International

Business
by Charles W.L. Hill

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Globalization refers to the shift toward a more
integrated and interdependent world economy

Globalization has two facets:

1. The globalization of markets
2. The globalization of production
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 market” or the “American market”
Instead, there is only the global market.
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.
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
Institutions created over the past half century
include:
General Agreement on Tariffs and Trade (GATT)
World Trade Organization (WTO)
International Monetary Fund (IMF)
World Bank
United Nations (UN)
The World Trade Organization (GATT) is primarily
responsible for policing the world trading system
and making sure that nation-states adhere to the
rules laid down in trade treaties signed by WTO
members
In 2007, the 150 nations that accounted for 97% of
world trade were WTO members
The WTO promotes lower barriers to trade and
investment
The International Monetary Fund and the World
Bank were created in 1944
a) The IMF was established to maintain order in
the international monetary system
b) The World Bank was established to promote
economic development
The United Nations was established in 1945
to:
maintain international peace and security
develop friendly relations among nations
cooperate in solving international problems and
in promoting respect for human rights
be a center for harmonizing the actions of nations
Two macro factors underlie the trend
toward greater globalization:
1.The decline in barriers to the free flow of goods,
services, and capital that has occurred since the
end of World War II.
2.Technological change .
 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 countries made a
commitment to lower barriers to trade and investment
Since 1950, average tariffs have fallen significantly
and are now at about 4%
Countries have also been opening markets to FDI
Lower barriers to trade and investment mean:

that firms can view the world, rather than a single

country, as their market
that firms can base production in the optimal
location for that activity
Technological change has made the globalization
of markets a reality

Important advances have occurred in:

 Microprocessors and telecommunications
 The Internet and World Wide Web
 Transportation technology
Implications of technological change for the
globalization of production include:

 Lower transportation costs that enable firms to

disperse production to economical, geographically
separate locations
 Lower information processing and
communication costs that enable firms to create
and manage globally dispersed production systems
Implications of technological change for the
globalization of markets include:
low cost global communications networks help
create electronic global marketplace
low-cost transportation help create global
markets
global communication networks and global media
are creating a worldwide culture, and a global
market for consumer products
There has been a drastic change in the demographics
of the world economy in the last 30 years

Four trends are important:

the Changing World Output and World Trade Picture
the Changing Foreign Direct Investment Picture
the Changing Nature of the Multinational Enterprise
the Changing World Order
 shares in 1963 shares in 2004 exports 2004
U.S 10.4% 40.3% 20.9%

Germany 9.5% 9.7% 4.3%

France 4.8% 6.3% 3.1%
U.K 4.7% 6.5% 3.1%
China 5.9% NA 13.2%
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 a growth of mini-
multinationals
 Remarkable democratic revolutions during
1989-91.
 The Potential Consequences for IB are
enormous.
 China brining a great economic revolution in all
the World.
 Investment in china Increased between 1983 to
2004 from $2billion to $64 billion.
The world is moving toward a more global
economic system, but globalization is not
inevitable
Risks are also present in globalization like the
financial crisis that swept through South East Asia
in the late 1990s
More than 40,000 anti-globalization protesters
took to the street at the WTO meeting in Seattle in
1999
Protesters now regularly show up at most major
meetings of global institutions
Views:-
Globalization critics argue that falling barriers to
trade are destroying manufacturing jobs in
advanced countries
 Supporters of globalization contend that the
benefits of this trend outweigh the costs—that
countries will specialize in what they do most
efficiently and trade for other goods—and all
countries will benefit
Views:-
Globalization critics argue that firms avoid costly
efforts to adhere to labor and environmental
regulations by moving production to countries
where such regulations do not exist, or are not
enforced
Globalization supporters claim that tougher
environmental and labor standards are associated
with economic progress, so as countries get richer
from free trade, they get tougher environmental
and labor regulations
Views:-
Critics of globalization worry that today’s
interdependent global economy is shifting economic
power away from national governments toward
supranational organizations like the WTO, the EU, and
the UN
Supporters of globalization contend that the power of
these organizations is limited to what nation-states
agree to grant, and that the power of the organizations
lies in their ability to get countries to agree to follow
certain actions
Managing an international business differs from
managing a domestic business because:
1.countries are different
2.the range of problems confronted in an international
business is wider and the problems more complex than
those in a domestic business
3.firms have to find ways to work within the limits
imposed by government intervention in the
international trade and investment system
4.international transactions involve converting money
into different currencies