The Challenges of Globalization: Trends, Drivers, and Institutions

1. Chapter 6 The Challenges of Globalization

2. Ch. 6 Key Learning Objectives • Defining globalization and classifying the major ways in which companies enter the global marketplace • Recognizing the major drivers of the globalization process and the international financial and trade institutions that have shaped this process in recent decades • Analyzing the benefits and costs of the globalization of business • Identifying the major types of political and economic systems in which companies operate across the world, and the special challenges posed by doing business in diverse settings • Assessing how businesses can work collaboratively with governments and the civil sector to address global social issues

3. Defining globalization and classifying the major ways in which companies enter the global marketplace

4. The Process of Globalization • Refers to the increasing movement of goods, services, and capital across national borders • Is considered a process – an ongoing series of interrelated events • International trade and financial flows integrate the world economy, leading to the spread of technology, culture, and politics • Globalization is not simply a trend or a fad but, rather, an international system

5. Entering and Competing in the Global Marketplace • Develop global market channels • First build a successful business in their home country, then export products or services to buyers in other countries • Establish global operations • Locate manufacturing plants or service operations in other countries as a way to cut costs; work may also be subcontracted • Developglobal supply chains • Purchase raw materials, components, or other supplies from sellers in other countries

6. Recognizing the major drivers of the globalization process and the international financial and trade institutions that have shaped this process in recent decades

7. Major Transnational Corporations (TNCs) • Defined by the United Nations as firms that control assets abroad • 79,000 TNCs operate in the modern global economy • They, in turn, have ten times that number of affiliates (suppliers, subcontractors, and other entities with which they have some business relationship) • Most global commerce is carried out by a small number of powerful firms • Next slide lists top 10 non-financial transnational corporations, ranked in order of the value of the foreign assets they control

8. Figure 6.1 The World’s Top 10 Nonfinancial Transnational Corporations

9. The Acceleration of Globalization • The world’s economy is becoming increasingly integrated • Higher share of output is being exported across national borders • One-fourth of all goods and services produced worldwide is sold to other nations, rather than domestically • This is almost double the percentage of 1960 • In earlier years, most exports were of goods. An important recent trend is the globalization of services, such as travel, insurance, financial, and information services.

10. The Acceleration of Globalization • Driven by several factors: • Technological innovation • Easier to communicate with employees, partners, and suppliers all over the globe in real time • Transportation systems • Improvements enable the fast and cheap movement of goods and services from one place to another • The rise of major transnational corporations • Bigger, well-capitalized, firms are better equipped to conduct business across national boundaries than smaller firms • Social and political reforms • Rise of Pacific Rim growth economies, collapse of communism in Central and Eastern Europe have opened new regions to world trade

11. International Financial and Trade Institutions • World Bank (WB), International Monetary Fund (IMF), and World Trade Organization (WTO) are the three institutions that set the rules by which international commerce is transacted • No business can operate across national boundaries without complying with rules set by the WTO • Many businesses in developing countries are dependent on WB and IMF loans to survive

12. The World Bank • Established in 1944 • Provides economic development loans to its member nations • Funds used mainly for roads, dams, power plants, pipelines, and other infrastructure projects • Funding provided by member countries and international capital markets • Negotiates “structural adjustment plans” with countries it loans to • Applies conditions on these countries • Conditions are considered by critics to lead to unfair burden on developing countries

13. International Monetary Fund • “Sister” organization to World Bank, created at same time • Purpose is to make currency exchange easier for member countries so that they can participate in global trade • Lends foreign exchange to member countries • Imposes conditions on governments that receive its loans • Has begun to offer debt relief to some nations

14. World Trade Organization • Founded in 1995, successor to General Agreement on Tariffs and Trade (GATT) • International body that establishes the ground rules for trade among nations • Its major objective is to promote free trade; attempts to eliminate barriers to trade (e.g. quotas, duties and tariffs) • Conducts “rounds” of negotiations on various topics • “Most favored nation” rule means members countries cannot discriminate against foreign products for any reason

15. Analyzing the benefits and costs of the globalization of business

16. The Benefits and Costs of Globalization • Globalization is highly controversial • Clearly, some benefit form globalization, while others do not • What are some of the major arguments advanced by both side in the debate over this important issue?

17. Benefits and Costs of Globalization Figure 6.2

18. Identifying the major types of political and economic systems in which companies operate across the world, and the special challenges posed by doing business in diverse settings

19. Comparative Political and Economic Systems • Nations differ greatly in their political, social and economic systems • First important dimension to consider is how power is exercised and degree of democratic rights • Past century has been marked by spread of democratic rights to many nations for the first time

20. Comparative Political Systems • Democracy – The presence of political freedom • Four defining features of democracy (according to the U.N.) • Fair elections • An independent media • Separation of powers among the executive, legislative, and judicial branches of government • An open society where citizens have the right to form their own independent organizations to pursue social, religious, and cultural goals

21. Comparative Political Systems • Military dictatorships Repressive regimes ruled by dictators who exercise total power through control of the armed forces • Examples include Myanmar (Burma), Belarus • Some countries have reverted to authoritarian rule after a period of democracy • Example - Pakistan • Rights of citizens to organize for cultural or religious freedoms is restricted in others • Examples include Iran, Saudi Arabia

22. Comparative Political Systems • Degree to which human rights are protected differs greatly among nations • Several international codes of human rights exist • Most important one is United Nations Universal Declaration of Human Rights of 1948 • Over half world’s nations have adopted these human rights covenants • Still, many violations of human rights still occur: • Recent genocides in Rwanda, Sudan • Systems where minority groups and indigenous peoples lack basic human rights, example of Nepal

23. Comparative Economic Systems • Free enterprise systems • Based on the principle of voluntary association and exchange • Members of society satisfy most of their economic needs through voluntary market transactions • Central state control • Economic power is concentrated in the hands of government officials and political authorities • The central government owns the property that is used to produce goods and services

24. Assessing how businesses can work collaboratively with governments and the civil sector to address global social issues

25. Challenges of Global Diversity • Diversity and complexity of systems that transnational corporations face creates challenges • If a company does business in a nation that does not grant women equal rights, should that company hire and promote women at work, even if it violates local laws and customs? • Should a company enter into a business venture with a government-owned enterprise if that government has a reputation for violating its citizens’ human rights?

26. Meeting the Challenges of Global Diversity • Notion of constructive engagement • By operating with strong moral principles, transnational corporations can be a force for positive change in nations where they operate • In some circumstances this is not possible due to extreme conditions, provoking dilemma • At what point do violations of political, human, and economic rights become so extreme that a company cannot morally justify doing business in that country?

27. Collaborative Partnerships for Global Problem Solving • Emerging trend for development of collaborative, multi-sector partnerships focused on particular social issues or problems in the global economy • Involves 3 sectors • Business • Government • Civil society • Collaborative partnerships across all 3 sectors can draw on unique capabilities of each, as well as overcome particular weaknesses

28. Distinctive Attributes of the Three Major Sectors Figure 6.3