Chapter 1: Globalization

International Business

What is globalization?

A shift toward a more integrated and interdependent world economy.

What are the two key facets of globalization?

Globalization of markets and globalization of production.

What is the globalization of markets?

The merging of historically distinct national markets into one global marketplace.

Why are markets becoming more global?

Consumer tastes and preferences are converging toward global norms.

Examples of global brands?

Coca-Cola, McDonald's, IKEA, Starbucks, Apple.

What types of markets are the most global?

Industrial goods/materials serving universal needs (aluminum, oil, wheat, microprocessors).

What is the globalization of production?

Sourcing goods/services from around the world to take advantage of national differences in cost and quality of factors of production.

What are the benefits of global production?

Lower overall cost structure + improved product quality/functionality.

What impediments still limit globalization?

• Trade barriers

• Barriers to foreign direct investment

• Transportation costs

• Economic/political risk

• Managerial challenges coordinating global supply chains

What do global institutions do?

Manage, regulate, and police the global marketplace; promote multinational treaties.

What does the WTO do?

Polices world trading system and ensures nations follow WTO rules.

How many nations were part of the WTO in 2017?

164 nations, accounting for 98% of world trade.

What does the IMF do?

Maintains order in the international monetary system; lender of last resort.

What does the IMF require in exchange for loans?

Adoption of specific economic policies.

What does the World Bank do?

Promotes economic development using low‑interest loans.

What are the main roles of the UN?

• Maintain peace/security

• Develop friendly relations

• Promote cooperation

• Promote human rights

• Harmonize actions of nations

How many member countries are in the UN?

193

What is the G20?

Finance ministers + central bank governors of the 19 largest economies + the EU.

What percentage of global GDP does the G20 represent?

90%.

What is international trade?

When a firm exports goods/services to consumers in another country.

What is foreign direct investment (FDI)?

When a firm invests resources in business activities outside its home country.

What happened in the 1920s–1930s regarding trade?

Nations raised barriers to protect domestic industries.

What happened after WWII?

Western nations reduced trade barriers (GATT, Uruguay Round, WTO).

What are the implications of the fast-paced volume of world trade?

• More companies dispersing parts production

• Economies of nation-states becoming more intertwined

• The world is becoming significantly wealthier

What technology drove globalization after WWII?

The microprocessor, enabling explosive growth in computing and telecommunications.

What is Moore’s Law?

As microprocessor costs fall, their power increases.

What is the Internet’s role?

Makes it easier for buyers and sellers to find each other; 3.8 billion users in 2017.

What transportation technologies support globalization

Commercial jets, super freighters, containerization.

What is containerization?

A shipping system using standardized containers that makes global transportation fast, efficient, and economical — “Controlled chaos!” because of the massive scale and complexity of container ports.

What percentage of world manufacturing output did the U.S. hold in the early 1960s?

38%.

What percentage did the U.S. hold by 2018?

15.8%.

Which countries are experiencing rapid economic growth?

Brazil, Russia, India, China (BRIC).

What is a multinational enterprise?

A business with productive activities in two or more countries.

What trends have emerged since the 1960s?

Rise of non‑U.S. multinationals and mini‑multinationals

What do supporters of globalization argue?

Greater prosperity, more jobs, lower prices.

What do critics argue?

Harm to living standards, wages, and the environment.

What makes international business more complex than domestic business?

• Practices vary by country

• More complex issues (PESTEL)

• Need to understand trade/investment rules

• Need to convert currency