Chapter 1 ITB301

Learning Objectives

• Understand Globalization: Define the term globalization and its implications.

• Recognize Drivers: Identify the main drivers of globalization.

• Changing Economy: Describe the evolving nature of the global economy and the interdependence between nations.

• Impact Debate: Explain the opposing arguments regarding the effects of globalization.

• Management Challenges: Understand the opportunities and challenges globalization presents for management practices.

Introduction to Globalization

• Definition: Globalization involves the integration of national economies and the reduction of barriers to trade and investment, leading to an interconnected global economy.

• Historical Context: Shift from isolated national economies due to reduced trade barriers, advancements in technology, and cultural convergence.

Apple’s Global Production System

• Early Manufacturing: Initially produced in the U.S. (e.g., Macintosh).

• Shift to Offshore Production: Since the early 2000s, Apple transitioned to international manufacturing, notably with the iPhone, where 90% of parts are sourced globally.

• Subcontractor Relationships:

  • Foxconn: Major contractor in China that assembles half of all iPhones.

  • Other Locations: Assembly also in Brazil and India.

• U.S. Presence: While production is offshore, Apple retains 80,000 employees in the U.S. for critical functions.

• Design and Engineering: Key activities remain in the U.S. to maintain innovation and quality control.

Factors Driving Globalization

• Decline in Trade Barriers:

  • Historical Context: Post WWII decrease in tariffs and quotas led to increased global trade.

  • Regional Agreements: Establishment of free-trade agreements like NAFTA.

• Technological Advances:

  • Communication: Development of the internet and telecommunications enhance connectivity.

  • Transportation: Innovations such as container shipping makes international trade more efficient.

The Globalization Debate

Proponents of Globalization

• Economic Growth: Argue that trade stimulates development, increases efficiency, and reduces consumer prices.

• Job Creation: Global exposure increases market opportunities, leading to job creation in emerging markets.

• Cultural Exchange: Facilitates shared cultural values and ideas.

Critics of Globalization

• Job Losses: Claim that offshore manufacturing leads to job losses in developed economies, asserting a race to the bottom in wages.

• Outsourcing Concerns: Accusations of exploiting cheap labor and deteriorating working conditions in developing countries.

• Environmental Degradation: High competition may lead to lower environmental standards in pursuit of profits.

• Loss of Sovereignty: Concerns that global trade institutions undermine the ability of nations to govern domestic policy.

Managing in a Global Marketplace

• International Business Complexity: Managers must navigate diverse cultures, regulations, and market conditions.

• Strategic Decisions: Careful consideration for market entry strategies (joint ventures, direct investments) and adapting practices to local conditions.

• Currency Management: Handling exchange rate fluctuations to protect profitability.

• Ethical Considerations: Adapting to different labor and environmental standards, managerial ethics varies globally.

Conclusion

• Evolving Global Economy: Growing interdependence shapes strategies of international businesses.

• Future Challenges: Continued adaptation to technological shifts, regulatory environments, and geopolitical changes will be crucial for success in the global marketplace.