Chapter 1
Global companies
-MacDonald's -Coke -Walmart -Apple -Ikea -Starbucks -Amazon General Motors
multinational enterprise (MNE)
A firm that owns business operations in more than one country
Pros of buying internationally:
Cheaper Support global commerce Shape their government
4 factors of production:
Labor Energy Capital Land
Capital:
Labor costs Materials Production costs Time Sales promotions Marketing Shipping McGraw Hill
Energy:
production - plant
Explain the main arguments in the debate over the impact of globalization.
Many influential economists, politicians, and business leaders argue that falling barriers to international trade and investment are the twin engines driving the global economy toward greater prosperity. They say increased international trade and cross-border investment will result in lower prices for goods and services. They believe that globalization stimulates economic growth, raises the incomes of consumers, and helps to create jobs in all countries that participate in the global trading system.
The chapter made the following points: 1
Over the past two decades, we have witnessed the globalization of markets and production.
Cons of buying internationally:
Quality Jobs
The chapter made the following points: 5
Since the end of World War II, barriers to the free flow of goods, services, and capital have been lowered significantly. More than anything else, this has facilitated the trend toward the globalization of production and has enabled firms to view the world as a single market.
The chapter made the following points: 4
Two factors seem to underlie the trend toward globalization: declining trade barriers and changes in communication, information, and transportation technologies.
Recognize the main drivers of globalization.
Two macro factors underlie the trend toward greater globalization: 1) the decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II 2) technological change, particularly the dramatic developments in recent years in communication, information processing, and transportation technologies.
globalization
trend away from distinct national economic units and toward one huge global market
Thomas Friedman's book - "The World is Flat" What does he mean?
1)More accessible 2)Distorted 3)Levels the playing field - US no longer has the advantage
factors of production
inputs into the productive process of a firm, including labor, management, land, capital, and technological know-how.
globalization of markets
moving away from economic system in which national markets are distinct entities, isolated by trade barriers and barriers of distance, time, and culture, and toward a system in which national markets are merging into one global market
international trade
occurs when a firm exports goods or services to consumers in another country
stock of foreign direct investment
the total accumulated value of foreign-owned assets at a given time
globalization of production
trend by individual firms to disperse parts of the productive processes to different locations around the globe to take advantage of national differences in the cost and quality of factors of production
What country where the items in our classroom made?
-Malaysia -Sri Lanka -Japan -USA -China -Indonesia -Vietnam -Mexico -Europe -Philippines
Drivers of Globalization:
1) Trade & Investment Barriers 2) The Role of Technology change 3) Transportation
The chapter made the following points: 11
The benefits and costs of the emerging global economy are being hotly debated among businesspeople, economists, and politicians. The debate focuses on the impact of globalization on jobs, wages, the environment, working conditions, and national sovereignty.
Trade & Investment Barriers
The decline in barriers to the free flow of goods, services, and capital that has occurred since the end of WW2. -High tariffs on imports of manufactured goods The aim of such tariffs was to protect domestic industries from foreign competition Consequently, "beggar thy neighbor" retaliatory trade policies, with countries progressively raising trade barriers against each other. Ultimately, this depressed world demand and contributed to the Great Depression of the 1930s. Such trades have been driving both globalization of markets and the globalization of production. The lowering of trade and investment barriers allows firms t base production at the optimal location for that activity. Thus a firm might design a product in one country, produce component parts in two countries, assemble the product in yet another country, and then export the finished product around the world. If barriers do not decline more, it may slow the rate of globalization of both markets and production.
The chapter made the following points: 7
The development of the microprocessor and related developments in communication and information processing technology have helped firms link their worldwide operations into sophisticated information networks. Jet air travel, by shrinking travel time, has also helped to link the worldwide operations of international businesses. These changes have enabled firms to achieve tight coordination of their worldwide operations and to view the world as a single market.
