723g10ib-lecture2-globalizationeconomicgeography2013

8/13/2019 723G10IB-Lecture2-GlobalizationEconomicGeography2013

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Linkpings universitet 1

Globalization & EconomicGeography

Ramsin Yakob, PhD [email protected]

IEI/Linkpings Universitet

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What is Globalization or theGlobalization process?

What is International Business orthe Internationalization process?


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Globalization:

Globalisation is essentially a process driven byeconomic forces. Its immediate causes are: thespatial reorganisation of production, internationaltrade and the integration of financial markets.

International Business:

Is concerned with the manager's challenge tocoordinate and organize resources despite largevariations in their national origins within theboundaries of a single firm that span their economicactivity across borders.

Globalization vs International Business

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Is distance dead or doesgeography still matter?


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Reinforcing pattern or new geographical map- Is the world spiky or flat?

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The business challenges:How do we make sense of ourenvironment on a macro-,meso-, and/or micro scale?


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The Macro scale, a global triad:

concentration of world GDP and exports

the world economy asorganized around atripolar, macro regionalstructure

Do we see theemergence/ extension ofnew important players?

The global map ofmanufacturingproduction and growth

The global map ofservice productionand growth

The global map ofagriculture servicesand growth


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The Meso scale Transborder clusters and corridors

Economic activity thatcrosses, or sometimesaligns with, nationalboundaries

What other importantareas do we know off?

!nited states and Me"ico: Border activity


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#merging urban corridorsin #ast $sia

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Mega-Regionsof #urope


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Mega-Regions of%orth $merica

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Mega- Regionsof $sia


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The Micro scale Localized o!!unities

- We live in cities, towns, and villages. Economic activityis ultimately in specific places

&ocation still matters'

o!parative disadvanta"e can be erodedthrou"h "lobal sourcin"#

The endurin" co!petitive advanta"es in a"lobal econo!y lies increasin"ly in localthin"s $ knowled"e% relationships% !otivation

$ that distant rivals cannot !atch


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Three levels of mar(ets

R#GI)%$& R#GI)%$& R#GI)%$&

I%T#R%$TI)%$&*G&)B$&CapitalMarket

Goods &ServicesMarkets

LabourMarkets % a

t i o n a l

% a t i o n a l

Conflict ofnational policies(locationalpolicies)

Integration,harmonizationand protection,regional policies

Nationalemployment,Training andfiscal policies

% a t i o n a l

% a t i o n a l

% a t i o n a l

% a t i o n a l

Capital Flows

Labour Services

What characterizes the world economy of today?

The e!er"ence of intellectual capital as the key wealthcreatin" asset

'# Increasin" "lobalization of econo!ic activity (transport%co!!unication% trade barriers)

*# +lliance capitalis!

,# Growth in developin" and transition econo!ies driven bydo!estic de!and and hi"h co!!odity prices

-# .low expansion of "lobal trade (followin" financial crisis)

/# 0apid industrialization with "rowin" ine1uality in +sia

2# Inco!e distribution


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Changing Pattern of Economic activity Inward FDI, Million US $

Changing Pattern of Economic activity Outward FDI, Million US $


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Multinational Corporations (MNC):The driving engines of internationalization and Globalization

+h do M% s. #"ist/

The #clectic 0aradigm - a framewor( fore"plaining the e"istence of M% .s

3wnership $ 0esources and capabilitites"ive advanta"eLocalization $ for co!parative advanta"eInternalization $ carryin" out certainactivities internally

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Why do firms invest abroad?


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T10# )223I*M)TI4#

Variables influencing the locationof value added activities (1970s)

Variables influencing the location of value addedactivities (2000s - )

Resource 5ee(ing Availability, price and quality of naturalresources. Infrastructure to enableresources to be exploited, and productsarising from them to be exported.Government restrictions on FDI and/orcapital. Investment incentives (taxholidays).

As in the 1970s. Local partners for upgrading quality of resourcesand processing and transportation of output. Availability of localpartners to jointly promote knowledge and/or capital intensiveresource exploitation. Example: A German company opening aplant I Slovakia to produce and re-e xport to Germany.

Mar(et 5ee(ing Mainly domestic and occasionallyadjacent regional markets, Real wagecosts, material costs, transport costs,non-tariff trade barriers

Large and growing markets. Availability and price of skilledprofessional labour. Presence and competitiveness of related firms(e.g. suppliers). Quality of national and local infrastructure.Macroeconomic and macro-organizational policies of hostgovernments. Close presence to users in knowledge-intensivesectors. Example: Automotive MNCs have invested heavily inChina

#fficienc 5ee(ing Mainly production cost related (labour,materials, machinery). To engage in trade

in intermediate and final products. Exportprocessing zones. Investment incentives(tax breaks, grants, subsidized land).

As in the 1970s but more emphasis on wage and material costs.Increased role of governments in removing economic obstacles and

facilitating upgrading of HR (training and education). Availability ofspecialized spatial clusters (industrial parks). Example: Globalsourcing

5trategic $sset5ee(ing

Availability of knowledge-related assetsand markets necessary to protect orenhance ownership specific advantages.Institutional variables influencing ease ordifficulty of which such assets can beacquired by foreign firms.

As in the 1970s, but growing importance due to geographicaldispersion of knowledge-based assets. Opportunities offered forexchange of localized tacit knowledge, ideas and interactivelearning. Access to different cultures, institutions and systems; anddifferent consumer demands and preferences. Example: Acquiringkey local firms, R&D, Human Capital, Market knowledge etc..

Changing Motives for Foreign Direct Investment (FDI)

The growth of strategic asset-seeking FDI

Less concerned with exploiting existing and ownedspecific advantages

More concerned with protecting or augmentingexisting advantages

The changing locational preference

A deepening of value chain activities and propensityto engage in higher order activities

Downstream activities (inputs) are becoming moreknowledge intensive


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Single Company: Position in the Value Chain (industry level)

Raw Mtrls BaseManufac

!pstream5ervice

ompon65upplier

)rig6#7uip6Manuf

3ownstre5ervice

2inalonsump6Goods

International Standard Industrial Classification (UN)

B $, $, B, 3, 8, 9, % G

Global Value Chains

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Resource #nerg &abour apital Tech6 nowledge Infrastruc

High

Medium

Low

Factor Intensity



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High

Medium

Low

Factor Intensity



High

Medium

Low

Factor Intensity



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Sec toral Reg io na l In div idual

Choice of Parameters: Foreign Market

Factor Market



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Sup ply U ne mploymen t


PublicDept



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Libor (currency?)

Euroibor a tiona l


!rade "urrent

#ccount Payment



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!radePattern

FDI Pattern


Macroeconomic Concerns: Foreign Market

Econ.growth

Infla- tion

Labour Budge t balance

Interest rate

External balance

Exchange rate

CrucialImportance

HighlyRelevant

Relevant

PartlyRelevant

Irrelevant


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Econ.growth

Infla- tion


Interest rate

External balance

Exchange rate

CrucialImportance

HighlyRelevant

Relevant

PartlyRelevant

Irrelevant


Econ.growth

Infla- tion


Interest rate

External balance

Exchange rate

CrucialImportance

HighlyRelevant

Relevant

PartlyRelevant

Irrelevant



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Supply

Market

Domestic

Foreign

Domestic Foreign

Geographical Position in the production system

Supply

Market

Domestic

Foreign

Domestic Foreign



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Supply

Market

Domestic

Foreign

Domestic Foreign


Supply

Market

Domestic

Foreign

Domestic Foreign



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723g10ib-lecture2-globalizationeconomicgeography2013

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