International Business and Globalization

Globalization

• Ongoing economic integration and growing interdependency of countries worldwide

  • Growth of international trade

  • Substantial flows of capital, technology and knowledge

  • Emergence of global financial systems

  • Greater national collaboration through global institutions

4 reasons why globalization is a big deal

A contributor to global (national) economic well-being

• Leads to increasing global and national prosperity, including gains in literacy and healthcare

  • Builds middle class in emerging countries

    • Every $1 billion increase in exports creates more than 20,000 new jobs.

A competitive advantage for the firm

• Increase sales

  • Scale economies

  • Location economies

    • You can choose where to design, manufacture, etc.

An activity with societal implications (negatives)

• Impact on environment

  • Cheap labor is often located in places that don’t have strict environmental regulations

  • Job losses in local markets

    • Disruption of economies

  • Being a good corporate citizen is extra important

    • Ethics

A source of competitive advantage for you?

• Additional opportunities

  • Opportunities for more interesting work

Nature of International Trade

The rate of growth of exports & imports has outpaced the growth of gross domestic product for the last few decades

• We are buying less and less from home countries

Why do Firms Internationalize?

Seek Opportunities for growth through market diversification

Earn higher margins and profits

• Foreign markets are often more profitable

Gain new ideas about products, services, and business methods

Better serve key customers that have relocated abroad

• Suppliers often follow big customers

Be closer to supply sources, benefit from global sourcing advantages, develop economies of scale, or gain flexibility in the sourcing of products

• Lower-cost or better-value factors for productio

How companies expand internationally

Cross-border exchange of products and services

• Exporting

  • Sale of products/services to customers located abroad

  • Importing

    • Procurement of products/services from foreign suppliers for consumption at home

Global Outsourcing

• Using suppliers outside the US to provide labor, goods, or services

  • Also called offshoring

Licensing

• owner of intellectual property (IP) grants another firm the right to use that property in exchange for royalties or other compensation

Franchising

• Licensee can provide know-how in a foreign market

Impediments to Trade

Tariffs

• Customs duty, or tax, levied mainly on imports

Import quotas

• Limits on product quantities that can be imported

Embargos

• Complete ban on the import or export of certain products with specific countries

Organizations Promoting International Trade

World Trade Organization (WTO)

• Evolved from the General Agreements on Tariffs and Trade (Gatt)

  • Monitors and enforces trade agreements

    • Arbitrates between countries

  • Consists of 159 countries

World Bank

• Provides low-interest loans to developing nations for improving transportation, education, health, and telecommunications

International Money Fund (IMF)

• Helps countries in trouble with advice on monetary and fiscal policy

  • Assists in smoothing the flow of money between nations

Trading Bloc

Group of nations within a geographic region that have agreed to remove trade barriers with one another

• USMCA (NAFTA)- US, Canada, Mexico

  • European Union– 28 trading partners in Europe

  • APEC– groups of 21 Pacific Rim countries

  • ASEAN– trading bloc of 10 countries in Asia

  • Mercosur– trading bloc in Latin America