Mba1014 global economic environment 200413
•Télécharger en tant que PPT, PDF•
1 j'aime•534 vues
Globalisation and economic environment
Recommandé
Recommandé
Contenu connexe
Tendances
Tendances (17)
En vedette
En vedette (12)
Similaire à Mba1014 global economic environment 200413
Similaire à Mba1014 global economic environment 200413 (20)
Plus de Stephen Ong
Plus de Stephen Ong (20)
Dernier
Dernier (20)
Mba1014 global economic environment 200413
- 1. Go Global !Go Global ! Managerial Economics :Managerial Economics : The Global EconomicThe Global Economic EnvironmentEnvironment By Stephen OngStephen Ong Visiting Fellow, Birmingham City UniversityVisiting Fellow, Birmingham City University Visiting Professor, College of Management,Visiting Professor, College of Management, Shenzhen UniversityShenzhen University April 2013April 2013
- 2. Learning Objectives • To define globalisation and show how businesses are affected • To discuss globalisation’s future and the major criticisms of globalisation • To understand why companies engage in global business • To become familiar with different ways in which a company can accomplish its global objectives given the external environment
- 3. AgendaAgenda 1. The Global Economy 2. Understanding Globalisation 3. Global institutions 4. Global drivers 5. The Globalisation Debate 6. Companies & Globalisation
- 4. IntroductionIntroduction Globalization is the ongoing process that deepens and broadens the relationships and interdependence among countries
- 5. Introduction
- 6. 6 1. Global Economy1. Global Economy (2008 estimates CIA yearbook, World Bank) Country GDP($B) Population (m) Agriculture Industry Services (%GDP) USA 14330 301.6 1% 20% 79% EU 18850 324 2% 27% 71% Japan 4844 127.7 2% 25% 73% Brazil 1665 191.6 8% 38% 54% Russia 1757 142.1 5% 37% 58% India 1237 1124.7 20% 19% 61% China 4222 1318.3 12% 48% 40% Hong Kong 223 6.9 0% 9% 91% Taiwan 401 23 2% 25% 73% Singapore 154 4.5 0% 34% 66% Malaysia 214 26.5 8% 48% 44% Indonesia 510 225.6 13% 46% 41% Iran 382 71 11% 42% 47% Botswana 13 1.8 2% 47% 51%
- 7. 1.1 World economic order 2040
- 8. 1.2 Developed Economies GDP
- 9. 1.3 Emerging Economies1.3 Emerging Economies
- 10. 1.4 reEmerging Economies1.4 reEmerging Economies
- 12. 1.5 Why Latin America ?
- 13. 1.6 World exports 20051.6 World exports 2005
- 14. 1.7 Inflation & deflation
- 15. 1.8 Energy Use 2005
- 16. 1.9 Emerging economies & FDI1.9 Emerging economies & FDI
- 17. 1.10 BigMac PPP Index
- 18. 1.11 Car Ownership1.11 Car Ownership
- 21. 1.14 Production costs1.14 Production costs
- 22. 1.15 Global Business Hubs
- 23. 1.16 Forces Driving Globalization 1. Increase in and application of technology 2. Liberalization of cross-border trade and resource movements 3. Development of services that support international business 4. Growing consumer pressures 5. Increased global competition 6. Changing political situations 7. Expanded cross-national cooperation
- 24. 2. What is Globalization? • The shift towards a moreThe shift towards a more integrated an interdependentintegrated an interdependent world economyworld economy • Two components:Two components: 1.1.globalization of marketsglobalization of markets 2.2.globalization of productionglobalization of production
- 25. 2.1 Globalization of Markets The merging of distinctly separate national markets into a global marketplace – Consumer tastes and preferences are converging into a global norm – Firms that offer standardized products worldwide help create a global market
- 26. 2.2 Globalization of Consumer Markets? Significant differences still exist between national markets on many relevant dimensions: Consumer tastes, preferences and values Distribution channels and legal regulations Business systems These differences require that product features, marketing and operating strategies be customized (localized) to best match the conditions in a country
- 27. 2.3 Globalization of Markets? • Countries are significantly differentCountries are significantly different • Range of problems are wider andRange of problems are wider and more complexmore complex • Government intervention in tradeGovernment intervention in trade and investment creates problemsand investment creates problems • International investment isInternational investment is impacted by different currenciesimpacted by different currencies