GATT (General Agreement on Tariffs and Trade)
Was a free trade agreement between 23 countries that eliminated tariffs and increased international trade. It was the first worldwide multilateral free trade agreement. It was in effect from June 30, 1948 until January 1, 1995. It ended when it was replaced by the more robust World Trade Organization. The purpose of GATT was to eliminate harmful trade protectionism. That had sent global trade down 65 percent during the Great Depression. GATT restored economic health to the world after the devastation of the depression and World War II. GATT had three main provisions: 1) Each member must confer most favored nation status to every other member. 2) GATT prohibited restriction on the number of imports and exports. 3) Developed countries agreed to eliminate tariffs on imports of developing countries to boost their economies. GATT prohibited restriction on the number of imports and exports. The exceptions were: --When a government had a surplus of agricultural products. --If a country needed to protect its balance of payments because its foreign exchange reserves were low. --Emerging market countries that needed to protect fledgling industries. Created the World Bank and the International Monetary Fund to coordinate global growth and almost a third organization. Pros: -For 47 years, GATT reduced tariffs. -By increasing trade, GATT promoted world peace. -By showing how free trade works, GATT inspired other trade agreements. -GATT also improved communication. It provided incentives for countries to learn English, the language of the world's largest consumer market. Cons: -Low tariffs destroy some domestic industries, contributing to high unemployment in those sectors. -By the 1980s, GATT did not address the trade of services that allowed them to grow beyond any one country's ability to manage them. -Like other free trade agreements, GATT reduced the rights of a nation to rule its own people. Farmers that stay often grow opium, coca, or marijuana, just because they can't grow traditional crops and stay in business. Violence from the drug trade may force them to emigrate to protect themselves and their children.
Land:
Forrest production land Retail store online (virtual store)
United Nations
An international organization made up of 193 countries headquartered in New York City, formed in 1945 to promote peace, security, and cooperation.
The chapter made the following points: 6
As a consequence of the globalization of production and markets, in the past decade world trade has grown faster than world output, foreign direct investment has surged, imports have penetrated more deeply into the world's industrial nations, and competitive pressures have increased in industry after industry.
foreign direct investment (FDI)
Direct investment in business operations in a foreign country
G20 (or G-20 or Group of Twenty)
Established in 1999 AKA the G20 Summit Comprises the finance ministers and central bank governors of 19 economies and the European Union. Prevents future international financial crises, seeking to shape the global economic agenda. Represents: -2/3 of the world's people -90% global GDP, 80% of -international global trade. Mandate of the G20 is to promote: -global economic growth, -international trade, and -financial market regulation G20 is a forum, therefore its agreements or decisions have no legal impact. -yet they do influence countries policies and global cooperation Meet twice a year - at the same time as the IMF and the World Bank. Nov/Dec '18 Summit : -Trump and China's President Xi Jinping agreed to start trade negotiations and stop escalation of the ongoing trade war. -Trump cancelled a meeting with Russian President Vladimir Putin to protest Russia's attack on Ukraine -Trump signed the new NAFTA agreement with Mexico and Canada. -All countries except the United States reaffirmed their commitment to the Paris Climate Accord. G-20 Member Nations: --The G-7 nations: Canada, France, Germany, Italy, Japan, the UK and the United States. This group of countries also meets on their own. --There are eleven emerging market and smaller industrialized countries: Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey. --The EU is also a member of the G-20. Protesters want the G-20 leaders to focus on one or more of these issues: 1) Poverty 2) Climate Change 3) Gender Equality 4) Immigration
Group of Twenty (G20)
Established in 1999, the G20 comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank.
The chapter made the following points: 8
In the 1960s, the U.S. economy was dominant in the world, U.S. firms accounted for most of the foreign direct investment in the world economy, U.S. firms dominated the list of large multinationals, and roughly half the world—the centrally planned economies of the Communist world—was closed to Western businesses.
International Monetary Fund (IMF)
International institution set up to maintain order in the international monetary system
World Bank
International institution set up to promote general economic development in the world's poorer nations
General Agreement on Tariffs and Trade (GATT)
International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO
Transportation
Local & global Several major innovations in transportation technology have occurred since World War II. In economic terms, the most important are probably: -the development of commercial jet aircraft & super-freighters and -the introduction of containerization, which simplifies transshipment from one mode of transport to another. Commercial jet travel, reduces the time needed to get from one location to another, has effectively shrunk the globe. Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances. --ex: shipping, time, trade methods (better ships & shipping containers - more goods & cheaper)
The Role of Technology change
Technological change - particularly the dramatic developments in recent decades in communication, information processing, and transportation. The lowering of trade barriers made globalization of markets and production a theoretical possibility. Technological change has made it a tangible reality. Since the end of World War II, the world has seen major advances in communication, information processing, and transportation technology, including the explosive emergence of the Internet and the World Wide Web. Telecommunications is creating a global audience. Microprocessors and Telecommunications --microprocessor, which enabled the ex¬ plosive growth of high-power, low-cost computing, vastly increasing the amount of information that can be processed by individuals and firms. --technologies rely on the microprocessor to encode, transmit, and decode the vast amount of information that flows along these electronic highways. The Internet and the World Wide Web --In 1990, fewer than 1 million users were connected to the Internet. --By May 2009 the Internet had 1.6 billion users. --The Web makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever their size. --It allows businesses, both small and large, to expand their global presence at a lower cost than ever before.
