Globalization

Globalization Introduction

Learning Objectives

  • Define and discuss globalization and international business.

  • Discuss the changes that globalization has led to.

  • Highlight the increasing importance of service supply chains in the global economy.

  • Distinguish service supply chains from conventional manufacturing supply chains.

Globalization

  • Definition: Globalization is the process of increasing connectivity and interdependence of the world’s markets and businesses. It is characterized by:

    • International integration arising from the interchange of world views, products, ideas, and culture.

    • The worldwide movement toward economic, financial, trade, and communications integration.

Stakeholders in Globalization

  • Definition: Any individuals or groups whose interests may be affected by organizational actions. This includes:

    • Suppliers

    • Competitors

    • Governments with whom the organization interacts.

    • Labor unions and trade groups.

  • Importance:

    • Even companies operating in just one country must consider international stakeholders.

Players in Globalization

  1. Businesses

    • Vary in their scope of international presence from none to full operations around the globe.

    • Consider advantages of global locations (e.g., cheap energy).

  2. Governments

    • Involved in international treaties regarding trade (e.g., USMCA (NAFTA), WTO).

  3. Nongovernmental Organizations (NGOs)

    • Nonprofits operating independently of governments, typically focused on social or political issues (e.g., Charity Navigator).

Understanding Globalization through Products

  • Reflection: Consider the global nature of everyday products:

    • Identify the manufacturer, headquarters, and production locations of products used daily.

    • Explore motivations for firms to pursue globalization.

Major Changes Due to Globalization

  1. New Markets

    • Access to the global marketplace expands opportunities beyond local markets.

  2. New Sources

    • Access to a wider range of inputs, financing, and technology not confined to local availability.

    • Results in lower prices, higher quality, and better meeting of specific needs.

    • Examples:

      • Airbus plans to double sourcing from India.

      • American Freight expands its global sourcing capabilities.

  3. Global Marketplace for Talent

    • Increased access to skilled labor across borders.

Case Study: Japan's ASICS and India

  • ASICS entered India through its subsidiary in 2015 and currently produces about 22% of its products there.

  • Under foreign direct investment (FDI) guidelines, full retail operations require domestic production of 30%.

  • CEO Yasuhito Hirota plans to make India a global sourcing hub as the economy grows, especially in the sporting goods sector.

Case Study: Airbus in India

  • Airbus expects to increase its sourcing from India to $1.5 billion due to the growth in the aviation sector.

  • Partnering with over 40 Indian suppliers to meet rising local demand.

Case Study: American Freight

  • Diversified sourcing into Vietnam and Malaysia, enhancing its product offerings and addressing customer needs during rising inflation.

  • The retailer emphasizes the importance of securing high-quality products at competitive prices through global partnerships.

Risks Associated with Globalization

  • Rapid Changes in Competitiveness: New entrants and technology shifts.

  • Market Volatility: Changes in scarcity and price fluctuations of commodities like energy.

  • Economic Crises: Examples include the chip shortage and the 2008 sub-prime mortgage crisis.

  • New Rules: Compliance with international regulations and facing backlash against globalization.

Economic Indicators

  • US Average Gas Prices: Fluctuations in gas prices compared to historical averages since 2018.

  • Global Financial Crisis Causes: Deterioration in financial regulations led to increased risks.

Disparities and Job Losses

  • Growing inequality between wealthier and poorer nations.

  • Increased outsourcing resulting in job losses in advanced economies.

  • Free trade agreements contributing to localized issues despite overall benefits.

The Globalization Debate

  • Overview: Buying goods globally (e.g., vegetables from Mexico, clothing from Asia) is normalized.

  • Globalization Phases:

    • Globalization 1.0 (1492-1800): Dominated by nations, shaped by nationalism and religion.

    • Globalization 2.0 (1800-2000): Corporations take the lead, driven by multinationals seeking new markets.

    • Globalization 3.0 (2000-2010): Enabled by advances in electronic connectivity.

    • Globalization 4.0 (2010-Present): Continues with further technological advancements, including AI and robotics.

Barriers to Cross-Border Economic Activity

  • CAGE Analysis: A framework for understanding barriers based on:

    • Culture: Norms and beliefs that affect trade.

    • Administration: Historical government involvement in the economy.

    • Geography: Distance negatively affects trade costs.

    • Economics: Varying economic conditions affecting market access.

Gross Domestic Product (GDP)

  • Definition: The total monetary value of all finished goods and services produced within a country’s borders over a specific period.

  • Usage: Provides an economic snapshot and estimates a country’s size and growth rate.

  • Per Capita GDP: Calculated as ext{GDP}/ ext{Total Population}.

GDP Forecasts by Country

  • A summary of GDP forecast/estimates by major economies:

    • Global GDP: Estimated at 113,795,678 ext{ million USD} by 2025.

    • Notable countries include:

    • United States: 30,507,217 ext{ million USD} by 2025.

    • China: 19,231,705 ext{ million USD} by 2025.

    • Germany: 4,744,804 ext{ million USD} by 2025.

    • Other notable entries include Japan, the United Kingdom, France, and India.

Nominal GDP per Capita by Country

  • A detailed list of nominal GDP per capita for select countries:

    • Monaco: 256,581

    • Luxembourg: 140,941

    • Bermuda: 207,973

    • Ireland, Switzerland, and Singapore also score high on this metric.

Economic Overview of the United States

  • The U.S. economy is the largest and most technologically advanced globally, characterized as:

    • Market-oriented with minimal government control over companies or prices.

    • Emphasizes high flexibility in expanding and developing new products.

  • Current GDP: Approximately 81,695 ext{ per capita}, contributing to a total GDP of 27 ext{ Trillion USD}.

U.S. GDP by Sector

  • The ratio of services to manufacturing has increased, with services constituting 78% of GDP.

  • The shift signifies the growing dominance of the service sector in the economy over time.

Understanding Services

  • Definition: A service is a time-perishable, intangible experience performed for a customer as a co-producer.

  • Characteristics:

    • Active customer participation (e.g., medical treatment).

    • Services may or may not be tied to physical products.

  • Evolving Economy: The U.S. became a service economy in 1948, reflecting a shift toward service-centric operations.

Breakdown of the Service Sector

  • The U.S. service sector includes 96 million jobs across various industries:

    • Health and personal services, education, financial services, transport, hospitality, and more.

Service Supply Chain

  • Definition: A service supply chain is a network of suppliers, service providers, consumers, and supporting entities involved in:

    • Transaction of resources necessary for service production.

    • Transformation of these resources into services.

    • Delivery of these services to customers.

Differences Between Manufacturing and Service Supply Chains

  • Manufacturing Supply Chains:

    • Emphasize standardized, repeatable processes to ensure timely delivery.

  • Service Supply Chains:

    • Less tangible, more heterogeneous, more perishable.

    • Require different management strategies due to customer expectations for variety and customization.

  • Key Differences: Tangibility, interaction, labor content, input uniformity, and productivity measures.

Models of Service Supply Chains

  1. Single-Level Bidirectional Relationship: Customer and service provider interact directly (examples include healthcare services, financial services).

  2. Two-Level Bidirectional Relationship: Involves an intermediary supplier in the interaction (examples include medical prescriptions managed by pharmacies).