- 28. 2.4 Globalization of Production • The sourcing of goods and servicesThe sourcing of goods and services from locations around the worldfrom locations around the world • Takes advantage of differences in costTakes advantage of differences in cost or quality of the factors of productionor quality of the factors of production LabourLabour LandLand EnergyEnergy CapitalCapital
- 29. 2.5 Impediments to Global Production • Formal and informal trade barriers • Restrictions on foreign direct investment • Transportation costs • Economic and political risk
- 30. 2.5 Globalization of Services • Historically, this has been primarilyHistorically, this has been primarily confined to manufacturingconfined to manufacturing enterprisesenterprises • Increasingly, firms are takingIncreasingly, firms are taking advantage of modernadvantage of modern communications technology and thecommunications technology and the Internet to outsource serviceInternet to outsource service activities to low-cost producers inactivities to low-cost producers in other nationsother nations • Trade in services currently accountsTrade in services currently accounts
- 31. 3. Emergence of Global Institutions Globalization creates the need for institutions to help manage, regulate and police the global marketplace – GATT – WTO – IMF – World Bank – United Nations
- 32. 3.1 General Agreement on Tariffs & Trade • GATT was established to: police the world trading system remove barriers to the free flow of trade, services and capital between nations • Uruguay round created the World Trade Organization
- 33. 3.2 World Trade Organization • 150 member nations (97% of world trade) • assumed prior GATT agreements and extended GATT to include services and intellectual property (TRIPS) • promotes lower trade and investment barriers
- 34. 3.3 IMF and World Bank International Monetary Fund (IMF)International Monetary Fund (IMF) and the World Bank were created inand the World Bank were created in 1944 by 44 nations that met at1944 by 44 nations that met at Bretton Woods, New HampshireBretton Woods, New Hampshire IMF was created to maintain orderIMF was created to maintain order in the international monetary systemin the international monetary system World Bank was created to promoteWorld Bank was created to promote economic development through low-economic development through low- interest loansinterest loans
- 35. 3.4 United Nations • Established in 1945 by 51 nations committed to preserving peace through international cooperation and collective security • Membership is now at 191 countries • Four main purposes Maintain international peace and security Develop friendly relations among nations Cooperate in solving international problems and in promoting respect for human rights Serve as a centre for harmonizing the actions of nations
- 36. 4. Global Drivers Two macro factors underlie the trend towards greater globalization 1.Decline in trade and investment barriers 2.Technological change
- 37. 4.1 Global Drivers of Globalization – Decline in Trade and Investment Barriers
- 38. 4.1.1 World Exports4.1.1 World Exports Germany United States China Japan France Netherlands United Kingdom Italy 0 2 4 6 8 10 12 9.20 8.59 8.02 5.38 4.06 3.83 3.71 3.40 Source: World Trade Organization Percentage Share of World Exports, Selected Nations, 2007
- 39. 4.1.2 Average Tariff Rates
- 40. 4.1.3 Average Tariff Rates on Manufactured Products as Percent of Value
- 41. 4.1.2 Foreign Direct Investment Firms investing in resources in business activities outside its home country
- 42. 4.1.3 Fewer FDI Restrictions Nations recognize the increasing importance of FDI Between 1992 and 2005 2,226 changes worldwide in laws governing FDI 94% created a more favorable investment climate As of 2005 2,495 bilateral FDI treaties involved 160 nations twelvefold increase from 181 treaties in 1980
- 43. 4.1.4 Decline in Trade and Investment Barriers Resulting in: volume of world trade has grown faster than the world economy flow of FDI has grown faster than the growth in world trade and world output
