CHAPTER 1:

GLOBALIZATION
©McGraw-Hill Education. All rights reserved.

•Multinational Enterprises (MNEs): A large

company with substantial resources that
performs various business activities through a
network of subsidiaries and affiliates located in
multiple countries World top MNE(s) are in
fortune 500. Key entry strategy : FDI.
•Small and Medium-Sized Enterprises
(SMEs): Manufacturer or service provider
with fewer than 500 employee in US and
Canada, or fewer than 250 employees in
European Union.
Đang
•In Vietnam, SMEs tải… as firms
are defined
with no more than 200 employees and
total annual revenue no more than 200-
300 billion VND according to area of
operation, or total registered capital less
than or equal to 100 billions VND (Decree
number 39/2018 NĐ-CP, 2018)
 •SMEs competitive strategy: SMEs are
often
• More innovative, entrepreneurial, flexible, adaptable, and
have quicker response time
• Less bureaucratic
• Better to serve niche market
• Good at minimizing fixed investment costs and outsource due
to limited resources (financial & human)

(Cavusgil, S., Knight, G., & Riesenberger, J., 2017, p. 45)

•Born global firm: a young entrepreneurial company that initiates
international business activity early in its evolution, moving rapidly into
the global market

Đang tải…
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What Is Globalization? 1 of 4
● Globalization refers to the trend towards a more
integrated and interdependent world economy
● The world is moving away from self-contained
national economies toward an interdependent,
integrated global economic system
Đang tải…
● Two key facets of globalization
• The globalization of markets
• The globalization of production
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What Is Globalization? 2 of 4
The Globalization of Markets
• The merging of historically distinct and separate national
markets into one huge global marketplace
• In many markets today, the tastes and preferences of
consumers in different nations are converging upon some
global norm
©McG
What Is Globalization?
The Globalization of Markets

• Firms of all sizes benefit and contribute to the globalization of

markets
• 97% of all U.S. exporters have less than 500 employees
• 98% of all small and mid-sized German companies participate in
international markets
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What Is Globalization 3 of 4
The Globalization of Production
• 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)
• Lower overall cost structure
• Improve the quality or functionality of the product to
compete more effectively
• Boeing only undertakes engineering design, marketing and
sales, final assembly – everything else is outsourced
globally
● Currently rethinking this strategy
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What Is Globalization 4 of 4
The Globalization of Production continued
• Early outsourcing was primarily for manufacturing
• Today, modern communications technology allows
companies to outsource services
• Impediments to globalization
● Formal and informal trade barriers
● Barriers to foreign direct investment
● Transportation costs
● Economic and political risk
● Managerial challenge
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Drivers of Globalization

• Declining barriers to the free flow of goods,

services, and capital
• average tariffs are now at just 4%
• more favorable environment for FDI
•global stock of FDI was $15.5 trillion in 2009
• facilitates global production
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Drivers of Globalization 4 of 6
The Role of Technological Change
• Since World War II, there have been major
advances in communication, information
processing, and transportation
• Microprocessors and Telecommunications
● Moore’s Law
• The Internet
● Currently, 3.3 billion users (46% of global population)
• Transportation Technology
● Containerization
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Drivers of Globalization 5 of 6
The Role of Technological Change continued
• Implications for the Globalization of Production
● Lower transportation costs
● Geographically dispersed production system more
economical
● Allow firms to better respond to customer demands
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Improved Transportation has Shrunk the Globe
Commercial jet
travel has reduced
the time needed to
get from one location
to another,
effectively shrinking
the globe.