The chapter made the following points: 2
The globalization of markets implies that national markets are merging into one huge marketplace. However, it is important not to push this view too far.
Labor:
Writer editor printer binder 'lumberjack'
international business
any firm that engages in international trade or investment
WTO (World Trade Organization)
A global membership group that promotes and manages free trade. It does this in three ways: 1) it administers existing multilateral trade agreements. 2) it settles trade disputes. Most conflicts occur when one member accuses another of dumping. 3) it manages ongoing negotiations for new trade agreements. The biggest would have been the Doha round in 2006. The WTO's origins began with trade negotiations after World War II. In 1948, the General Agreement on Tariffs and Trade focused on reducing tariffs, anti-dumping, and non-tariff measures. In 1997, the WTO brokered agreements promoting trade in telecommunications services among 69 countries. It also removed tariffs on information technology products between 40 members. It improved trade of banking, insurance, securities and financial information between 70 countries.
World Bank:
An international organization that helps emerging market countries to reduce poverty. It is not a bank in the conventional sense of the word. Instead, it consists of two development institutions. 1) the International Bank for Reconstruction and Development 2) the International Development Association 189 member countries share ownership. The United States has a controlling voting interest. The Bank works closely with three other organizations: 1) The International Finance Corporation 2) The Multilateral Guarantee Agency 3) The International Centre for the Settlement of Investment Disputes. The World Bank provides low-interest loans, interest-free credit, and grants focusing on improving education, health, and infrastructure. It also uses funds to modernize a country's financial sector, agriculture, and natural resources management. The Bank's stated purpose is to "bridge the economic divide between poor and rich countries." It does this by turning "rich country resources into poor country growth." It has a long-term vision to "achieve sustainable poverty reduction." To achieve this goal, the Bank focuses on six areas: 1) Overcome poverty by spurring growth, especially in Africa. 2) Help reconstruct countries emerging from war, the biggest cause of extreme poverty. 3) Provide a customized solution to help middle-income countries remain out of poverty. 4) Spur governments to prevent climate change. It helps them control communicable diseases, especially HIV/AIDS, and malaria. It also manages international financial crises and promotes free trade. 5) Work with the Arab League on three goals. They are to improve education, build infrastructure, and provide micro-loans to small businesses. 6) Share its expertise with developing countries. Publicize its knowledge via reports and its interactive online database. Jim Yong Kim, M.D., Ph.D., is the president of the World Bank, but he will be stepping down effective February 1, 2019, three years before his term ends. - he resigned over the Trump administration's opposition to stopping climate change. The World Bank president reports to a 25-member Board of Executive Directors. The president of the United States has selected the World Bank president since its founding because it owns 16% of the bank's shares, making it the largest shareholder. -unofficial agreement. The Bank has more than 10,000 employees from over 160 countries. Two-thirds work in Washington, DC. The rest are in 100 country offices in the developing world.
IMF (International Monetary Fund)
An organization of 189 member countries. It stabilizes the global economy in three ways. 1) it monitors global conditions and identifies risks. 2) it advises its members on how to improve their economies. 3) it provides technical assistance and short-term loans to prevent financial crises. The IMF's goal is to prevent these disasters by guiding its members. These countries are willing to give up some of their sovereign authority to achieve that aim. Objectives: -Survey Global Conditions -Advise Member Countries -Provide Technical Assistance and Short-term Loans NOT IMF members: -Cuba -N Korea -Liechtenstein -Taiwan -Barbados -Cabo Verde -Hong Kong -Netherlands Antilles Members do not receive equal voters, yet voting shares based on quota. -Quota is based on their economic size. The IMF has been called upon more and more to provide global economic surveillance. In 2011, the IMF was rocked by a sex scandal involving its Executive Director, Dominique Strauss-Kahn. Police arrested him on allegations he sexually assaulted a hotel maid. Although the charges were subsequently dropped, he resigned. Many emerging market members argued that it was time for a Director to come from one of their countries. The IMF was created at the 1944 Bretton Woods conference. It sought to rebuild Europe after World War II. The Conference also set up a modified gold standard to help countries maintain the value of their currencies. The planners wanted to avoid the trade barriers and high-interest rates that helped cause the Great Depression.
