GlobalizationGlobalizationGlobalization of Production

Globalization of ProductionGlobalization of Production

• Sourcing of goods & services from the locations around the globe

• To take advantage of national differences in the cost & quality of factors of productions

Drivers of GlobalizationDrivers of Globalization

1. Declining Trade and Investment Barriers 1. Declining Trade and Investment Barriers

2. The Role of Technological Change 2. The Role of Technological Change

3. The changing Demographics of the Global economy 3. The changing Demographics of the Global economy

4. The changing foreign Direct Investment Picture4. The changing foreign Direct Investment Picture

5. The changing nature of the multinational enterprise 5. The changing nature of the multinational enterprise

6. The changing world order 6. The changing world order

7.The Global economy of the 21st century 7.The Global economy of the 21st century

Declining barriers to tradeDeclining barriers to trade

• Globalization of markets and production has been facilitated by – Reduction in trade barriers– Removal of restrictions to foreign direct

investment

Pattern of declining tariffsPattern of declining tariffs

Volume of world trade and production, 1950-2002

Volume of world trade and production, 1950-2002

• Two things are implied:

– More firms are involved in globalization of markets & production

– Economies are becoming more intertwined

– Large to mini multinationals are increasing their FDI

The role of technological changeThe role of technological change

• Microprocessors and telecommunications

• The internet and world wide web

• Transportation technology

The shrinking globeThe shrinking globe

Changing demographics of the world economy

Changing demographics of the world economy

• World output and trade

• Changing foreign direct investment

• Changing nature of multinationals– Mini multinationals– Non US multinationals

The changing pattern of world output and trade

The changing pattern of world output and trade

Percentage share of total FDI stockPercentage share of total FDI stock

Volume of FDI inflows, 1994-2002 ($ billions)

Volume of FDI inflows, 1994-2002 ($ billions)

National origin of largest multinational corporations

National origin of largest multinational corporations

Mini-multinationalsMini-multinationals• Growth of medium size and small multinationals• • Bharat Forge - an Indian maker of steel car components,

the company recently bought forges in the United States and Germany

• Another mini-multinational is Videsh Sanchar Nigam Ltd., or VSNL, the former state monopoly for international telephone calls that was privatized in 2002.

• The company recently paid $130 million for 60,000 kilometers of undersea cables owned by the US giant Tyco International. Now, with trans-Atlantic, trans-Pacific and inter-American cables, the company's ambitions stretch beyond India. VSNL wants to establish itself, as a "one-stop telecommunications provider for global businesses."

Globalization debate-ProGlobalization debate-Pro

• Lower prices for goods and services

• Economic growth stimulation

• Increase in consumer income

• Creates jobs

• Countries specialize in production of goods and services that are produced most efficiently

Environmental performance and incomeEnvironmental performance and income

Globalization debate-ConGlobalization debate-Con

• Destroys manufacturing jobs in wealthy, advanced countries

• Wage rates of unskilled workers in advanced countries declines

• Companies move to countries with fewer labor and environment regulations

• Loss of sovereignty

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