© Glow Images RF
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Drivers of Globalization 6 of 6
The Role of Technological Change continued
• Implications for the Globalization of Markets
● Low cost communication networks help create
electronic global marketplace
● Low cost transportation makes it economical to ship
Đang tải…
products around the world
● A reduction in cultural distance
● A convergence of consumer tastes and preferences
©McG
The Changing Demographics
Of The Global Economy
• Four trends are 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
4. The changing world order
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The Changing Demographics of the Global
Economy 4 of 7
The Changing Nature of the Multinational Enterprise
• Non-U.S. Multinationals
• A multinational enterprise (MNE) 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 and there has been a rise in mini-
multinationals
• By 2012, largest nonfinancial multinationals were found in
U.S., Britain, France, Germany and Japan
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The Changing Demographics of the Global
Economy 5 of 7
The Changing Nature of the Multinational Enterprise
continued
• The Rise of Mini-Multinationals
● More small and medium-sized businesses involved in
international trade and investment
● Internet lowers barriers that small and medium firms face in
building international sales
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The Changing Demographics of the Global
Economy 6 of 7
The Changing World Order
• The collapse of communism in Eastern Europe
● Greater export and investment opportunities, but political
unrest is increasing risk
• Economic development in China
● Huge opportunities despite continued government control,
but also new competition from Chinese firms
• Free market reforms and democracy in Latin America
● New markets and new sources of materials and production,
but economic and political risk remains high
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The Changing Demographics of the Global
Economy 7 of 7
The Global Economy of 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 1 of 7
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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The Globalization Debate 2 of 7
Antiglobalization Protests
• Began with WTO protest in December 1999 in Seattle
● Protest turned violent

• Protestors fear globalization has detrimental effects on

living standards, wages, and the environment
● Theory and evidence suggests these fears are exaggerated
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The Globalization Debate 3 of 7
Globalization, Jobs, and Income
• Falling trade barriers destroy manufacturing jobs in wealthy
economies (U.S. and western Europe)
• Service activities increasingly outsourced to nations with
lower labor costs
• Supporters say benefits outweigh the costs
• Outsourcing allows company to reduce its cost structure
and as a result, can reduce prices
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The Globalization Debate 4 of 7
Globalization, Jobs, and Income continued
• OECD studies show that while gap between poorest and
richest segments of society has widened, in most countries,
real income levels have increased for all, including poorest
segment
• Many advanced economies report shortage of highly-skilled
workers and an excess of unskilled workers
©McG
The Globalization Debate 5 of 7
Globalization, Labor Policies, and the Environment
• Lack of regulations in less developed countries
• Adhering to environmental regulations increases costs of
manufacturing
• Supporters argue that tougher regulations lead to economic
progress
• Studies show a hump-shaped relationship between income
levels and pollution levels
©McG
The Globalization Debate 6 of 7
Globalization and National Sovereignty
• Critics worry economic power is shifting away from national
governments and toward supranational organizations such as
the WTO, the European Union (EU), and the UN
• Supporters argue that the power of these organizations is
limited to what nation-states collectively agree to grant
● The organizations must be able to persuade members states
to follow certain actions
● Without the support of members, the organizations have no
power
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The Globalization Debate 7 of 7
Globalization and the World’s Poor
• Critics argue the gap between rich and poor has gotten
wider and the benefits of globalization have not been
shared equally
● Many of the world’s poorest nations are under totalitarian
regimes, suffer from endemic corruption, have few property
rights, are involved in war, and are burdened by high debt
● United Nations adopted Millennium Goals
● Eight economic and human development goals for the world
©McG
Managing in the Global Marketplace 1 of 2
● International business is any firm that engaged in
international trade or investment
● Managing international business differs from managing purely
domestic business
● International business must vary its practices country by
country
● International business issues greater in complexity
● Need to understand rules governing international trade and
investment
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Managing in the Global Marketplace 2 of 2
International business different for four reasons
• Countries are different
• Range of problems is wider and problems more complex
• Must find ways to work within governmental limits
• Transactions involve converting money into different
currencies
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Summary
In this chapter we have
• Explored what is meant by the term globalization.
• Identified the main drivers of globalization.
• Described the changing nature of the global economy.
• Explained the main arguments in the debate over the impact
of globalization.
• Discussed how the process of globalization is creating
opportunities and challenges for business managers.