IBA 550 TEST 1

Globalization

  • Source Material: Two video lectures on globalization.

  • Focus Areas: Definition, drivers, pros and cons, societal impact, winners and losers.

    • Globalization – growing interconnectedness and interdependence of our social, political, and economic environment

    • Market globalization – ongoing economic integration and growing interdependence between national economies

    • Drivers – anything that makes trade or economic globalization easier

    • Macro-drivers - 

      • Reduction of barriers to trade and investment

        • Political cooperation

        • Removal of taxes

        • Decreased restrictions on foreign-owned businesses

      • Technological advances

        • Communications and shipping

          • 1950 it was $20 to call from London to New York

          • Today it is virtually $0 (zoom)

        • Increased efficiency of trade

          • Intermodal shipping containers

          • Shipping iPhones via plane vs sea.

          • Cost is 54 cents vs 1.2

          • Time is 30 days vs 15 hours

    • GDP – Gross Domestic Product and represents the total value of all goods and services produced in a given geographic region

    • Other Drivers –

      • Political reform – adoption of free markets

      • Emerging markets

      • Integration of world financial markets (SWIFT network – messaging between banks and financial institutions to securely send info)

    • Perception of Sweat Shops –

      • Story of Chinese worker (talks about a better life)

      • White collar workers (lose jobs)

      • New York Times Article (suicide nets)

    • Pros and Cons / Societal Impact / Winners and Losers

      • Natural Environment –

        • Rich countries can move production to companies with less law and less minimum wage

        • Poor countries have weaker regulations

        • More manufacturing = More consumption

        • Less environmentally friendly practices

      • Jobs and Income-

        • Argument: Manufacturing jobs are moved overseas

        • Counter: Countries on average are getting more wealthy. This made for a pay increase in skilled workers and in the workers in the countries of poverty.

      • The Poor-

        • Argument: Widening the wealth gap

        • Counter: Some of the poorest countries have inequality due to their government not globalizing

      • National Sovereignty-

        • WTO – World trade org

        • Argument – Too much power has been granted to supernational orgs (having power that transcends national boundaries).

        • Counter: These organizations serve the collective interests and rely on persuasion instead of laws

2. CAGE Framework

Source Material: One video lecture and the "Distance Still Matters" article.

  • CAGE Framework

    • Cultural

      • Language

      • Religion

      • Values – individualism vs collectivism (China, Korea, & Japan)

      • Social Norms

    • Administrative

      • Political environment

      • Colonial link

      • Trade agreements

      • Political hostility

      • Corruption

    • Geographic

      • Physical distance

      • Time zones

      • Land borders

      • Climate

      • Topography

      • Infrastructure

    • Economic

      • Relative wealth between countries

      • Similarity in profile

      • Maret size

      • Labor costs

  • Industry differences

    • Cultural – movies, food, infrastructure, national security, large domestic suppliers, highly regulated industries

    • Geographic – fragile and perishable goods, costly to ship goods (food vs concrete)

    • Economic -  luxury items, income, labor costs (rugs in Turkey)

  • Distance Still Matters

    • Common currency, GDP, and physical distance all affect whether countries will trade with one another.

    • The article provides examples as to why companies need to tailor their strategies to the type of distance for their product rather than a one size fits all approach to globalization.

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  • Disadvantages of going global –

    • Unfamiliarity

    • Discrimination – tariffs, laws, society

    • Time zones

  • How to go global –

    • Knowledge opportunity – work with a customer that already does business in the new company

    • Relationship commitment decisions – serve the customer in both countries

    • Creating trust building – through this new business the company is learning more about business overseas

    • Network position – strengthen their position in the network by result

  • Paradox of consistency – The more consistent and profitable a firm is in their home market, the greater challenge it will have in a foreign market (Ex: NFL)

  • Questions of going global

§  Why

§  Market share

§  Cost

§  New resources

§  Will globalization solve a problem

§  Where

§  Are there appropriate resources available

§  Do they have the right type of labor

§  Do they have a proper infrastructure

§  What

§  Options for globalizing logistics, HR, R&D, Production, marketing, sales, and customer service

§  Which will add value

§  How

§  Imports/exports

§  Direct investment

§  Contractual

§  When

§  External factors

§  Instability

§  Competition

§  Internal factors

§  Firm resources

§  Capabilities

§  Time & Energy

 

3. The Competitive Advantage of Nations Theory

  • Focus Areas: The diamond model.

  • Source Material: Porter's article "The Competitive Advantage of Nations".