- 44. 4.1.5 Volume of World Trade and Production 1950-2002
- 45. 4.1.6 Growth of World Trade, Production & FDI 1992-2004
- 46. 4.1.7 Decline in Trade and Investment Barriers Globalization of markets and production and the integration of the world economy has resulted in the increasing: – attacks by foreign competitors in domestic markets – overall intensity of competition
- 47. Measuring GlobalizationMeasuring Globalization Globalization can be difficult toGlobalization can be difficult to measuremeasure The A.T. Kearney/Foreign PolicyThe A.T. Kearney/Foreign Policy Globalization Index ranks countriesGlobalization Index ranks countries byby – Economic dimensionsEconomic dimensions – Technological dimensionsTechnological dimensions – Personal contactPersonal contact – Political dimensionsPolitical dimensions recently ranked Singapore and Hongrecently ranked Singapore and Hong Kong as most globalizedKong as most globalized
- 48. 4.1.8 Openness = Trade / GDP4.1.8 Openness = Trade / GDP
- 49. 4.2 Global Drivers of GlobalizationGlobal Drivers of Globalization –– Technological ChangeTechnological Change
- 50. 50
- 51. 4.2.1 Global Drivers of Globalization - Technological Change 1. Microprocessors and Telecommunications - lower the real costs in information processing and communication and facilitate global dispersion 1. Transportation Technology - lower costs & transit times due to containerization 2. Internet and World Wide Web - information backbone of the global economy 1. Production, Packaging and distribution processes - Machines have increased speed, reliability, energy efficiency, product shelf life
- 52. 4.2.2 Implications of Technological Change • Lower costs of transportation and information processing has facilitated the dispersion of production to geographically separate locations and the growth in international trade in services • Technological innovations have facilitated the globalization of markets
- 53. 4.2.3 Global Drivers of Globalization A Word of Caution One must not overemphasize theseOne must not overemphasize these trends!trends! • Communication and transportationCommunication and transportation technologies are creating a “globaltechnologies are creating a “global village”village” • But significant national differencesBut significant national differences remain in culture, consumerremain in culture, consumer preferences and business practicespreferences and business practices
- 54. 4.3 Changing Demographics of the Global Economy As late as the 1960’s • US dominated the world economy and trade • US dominated the global foreign direct investment • Large, US multinationals dominated the scene • Half the globe was Communist World and off limits
- 55. 4.3.1 Changing Demographics of the Global Economy US is a smaller player in the global economy as a producer and exporter source of and recipient of FDI A similar trend occurred in other developed countries The share of world output accounted for by developing nations is rising and is expected to exceed more than 60% of world economic activity by 2020
- 56. 4.4 Changing Pattern of World Output and Trade
- 57. 4.5 Percentage Share of Total FDI Stock 1980-2005
- 59. 4.7 Changing Demographics of the Global Economy Changing nature of multinationals – Mini-multinationals grow in importance – Non-US multinationals play greater role
- 60. 4.8 Changing Demographics of the Global Economy • Collapse of the USSR andCollapse of the USSR and Communist nationsCommunist nations • Emergence of “BRIC’s”Emergence of “BRIC’s” BrazilBrazil RussiaRussia IndiaIndia ChinaChina
- 61. 4.9 Global Economy of the 21st Century? • Recently, we have seen the : changing demographics of the global economy removal of trade and investment barriers • Resulting in national economies integrating into a more interdependent, global economy • However, it is hazardous to use current trends to predict the future • The world may be moving towards aThe world may be moving towards a more global economic system, butmore global economic system, but globalization in not inevitableglobalization in not inevitable
- 62. 5. The Globalization Debate Is the shift toward a more integrated and interdependent global economy a good thing?
