globalization drivers 1

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Globalization DriversGlobalization Drivers



Declining Trade and InvestmentDeclining Trade and Investment

BarriersBarriersInternational TradeInternational Trade

FDIFDI

High TariffsHigh Tariffs

Domestic ProtectionDomestic Protection

Having experiences of industrial nationsHaving experiences of industrial nations

World War IIWorld War II--GATTGATT

WTOWTO20012001--new talknew talk ±±lower tariff, agriculturallower tariff, agriculturalsubsidies, cross border investment,subsidies, cross border investment,



CountriesCountries 19131913 19501950 19901990 20032003

FranceFrance 21 %21 % 1818 5.95.9 44

GermanyGermany 20%20% 2626 5.95.9 44

ItalyItaly 18%18% 2525 5.95.9 44

JapanJapan 3030 5.35.3 3.83.8

HollandHolland 55 1111 5.95.9 44

SwedenSweden 2020 99 4.44.4 44BritainBritain 2323 5.95.9 44

U.S.U.S. 4444 1414 4.84.8 44



Bilateral TradeBilateral TradeIn year 1980In year 1980--181 treaties181 treatiesIn year 2003In year 2003--2265 treaties2265 treaties1975 average FDI inflow1975 average FDI inflow--$25 billion$25 billion

$1.3 trillion$1.3 trillion --2004200420012001--$620 billion$620 billion19921992--20042004--average FDI flow 360 percentaverage FDI flow 360 percentWorld trade 35 %World trade 35 %As a result of strong FDI flow in 2003 global stock FDI exceededAs a result of strong FDI flow in 2003 global stock FDI exceeded$8.1 trillion$8.1 trillion

Total 61000 parent companies head 900000 affiliates in foreignTotal 61000 parent companies head 900000 affiliates in foreignmarkets that collectively employed some 54 million people abroadmarkets that collectively employed some 54 million people abroadand generated value accounting for about one tenth of global GDPand generated value accounting for about one tenth of global GDPThe foreign affiliates and heads had estimated 17.6 trillion salesThe foreign affiliates and heads had estimated 17.6 trillion sales



JapanJapan andand UU..SS..-- KodakKodak andand PP && GG

UU..SS.. marketmarket shareshare hashas beenbeen takentaken byby

JapanJapan of of GMGM andand FordFordEuropeEurope ±±oneone dominancedominance DutchDutch companycompanyPhilipsPhilips hashas seenseen itsits marketmarket shareshare ininconsumer consumer electronicselectronics takentaken byby JapanJapan JVC,JVC,MatsushitaMatsushita andand SonySony



The role of technological ChangeThe role of technological Change

High Power High Power

Low cost computingLow cost computing

Vastly increasing the amount of Vastly increasing the amount of informationinformation

SatelliteSatellite

Optical fiber Optical fiber

Wireless technologiesWireless technologies

Internet world wide webInternet world wide web



Micro Processors andMicro Processors and

TelecommunicationsTelecommunicationsThese technologies rely on the microprocessor toThese technologies rely on the microprocessor toencode, transmit, and decode the vast amount of encode, transmit, and decode the vast amount of information that flows along these electronic highways.information that flows along these electronic highways.The cost of microprocessor continues to fall, while their The cost of microprocessor continues to fall, while their

power increases (Moore¶s Law)power increases (Moore¶s Law)The cost of global communication plummets, whichThe cost of global communication plummets, whichlowers the costs of coordinating and controlling a globallowers the costs of coordinating and controlling a globalorganization.organization.Thus between 1930 and 1990, the cost of a three minuteThus between 1930 and 1990, the cost of a three minute

phone call between New York and London fell fromphone call between New York and London fell from$244.65 to $3.32.$244.65 to $3.32.By 1998 it had plunged to just 36 cents for consumers,By 1998 it had plunged to just 36 cents for consumers,and much lower rates were available for businesses.and much lower rates were available for businesses.



