Global Dimensions of Business Mark McKenna BUS 18710, Spring 2009 Charles H. Hill, International Business: Competing

1. Global Dimensions of Business Mark McKenna BUS 187(10), Spring 2009 Charles H. Hill, International Business: Competing in the Global Marketplace, 7th ed. (New York: McGraw-Hill/Irwin, 2009) Adapted from PowerPoint slides prepared for the text by Veronica Horton

2. WEEK 2 (Jan. 27) Globalization Hill, Chapter 1

3. Globalization from a Business Perspective Globalization refers to a movement away from self-contained national economies a shift toward a more integrated and interdependent world economy Globalization has two facets the globalization of markets the globalization of production

4. The Globalization Of Markets The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace In many industries, it is no longer meaningful to talk about the �German,� �American,� �Japanese,� or �Brazilian�. Instead, there is just the global market. The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. It is important to recognize that significant differences still exist among national markets, requiring companies to customize market strategies, product features, and operating practices to meet the conditions in particular markets. The most global markets currently are not markets for consumer products�where national differences in tastes and preferences are still often important enough to act as a brake on globalization�but markets for industrial goods and materials that serve a universal need the world over. These include the markets for commodities such as aluminum, oil, and wheat; the markets for industrial products such as microprocessors, DRAMs (computer memory chips), and commercial jet aircraft; the markets for computer software; and the markets for financial assets from U.S. Treasury bills to Eurobonds and futures on the Nikkei index or the Mexican peso. The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. It is important to recognize that significant differences still exist among national markets, requiring companies to customize market strategies, product features, and operating practices to meet the conditions in particular markets. The most global markets currently are not markets for consumer products�where national differences in tastes and preferences are still often important enough to act as a brake on globalization�but markets for industrial goods and materials that serve a universal need the world over. These include the markets for commodities such as aluminum, oil, and wheat; the markets for industrial products such as microprocessors, DRAMs (computer memory chips), and commercial jet aircraft; the markets for computer software; and the markets for financial assets from U.S. Treasury bills to Eurobonds and futures on the Nikkei index or the Mexican peso.

5. The Globalization Of Markets Factors impacting on the globalization of markets Falling trade barriers make it easier to sell internationally The tastes and preferences of consumers are converging on some global norm Firms help create the global market by offering the same basic products worldwide In many markets the emergence of a global marketplace has begun to occur. There are three causes: falling barriers to cross-border trade have made it easier to sell internationally; tastes and preferences are converging on some global norm helping to create a global market; and firms are facilitating the trend by offering standardized products worldwide creating a global market. In many markets the emergence of a global marketplace has begun to occur. There are three causes: falling barriers to cross-border trade have made it easier to sell internationally; tastes and preferences are converging on some global norm helping to create a global market; and firms are facilitating the trend by offering standardized products worldwide creating a global market.

6. The Globalization Of Markets Difficulties confronting market globalization Persistent national differences in Consumer tastes and preferences Distribution channels Culturally embedded value and business systems Differences require country-specific marketing strategies and product features Global markets primarily markets for industrial and intermediate goods not consumer products

7. The Globalization Of Production The 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 like land, labor, and capital Companies compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offering The 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). By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. Early outsourcing efforts were primarily confined to manufacturing enterprises, but today, more companies are taking advantage of modern communications technology, like the Internet, to outsource service activities to low-cost producers in other nations. The Country Focus: Outsourcing American Healthcare illustrates how the Internet has allowed hospitals to outsource some radiology work to India, where images from MRI scans and the like are read at night while U.S. physicians sleep, and are the results are ready for them in the morning. There are still substantial impediments to the globalization of production including formal and informal barriers to trade, barriers to foreign direct investment, transportation costs, issues associated with economic risk, and issues associated with political risk. The 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). By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively. Early outsourcing efforts were primarily confined to manufacturing enterprises, but today, more companies are taking advantage of modern communications technology, like the Internet, to outsource service activities to low-cost producers in other nations. The Country Focus: Outsourcing American Healthcare illustrates how the Internet has allowed hospitals to outsource some radiology work to India, where images from MRI scans and the like are read at night while U.S. physicians sleep, and are the results are ready for them in the morning. There are still substantial impediments to the globalization of production including formal and informal barriers to trade, barriers to foreign direct investment, transportation costs, issues associated with economic risk, and issues associated with political risk.

8. The Globalization Of Production Factors impacting on the globalization of production Historically, focus has been on globalizing the production of manufacturing enterprises Modern communication technologies are increasingly allowing the outsourcing of service activities to low cost producers The globalization of production accelerates to the globalization of markets

9. The Globalization Of Production Difficulties confronting the globalization of production Persistent formal and informal barriers to trade Barriers to foreign direct investment High transport costs (negatively impacted by increases in the cost of oil) Political and economic risk

10. The Emergence Of Global Institutions Over the past 60 years global institutions have been created to help manage, regulate, and police the global marketplace promote the establishment of multinational treaties to govern the global business system

11. The Emergence Of Global Institutions These institutions include mainly, the International Monetary Fund (IMF, 1944) the World Bank (WB, 1944) the General Agreement on Tariffs and Trade (GATT, 1944) the United Nations (UN, 1945) the World Trade Organization (WTO, 1995)

12. Drivers Of Globalization Two macro factors underlie the trend toward greater globalization the decline in barriers to the free flow of goods, services, and capital that has occurred since the end of World War II technological change I would suggest a third factor our shared human aspirations for a better life for ourselves and our children The two macro factors underlie the trend towards greater globalization: First, the decline in the barriers to free flow of goods, services, and capital Second, technological change in communications, information processing, and transportation technologies.The two macro factors underlie the trend towards greater globalization: First, the decline in the barriers to free flow of goods, services, and capital Second, technological change in communications, information processing, and transportation technologies.

13. Declining Trade and Investment Barriers International trade occurs when firms exports goods or services to consumers, including businesses, in another country Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country After World War II, the advanced countries made a commitment to lower barriers to trade and investment Since 1950, average tariffs have fallen to around 4% Countries have also opened their markets to FDI International trade occurs when a firm exports goods or services to consumers in another country. Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. After World War II, advanced industrial nations of the West committed themselves to removing barriers to the free flow of goods, services, and capital between nations. International trade occurs when a firm exports goods or services to consumers in another country. Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country. After World War II, advanced industrial nations of the West committed themselves to removing barriers to the free flow of goods, services, and capital between nations.

14. Declining Trade and Investment Barriers Table 1.1: Average Tariff Rates on Manufactured Products as Percent of Value