Website for AF2602

1. 1 Website for AF2602 Website Address: http://www.af.polyu.edu.hk/alice/af2602/index.html Password: Global Note: Please download the lecture slides and tutorial questions for each week and bring them to the lecture every week.

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3. Lecture 1 Globalization

4. 4 Outline Globalization Evidence of Globalization Globalization of Markets Globalization of Production Emergence of Global Institutions Drivers of Globalization Globalization & Multinational Enterprise (MNE) Changing Demographics of Global Economy

5. 5 A. Globalization Shift towards a more integrated & interdependent global economy system Closer integration of countries and people of the world which has been bought about by enormous reduction of costs of transportation and communications and the breaking down of artificial barriers to flows of goods and services, capital , knowledge and people across borders

6. 6 B. Evidence of Globalization World trade increase more than: 20-fold up from ’50 to ’98 25-fold up between ’70 and ’02 FDI annual flows grew more than: 10-fold between ’84 and ’98 50-fold from ’75 to ’00 Dropped nearly 50% between ’00 and ’03 SARS 911 Source: Global Business Today (P.13-14)

7. 7 B. Evidence of Globalization FDI bilateral treaties increased more than 10-fold between ’80 and ’02 64,000 parent companies (2002) operated away from home markets through 870,000 subsidiaries produced US$11 trillion in global sales & 25% of global output US, Japanese, Western European companies are the major investors in Europe, Asia, & North America Source: Global Business Today (P.12 & 14)

8. 8 B. Evidence of Globalization Share of world output and exports (%)

9. 9 C. Globalization of Markets Distinct & separate markets merging into a global marketplace Process:

10. 10 C. Globalization of Markets Benefits: Implications: Example: Planet Starbucks (Global Business Today: P.2-4)

11. 11 D. Globalization of Production Multinational Corporation (MNC) sources particular goods & services from different locations around the world develops a global web of suppliers as a source of competitive advantage National differences in the cost & quality of factors of production Examples: Labour, land, capital Competes more effectively against their rivals decides “where to produce” depending on a country’s factors of production

12. 12 D. Globalization of Production Results: Emergence of Foreign Direct Investment (FDI) Growth of Multinational Enterprises (MNEs) Examples: Toyota in Japan IBM in the US Benefits: Achieves scale & scope economies through location economies Diversifies risk & investment Capitalizes on first-mover advantages

13. 13 D. Globalization of Production Implications: Example: www.accenture.com

14. 14 E. Emergence of Global Institutions

15. 15 F. Drivers of Globalization Decline in trade & investment barriers Average Tariff Rates on manufactured products (%)

16. 16 F. Drivers of Globalization Decline in trade & investment barriers by lowering: tariffs quotas anti-dumping policy administrative policy Examples: General Agreement on Tariffs and Trade (GATT) World Trade Organization (WTO)

17. 17 F. Drivers of Globalization GATT encourages free trade between member states by: regulating & reducing tariffs on traded goods providing a common mechanism for resolving trade disputes GATT membership now includes more than 110 countries Main Treaties Trade-Related Aspects of Intellectual Property Rights Agreement on Subsidies & Countervailing Measures Agreement on Establishing the Multilateral Trade Organization Source: www.ciesin.org/TG/PI/TRADE/gatt.html

18. 18 F. Drivers of Globalization WTO China accession to WTO Opening banking & financial sectors’ market Removal of restrictions to foreign direct investment by reducing: asset & capitalization requirements years of services in China Closer Economic Partnership Arrangement (CEPA) Source: www.tdctrade.com

19. 19 F. Drivers of Globalization Technological change Telecommunications & microprocessors Moore’s Law: cost of producing microprocessors (chips) falls in half every 18 months lower the cost of coordination & control Example: Octopus Card http://www.absoluteastronomy.com/encyclopedia/O/Oc/Octopus_card.htm The Internet & the world-wide web Information backbone expands global presence at a lower cost Example: Amazon.com http://opim-sun.wharton.upenn.edu/wise2004/sat421.pdf

20. 20 F. Drivers of Globalization Technological change Transportation technology reduces the time needed to get from one location to another Example: Commercial jet aircrafts, super-freighters, & containerization Li Fung http://www.lifung.com/newsroom/index.html How might the Internet and the associated World Wide Web impact international business activity and the globalization of the world economy?

21. 21 G. Globalization & MNE A multinational enterprise (MNE) is: any business that has productive activities in two or more countries the principle agent for the international transfer of economic resources Examples: Technology, management skills, marketing know-how Alternative terminologies Transnational Corporation (TNC) Multinational Corporation (MNC) Example: Coca-Cola

22. 22 G. Globalization & MNE Four Stages of development of MNC

23. 23 G. Globalization & MNE The national heritage of the largest MNEs (%)

24. 24 G. Globalization & MNE Why Do Businesses Become International?

25. 25 G. Globalization & MNE Why Do Businesses Become International?

26. 26 H. Changing Demographics of Global Economy Increase world outputs & trade from Asia-Pacific Countries Increase the flow of foreign direct investment for developing nations Example: China The growth of Non-US Multinationals Examples: Japanese firm in technology frontier & Mini-Multinationals Small and Medium Enterprises (SMEs) in Hong Kong and China

27. 27 Discussion: The Globalization Debate Is the shift towards a more integrated and interdependent global economy a good thing? Anti-globalization protests/movements Issues: economic growth vs. job security, income distribution, labour protection and safety, environment, culture, national sovereignty and so on