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Midterm Review Contents: 1) Emerging vs. Advanced Economies 2) Globalization of markets 3) Drivers of Market Globalization 4) Dimensions of Market Globalization 5) Societal Consequences of Market Globalization 6) Firm-level Consequences of Market

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Arts and Business
Mark Arnason

Emerging vs. Advanced Economies - China has the highest R&D spending from 2004 -2007 - China is already the biggest market for mobile phones, televisions and cars(2007) - India is the biggest market for gold and clothing(2007) - China and India will together contain 123 million middle class households, and they have the largest global labor force - Market Liberalization of India & China and fall of the Soviet Union inject 2.5B people into the global economy - The CAGR of consumer spending of B6 (6 largest emerging economies) especially China is growth rapidly (economic growth in emerging markets) - The number of emerging-market based multinationals has mushroomed over the past decade (China: 3 20, South Korea: 12/62) - Emerging markets accounted for half of the global economy in 2009 and is growing - Emerging markets attract a larger share of FDI than developed markets, and drive an increasing share of outward investment flows - There are a lot more university-educated young professionals in the developing countries than in the developed countries - The working-age population of emerging economies is expected to increase by more than 500 million, compared with an increase of only 3.7 million in developed economies in the decade to 2020 Globalization of markets Two mega trends have altered the international business landscape: 1) The globalization of markets a. More countries move to Free Trade b. More small and large companies from different countries participate in international business c. Rise of multinational companies in the global economy d. Allow firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge 2) Technological advances (Businesses are using technology to bring them closer to our moment of value, and to change industry structure and the rules of competition) a. Information technology i. Changing role new tech creating new business models ii. The pace of change in IT as an enabler of fundamental business transformation 1. Growing power & declining cost 2. Increased accessibility & skill level 3. Reduced skill requirements b. Communications technology c. Transportation technology d. Manufacturing technology *****Globalization and technological advances resulted in the DEATH OF DISTANCE (shrinking of geographic and cultural distance that separate nations***** Drivers of Market Globalization - Worldwide reduction of barriers to trade and investment (WTO has facilitated this) - Market liberalization and adoption of free trade in China, Soviet Union countries, etc. - Industrialization, economic development, and modernization o Transitions emerging markets and increase the attractiveness of emerging markets as investment targets and facilitate the spread of ideas and products - Integration of world financial markets o Enables firms to raise capital, borrow funds internationally, engage in foreign currency transactions, and to pay suppliers and collect payments from customers worldwide - Advances in technology (e.g. declining cost of global communication and growing number of internet users) o Facilitates the development and spread of new products and technologies o Reduces the cost of doing business internationally o Enables even smaller firms to go international o Helps coordinate worldwide activities o Lessen geographic distance Dimensions of Market Globalization - Integration and interdependence of national economies - Rise of regional trading blocs and economic union (e.g. European Union) - Growth of global investment and financial flows o FDI has grown dramatically o Commercial and investment banking has become a global industry o The bond market has gained worldwide scope - Convergence of buyer lifestyles and preferences (increasingly standardized) - Globalization of production o Intense global competition has made economies of scale a key success factor. o Global sourcing: take advantage of national differences in the cost and quality of factor inputs o Off shoring to low labor-cost locations such as China, Mexico, and Eastern Europe is so popular o Services Shift: The service sector is also global sourcing Societal Consequences of Market Globalization - Positive o Opened the world to innovations o Increasing performance standards (global benchmarking) o Countless new jobs and opportunities - Negative o Cost many people their jobs o Poses challenges to individuals, organizations and governments o Low-income countries have not been able to integrate with the global economy as rapidly as others - Unintended o Loss of national sovereignty (power shifts to MNEs) o Off shoring and the flight of jobs o Effect on the poor (benefits are not evenly distributed) o Effect on the natural environment (MNEs fail to protect the environment) o Effect on national culture (loss of national cultural values and identity) Firm-level Consequences of Market Globalization - Countless new business opportunities for internationalizing firms - New risks and intense rivalry from foreign competitors - More demanding buyers, who source from suppliers worldwide - Internationalization for firms value chain History of Globalization - All roads lead to Rome Romes territorial colonies were constructed as commercial resource centers to serve the needs of the Roman Empire and increase its wealth - First international banking system (trade during the Middle Ages) - Traders were able to gain a monopoly and control prices by concealing the origins of the commodities - Third phase of Globalization o Firms began to seek competitive advantage by locating factories in developing countries with low labor cost - Fourth phase of Globalization o Unprecedented rate of growth in cross-border trade and investment activity o Commercialization of the personal computer, arrival of the internet and the web browser, and advances in communication and manufacturing technologies o Substantial industrialization and modernization efforts of the East Asian economies including China o Focus on emerging markets for export, FDI, and sourcing activities
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