D270 - Chapter 1

What is Globalization?

What is Globalization?

A process of broadening of interdependent relationships among people who are divided into national borders

What is Globalization broadly?

Transfer of people, goods, ideas, religions, political and legal systems, diseases, etc. across national borders

What is Globalization in business?

Reduction of barriers on movement of goods, services, capital, technology, people across national borders

What is International Business (IB)?

Any commercial transactions between two or more countries

What are some examples of companies that engage in International Business?

Coca-Cola, McDonald’s, Toyota, Microsoft, Samsung sell in over 100 countries

How do we measure Globalization?

• Degree of Trade Openness between countries

• Degree of Connectedness between countries

What is Trade Openness?

Physical goods easy to measure through customs

How can you measure the Degree of Trade Openness?

• % of world production sold outside country of origin

• Restriction levels on imports (tariffs, quotas, etc.)

• Restriction on foreign ownership of assets

• World trade (imports/exports) compared to world production

How can you measure the Connectedness between countries?

DHL Global Connectedness Index (flow of goods, capital, info, people)

How can we look at Globalization?

Through time

What is Globalization 1.0?

• Silk Road

• Birth of Han Dynasty

• Trade between East and West in spices, silk, gunpowder, paper

What is Globalization 2.0?

• Rise of European Colonial Empires to end WWII

• Development of tech/weapons allowed travel for mercantilism

• England, France, Portugal, Spain, Russia, Ottoman, Netherlands exploration and colonization of new lands

What is Globalization 3.0?

• World Wars recovery and modern Multinational Enterprise (MNE) expansion

• Golden Age of G-7

• Foreign Direct Investment expansion

• Export-Led Development

• Spread of Democracy

• Explosion of trade, people, tech

What is Globalization 4.0?

• AntiGlobalization Movement and Modern Deglobalization

• Rise of financial crises, income inequality, fraying of Democracy, shifts towards Totalitarianism, New Nationalism, Global Pandemics

What are the positive aspects of Globalization?

• Spread of ideas and cultures

• Efficient use of resource (more, lower cost)

• More sales and more jobs

• Increase in global competition

• Better Research & Development and Tech

• Ex: Coca-Cola Commercial

What are the negative aspects of Globalization?

• Increase in competition (leads to unemployment due to automation, environmental stress, income inequality, personal stress)

• Pandemics

• Threats to National Sovereignty

• Exploitation of people/countries

• Over dependence

How is Threats to National Sovereignty a negative of globalization?

• All politics is local

• Small countries feel threatened and overly dependent

• Cultural homogeneity threatens uniqueness

How is Environmental Stress a negative of globalization?

• Depletion of planet’s limited resources

• Pollution and Contamination

• Emission of greenhouse gases and climate change

How is Growing Income Inequality and Stress a negative of globalization?

• Greater division between rich and poor

• Threat of job loss leads to personal stress

• Rich countries also affected

How is Poverty Reduction a positive of globalization?

• Lifted millions out of poverty and into the middle class since WWII

• Reduction of Extreme Poverty

What is the definition of the Middle Class?

having enough money to cover basic needs like food, clothing, shelter, and still having enough left cover for luxuries like fancy food, a TV, a motorbike, home improvements, and education

What is Extreme Poverty?

A condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education, and information

What are the forces behind the current extent of globalization?

• Increase in and application of technology (improvement in transportation/communication)

• Liberalization of cross-border trade and resource movements

• Development of services that support international business activities (transportation, banking, packages)

• Growth of consumer pressures (most important)

• Increased global competition

• Changing political situations and government policies

• Expansion of cross-national cooperation

What is deglobalization?

The process of diminishing interdependence and integration between national states

Deglobalization is a period of what?

A period when world trade and investment declines over time

What has added to Deglobalization?

• COVID-19

• 2008 Financial Crisis

• US Tariff Wars in 2018

• WW1 and WW2

• Great Depression

What is the DHL Global Connectedness Index?

