1.9 Globalization

Chapter 9

What is Globalization?

The growing trend towards world-wide markets in products, capital and labor, and unrestricted by barriers.

Why is this possible?

Increased international trade as barriers are reduced

Growth of multinational businesses in all countries as freedom of capital investments is allowed

Movement of workers between countries

Why would you become a multinational company?Closer to your markets means: Lower transportation costs Better market information – you are closer

to your customers May be considered a local company and

gain customer loyalty

BMW builds cars in South Carolina.

Why would you become a multinational company?Lower costs of production: Lower labor rates – compared to more

developed economies Cheaper rent / cost of production facilities Government tax incentives to encourage

development

Why would you become a multinational company?Avoid import restrictions By producing locally you avoid import duties

(taxes) and other import restrictions

Why would you become a multinational company?Access to local natural resources These resources may not

be available in your country or very limited.

Why would you become a multinational company?Take advantage of expanding markets Increased sales, profits, and growth

opportunities

Impact of going “Global”

Investment dollars are positive for foreign “host” countries

Employment opportunities for local economy; generation of additional “supplier” jobs

Local firms maybe forced to increase their own quality of products

Tax revenues generated for local governments Management talent increases in the local population

as they are trained by expert foreign managers Total GDP increased for host country

Drawbacks of going “Global”

Exploitation of local workforce Lack of local labor laws and safety rules

Pollution because of lower environmental standards Local firms may be squeezed out of the market Western business maybe seen as imposing culture

in other parts of the world Profits may not be reinvested in the host country Depletion of natural resources in host country

World Trade Organization (WTO) An International organization that promotes trade

among member nations. 150 members; China joined in 2001 Acts as an arbitrator for member countries when

they have trade disputes.

Regional Trade Blocs Free Trade Areas / Agreements (NAFTA)

Free trade with no tariffs, quotas, or restrictions. Each country controls non-members themselves.

Customs Unions (Mercosur – Argentina, Brazil, Paraguay, Uruguay, and Venzuela)These are free trade areas but members AGREE on restrictions for non-members.

Common Markets (European Union – EU – the worlds largest common market. There are 27 member countries.)Free trade of capital AND people between members as well as common product standards (i.e. emission standards for cars).

Economic and monetary unions (EMU) i.e. EurozoneThese members share a common currency and an interest rate that is determined by a central bank. (EU has 16 members of the Eurozone)