GlobalizationBy Hannah Smith, Paul Taylor, and Jeremy Bourne

Objectives

• How globalization has affected world regions– Companies, workers, communities?

• Identify & explain what regions are of particular interest to international managers. – Europe, Asia, United States?

• Identify and describe reasons why Multi-national Corporations are looking to develop and gain a foothold in Asia?

• Explain why MNCs focus on less developed and emerging countries of the world.

Agenda

• Introduction to globalization and Multi-National Corporations and economic Integration– MNC Activity– Outsourcing vs. Offshoring– Walmart Examples– Quiz on Economic Integration

• Distribution of economic power and growth rates/ Economic Systems– Game Theory

• Case Study

International Management

International Management – process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments.

Multinational Corporation (MNC) – a firm having operations in more than one country, international sales, and a nationality mix of managers and owners.MNC Activity 1MNC Activity 2

Globalization vs. Internationalization

Globalization – the process of social, political, economic, cultural, and technological integration among countries around the world.

Internationalization – the process of a business crossing national and cultural borders.

Offshore Outsourcing

Outsourcing – the subcontracting or contracting out of activities to endogenous organizations that had previously been performed by the firm.

Offshoring – the process by which companies undertake some activities at offshore locations instead of in their countries of origin.

Walmart – The ultimate MNC

• Walmart Clip: The high cost of low prices

Discussion

• What are the pros and cons of globalization?• How does globalization affect different world

regions?• How does globalization affect different sectors of

society? (companies, workers, communities)

Global Economic Integration

• World Trade Organization (WTO)– Global organization of countries that oversees rules and regulations

for international trade around the world• North American Free Trade Agreement (NAFTA)

– United States, Canada and Mexico• U.S.—Central American Free Trade Agreement (CAFTA)• European Union (EU)

– 2003: 15 countries– 2004: 10 more countries– 2007: 2 more joined (27 total)

• Take a look at page 19 in textbook for quiz

Global Economic Integration

• Free Trade Agreement of the Americas (FTAA)– North and South Americas– Failed

• Asian MNCs and Association of Southeast Asian Nations (ASEAN)– Indonesia, Malaysia, the Phillipines, Singapore, Brunei, Thailand,

Cambodia, Myanmar and Vietnam• Eastern European nations

– Still working on agreement

• Discussion question: Why are Russia and Eastern Europe of interest to international managers? Identify and describe some reasons for such interest.

Global Economic Integration

• Discussion question: Why would MNCs be interested in South America, India, the Middle East and Central Asia, and Africa, the less developed and emerging countries of the world? Would MNCs be better off focusing their efforts on more industrialized regions? Explain.

INTERMISSION

GDP (PPP) per capita

Shifting Demographics

Who are the biggest economic players right now?

• According to Goldman Sachs, “BRIC” (Brazil, Russia, India, and China) has economic potential such that they may become among the four most dominant economies by year 2050.

• With GDP calculated at PPP*, by 2020 China is projected to rank number one with $29,590,000,000 with the US in second with $28,830,000,000.

*Purchasing Power Parity adjusts GDP to account for different prices in countries

Foreign Direct Investment

FDI Defined:

Investment in property, plant, or equipment in another country.

“As nations become more affluent, they begin looking for countries with economic growth potential where they can invest. Over the last two decades, for example, japanese MNCs have invested not only in their Asian neighbors but also in the US and the EU. European MNCs, meanwhile, have made large financial commitments in japan and more recently in China and India, because they see Asia as having continued growth potential.”

-Luthans 2009

Foreign Direct Investment

• Discussion question: Many MNCs have secured a foothold in Asia, and many more are looking to develop business relations there. Why does this region of the world hold such interest for international management? Identify and describe some reasons for such interest.

Countries Expected to contribute most to global growth 2006-2020

China 26.7%United States 15.9%India 12.2%Brazil 2.4%Russia 2.3%

Economic Systems

• Game theory

• Prisoner’s Dilemma example– Describe the game here:

Economic Systems

• Market economy: when private enterprise reserves the right to own property and monitor the production and distribution of goods and services while the state simply supports competition and efficient practices.

• Command economy: comparable to a monopoly in a sense that the organization, in this case the government, has explicit control over price and supply of a good or service.

• Mixed government: a combination of a market and command economy, includes private ownership and the freedom and flexibility of the law of demand, while others are subject to government planning.

Regions

• Group 2: North and South America

• Group 3: Europe and Asia

• Groups 2 & 3: Look at other developing and emerging countries and regions

Case Study

• Read Case Study and discuss amongst yourselves

• Is Europe likely to be a good area for direct investment during the years ahead?

• Why is so much foreign money being invested in U.S. manufacturing? Based on your conclusions, what advice would be in order for the conglomerate?

• If the conglomerate currently does not do business in Europe, what types of problems is it likely to face?

Questions?