Economy 5 of 7 Economy 6 of 7
The Changing Nature of the Multinational Enterprise The Changing World Order
continued  The collapse of communism in Eastern Europe
 The Rise of Mini-Multinationals  Greater export and investment opportunities, but political
 More small and medium-sized businesses involved in unrest is increasing risk
international trade and investment  Economic development in China
 Internet lowers barriers that small and medium firms face in  Huge opportunities despite continued government control,
building international sales but also new competition from Chinese firms
 Free market reforms and democracy in Latin America
 New markets and new sources of materials and production,
but economic and political risk remains high

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The Changing Demographics of the Global The Globalization Debate 1 of 7

Economy 7 of 7 Is the shift toward a more integrated and
The Global Economy of the 21st Century interdependent global economy a good thing?
 A more integrated global economy • Many experts believe that globalization is promoting
 New opportunities for firms greater prosperity in the global economy, more jobs, and
lower prices for goods and services
 But, political and economic disruptions can throw plans into
• Others feel that globalization is not beneficial
disarray

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Basic Marketing – Chapter 6

Handout 6-6
 The Globalization Debate 2 of 7 The Globalization Debate 3 of 7
Antiglobalization Protests Globalization, Jobs, and Income
 Began with WTO protest in December 1999 in Seattle  Falling trade barriers destroy manufacturing jobs in
 Protest turned violent wealthy economies (U.S. and western Europe)

 Protestors fear globalization has detrimental effects on  Service activities increasingly outsourced to nations with
living standards, wages, and the environment lower labor costs
 Theory and evidence suggests these fears are exaggerated  Supporters say benefits outweigh the costs
 Outsourcing allows company to reduce its cost structure
and as a result, can reduce prices

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The Globalization Debate 4 of 7 The Globalization Debate 5 of 7

Globalization, Jobs, and Income continued Globalization, Labor Policies, and the Environment
 OECD studies show that while gap between poorest and  Lack of regulations in less developed countries
richest segments of society has widened, in most
 Adhering to environmental regulations increases costs of
countries, real income levels have increased for all,
manufacturing
including poorest segment
 Supporters argue that tougher regulations lead to
 Many advanced economies report shortage of highly-
economic progress
skilled workers and an excess of unskilled workers
 Studies show a hump-shaped relationship between
income levels and pollution levels

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Figure 1.5 Income Levels and Environmental The Globalization Debate 6 of 7

Pollution Globalization and National Sovereignty
Critics worry economic power is shifting away from national
governments and toward supranational organizations such
as the WTO, the European Union (EU), and the UN
Supporters argue that the power of these organizations is
limited to what nation-states collectively agree to grant
 The organizations must be able to persuade members states
to follow certain actions
 Without the support of members, the organizations have no
power

Source: Hill, C. W. L.; Hult, G. T. M., International Business: Competing in the Global Marketplace. New York, NY: McGraw-Hill Education, 2017.

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Basic Marketing – Chapter 6

Handout 6-7
 The Globalization Debate 7 of 7
Globalization and the World’s Poor
 Critics argue the gap between rich and poor has gotten
wider and the benefits of globalization have not been
shared equally
 Many of the world’s poorest nations are under totalitarian
regimes, suffer from endemic corruption, have few property
rights, are involved in war, and are burdened by high debt
 United Nations adopted Millennium Goals
 Eight economic and human development goals for the world
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Managing in the Global Marketplace 2 of 2
International business different for four reasons
 Countries are different
 Range of problems is wider and problems more complex
 Must find ways to work within governmental limits
 Transactions involve converting money into different
currencies
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Appendix 1 Figure 1.2 Percentage Share of Total FDI Stock
The share of the total stock accounted for by U.S. firms declined
from about 38 percent in 1980 to 24.4 percent in 2014.
Meanwhile, the shares accounted for by the world’s developing
nations increased markedly. The rise in the share of FDI stock
accounted for by developing nations reflects a growing trend for
firms from these countries to invest outside their borders. In
2014, firms based in developing nations accounted for 18.7
percent of the stock of foreign direct investment, up from
around 1 percent in 1980. Firms based in Hong Kong, South
Korea, Singapore, Taiwan, India, Brazil, and mainland China
accounted for much of this investment.
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Basic Marketing – Chapter 6
Handout 6-8
Managing in the Global Marketplace 1 of 2
 International business is any firm that engaged in
international trade or investment
 Managing international business differs from managing purely
domestic business
 International business must vary its practices country by
country
 International business issues greater in complexity
 Need to understand rules governing international trade and
investment
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Summary
In this chapter we have
 Explored what is meant by the term globalization.
 Identified the main drivers of globalization.
 Described the changing nature of the global economy.
 Explained the main arguments in the debate over the
impact of globalization.
 Discussed how the process of globalization is creating
opportunities and challenges for business managers.
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Appendix 2 Figure 1.3 FDI Inflows 1980-2014
The chart illustrates two important trends -- the sustained growth in cross-
border flows of foreign direct investment that occurred during the 1990s and
the increasing importance of developing nations as the destination of foreign
direct investment. Throughout the 1990s, the amount of investment directed
at both developed and developing nations increased dramatically, a trend
that reflects the increasing internationalization of business corporations. A
surge in foreign direct investment from 1998 to 2000 was followed by a slump
from 2001 to 2003, associated with a slowdown in global economic activity
after the collapse of the financial bubble of the late 1990s and 2000. The
growth of foreign direct investment resumed in 2004 and continued through
2007, when it hit record levels, only to slow again in 2008 and 2009 as the
global financial crisis took hold.
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 Appendix 3 Figure 1.4 National Share of Largest Multinationals 1973 and 2012 Appendix 4 Figure 1.5 Income Levels and Environmental Pollution

in 1973, 48.5 percent of the world’s 260 largest multinationals
were U.S. firms. The second-largest source country was the
United Kingdom, with 18.8 percent of the largest multinationals.
Japan accounted for 3.5 percent of the world’s largest
multinationals at the time. The large number of U.S.
multinationals reflected U.S. economic dominance in the three
decades after World War II, while the large number of British
multinationals reflected that country’s industrial dominance in
the early decades of the twentieth century.
At a certain point, rising income levels lead to demands for
greater environmental protection. The hump-shaped graph holds
across a wide range of pollutants from sulfur dioxide to lead
concentrations and water quality but carbon dioxide emissions
are an important exception -- they rise steadily with higher
income levels.

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Basic Marketing – Chapter 6

Handout 6-9