BUSN 361International Business

Dr. Kokila DoshiProfessor of Economics

Chapter 1Learning Objectives What is meant by globalization?

Globalization of markets Globalization of production

Are the tastes & preferences converging?

Factors affecting globalization Transportation costs Technology- Innovations & information

technology Tariffs

Learning Objectives

Is globalization good? Pros & cons

Relate the topics to companies, current trends or countries

International Business, Charles W.L. Hill Chapter 1

What are the differences between internationalbusiness and domestic business?

1. Countries are different

2. Problems faced by a manager are more complex and wider in range

3. More countries, more rules, more competition

4. Fluctuations in currency values

5. International business operates within the limits of government regulations of international trade and investment

What is globalization?

Globalization refers to the shift toward a more

integrated and interdependent economy. It has

two components:

1. Globalization of Market

2. Globalization of Production

Globalization of Markets

Globalization of markets refers to the merging of distinct and separate national markets into a hugeglobal marketplace.

1. Markets for Consumer GoodsLevi’s, McDonald’s, Nike Converging tastes and preferences?

2. Market for Industrial GoodsAluminum, Computer Memory Chips, Oil

3. Market for Financial AssetsEurobonds, U.S. Treasury Bills

Globalization of Production

Globalization of production refers to the tendency among firms to source goods and services from locations around the globe to take advantage of national differences in costs and quality of factors of production.

Example: Honda, Boeing Aircraft Boeing aircraft has 132,500 parts and 545 suppliers from countries like Italy, Japan, Singapore

Even small companies are globalizing their production.

Example: Swan Optical

Drivers of Globalization

1. Declining Barriers to International Trade and Investment

2. Technology Change

Declining Trade Barriers

(A) TariffsTariff rates since 1950 have gone down significantly. GATT and WTO have played an important role in helping countries liberalize their trade and reduce trade barriers.

Example: Avg. Tariff Rates in 1950 Germany-26%Italy-25%Britain-23%U.S.A.-14%

If GATT agreements are fully implemented, average tariff rates in these countries will be reduced to 3.9% (2000).

(B) Liberalization and DeregulationMany countries have relaxed regulation controlling the inflow of FDI.

Technological Change

Transportation Technology and Shrinking Globe

Information Technology

Technological change has helped both globalization of markets and globalization of production

Changing Global Economy Declining share of U. S. in FDI

1980-44%1996-25%

Increasing share of FDI received by developing countries1991-$42 billion (26%)1997-$149 billion (37%)China alone received $45 billion

Changing nature of MultinationalsRise in non-U.S. multinationalsGrowth of mini-multinationals1973: of 260 multinationals, U.S. (48.5%)

Japan (3.5%)1997: of 500 multinationals, U.S. (32.4%)

Japan (25.2%)