Describe the changing nature of the global economy.
As late as the 1960s, four stylized facts described the demographics of the global economy. 1) U.S. dominance in the world economy and world trade picture. 2) U.S. dominance in world foreign direct investment. 3) The dominance of large, multinational U.S. 4) Roughly half the globe—the centrally planned economies of the Communist world—were off-limits to Western international businesses. **As will be explained below, all four of these qualities either have changed or are now changing rapidly.
Understand how the process of globalization is creating opportunities and challenges for business managers.
At the most fundamental level, the differences arise from the simple fact that countries are different. Countries differ in their cultures, political systems, economic systems, legal systems, and levels of economic development.
The chapter made the following points: 9
By the mid-1990s, the U.S. share of world output had been cut in half, with major shares now being accounted for by Western European and Southeast Asian economies. The U.S. share of worldwide foreign direct investment had also fallen, by about two-thirds. U.S. multinationals were now facing competition from a large number of Japanese and European multinationals. In addition, the emergence of mini-multinationals was noted.
United Nations - UN
Headquartered in New York International organization of 193 member-states Founded in 1945 to prevent another world war The U.N.'s missions: 1) maintains international peace, 2) fosters friendly relations between its members, 3) solves international problems, 4) promotes human rights, and 5) harmonizes its members' actions. *It works to help countries reduce hunger, disease, and illiteracy. *It promotes sustainable development and the environment. *It protects refugees, provides disaster relief, and economic development. *It counters terrorism, promotes nuclear non-proliferation, and clears landmines. *It also focuses on protecting indigenous cultures. The U.N. is not a government and has no right to make binding laws. Instead, it uses the power of persuasion. U.S. President Franklin D. Roosevelt lobbied for the U.N.'s creation even during World War II. The United Nations is the second attempt at a global peace initiative. In 1919, U.S. President Woodrow Wilson pushed for the League of Nations after World War I. -- Many felt the League failed because it could not prevent the outbreak of World War II. The UN affects the US economy: -The UN buys goods and services from the US; employees Americans; & benefits local NY businesses -The UN has added $3.5 B to the US economy -The UN hired US companies to support US troops in peacekeeping missions -The UN development program does business with more than 1800 US vendors
Movie in class:
Made in America: Remolding the home Can not find certain things made in america like a coffee maker or TV. https://abcnews.go.com/WNT/video/made-america-remodeling-home-world-news-us-manufacturing-labor-economy-business-13042595
The chapter made the following points: 12
Managing an international business is different from managing a domestic business for at least four reasons: (a) countries are different, (b) the range of problems confronted by a manager in an international business is wider and the problems themselves more complex than those confronted by a manager in a domestic business, (c) managers in an international business must find ways to work within the limits imposed by governments' intervention in the international trade and investment system, and (d) international transactions involve converting money into different currencies.
The chapter made the following points: 10
One of the most dramatic developments of the past 20 years has been the collapse of communism in Eastern Europe, which has created enormous long-run opportunities for international businesses. In addition, the move toward free market economies in China and Latin America is creating opportunities (and threats) for Western international businesses.
The chapter made the following points: 3
The globalization of production implies that firms are basing individual productive activities at the optimal world locations for the particular activities. As a consequence, it is increasingly irrelevant to talk about American products, Japanese products, or German products, since these are being replaced by "global" products.
World Trade Organization (WTO)
The organization that succeeded the General Agreement on Tariffs and Trade (GATT) as a result of the successful completion of the Uruguay Round of GATT negotiations.
Moore's law
The power of microprocessor technology doubles and its costs of production fall in half every 18 months.
Summary:
This chapter sets the scene for the rest of the book. It shows how the world economy is becoming more global and reviews the main drivers of globalization, arguing that they seem to be thrusting nation-states toward a more tightly integrated global economy. We looked at how the nature of international business is changing in response to the changing global economy; we discussed some concerns raised by rapid globalization; and we reviewed implications of rapid globalization for individual managers.
Understand what is meant by the term globalization.
globalization refers to the shift toward a more integrated and interdependent world economy. Several facets, including: -globalization of markets and -the globalization of production. Globalization of Markets: the merging of historically distinct & separate national markets into one huge global marketplace. 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 (such as labor, energy, land, and capital).