- 63. 5.1 Globalization Debate: The Pro’s • Improves the efficiency of production • Lowers the prices for goods and services • Stimulates economic growth and job creation • Raises consumer income and prosperity levels • Rising income levels lead to demands for greater environmental protection (Grossman & Kruger)
- 64. 5.1.1 Environmental Pollution and Income Levels Fig 1.6
- 65. 5.2 Globalization Debate: The Con’s Limits national sovereignty Facilitates cultural imperialism Destroys manufacturing jobs in wealthy countries Lowers wage rates of unskilled workers in wealthy, advanced countries Shifts manufacturing to countries with fewer labor and environmental regulations
- 66. Costs of GlobalizationCosts of Globalization • Threats to national sovereigntyThreats to national sovereignty – lose freedom to “act locally”lose freedom to “act locally” • Economic growth and environmentalEconomic growth and environmental stressstress – growth consumes nonrenewable naturalgrowth consumes nonrenewable natural resources and increases environmentalresources and increases environmental damagedamage • Growing income inequality andGrowing income inequality and personal stresspersonal stress – promotes global superstars at thepromotes global superstars at the expense of othersexpense of others
- 67. Costs of GlobalizationCosts of Globalization Offshoring involves the transferring of production abroad – it can be beneficial because it reduces costs – but, it also means that jobs move abroad Yet, offshoring may also create new, better jobs at home
- 68. 5.3 Globalization and the World’s Poor Critics argue thatCritics argue that globalization has not helpedglobalization has not helped poorpoor 1870: per capita income of 17 richest nations was 2.4x that of all other countries 1990: it was 4.5x larger Other factors may have influenced the gap Totalitarian governments Economic policies that destroyed wealth creation Corruption little protection of property rights Expanding populations Civil unrest and war
- 69. 5.4 Pressures for Localization Non-Tariff Barriers Cultural Differences Consumer Preferences Differences in Infrastructure Dynamic Distribution Channels
- 70. 5.5 Forces Against Globalization Nationalism and Regional Separatism Cultural Identity and Economic Sovereignty Limited Natural Resources Human and Labor Rights IMF Reformers and Debt Relief Environmental NGO’s and Anti-Globalization
- 71. 5.6 Recent WTO Major Setbacks ““ Battle in Seattle”Battle in Seattle” Doha Trade RoundDoha Trade Round CollapseCollapse
- 72. 5.7 Management Challenges in the Global Marketplace Nations have profound and enduring differences in: – cultures, – political systems, – economic systems, – legal systems and – levels of economic development Requiring firms to vary practices across nations
- 73. 5.8 Management Challenges in the Global Marketplace Range of problems confronted in an international business is wider and the problems more complex than those in a domestic business Firms have to find ways to work within the limits imposed by government intervention in the international trade and investment system International business transactions involve converting money into different currencies
- 74. 6. Companies & Globalisation6. Companies & Globalisation To expand salesTo expand sales – pursuing international sales increases the potential market and potential profits To acquire resourcesTo acquire resources – may give companies lower costs, new and better products, and additional operating knowledge To diversify or reduce risksTo diversify or reduce risks – international operations may reduce operating risk by smoothing sales and profits, preventing competitors from gaining advantage
- 75. Global External EnvironmentGlobal External Environment AnalysisAnalysis The external environment affects a company’s international operations Managers must understand social science disciplines and how they affect functional business fields Consider –physical factorsphysical factors –social factorssocial factors –competitive factorscompetitive factors
- 76. Physical and Social FactorsPhysical and Social Factors Geographic influences – natural conditions influence production locations Political policies – determines where and how business occurs Legal policies – influence how a company operates Behavioural factors – may require changes in operations Economic forces – explain differences in costs, currency values, market size
- 77. The Competitive EnvironmentThe Competitive Environment Competitive strategy for products – Cost strategy – Differentiation strategy – Focus strategy Company resources and experience – market leaders have more resources for international operations Competitors faced in each market – local or international
- 78. The Competitive EnvironmentThe Competitive Environment So, a company’s competitive strategy influences how and where it can best operate Its competitive situation may differ from country to country in terms of its relative strength and which competitors it faces
- 79. Looking to the FutureLooking to the FutureThree major perspectives on the future of international business and globalization 1.1. Further globalization is inevitableFurther globalization is inevitable 2.2. International business will growInternational business will grow primarily along regional ratherprimarily along regional rather than global linesthan global lines 3.3. Forces working against furtherForces working against further globalization and internationalglobalization and international business will slow down bothbusiness will slow down both trendstrends
- 80. Casestudy :Casestudy : The Global Pharmaceutical industryThe Global Pharmaceutical industry 1.1. Read and prepare theRead and prepare the Casestudy on The GlobalCasestudy on The Global Pharmaceutical IndustryPharmaceutical Industry (Johnson, Whittington &(Johnson, Whittington & Scholes (2011)) forScholes (2011)) for discussion anddiscussion and presentation next week.presentation next week. 2.2. Identify and evaluate theIdentify and evaluate the challenges facing globalchallenges facing global pharmaceutical firms thepharmaceutical firms the External Environment andExternal Environment and Industry analysis –Industry analysis – PESTEL and Five Forces.PESTEL and Five Forces.
