Transcript by Charles WL Hill

Global Business Today
7e
by Charles W.L. Hill
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 1
Globalization
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What Is Globalization?
Question: What is globalization?
Globalization - the trend towards a more integrated
global economic system
Globalization of markets - the merging of historically
distinct and separate national markets into one huge
global marketplace
Globalization of production - 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 (labor energy, land, and capital)
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The Emergence of Global Institutions
Global institutions
manage, regulate, and police the global market place
promote the establishment of multinational treaties to
govern the global business system
Notable global institutions include
the World Trade Organization (WTO)
the International Monetary Fund (IMF)
the World Bank
the United Nations (UN)
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Drivers of Globalization
Question: What is driving the move toward greater
globalization?

Two macro factors:
1. declining trade and investment barriers
2. technological change
 International trade occurs when a firm exports goods
or services to consumers in another country
 Foreign direct investment (FDI) occurs when a firm
invests resources in business activities outside its
home country
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Drivers of Globalization
Figure1.1: Growth in World Merchandise Trade and
Production, 1950 - 2008
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Changing World Output and World Trade
Question: How has world output and world trade changed
over the last 50 years?
In the 1960s:
the U.S. dominated the world economy and the world
trade picture
the U.S. dominated world FDI
U.S. multinationals dominated the international
business scene
about half the world-- the centrally planned
economies of the communist world-- was off limits to
Western international business
Today, much of this has changed
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Changing World Output and World Trade
Table 1.2: The Changing Demographics of World GDP
and Trade
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Changing Foreign Direct Investment
Question: How has the foreign direct investment picture
changed over the last 50 years?
The share of world output generated by developing
countries has been steadily increasing since the 1960s
The stock of foreign direct investment (total cumulative
value of foreign investments) generated by rich industrial
countries is declining
Cross-border flows of foreign direct investment are rising
The largest recipient of FDI is China
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Changing Foreign Direct Investment
Figure 1.2: Percentage Share of Total FDI Stock,
1980 – 2008
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Changing Foreign Direct Investment
Figure 1.3: FDI Inflows, 1988 - 2008
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The Changing Multinational Enterprise
Question: What is a multinational enterprise?
 A multinational enterprise 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
there has been a rise in mini-multinationals
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The Changing World Order
Question: Why is the changing world order important for
firms?
The collapse of communism in Eastern Europe
new export and investment opportunities
Economic development in China
huge opportunities despite continued Communist
control
Free market reforms and democracy in Latin America
new markets and new sources of materials and
production
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The Global Economy in the 21st Century
Question: What will the global economy look like in the
21st century
A more integrated global economy
new opportunities for firms
but, political and economic disruptions can throw
plans into disarray
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The Globalization Debate
Question: Is the shift toward a more integrated and
interdependent global economy a good thing?
Many experts believe that globalization is promoting
greater prosperity in the global economy, more jobs, and
lower prices for goods and services
Others feel that globalization is not beneficial
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Managing in the Global Marketplace
Question: What does the shift toward a global economy
mean for managers within an international business?
Managing an international business (any firm that
engages in international trade or investment) differs from
managing a domestic business in four key ways
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Managing in the Global Marketplace
1. Countries differences require companies to vary their
practices country by country
2. Managers face a greater and more complex range of
problems
3. International companies must work within the limits
imposed by governmental intervention and the global
trading system
4. International transactions require converting funds and
being susceptible to exchange rate changes
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