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Final Exam Notes.pdf

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thADM 3318 International Business September 8 2012 Chapter 1 Globalization What is Globalization Globalization The shift toward a more integrated and interdependent world economyThe Globalization of Markets The merging of historically distinct and separate national markets into one huge global marketplaceFalling barriers to crossborder trade have made it easier to sell internationallyA company does not have to be the size of a multinational giant to facilitate and benefit fromthe globalization of markets The most global markets currently are not markets for consumer productswhere national differences in tastes and preferences are still importantbut markets for industrial goods and materials that serve a universal needThe Globalization of Production Sourcing goods and services from locations around the globe to take advantage of national differences in the cost and quality of various factors of productionFactors of Production Components of production such as labor energy land and capitalBy doing this companies hope to lower their overall cost structure or improve the quality of functionality of their product offering thereby allowing them to compete more effectivelyThe internet is great facilitator for the globalization of productionThe Emergence of Global InstitutionsOver the past half century a number of important global institutions have been created to help manage regulate and police the global marketplaceGeneral Agreement on Tariffs and Trade GATT International treaty that committed signatories to lowering barriers to the free flow of goods across national borders let to WTOWorld Trade Organization WTO The organization that succeeded the GATT and now acts to police the world trading system o As of 2006 149 nations that collectively accounted for 97 percent of world trade were WTO members thereby giving the organization enormous scope and influenceInternational Monetary Fund IMF International institution set up to maintain order in the international monetary system o The IMF is seen as the lender of last resort to nationstates whose economies are in turmoil and currencies are losing value against those of other nations o In return for the loan the IMF requires nationstates to adopt specific economic policies aimed at returning their troubled economies to stability and growthWorld Bank International organization set up to promote economic development primarily by offering lowinterest loans to cashstrapped governments of poorer nations o Was set up to promote economic developmentUnited Nations UN An international organization made up of 191 countries charged with keeping international peace developing cooperation between nations and promoting human rights o When states become members of the United Nations they agree to accept the obligations of the UN Charter an international treaty that established basic principles of international relations thADM 3318 International Business September 8 2012 Chapter 1 Globalization Drivers of Globalization Declining Trade and Investment BarriersForeign Direct Investment FDI Occurs when a firm invests resources in business activities outside its home countryMany barriers to international trade took the form of high tariffs on imports of manufactured goods The typical aim of such tariffs was to protect domestic industriesThe Role of Technological Change Microprocessors and Telecommunications Perhaps the single most important innovation for globalization It allowed for the explosive growth of highpower lowcost computing and vastly increasing the amount of information that can be processed by individuals and firmsThe Internet and World Wide Web The web makes it much easier for buyers and sellers to find each other wherever they may be located and whatever their sizeTransportation Technology In economic terms the most important development of transportation technology is the use of commercial jet aircrafts superfreighters and the introduction of containerization which simplifies transhipment from one mode of transport to anotherThe Changing Demographics of the Global EconomyAs of the late 1960s four stylized facts described the demographics of the global economy 1 US dominance in the world economy and world trade picture 2 US dominance in world foreign direct investment 3 Dominance of large US firms on the international business scene 4 Roughly half the globethe centrally planned economies of the communist worldwere offlimits to western international businessesThese four factors are now changing in the current world economyThe Changing World Output and World Trade PictureIn the early 1960s the united states accounted for 403 percent of the world outputBy 2005 the US accounted for 201 percent of world output o This change was not a steady decline but rather a relative decline The decline is not a result of the US producing less it is a result of other countries Germany France UK etc producing more and growing fasterMost forecasts now predict a rapid rise in the share of world output accounted for by developing nations such as China India Indonesia Thailand South Korea Mexico and BrazilThe Changing Foreign Direct Investment PictureStock of Foreign Direct Investment The total accumulated value of foreignowned assets at a given timeIn the 1960s US firms accounted for 663 percent of worldwide FDIFollows the same trend in the previous sectionThe Changing Nature of the Multinational Enterprise MNEMultinational Enterprise MNE Any business that has productive activities in two or more countriesThe two trends in the demographics of the multinational enterprise have been 1 the rise of nonUS MNEs and 2 the growth of minimultinationals
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