- 81. ConclusionConclusion ►““A powerful force drives the worldA powerful force drives the world toward a converging commonality,toward a converging commonality, and that force is technology. Theand that force is technology. The result is a new commercial realityresult is a new commercial reality – the emergence of global markets– the emergence of global markets for standardized consumerfor standardized consumer products on a previouslyproducts on a previously unimagined scale of magnitude.”unimagined scale of magnitude.” Theodore Levitt
- 82. Core ReadingCore Reading • Keat, Paul G. and Young, Philip KY (2009) Managerial Economics, 6th edition, Pearson • Samuelson, William F. and Marks, Stephen G. (2010) Managerial Economics, 6th edition, John Wiley • Pindyck, Robert S. and Rubinfeld, Daniel L.(2013) Microeconomics, 8th edition, Pearson • Johnson, Gerry, Whittington, Richard & Scholes, Kevan (2011) Exploring Strategy, 9th edition, FT Prentice Hall/Pearson UK. • Porter, M.E., (2008). On Competition, Harvard Business Press.
- 84. Evaluating a Firm’sEvaluating a Firm’s External EnvironmentExternal Environment Appendix I :Appendix I : Case Analysis MethodsCase Analysis Methods
- 85. Why External Analysis? External analysis allows firms to: • discover threats and opportunities • see if above normal profits are likely in an industry • better understand the nature of competition in an industry • make more informed strategic choices
- 86. FirmFirm BuyersBuyers SuppliersSuppliers EntryEntry RivalryRivalry SubstitutesSubstitutes ComplementorsComplementors Technological Trends Ecological/ EthicsEcological/ Ethics Change Socio-Cultural/Socio-Cultural/ DemographicDemographic TrendsEconomicEconomic Climate PoliticalPolitical Conditions Legal/Regulatory/ Globalisation IndustryIndustry General External EnvironmentGeneral External Environment
- 87. PESTEL Local FactorsPESTEL Local Factors
- 88. PESTEL Global FactorsPESTEL Global Factors
- 89. Industry Analysis :Industry Analysis : Porter’s 5+1 ForcesPorter’s 5+1 Forces ModelModel
- 90. Porter’s Five Forces Model 1. Threat of Entry1. Threat of Entry • if firms can easily enter the industry, any above normal profits will be bid away quickly • barriers to entry lower the threat of entry • barriers to entry make an industry more attractive • this is true whether the focal firm is already in the industry or thinking about entering
- 91. Porter’s Five Forces Model 1. Threat of Entry1. Threat of Entry Barriers to Entry: • economies of scale—firm that can’t produce the minimum efficient scale will be at a disadvantage • product differentiation—entrants are forced to overcome customer loyalties to existing products • cost advantages independent of scale—incumbents may have learning advantages, etc. • government policies—governments may impose trade restrictions and/or grant monopolies
- 92. Economies of Scale and the Cost of Production
- 93. Porter’s Five Forces Model 2. Threat of Rivalry2. Threat of Rivalry • high rivalry means firms compete vigorously—and compete away above average profits Industry conditions that facilitate rivalry: • large numbers of competitors • slow or declining growth • high fixed costs and/or high storage costs • low product differentiation • industry capacity added in large increments
- 94. Porter’s Five Forces Model 3. Threat of Substitutes3. Threat of Substitutes • substitutes fill the same need but in a different way - Coke and Pepsi are rivals, milk is a substitute for both • substitutes create a price ceiling because consumers switch to the substitute if prices rise • substitutes will likely come from outside the industry—be sure to look
- 95. Porter’s Five Forces Model 4. Threat of Powerful Suppliers • powerful suppliers can ‘squeeze’ (lower profits) the focal firm Industry conditions that facilitate supplier power: • small number of firms in supplier’s industry • highly differentiated product • lack of close substitutes for suppliers’ products • supplier could integrate forward • focal firm is an insignificant customer of supplier
- 96. Porter’s Five Forces Model 5. Threat of Powerful Buyers • powerful buyers can ‘squeeze’ (lower profits) the focal firm by demanding lower prices and/or higher levels of quality and service Industry conditions that facilitate buyer power: • small number of buyers for focal firm’s output • lack of a differentiated product • the product is significant to the buyer
- 97. Porter’s Five Forces Model 5. Threat of Powerful Buyers5. Threat of Powerful Buyers Industry conditions that facilitate buyer power: • buyers operate in a competitive market—they are not earning above normal profits • buyers can vertically integrate backwards • many small buyers can be united around an issue to act as a block Example: Monsanto’s Life Sciences Strategy
- 98. 6. Other Stakeholders :6. Other Stakeholders : Complementors As Another ForceComplementors As Another Force Complementors Increase the Value of the Firm’s Product • customers perceive more value in the focal firm’s product when it is combined with the complementor’s product • complementors may be found outside the focal firm’s industry Example: Goodyear Tires on Corvette
- 99. ReferencesReferences • Johnson, Gerry, Whittington, Richard & Scholes, Kevan (2011) Exploring Strategy, 9th edition, FT Prentice Hall/Pearson UK. • Barney, J.B. & Hesterley,W.S.(2012) Strategic Management and Competitive Advantage, 4th edition, Prentice Hall • Wheelen & Hunger (2011) Essentials of Strategic Management, 5th edition, Pearson • Porter, M.E., (2008) On Competition, Harvard Business Press.
