The Changing Demographics of the Global Economy

Let’s move on to look at how the demographics of the global economy have changed over the
last 30 years.
There are four trends that are particularly 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, and
4. The changing world order.
How Has World Output and World Trade Changed?
The first trend is the change in world output and world trade.
In the 1960s, the U.S. dominated the world economy and world trade picture. U.S.
multinational companies were powerful, and because of the Cold War, a significant portion of the
world was off limits to the Western companies.
Today, this picture has changed. In 2008, the U.S. accounted for only about 20 percent of
world economic activity. Other developed countries saw their share of global economic activity
decline over time as well.
How Has Foreign Direct Investment Changed Over Time?
The first trend is the change in foreign direct investment. In the 1960s, the U.S. accounted for
over 66 percent of worldwide foreign direct investment flows.
Britain was a distant second with just 10 percent of worldwide investment flows.
Today, investments by developing nations are on the rise, while the stock, or total cumulative
value, of foreign investments by rich industrial countries is falling.
What Is a Multinational Enterprise?
The global economy has also shifted in terms of the type of companies that are involved.
A multinational enterprise as any business that has productive activities in two or more
countries.
Since the 1960s, two important trends have emerged. First, we’ve seen an increase in the
number of non-U.S. multinationals.
Multinational firms from France, Germany, Britain, and Japan have become more important,
and there has been a notable decline in the role of U.S. firms. Firms from developing countries such as
China and South Korea have also emerged as important players.
The second trend is the growth in the number of mini-multinationals. China’s Lenovo for
example, acquired IBM’s PC division in 2004, in an effort to become a global player in the PC industry,
and moved its headquarters to the U.S. as part of its strategy.
The Changing World Order
The final change in demographics is the change in world order.
The collapse of communism has brought about new opportunities in Eastern Europe, and
China’s economic development and enormous population presents huge opportunities for
companies.
Mexico and Latin America have also emerged both as new markets, and as source and
production locations.
Keep in mind though, that while the growth of these markets creates new opportunities for firms, the
growth is also a threat. China, for example, is now home to a number of companies like Hisense that
could become significant players in their global industries. To learn more about Hisense, see the
Management Focus: China’s Hisense – An Emerging Multinational in your text.
How Will the Global Economy of The 21st Century Look?
The world is moving toward a more global economic system.
Keep in mind though, that this interdependency creates new types of risk like the financial
crisis that swept through South East Asia in the late 1990s, and the more recent financial crisis that
began in the United States in 2008, and then affected economies across the globe.
Is an Interdependent Global Economy a Good Thing?
Critics worry for example, that globalization will cause job losses, damage the environment,
and create cultural imperialism.
Supporters however, argue that globalization means lower prices, more economic growth, and
more jobs.
Anti-globalization protesters who fear that globalization is forever changing the world in a
negative way now turn up at almost every major meeting of global institutions like the WTO and IMF.
How Does Globalization Affect Jobs and Income?
Critics of globalization worry that jobs are being lost to low-wage nations.
They argue that falling trade barriers are allowing companies to move manufacturing jobs to
countries where wage rates are low.
Critics believe that this leads to falling wages and living standards in the U.S.
Supporters however, claim that free trade will prompt countries to specialize in what they can
produce most efficiently, and to import everything else.
They argue that the whole economy will be better off as a result.
How Does Globalization Affect Labor Policies and The Environment? / How do globalization’s
supporters and critics view globalization and labor policies and the environment?
Protesters fear that free trade encourages firms from advanced nations, where there are costly
environmental standards, to move manufacturing facilities offshore to less developed countries with
lax environmental and labor regulations.
However, advocates of globalization claim that environmental regulation and stricter labor
standards go hand in hand with economic progress, so foreign direct investment actually encourages
countries to raise their standards.
How Does Globalization Affect National Sovereignty?
A third concern raised by critics of globalization is the worry that economic power is shifting
away from national governments and towards supranational organizations like the WTO and the
European Union, or EU.
However, globalization’s supporters argue that the power of these organizations is limited to
what they are granted by their members. They also point out that the organizations are designed to
promote the collective interests of members, and they won’t gain support for policies that don’t
achieve this goal.
How Is Globalization Affecting the World’s Poor?
Finally, critics of globalization worry that the gap between rich and poor is growing and that
the benefits of globalization haven’t been shared equally.
While supporters of globalization concede the gap between rich and poor has gotten wider,
they also contend that it has more to do with the policies countries have followed than with
globalization.
How Does the Global Marketplace Affect Managers? / What does all of this mean for companies?
Well, it means that managing an international business, or any firm that engages in
international trade or investment, will be different from managing a domestic business for several key
reasons.
--First, countries differ.
--Second, the range of problems faced by mangers is greater and more complex.
--Third, government intervention in markets creates limitations for companies, as does the
global trading system.
--Finally, firms must deal with exchange rate changes when they conduct international
transactions that require converting funds to other currencies.