Internet and World wide WebInternet and World wide Web

In 1990 fewer than 1 million users were connected to the internet.In 1990 fewer than 1 million users were connected to the internet.By 1995, this had risen to 50 million.By 1995, this had risen to 50 million.In 2004 it grew about 945 million.In 2004 it grew about 945 million.By 2007, the internet have 1.47 billion users or about 25 percent of By 2007, the internet have 1.47 billion users or about 25 percent of world population.world population.In july 1993, some 1.8 million host computers were connected to theIn july 1993, some 1.8 million host computers were connected to theinternetinternetBy January 2005, the number of host computers had increased toBy January 2005, the number of host computers had increased to317 million, and the number is still growing rapidly.317 million, and the number is still growing rapidly.In the united states where internet usage is most advanced, almostIn the united states where internet usage is most advanced, almost60 percent of the population was using the internet by 2003.60 percent of the population was using the internet by 2003.



10 years ago no one would have thought that a small10 years ago no one would have thought that a smallBritish company based in Stafford could have built aBritish company based in Stafford could have built aglobal market for its product by utilizing the internet, butglobal market for its product by utilizing the internet, butthat is exactly what Bridgewater Pottery has done.that is exactly what Bridgewater Pottery has done.

Bridgewater traditionally sold premium pottery throughBridgewater traditionally sold premium pottery throughexclusive distribution channels, but the company found itexclusive distribution channels, but the company found itdifficult and laborious to identify new retail outlets.difficult and laborious to identify new retail outlets.

Since establishing an internet presence in 1997,Since establishing an internet presence in 1997,Bridgewater has conducted a significant amount of Bridgewater has conducted a significant amount of business with consumers in other countries who couldbusiness with consumers in other countries who couldnot be reached through existing distribution channels or not be reached through existing distribution channels or could not be reached cost effectively.could not be reached cost effectively.



Transportation TechnologyTransportation Technology

Commercial jet aircraftCommercial jet aircraft

Super freightersSuper freighters

ContainerizationContainerization

Between 1920 and 1990, the average oceanBetween 1920 and 1990, the average oceanfreight and port charges per ton of U.S. exportfreight and port charges per ton of U.S. exportand import cargo fell from $95 to $29. The costand import cargo fell from $95 to $29. The cost

of shipping freight per ton mile on rail roads inof shipping freight per ton mile on rail roads inthe united states fell from 3.04 cents in 1985 tothe united states fell from 3.04 cents in 1985 to2.3 cents in 20002.3 cents in 2000



The changing World Output andThe changing World Output and

World Trade PictureWorld Trade PictureCountryCountry Share of world OutputShare of world Output

19631963

Share of WorldShare of World

Output 2004Output 2004

Share of WorldShare of World

Exports 2004Exports 2004

United StatesUnited States 40.3%40.3% 20.9%20.9% 10.4%10.4%

GermanyGermany 9.79.7 4.34.3 9.59.5

FranceFrance 6.36.3 3.13.1 4.84.8

United KingdomUnited Kingdom 6.56.5 3.13.1 4.74.7

JapanJapan 5.55.5 6.96.9 5.75.7

ItalyItaly 3.43.4 2.92.9 3.83.8

CanadaCanada 3.03.0 3.53.5 3.43.4

ChinaChina NANA 13.213.2 5.95.9



The Changing Foreign DirectThe Changing Foreign Direct

Investment PictureInvestment PictureDominance of The United States in the globalDominance of The United States in the globaleconomyeconomy

66.3 % of world wide foreign investment in year 66.3 % of world wide foreign investment in year

1960s1960sBritish firms were second with 10.5 percentBritish firms were second with 10.5 percentshareshare

Japanese were eight with 2 % share onlyJapanese were eight with 2 % share only

In 1980s and 1990s Japanese invested in NorthIn 1980s and 1990s Japanese invested in NorthAmerica and EuropeAmerica and Europe