Notes de l'éditeur
- What is globalization? Globalization refers to the widening set of interdependent relationships among people from different parts of a world that is divided into nations. The term also refers to the integration of world economies through the reduction of barriers to the movement of trade, capital, technology, and people. Throughout history, human contacts over ever-wider geographic areas have expanded the variety of available resources, products, services, and markets. Today, so many different components, ingredients, and specialized business activities go into products that we ’ re often challenged to say exactly where they were made. For example Apple’s iPhones are shipped from China and seem to be Chinese, yet less than four percent of their value is actually performed in China!
- This Figure shows the complex relationships among conditions and operations that a firm may face when its conducts some of its business internationally. We’ll be referring back to this Figure throughout the chapter.
- You may wonder what has been driving globalization. The answer is many different factors. One factor is technology. In recent years, we’ve seen tremendous advances in technology. The pace of new product development is faster than ever, and many companies are finding that in order to keep up, they need to team up with companies in other countries to gain financial resources or specialized capabilities. Firms are also finding that to justify their investments in new product development, they need to expand their sales to other markets. Another factor driving globalization is the liberalization of cross-border trade. Today, most governments have reduced restrictions on cross-border trade giving their citizens access to a greater variety of goods and services at lower prices. Increased competition from foreign companies also encourages domestic producers to become more efficient. Governments hope that by opening their countries to trade, other countries will also lower trade barriers. The development of new services that facilitate international business transactions have also increased further driving globalization. In addition, today’s consumers are more informed about foreign products and services and are better able to afford more luxury items. Moreover, more consumers are able to comparison shop to find better deals worldwide. Companies look for growing markets where consumer pressures are highest such as China. Intense global competition is also driving globalization. Today, companies continually look abroad to increase market share and reduce costs in order to better compete with other firms. Expansion abroad can take many forms: so-called born-global companies start out with a global focus because of their founders ’ international experience and because advances in communications give them a good idea of where global markets and suppliers are. Related to this, many new companies locate in areas where there are many competitors and suppliers — a situation known as clustering — which helps them to become quickly aware of foreign opportunities. Finally, changing political situations and increased cross-national cooperation have allowed international business to flourish. Countries of different political systems are more open than before to conducting international trade with each other. Governments are spending more resources on the improvement of infrastructure facilitating the transport of goods and resources. Furthermore, governments have realized the benefits of international cooperation. In particular, governments engage in international cooperation in order to gain reciprocal advantages, to attack problems jointly that one country acting alone cannot solve, and to deal with areas of concern that lie outside the territory of any nation.
- How can we measure globalization? Well, it’s not easy. In general, we know that globalization has been increasing at least since the mid-1900s. Indeed, at the moment, more than 20 percent of world production is sold outside of its country of origin as compared to just seven percent in 1950. However, much of the world is still relatively isolated. One of the most comprehensive efforts to explore levels of globalization is the A.T. Kearney/Foreign Policy Index which ranks countries across four dimensions: economic, technological, personal contact, and political dimensions. Interestingly, the Index shows that a country can rank quite high on one dimension, but much lower on another. For example, the United States ranks high on the technological dimension, but much lower on the economic dimension. In contrast, Singapore and Hong Kong have ranked as the most globalized across all dimensions, while India and Iran are at the bottom of the list.
