Global Business Today

Globalization:

l Trend to more integrated and interdependent World Economy

u Accelerating rate of change of this trend

l Trend away from national economies isolated through barriers due to:

u Cross-border trade and investment

u Geographic and time (zones) distance

u National government regulations

u Idiosyncratic business systems

u National cultures

Globalization of Markets

l Historically distinct and separate markets are merging into on huge global marketplace

u Mostly NOT consumer product markets

u Mostly industrial products

u Tastes and preferences of consumers converging (??)

l MNCs creating global marketplace?

l MNCs around the world becoming more vulnerable to competition in their home markets

Globalization of Production

l Source goods and services from narrow set of locations around the world

l National advantages in factors of production a key driver to “where to produce?” decision

u Labor, land, capital, energy, expertise

l Global web of suppliers

l Stake of foreign governments in MNC operations

“Drivers” of Globalization:

Declining Trade and Investment Barriers

l GATT, WTO; Removal of FDI restrictions/barriers

l Average Tariff Rates on Manufactured Products

(% value)

1913 1950 1990 2000

n France 21 18 5.9 3.9

n Germany 20 26 5.9 3.9

n Italy 18 25 5.9 3.9

n Japan 30 – 5.3 3.9

n Holland 5 11 5.9 3.9

n Sweden 20 9 4.4 3.9

n Britain – 23 5.9 3.9

n USA 21 18 5.9 3.9

More evidence of Globalization

l World trade increase x 20 since 1950,

l FDI increase x 10 from ’84 to ’98

l By 1998:

u 60,000 parent companies operated away from home markets through 500,000 subsidiaries/affiliates

u Produced US$11 trillion in global sales, 25% of global output

u US, Japanese, Western European companies the major investors in Europe, Asia, and North America

“Drivers” of Globalization:

Technological Change

l Globalization of markets and production

u is the result of lowering of trade barriers and

u is enabled...