Week 1 Globalization & International Business
1. International VS domestic business (differences due to)
i) Environmental dynamics (macro)
Currency, inflation, interest rates, accounting practices, cultures, social customs, laws, political stability ii) Operational nature (micro) -> hierarchy of managers
Communication, coordination, motivation, differences in organizational principles and management philosophies
2. Globalization
World moving away from self-contained national economies toward an interdependent, integrated global economic system (economic definition)
The shift towards a more integrated and interdependent world economy
Describes major economic, political and cultural changes in the modern world
Product of complex historical process – analysis requires a historical approach
Personal contact: spread of human civilization, artefacts, institutions, patterns of living, information and knowledge
Technology, economic integration and political engagement (policy aimed at spreading certain institutions)
3. Globalization of markets
Why?
i. Falling trade barriers make it easier to sell globally ii. For some goods, consumers’ tastes and preferences are converging, e.g. computers, telephones iii. Firms offer the same basic products worldwide
E.g. health care (shortage of radiologists in USA -> send images over the internet and by interpreted by radiologists in India)
Not only goods but services are being internationally traded or tradable
Education (e.g. Australian export of education to foreign students)
Medical and consultancy services
Sales and technical services
Factors: capital, labour are internationally traded through
Foreign institutional and direct investment
Labour movements
International markets in technology
4. Globalization of production
Sourcing of goods and services from locations around the world to take advantage of labour, land, capital and technology -> lower cost of production
5. The emergence of global institutions – economic and political integration
Globalization created need for managing, regulating and policing the global marketplace
WTO: global treaty
IMF: structural adjustment package e.g. reform -> stabilize the world
World bank: development, e.g. how developing countries integrate to global market
United Nations: integrating world economy
6. 19th century integration
Non tariff barriers were lower than they are today
Capital and money movements were freer under the gold standard
Movement of people was freer – passports rarely needed and citizenship was granted easily
7. Three waves of globalization
Wave
Triggered by / definition
First wave of globalization (1870 – 1914)
i. 2nd wave of Industrial revolution in 1870 -1876 (steam, electricity and specialization of butchers) ii. Falling transport costs, e.g. the switch from sail to steamships) iii. Reductions in tariff barriers
Huge opportunities for manufactures; exports as share of world income doubled to 8%
Second wave of globalization (1945 – 1980)
Founding of the UN
Persuaded governments to cooperate and reduce trade barriers
Trade liberalization took place, but was selective for developing countries (by 1980 trade between developed countries in manufactured goods substantially freed of barriers)
For agriculture and manufactures, developing countries faced severe barriers
Third wave of globalization (1980 +)
Different to previous waves: LDC’s entered global markets, capital movements have become especially significant; globalization of services
Why?
Technology omnipotence, E.g. telephones transferring images
Tariffs on manufactures in rich countries decreased
Trade liberation in LDCs
Liberalization of capital markets
10. How to calculate the index of whether a country is transnational or not?
Amount of foreign and national capitol, production and employment
11. How has world output and world trade changed?
1960: US: 40 % of world economic activity; 2008: 20%; 2020: 60% from developing countries
