Globalization

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International Business

Some of the challenges in International Business International finance and currency matters Cross cultural communication and understanding Foreign legal requirements and accounting practices Global Strategy and International Competition

International Business

The globalization of markets In the US 90% of firms that export are small

businesses employing less than 100 people and their total share of total US exports now exceed 20 percent

For example Hytech, a New York based manufacturer of solar panels that generates 40% of its $ 3 Million in annual sales from exports

B&S Aircraft alloys, a New York based company whose exports account for 40% of its $ 8 Million annual revenues

Globalization

The globalization of production

Sourcing of goods and services from locations around the globe to take advantage of national difference in the cost and quality of factors of production (for example, labor, energy, land and capital)

For example Boeing for its 777, 08 Japanese suppliers make parts for its fuselage, doors and wings, a supplier in Singapore makes the doors for the nose landing gear, three suppliers in Italy manufacture wing flaps and so on

For its latest 787 Dreamliner, 65% of the total value of the aircraft are outsourced to foreign companies and 35% goes to major Japanese companies

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The emergence of global institutions

GATT (was founded in 1947 by 23 industrialized countries by the mid 1990s it had over 100 signatories which collectively accounted for 90% of the world trade)

WTO (founded in 1995 and has up until now 153 member nations which collectively account for 97% of the world trade)

IMF (was created in 1994 by 44 nations at Bretton Woods, New Hampshire)

The United Nations (established October 24, 1945 with 51 countries signing initially to preserve peace through international cooperation and collective security. Now has a membership of 191 nations)

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Drivers of Globalization

International Trade occurs when a firm exports goods or services to consumers in another country

FDI occurs when a firm invests resources in business activities outside its home country

Declining Trade and Investment Barriers

With the formation of GATT after World War II, eight rounds or negotiations were held among 153 member states to lower trade barriers to the free flow of goods and services

In late 2001, WTO launched the DOHA trade round, which include cutting tariffs on industrial goods and services and agricultural producers, reducing barriers to cross border investments and limiting the use of anti dumping laws

Globalization

In addition to reducing trade barriers, many countries have also been progressively removing restrictions to foreign direct investment

According to UN, some 90% of the 25,424 changes made worldwide between 1992 and 2007 in the laws promoting FDI

The role of technological change

Microprocessors and Telecommunications The Internet and World Wide Web Transportation Technology

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Implications for the Globalization of Production

A case in point “Dell” uses the internet to coordinate and control a globally dispersed production system to such an extent that it holds only three days’ worth of inventory at its assembly locations

Its internet based systems records orders for computer equipment as customers submit orders directly online, the message is instantly generated to its suppliers around the world

Given the low cost of air freight, Dell can use air transportation to speed up delivery of critical components to meet unanticipated demand shifts without delaying the shipment of final product to consumers

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Implications for the Globalization of Markets

The changing world output and world trade picture

In the 1960’s US was the world most dominant economic power In 1963 the US accounted for 40.3% of the world economic

activity, by 2008 this has shrunk to 20% by GDP The same has occurred with Germany, France and the UK Faster economic growth his now being seen in Asia including

China, Japan, Thailand, Malaysia, Taiwan and South Korea By the end of 1980’s the US position as the world’s leading

exporter has been threatened as Japan, Germany, South Korea and China have taken a larger share of world exports

China’s rapid rise continues from 8.4% of world exports to becoming the world’s largest exporter of goods in close future

Globalization

GlobalizationThe changing foreign direct investment picture In 1960’s US firms accounted for 66.3% of world FDI flowsBritish firms were second accounting for 10.5% while Japanese firms were distant eighth with only 2%

Today as barriers to trade falls and with the free flow of goods and services other countries have increased their share of world output

The stock of FDI investment from the world’s important economies namely US, UK, Germany, the Netherlands, France and Japan are declining from 1980-2007 while investments made from developing countries are rising which are China, Hong Kong, South Korea, Singapore and Taiwan

Among developing nations the largest recipient of FDI has been China which from 2004 to 2008 received $ 60 to $ 90 billion a year in inflows

GlobalizationThe Globalization Protests

Anti Globalization Protests Globalization, Jobs, and Income Globalization, labor policies and the Environment Globalization and the World’s Poor