International Business Exam 1

globalization

merging of historically distinct and separate national markets into one global marketplace

reasons for globalization

falling barriers to trade, global taste, benefits small and medium sized companies, significant differences between national markets, some products are universally needed, competitors may not change among nations

globalization of production

sourcing goods to take advantage of differences in cost and quality of factors of production (labor, energy, land, capital)

preventions of global products

formal/informal barriers to trade, barriers to foreign direct investment, transportation costs, political and economic risks, challenge of coordinating globally dispersed supply chain

world trade organization (WTO)

polices the world trading system

ensures nation-states adhere to rules

facilitate multinational agreements among members

164 nations (98% of world trade) are members

International Monetary Fund (IMF)

established to maintain order in international monetary system

often seen as the lender of last resort

in return for loans, the IMF requires nation-states to adopt specific economic policies aimed at returning their economies to stability

World Bank

Promotes Economic Development

focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments

United Nations

Promotes peace through international cooperation and collective security

193 member countries

charter has four basic purposes

• maintain international peace and security

• develop friendly relations among nations

• cooperate in solving international problems and in promoting respect for human rights

• be center for harmonizing the actions of nations

group of twenty (G20)

compromises finance ministers and central bank governors of the 19 largest economies in the world, plus EU reps and ECB

represents 85% of global GDP and 75% of international global trade

declining trade and investment barriers

20s-30s many barriers

60s-2023 the value of the world economy increased 9.8 times, while the value of international trade in merchandised goods increased 23.1 times

foreign direct investment

when a firm invests resources in business activities outside of its home country

roles of technological change

communications

the internet

transportation technology

communications

development of microprocessor is the most important innovation since WW2, prediction that the power of microprocessor technology doubles and its cost of production falls in half every 18 months

transportation technology

commercial jet, superfreighters, and containerizations have all “shrunk the globe”

implications of globalization

locating production in geographically separate locations has become more economical

cultural distance has been reduced and has brought some convergence of consumer tastes and preferences

changing foreign invetsment

as barriers to the free flow of goods/services fell, non US firms increasingly invested across national borders

desire to disperse production activities to optimal locations and build a direct presence in major foreign markets

outward stock of foreign direct investment (FDI): the total cumulative value of foreign investments by firms domiciled in nations outside of that nations borders

changing nature of multinational enterprise

(any business that has productive activities in two or more countries

the rise of mini-multinationals

growth in the number of medium and small-sized businesses

internet is lowering barriers that smaller firms face on building international sales

the changing world order

former communist countries of Europe and Asia present export and investment opportunities

signs of growing unrest and commitment to market-based economic systems cannot be assumed

risks of doing business in these countries are high

global economy in the 21st century

barriers to the free flow of goods, sevices, and capital have been coming down

strengthened by the widespread adoption of liberal economic policies by countries that had opposed them

globalization in not inevitable: countries may pull back, risks are high

antiglobalization protests

began with 1999 protest at WTO meeting in Seattle

protestors now typically show up at major meetings of global institues

protestors beleive globalization causes detrimental effects on lviing standards, wage rates, and the environment

critics of globalziation argue

falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower

services also being outsourced (higher unemployment and lower living standads in their home nations