Measures globalization on more than 3.5 million data points across 4 dimensions: trade flows, capital flows, information flows (internet), and people flows

Is the world in Deglobalization?

The world is NOT in Deglobalization and the benefits of Globalization remain very strong for companies and citizens

Why does Globalization matter to future managers?

• A larger market for sales beyond home borders

• To tap a wider availability of resources

• To understand and respond to competition

• Expanded career opportunities

What are the institutional and physical factors of the operating environment?

• Globalization/IB

• Cultural Factors

• Political and Legal Factors

• Economic Forces

• Government Involvement

• Society

What are the competitive factors of the operating environment?

• Competitive product strategy

• Company resources and experience

• Competitors in each market

What are the Firm’s objectives?

• Sales expansion

• Resource acquisition

• Risk reduction

How do Firm’s achieve their objective?

• Merchandise exports/imports

• Service exports/imports

• Investments

Why do domestic firms go international?

• To expand sales (growth and efficiency)

• To acquire resources (not everything can be found at home)

• Minimize risk (business cycle differences amongst countries, diversify suppliers across countries, counter competitors moves)

What are the Types of Market Penetration?

• Direct Exports

• Exporting Via Local Distributor

• Licensing or Franchising

• Sales Operation

• Transportation and Distribution

• Strategic Alliance

• Foreign Direct Investment

What is Licensing or Franchising?

making a contractual arrangement to allow a foreign partner to use a brand

What is a Strategic Alliance?

Partnership between two or more firms that may or may not involve equity

What are the types of exports and imports?

Merchandise and Services

What are the types of merchandise?

Visible/Tangible goods

What are the types of Services?

• Tourism and Transportation

• Service Performance (turnkey, management contracts)

• Assets Use (licensing, franchising)

What are the types of investments?

• Foreign Direct Investment

• Portfolio Investment

What are the types of Foreign Direct Investment?

Ownership + Controlling Interest:

• Solo/Wholly Owned

• Joint Venture

• Mixed Venture

What are the types of Portfolio Investment?

Financial Interest/Non-Controlling:

• Stocks, Loans, Bonds, Debit Notes, Bills

What is the fastest entry mode?

merchandise exporting

What is the most complex, costly, risky entry mode?

exporting

What is the least complex, costly, risky entry most?

FDI

What does the selection of modes depend on?

A number of factors and tradeoffs which might range from firm strategy to restrictions by host country governments

How is Offshoring Operations possible?

High degree of Globalization

What is Offshoring?

Transferring of certain business operations from the home country to other countries (ownership of these operations is maintained)

What is Reshoring?

Moving some operations to home country

What is Nearshoring?

Moving risky operations closer to home

What is Friendshoring?

Moving risky operations to friendly countries

What is Decoupling?

Undoing integrated operations by reshoring (mix)

What is Derisking?

Risk reduction by nearshoring or frienshoring

What is the difference between outsourcing and offshoring?

• Offshoring = ownership maintained

  • Outsourcing = not owned by company

Domestic and Owned?

Onshoring

Abroad and Owned?

Offshoring

Domestic and Not Owned?

Outsourcing

Abroad and Not Owned?

Outsourcing

What are the differences between international and domestic business?

• Physical and Societal Factors (geographic, political, legal, behavioral, economic)

• Competitive Factors

• Managers must track domestic and foreign environments

  • IB decision making is complex

How does complexity increase?

• Level of internal control

• Level of involvement/mode of operation

• Number of countries of expansion

• Differences among countries of expansion

Advantages of Offshoring

• Lower labor costs

• Sell more home goods in host country

• Growth in host country creates more jobs at home

• Boosts productivity at home

Disadvantages of Offshoring

• Lower costs don't lead to lower prices

• Jobs are lost at home

• Low wage pressures on remaining home jobs

• Exploits host country labor

• Loss of control over suppliers

• Risk of losing technology due to lax IP protection