Rapidly increase investment in ToyotaRapidly increase investment in Toyota



In 2000s, investment by developingIn 2000s, investment by developingnationsnations ±± averaging about $200 billionaveraging about $200 billionannuallyannually ±±China has taken first placeChina has taken first place



Changing nature of MultinationalChanging nature of Multinational

EnterprisesEnterprisesSince 1960s, two notable trends in theSince 1960s, two notable trends in thedemographics of the multinationaldemographics of the multinationalenterprises have been:enterprises have been:

1. The rise of non1. The rise of non--US multinationalsUS multinationals

2.The growth of mini multinationals2.The growth of mini multinationals



NonNon--U.S. MultinationalsU.S. Multinationals

In year 1960s U.S. Multinationals wereIn year 1960s U.S. Multinationals weredominated with two third share of FDIdominated with two third share of FDI

48.5 % of World¶s 260 largest multinationals48.5 % of World¶s 260 largest multinationals

Second largest source was UK with 18.8 %Second largest source was UK with 18.8 %

By 2002, U.S. firms accounted for 28% of theBy 2002, U.S. firms accounted for 28% of theworld¶s 100 largest multinationalsworld¶s 100 largest multinationals

France 14 %France 14 %Germany 13%Germany 13%

Britain 12%Britain 12%



In the early 2000s, the largest 50In the early 2000s, the largest 50multinationals from developing economiesmultinationals from developing economieshad foreign sales of $103 billion out of had foreign sales of $103 billion out of

total sales of $453 billion and employedtotal sales of $453 billion and employed483,129 people outside of their home483,129 people outside of their homecountriescountries

Some 22 % of these companies were fromSome 22 % of these companies were fromHong Kong, 16.7 % from Korea, 8.8 %Hong Kong, 16.7 % from Korea, 8.8 %from China and 7.6 % from Brazilfrom China and 7.6 % from Brazil



The Rise of MiniThe Rise of Mini--NationalsNationals

WhenWhen peoplepeople thinkthink of of internationalinternational business,business, theythey tendtend totothinkthink of of Exxon,Exxon, GeneralGeneral Motors,Motors, Ford,Ford, Fuji,Fuji, Kodak,Kodak,Matsushita,Matsushita, Procter Procter && Gamble,Gamble, SonySony andand Unilever Unilever

Consider Consider LubricatingLubricating systems,systems, IncInc..,, of of Kent,Kent, WashingtonWashington..

ThisThis manufacturesmanufactures lubricatinglubricating fluidsfluids for for machinemachine tools,tools,employsemploys 2525 peoplepeople andand generatesgenerates salessales of of $$66..55 millionmillion..MoreMore thanthan $$22 millionmillion salessales areare generatedgenerated byby exportsexports toto aascorescore of of countries,countries, includingincluding Japan,Japan, Israel,Israel, andand thetheUnitedUnited ArabArab EmiratesEmirates.. LubricatingLubricating systemsystem alsoalso hashas setset

upup aa jointjoint ventureventure withwith aa GermanyGermany companycompany toto serveserve thetheEuropeanEuropean marketmarket..



Consider Consider alsoalso Lixi,Lixi, IncInc..,, aa smallsmall UU..SS..manufacturer manufacturer of of industrialindustrial XX-- rayray equipmentequipment ,, 7070%% of of LixiLixi $$44..55 millionmillion inin revenuesrevenues comescomes fromfrom

exportsexports toto JapanJapan..TakeTake GG..WW..Barth,Barth, aa manufacturer manufacturer of of cocoacocoa beanbeanroastingroasting machinerymachinery basedbased inin Ludwigsburg,Ludwigsburg,GermanyGermany.. EmployingEmploying justjust 6565 people,people, thisthis smallsmall

companycompany hashas capturedcaptured 7070 %% of of thethe globalglobalmarketmarket for for cocoacocoa beanbean roastingroasting machinesmachines..

globalization drivers 1

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