LO1-3 The Changing Demographics of the Global Economy

What were the four key facts about the global economy half a century ago?

• U.S. dominance in world economy and trade.

• U.S. dominance in foreign direct investment.

• Dominance of large U.S. multinational firms.

• Communist countries were closed to Western business.

All of these have changed rapidly — the world economy is now more multipolar and globally integrated.

Which country has risen most dramatically in world output?

China — from almost nothing in 1960 to 17.4% today.

Which other countries have increased their share of world output?

Japan, India, Thailand, Malaysia, Taiwan, Brazil, and South Korea.

Why is the U.S. decline in share not an absolute decline?

The U.S. economy grew, but other economies grew faster — it’s a relative decline.

What was the U.S. share of world exports in the 1960s vs. today?

20% in the 1960s → 9.6% today.

Which country now leads in world exports?

China — 14.7% of world exports

Which countries have also gained larger export shares?

Japan, Germany, and newly industrialized nations like South Korea.

What does BRIC stand for?

Brazil, Russia, India, and China.

What trend do BRIC countries represent?

Rapid growth and industrialization in developing economies.

What is expected by 2035 for China and India?

China may surpass the U.S. as the largest economy; India could become the third largest.

What does the World Bank predict for 2030?

Developing nations may account for 60% of world economic activity, while rich nations fall to 38%.

What does the shift in economic geography mean for global business?

• Future opportunities will be in developing nations.

• Many new competitors will emerge from these regions.

Why were European governments concerned about U.S. firms in the 1960s?

They feared economic domination by American corporations and considered limiting inward U.S. investment.

What caused non‑U.S. firms to start investing abroad?

Falling trade barriers and rising world output in other countries.

What were the main motivations for foreign investment by non‑U.S. firms?

• To locate production in optimal, cost‑efficient places.

• To establish a direct presence in major foreign markets.

What did European and Japanese firms do in the 1970s?

Moved labor‑intensive manufacturing to developing nations with lower labor costs.

Why did Japanese firms invest in North America and Europe?

• To hedge against currency fluctuations.

• To avoid trade barriers.

• To respond to political pressure to limit Japanese exports.

Example: Toyota built car factories in the U.S. and Europe to offset yen appreciation and avoid export restrictions.

What caused the FDI slowdown between 2001–2004?

The global economic downturn after the late‑1990s financial bubble collapse.

What caused the FDI slowdown in 2020?

The COVID‑19 pandemic.

What happened to FDI flows after 2020?

They rebounded strongly in 2021.

Which developing nation has been the largest FDI recipient?

China — $181 billion in inflows in 2021.

Why is FDI important for developing nations?

It stimulates economic growth and industrial development.

Which countries benefit most from sustained FDI inflows?

China, Mexico, India, and Brazil.

What is a multinational enterprise (MNE)?

A business that has productive activities in two or more countries.

What are the two major trends in MNE demographics over the last 50 years?

• Rise of non‑U.S. multinationals.

• Growth of mini‑multinationals (small and medium‑sized global firms).

Who dominated global business in the 1960s?

Large U.S. multinational corporations.

What share of foreign direct investment did U.S. firms hold in the 1960s?

About 2/3

Which other countries had major multinationals in the 1960s?

Britain, the Netherlands, and France.

What did Forbes find in its 2003 ranking of the world’s top 2,000 multinationals?

• 776 (38.8%) were U.S. firms.

• Japan was second (16.6%).

• The U.K. was third (6.6%).

What does Figure 1.4 show about 2022?

• U.S. share fell to 30% (595 firms).

• Japan dropped to 10% (195 firms).

• China rose to 15% (297 firms).

• India and South Korea also increased their presence.

Developing nations are becoming major global competitors, shifting economic power away from North America and Western Europe.

What are mini‑multinationals?

Small and medium‑sized firms that operate internationally.

Example:

• 25 employees, $6.5M in sales.

• Exports $2M worth of products to countries like Japan and UAE.

• Has a joint venture in Germany.

What has enabled their growth?

The Internet — lowering barriers to global trade and communication.

What do these trends show about global business?

• Power is shifting from U.S. and Western firms to developing nations.

• Even small companies can now compete globally thanks to technology and lower trade barriers.

• The world economy is becoming more diverse, competitive, and interconnected.