lecture 8 globalization

8/8/2019 Lecture 8 Globalization

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Lecture 8Globalization

What is the meaning of globalization and what areits driving forces? Has Canada gained or lost in thenew global economy?

Chapter 7: KarakowskyAdditional readings on Tariffs and Softwood Lumber

Case: Softwood Lumber (p. 287)

Foreign Investment Laws (K. p.289)


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A process involving the integration of worldeconomies facilitated by bodies such asNAFTA, EU, APEC (Asia-Pacific Economic Co-

Operation), ASEAN (Ass. Of S.E. Asian Nations)etc.

The integration of world markets

Free movement of goods/service, capital and

labour Includes cross border transactions, FDI (foreign

direct investment) & economic interdependence

DEFINING GLOBALIZATION


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THE PUSH & PULL OF GLOBAL ACTIVITY

PUSH FACTORS

Competition

Democracy

Reduced tradebarriers

Improvedtechnology

PULL FACTORS

Growth Potential

Need for resources

material/people


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MODES OFFOREIGNMARKET ENTRY

What strategies can firms use to sell globally?(channels for global business) -in increasing levels ofintensity:

Exporting goods/services

Contractual agreements and Strategic Alliances: Outsourcing

Licensing/Franchising

Marketing/distribution agreements Foreign Direct Investment:

Joint ventures and Strategic Alliances

Wholly-owned subsidiaries

Mergers and Acquisitions


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CHANNELS OF GLOBAL BUSINESS ACTIVITY

Joint Ventures

ForeignDirect

Investment

Licensing &Franchising

Export &Import

Outsourcing Subsidiaries

Mergers &Acquisitions


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Benefits & Threats of MNCs/TNCs

BENEFITS Asserted THREATS asserted

Economic development

e.g. creates employment

No allegiance to host country

Brings management expertise Mobile profits

Introduces new technology

& relevant training

Power held in home countrye.g. R & D investments

International trade Difficult to control

Unites cultures & nations


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INTERNATIONAL TRADE

The purchase, sale or exchange of goods orservices across countries.

The Logic of Trade: encourages nations tospecialize in goods/services in which they aremost efficient and trade with other countries forgoods/services not produced domestically.

- Comparative Advantage (David Ricardo)


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INTERNATIONAL TRADE: A brief history

Mercantilism (1500-1800):encourages trade

surpluses where exports of goods or services

exceeds imports.

Colonial powers (Britain, France, Spain, Netherlands)conquered countries to gain access to raw materials and

markets for finished products

Trade Protectionism:protects domestic

economies through import restrictions. Tariffs tax placed on goods entering a country

Quotas limits the amount of imports

Subsidies to domestic industries / firms


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INTERNATIONAL TRADE

What is the problem with mercantilism and tradeprotectionism? Trade retaliation

Increased costs to consumers

Limits competitiveness of domestic firms

See handout on Tariffs Impact on exporting country:

Lower production, job losses, economic decline

Impact on importing country:

Less competition for domestic firms, rising sales, prices, andemployment, in domestic firms, higher spending, governmentrevenues

Increased costs to consumers, less spending on other industries,economic decline, costs of imposing + collecting tariffs, possible costs ofretaliation and trade wars


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PROMOTING INTERNATIONAL TRADE

BrettonWoods Agreement 1944: Create aidand finance, to avoid postWW catastrophe of1918.

IMF 1944 short-term aid to developing

countries World Bank 1944 -long-term loans for

development

GATT (1948) 100 countries agreed to reduce tarifflevels.

WTO (1995) took over from GATT, to manageworld trade agreements.


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Regional Economic Integration - Trading Blocs

1. Free Trade Area removing subsidies & quotas formember countries but autonomy in selecting trade

agreements with non-members. e.g. NAFTA, APEC

2. Customs Union FTA but less freedom aboutinteracting with non-members i.e. common policye.g. Mercosur

3. Common Market CU + a free flow of labor andcapital across borders. e.g. European Union

4. Economic Union CM + co-ordination ofeconomic policies including high levels of integration

PROMOTING INTERNATIONAL TRADE


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TRADING BLOCS

EUROPEAN UNION (EU) 25 countries (12 usingEURO currency) and > 450 million people

Asia Pacific Economic Cooperation (APEC) 21countries and > 2 billion people [Australia,Canada, USA, PRC (China), Japan, Singapore, NZ,Thailand etc.] Represents 50% of the worldsoutput! (Which countries missing?)

Association of SouthE

ast AsianN

ations (ASEAN

) Brunei, Cambodia, Laos,

Indonesia, Philippines, Singapore, Thailand, Vietnam,Myanmar, Malaysia (missing?)


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CANADA-US FTA (1989) & NAFTA (1994)

OBJECTIVES: To Reduce/eliminate tariff barriers on almost allgoods and services traded

To facilitate cross-country investment To establish rules for government subsidies To establish universal rules for health, safety & theenvironment

To provide a common market among members


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NAFTA Pros & Cons for Canada

IMPACT ON TRADE

Pro Increased trade (from 25% to 43% of GDP

between 1990-99)

Cons Trade increase is the result of a weak dollar- Canada is still a resource-heavy economy

w/very few high-tech exports- Too dependent on trade with the US (80%)


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NAFTA Pros & Cons for Canada

IMPACT ON CANADIANEMPLOYMENT &BUSINESS

Pro - Increased competition forces domesticbusinesses to improve efficiency, innovation andstandards and to focus on core industries where wehave a competitive advantage and abort inefficientoperations.

Con - Competition may be too strong forcingbankruptcy and job losses given US firmsproductivity advantage and cheaper Mexican labour.


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NAFTA Pros & Cons

IMPACT ON CANADIAN CULTURE

Pro Doesnt impact Canadian culture, cultural

exports =$4.5B and opens big market in royalties

Con May destroy Canadian culture, Canada maybecome a subsidiary of USA, competition from

American media affects Canadian cultural capital.


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NAFTA Pros & Cons

IMPACT ON CANADIAN COMPETITIVENESSAND CONSUMERS

Pro more exposure to competition, more choicefor consumers, cheaper inputs, further marketopportunities.

Con No increase in productivity, unable to matchUS productivity, most of success based on weak C$,- cheaper production and value e.g. film industry.


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Current Issues and Events

Are we better off with NAFTA?

Rights of corporations to sue governments?

Softwood Lumber Dispute

Foreign Takeovers (HBC, Fairmont Hotels,

Dofasco, Inco)Increasingly a branch-plant economy?


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LIVING IN THE SHADOW

How much does Canada live in the shadow of theU.S. economically, socially, culturally, politically?

Is this a good or bad phenomenon?

To what extent do majority of Canadians care? How much has this changed since the advent of

NAFTA?

How much of this change would have occurred,irrespective of NAFTA (Afghanistan, 9/11 etc.)


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Political Forces and the Role of:Government

Karakowsky Chapter 8 (p.291)

Case: The Reel World (p.337)

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