1. The definition of globalization involves: the integration of world economies the integration of world markets a way to expand the degree and form of cross-border transactions between people, assets and goods and services growth in direct foreign investment a shift towards economic interdependence to create one world economy or economic system
2. the importance of globalization
Removal of trade barriers benefits all countries
Domestic countries benefit by exporting goods (grows economy in order to buy imported goods)
Foreign countries benefit by exporting goods (grows economy in order to buy imported goods)
3. The factors
Obtain needed resources
Achieve sales growth
To compete with competition
A shift towards democracy
A reduction in trade barriers
An improvement in technology
4. Forms of global business include: establishing subsidiaries exporting and importing outsourcing licensing and franchising direct investment in foreign operations joint ventures and strategic alliances mergers and acquisitions
5. The Multinational
e.g. creates employment; provides financial support & global economic development
Brings management expertise
Introduces new technology
& relevant training
Encourages international trade
Unites cultures & nations; brings countries closer together; fosters global cooperation
nationality of the organization is unclear no allegiance to a particular country or location (e.g. Nestle, Coca Cola, McDonalds, Nortel) financial, technological, human…capital are easily transferred between countries.
Mobile profits (back to parent company) ownership & management are international.
Difficult to control and hold accountable firms follow the profits!!
Power held in home country
e.g. R & D investments (decision-making centralized) may do some unethical things in another countries.
6. International trade
The Logic of Trade: encourages nations to specialize in goods/services in which they are most efficient and trade with other countries for goods/services not produced domestically. - Comparative Advantage (David Ricardo)
Mercantilism (1500-1800): encourages trade surpluses where exports of goods or services exceeds imports.
Colonial powers (Britain, France, Spain, Netherlands) conquered countries to gain access to raw materials and markets for finished products
Trade Protectionism: protects domestic economies through import restrictions.
Tariffs – tax placed on goods entering a country
Quotas – limits the amount of imports
Subsidies to domestic industries / firms
What is the problem with mercantilism and trade protectionism?
Increased costs to consumers
Limits competitiveness of domestic firms
Negative impact of tariffs
Impact on exporting country:
Lower production, job losses, economic decline…
Impact on importing country:
Less competition for domestic firms, rising sales, prices, employment, spending, government revenues…
Increased costs to consumers, less spending on other industries, economic decline, costs of imposing + collecting tariffs, possible costs of retaliation and trade wars…
7. PROMOTING INTERNATIONAL TRADE
GATT (1948) [General Agreement on Tariffs and Trade]– 100 countries agreed to reduce tariff levels.
WTO (1995) – took over from GATT, to manage world trade agreements.
IMF – provides short term aid to developing countries.[International Monetary Fund: an international organization that works to balance and manage the world's economy and to help countries with weak economies to develop]
World Bank – seeks to provide long-term loans for development.
8. Regional Economic Integration - Trading Blocs
1. Free Trade Area – removing subsidies & quotas for member countries but autonomy in selecting trade agreements with non-members. e.g. NAFTA, APEC
2. Customs Union – FTA but less freedom about interacting with non-members i.e. common policy e.g. Mercosur