Chapter 1

Globalization

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.

Globalization has two facets:

1) the globalization of markets

2) the globalization of production

1) The Globalization Of Markets:

The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace.

Ex: In many industries, it is no longer meaningful to talk about the “German market” or the “American market”. Instead, there is only the global market.

Falling trade barriers make it easier to sell internationally.

The tastes and preferences of consumers are converging on some global norm.

Firms help create the global market by offering the same basic products worldwide.

2) The Globalization Of Production:

The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production like land, labor, and capital

Companies compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offering.

The Emergence Of Global Institutions :

Institutions are needed to:

* help manage, regulate, and police the global marketplace

* promote the establishment of multinational treaties to govern the global business system

Institutions created over the past half century include:

* the General Agreement on Tariffs and Trade (GATT)

* the World Trade Organization (WTO)

* the International Monetary Fund (IMF)

* the World Bank (WB)

* the United Nations (UN)

a)The World Trade Organization (like its predecessor GATT) is primarily responsible for policing the world trading system and making sure that nation-states adhere to...