- While there are many benefits to globalization, it remains controversial. Antiglobalization protests have become common at international conferences, and the reaction to government policies is sometimes violent. Three issues are of particular concern. First, the threat the globalization poses to national sovereignty. According to critics, globalization undermines the ability of a country to act in its own best interests and can make smaller economies overly dependent on larger ones. Moreover, critics contend that even a country’s cultural sovereignty is threatened as products, companies, work methods, social structures and language are homogenized as a result of globalization. A second concern is the effect of globalization on economic growth and the environment. Because globalization brings growth, more nonrenewable natural resources are consumed and damage to the environment increases. You might think of despoliation through toxic and pesticide runoffs into rivers and oceans, air pollution from factory and vehicle emissions, and deforestation that can affect weather and climate for example. However, others argue that global cooperation actually fosters superior and uniform standards for combating environmental problems, and that companies are encouraged to seek resource-saving and environmentally friendly technologies. Finally, critics are concerned about the effect of globalization on income equality and personal stress. According to critics the income inequality that is present in many countries today is a result of the global superstar system that has emerged as a consequence of globalization. Critics contend that globalization has facilitated access to a greater supply of low-skilled and low-cost labor and encouraged competition that leads to winners and losers. There is also some evidence that the growth in globalization goes hand in hand not only with increased insecurity about job and social status, but also with costly social unrest.
- Critics of globalization also worry that the practice of offshoring is shifting too many jobs abroad. But keep in mind, that the practice allows companies to keep costs down, and can actually help create high value jobs at home. IBM’s offshoring strategy for example, allows the company to not only save money and boost sales, but also to create new jobs.
- Why should companies engage in international business? A general answer is that going in international can help firms create value. More specifically, going global can help firms expand sales, acquire resources, and diversify or even reduce risks.
- Companies involved in international business need to explore how the external environment will affect their operations. In particular, it’s important for managers to understand the social science disciplines and how they affect all functional business fields.
- We can organize physical and social factors into four groups. The first is geographic influences or how natural conditions influence the choice of production locations. The second group is political policies which impacts how, and even if, business takes place within a country. Related to this are legal policies. Firms must follow the laws in each country. The fourth group, behavioral factors, may also force a company to alter its operations to better fit with local cultural norms and values. Finally, economic forces affect costs, currency values, market size, and so on. Together, these factors influence how companies produce and market their products, how they staff their operations, and so on. Keep in mind that the factors may require a company to use a different method of operation internationally than is used domestically.
- Managers also need to understand how the competitive environment will affect their operations. A company’s competitive strategy - low cost, differentiation, or focus - will influence its international strategy, as will its resources and experience. Companies with greater resources and experience will have more opportunities open to them than companies with more limited resources or experience. Finally, the competitors a firm faces in each market will dictate to some degree a company’s international strategy.
- In summary, a firm’s competitive strategy influences how and where it operates. Firms might find that their competitive situation differs from market to market.
- What is the future of international business and globalization? Well, there are three different perspectives on what the future might hold. Some believe that future globalization is inevitable. Those taking this perspective note that advances in transportation and communications are so pervasive that consumers everywhere will demand the best products for the best prices regardless of their origins. Moreover because MNEs have so many international production and distribution networks in place, they ’ ll pressure their governments to place fewer rather than more restrictions on the international movement of goods and the means of producing them. The largest challenge to overcome in this scenario will be figuring out how to spread the benefits of globalization equitably while minimizing the hardships placed on individuals and companies affected by increased international competition. Others however, think that in the future international business will grow more along regional rather than along global lines. This argument is based on studies that indicate that companies tend to conduct international business in neighboring countries. It’s logical that when companies first engage in international business, they expand into neighboring countries first and continue outwardly from there. This helps reduce transportation costs and companies can benefit from regional trade agreements that reduce barriers. Still others feel that the pace of both globalization and international business will slow down. Recall that a ntiglobalization sentiments have surfaced over the years, protesting against some of the negative effects of international business activity. This sentiment together with economic recession, growing political instability, and rising fuel costs among other things, threatens to slow international business growth.