Globalization

1. Globalization

2. Reading assignments Go through the four PowerPoint presentations on your home page (at the bottom in blue—just click on them). Also, on the Homepage, go to LECTURES, and read #4. That is the reading Read Globalization chapter in text book.

3. What is it? • Please try to give me a workable definition for Globalization • It is a change that has a global impact. However, it does not necessarily have the same impact everywhere because the world is a divided place. • It is not exclusively related to technology, but technology is usually the driving force.

4. Globalization • What are the characteristics of the globalization phenomenon? • What are the components of the globalization process? • How does this relate to history? • What are the pros and cons of Globalization? Are there winners and losers?

5. Globalization-Something New? • It’s been around for longer than we think, but now it is happening furiously fast—and that is part of the problem. Because technology builds on technology. • So, to “what is it?” and “why is it happening?” we have to add: “is the pace of globalization accelerating?”—and the answer is a definite “yes”

6. Early Globalization The spread of Islam during, and after the 7th C. was phenomenal. From the 17th C on, European empires covered the world. The invention of printing made it possible to disseminate information around the world.

7. Key Elements: THEN

8. Key Elements--NOW

9. What is Globalization ? • The increased freedom and capacity of individuals and firms to: • undertake economic transactions with residents of other countries • operate on a global scale

10. X Driving Forces of Globalization • A reduction in official obstacles/barriers for conducting business with foreigners • Fast reduction and convergence of transaction costs associated with doing this business • Communications Revolution

11. Examples of price decline in transport and communication • Between the early 1980's and 1996 real sea freight costs fell 70%. • Real air freight costs have fallen 3-4% a year over a long period. • Real costs of international phone calls fell 4% a year in the developing countries in the 1990's and 2% a year in the industrial countries.

12. Cost of a 3-Minute Telephone Call, New York to London (Constant 1990, U.S. $) This setup still sits in the Post Office at Borovets $0.30

13. Examples of Innovation Driving Improved Quality/ Lower Cost Containerization easier tracking less pilferage/losses faster port services Electronic data easier tracking faster delivery interchange (better scheduling) just-in-time inventory management Fiber optics Lower costs

14. Average Air Transport Revenue per Passengers Mile (in 1990 US dollars)

15. Average Tariffs in Industrial Countries

16. Measures of Globalization • Trade integration • Financial integration • Global production networks

17. Trade to GDP Ratios Rose Dramatically over the Last Decade(Export plus import as a percentage of GDP) % Developing countries High-income OECD

18. Global Production Networks • Local Firms • Low Labor Cost • Local Knowledge • Domestic Distribution • Multi-Nationals • Proprietary Technology • Management Know-How • Global Brands • Global Distribution • Scale • Direct Ownership • Joint Venture • Licensing • Franchising • Supplier Agreement

19. The Multinational Corporation • Where does it belong? • Who regulates it? • How do you audit it? • The balance of power is shifting from the state, especially with downsizing and privatization, to the MNC.

20. Who Manages Globalization? • There is no world government, so who regulates and controls the process? Mostly UN agencies (World Bank, WTO, IMF), but these agencies operate in secret, have their own views of what states should do, and are unaccountable. • Do states ever put the global priority ahead of their own? Plus, we have rich, strong states, and poor weak ones.

21. Special Characteristics of Global Production Networks (GPN) • Many studies have shown that firms which engage in global production enjoy unique, difficult to replicate assets--usually technology or differentiation • Many studies have also shown that foreign firms usually pay higher wages, have higher productivity, and greater export orientation--their difficult to replicate assets enable that • Certain parts of the world have become magnets for GPN in recent years--the Mexico-US. border; Guandong, adjoining Hong Kong; parts of Poland; parts of Malaysia; the Bombay and Bangalore region in India--this is where growth rates are often hitting 10% a year--and where the upgrading to higher value-added activities is occurring most rapidly

22. Components of Globalization • By far the most significant element in Globalization is TRADE In the post-war years more and more of the global production has been carried out by big multinational companies who operate across borders. Multinationals have become increasingly global, locating manufacturing plants overseas in order to capitalise on cheaper labour costs or to be closer to their markets. Trade has been the engine of globalization, with world trade in manufactured goods increasing more than 100 times (from $95bn to $12 trillion) in the 50 years since 1955, much faster than the overall growth of the world economy. And what is most disturbing for many people is that no-one seems to be in charge, or be able to agree fair rules for the new global economic order. The international institutions meant to deal with the globalizing world are all in trouble. Those countries which have managed to increase their role in the world trading system by targeting exports to rich countries - such as Japan, Korea and now China - have seen dramatic increases in their standard of living. More recently, some multinationals like Apple and Dell have become "virtual firms" outsourcing nearly all their production to other companies, mainly in Asia. The speed and scale of economic change has made it increasingly difficult for governments to keep their economic destiny in their own hands.

23. What are the Components? 1. • Broad Category: Technology • Instant, cheap Worldwide Communications—cell phone, www (availability at the individual level) • International (instant) financial and capital transfers • Increased scale and frequency of air transport • Container ships

24. Component 2 • Broad Category: Information • Instant dispersal of news by satellite TV, www, fax (but what news and whose?) • Competition is worldwide, not local or national • Very hard to keep a secret

25. Components 3 • Broad Category: Culture • Increasingly a “global village,” but a Western one watching the same TV, music videos, news, soaps. Reaction to this? • Rise of a “global language.” Why? Whose? • Smaller cultures may feel threatened

26. Component 4 • Broad Category: Environment and Health • Global environmental problems (Ozone, global “warming,” sea-level change) • AIDS, Ebola, ?? • Global plunder of common pool resources—ocean, forests…..

27. Component 5 • Broad Category: Crime and Terrorism • “International” crime, Russian Mafia, al-Qaeda • Terrorists in caves in Afghanistan threaten lower Manhattan • International crime does not play by the rules of “states,” and may be better organized than some, and “own” others.

28. Component 6 • A global population? • The rich countries remain rich, and a declining proportion of world population • The poor countries remain poor, and a rapidly expanding part of the worlds population (95% of the growth) • Hence the pressure to move to the rich countries, legally or illegally

29. The Information Revolution • The Internet • The WWW • Instant Dispersal of News & Information • The Rise of a Global Media Village? • The Personalization of communications: the cell/mobile phone system, and its increasing capacity.

30. Is This Globalization?

31. The “Real” World and the “Political” World This Or This----------- The big difference is, of course, that the one on the left will still be going in 2 billion years; the one on the right, well, don’t put money on it.

32. To Recap: Globalization You carry on like this and you’ll find out! • Is Driven by Technology • Is seen as threatening cultures because it is equated with Westernization • Increases the pace at which everything happens: capital transfers, spread of disease, change of culture… • May be changing our global environment, but can states manage the globe? • Who runs the world???? The End