  • How Companies Succeed in International Markets

    • Companies achieve competitive advantage through innovation. (Japan made smaller electronics – new market)

    • Innovation comes from a new company with a nontraditional background or through senior managers who are new to the industry

    • The fear of loss often proves more powerful than the hope of gain.

  • Porter’s Diamond of National Advantage

    • Factor Conditions – nations position in factors of production such as skilled labor or infrastructure

      • Labor – (more skilled or less costly)

      • Land

      • Natural resources

      • Capital

      • Infrastructure

      • Specialized knowledge (more developed countries have better education systems)

      • Italy and Japan had disadvantages in terms of location and geography, but this helped them to grow other advantages

    • Demand Conditions – Nature of home market demand

      • Home bias to demand

      • Fast food

      • Self checkout

      • Sophisticated Customers – Not just demanding more but demanding how to make it better. Helps more with product innovation. (Toyota in Japan vs the auto company in India)

    • Related and Supporting Industries – The presence or absence of supplier industries and other industries that are internationally competitive.

      • Telecommunications

      • Specialized knowledge sharing between industries in the same area

      • Sophisticated suppliers

    • Firm Strategy, Structure, and Rivalry – How companies are created, organized, and managed as well as the nature of domestic rivalry

      • Domestic Rivalries – Toyota vs Hondo or Apple vs Microsoft.

      • Fit between nature of industry and nature of country – German culture is very planned out and structured. Logical that they fit well with engineering-oriented industries or rapid change like marketing or film.

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  • Government Relationship

    • Argues for a limited role with government influence in markets

    • Government looks for a quick fix whereas companies invest time and effort in people and growth

    • Government’s role is to encourage competition and ensure safety and environmental standards

 

 

 

 

 

 

 

 

 

4. Industrial Policy

  • Source Material: "New Era of Industrial Policy" article.

  • Main Idea: Governments all around the world have influenced global trade with policies to help domestic sectors, policies that create new costs or financial incentives for R&D and manufacturing investments, or inceptives to change who they trade with.

  • The government sometimes intervenes when there is an industry that is needed and not doing well or if there is a lot of risk that a normal business owner wouldn’t usually take on but its for the good of the people.

  • Hayek – hands off in the government and Keynesian – more industrial policy.

  • What Businesses should do –

    • Decide whether or not the risk is worth the reward.

    • Understand that these subsidies are not always going to be here so have a strategy plan to survive without them.

    • Engage and educate – help government people to better understand the industries.

  • The Fall and Rise of Industrial Policy

    • There has been skepticism of the government and these “administrative guidance” techniques.

    • After US investment failures in the solar panel market, synthetic fuels and the supersonic passenger jetliner, many governments intervened less.

    • The past 5 years, this has changed due to global warming and Covid-19.

    • Operation warp speed was a federal effort that supported multiple vaccine candidates to speed up development of mRNA vaccines to fight Covid-19. Because the government stepped in, companies were now willing to take larger risks than they would have in the past.

    • A more controversial and increasingly common type of intervention focuses on helping specific industries of sectors (Airbus).

    • With how incentives have helped the Chinese be the leading manufacturer of EVs, other governments are starting to intervene as well.

    • Friend-shoring and industry specific trade alliances add another challenge for global companies.

  • Navigating the Changing Policy Environment

    • Industrial policies fall into four broad categories

      • Horizontal – apply to firms irrespectice of their activities, their location or the technologies they use (R&D tax credits)

      • Vertical – apply to a specific sector or firm (renewable energy)

      • Supply-Side – apply to the costs of R&D or production to favor certain locations or materials (grants, subsidies, tax preferences, and tax credits)

      • Demand-Side – apply to the consumer typically affecting domestic consumption of products and increase the size of the market (tax credits for the purchase of an EV & Inflation Reduction Act)

    • Engage and Educate – focusing on educating government officials on competing issues rather than advocating for a certain argument

    • Collaborate – Working upstream and downstream partners in the supply chain can lead to commercially successful outcomes that align with policy.

    • Chicken vs Egg – companies may hesitate to switch to a more sustainable fuel because supply sources are uncertain, yet these supply sources won’t invest unless they are sure there will be a demand in the future.

    • Accept or not accept – companies have to determine whether to accept subsidies or not. Some range from meeting a minimum investment to giving the government equity in their company

      • Pfizer – government bought 100 million doses

      • GM – government have more than $50 billion in funding for 60.8% of shares in GM