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What is globalization? Globalization refers to the shift toward a more integrated and interdependent world economy Globalization involves the integration

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What is globalization?

Globalization refers to the shift toward a more integrated and interdependent world economy

Globalization involves the integration of technology, markets, politics, cultures, labor, production, and commerce. Globalization is both the process and the result of this integration.

Our focus at this stage…

We are concerned with globalization as the expansion of international trade to a point where national markets have been overtaken by regional trade blocs, leading eventually to a global marketplace.

Globalization has 2 main components: Globalization of markets: the merging of

historically distinct and separate national markets into 1 huge global marketplace lead to creating of global products e.g. McDonald’s , Coca-Cola, Starbucks, etc.

Globalization of production: the sourcing of goods and services from locations around the globe to take advantage of national differences in cost and quality of factors of production e.g. customer service call center in India for US firms

Drivers of Globalization = ?

Drivers of Globalization

Decline trade and investment barriers

Technological changes

What is MNE(or MNC)?

Multinational enterprises (MNEs) are corporations that “own or control production or service facilities outside the country in which they are based.”

MNEs also are referred to as global, transnational, and international companies.

Multinational corporation A multinational corporation (MNC) or

transnational corporation (TNC), also called multinational enterprise (MNE), is a corporation or enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation.

http://en.wikipedia.org/wiki/Multinational_corporation

Common Characteristics of Multinational Enterprises (MNE) Operating a sales organization,

manufacturing plant, distribution center, licensed business, or subsidiary in at least two countries

Earning an estimated 25 to 45% of revenue from foreign markets

Having common ownership, resources, and global strategies

Figure 7.3: World’s Largest Companies

Source: Fortune.com/Global 500, “World’s largest corporations.” Also reference Hjelt, P. (July 26, 2004). The Fortune Global 500, Fortune, 179.

MNE Benefits for Host Country

Hire local labor Create new jobs Co-venture with local entrepreneurs and

companies Attract local capital to projects Provide for and enhance technology transfer Develop particular industry sectors Provide business learning and skills Increase industrial output and productivity Help decrease the country’s debt and improve

its balance of payments and standard of living

Host Country Benefits for MNE Low costs of production that enable

MNE sell its products in the lower prices and get higher income.

Less stringent laws and regulations in host country compared with the home one and make it more easier to operate.

MNE Perspective on Unethical Practices by Local Government Limit repatriation of MNE assets and earnings. Pressure and require MNEs to buy component

parts and other materials from local suppliers. Require MNEs to use local nationals in upper-

level management positions.  Require MNEs to produce and sell selected

products in order to enter the country. Limit imports and pressure exports.  Require a certain amount or percentage of

profit to remain in or be invested in the country.

Host-country Perspective towards MNE MNEs can dominate and protect their core technology

and research and development, thus keeping the host country a consumer, not a partner or producer. 

MNEs can destabilize national sovereignty by limiting a country’s access to critical capital and resources, thereby creating a host-country dependency on the MNE’s governments and politics. 

MNEs can create a “brain drain” by attracting scientists, expertise, and talent from the host country. 

Host-country Perspective towards MNE (cont) MNEs can create an imbalance of capital

outflows over inflows. 

MNEs can disturb local government economic planning and business practices by exerting control over the development and capitalization of a country’s infrastructure.

MNEs can destroy, pollute, and endanger host-country and LDC environment and the health of local populations.

Dark Sides of Globalization Crime and corruption: Narcotics

trafficking , sex slave business , black market business, and estimated high corruption costs

Economic poverty and child slave labor: Child labor in developing and industrialized countries .African countries are being ignored by globalization and are not in the global economy because of high illiteracy rates, lack of modern infrastructure, and social chaos.

Dark Sides of Globalization The global digital divide: World continues

to have different levels of access to technology, first and third world countries. Technology revolution and the internet integration increased child pornography business.

Westernization (Americanization) of cultures: “McDonaldization” and also education, work, the criminal justice system, health care, travel, leisure, dieting, politics, the family, religion, and every other aspect of society.

Dark Sides of Globalization Loss of Nation-State

Sovereignty: Globalization gradually destroys the ability of governments to protect the interests of their citizens against more powerful multinational

corporations.

MNE Guidelines in dealing with LDCs by

DeGeorge Do no intentional harm Produce more good than harm for the host

country Contribute to the host country’s development Respect human rights, local culture Pay fair share of taxes Cooperate with local government as partners Attend to actions, consequences, and failures

of the firm Maintain high safety standards and controls Protect the natural environment

UN Global Compact

A voluntary corporate citizenship initiative endorsing 10 key principles that focus on four key areas of concern: the environment, anticorruption, the welfare of workers around the world, and global human rights.

Consists of more than 2,000 companies in over 80 countries

UN Global Compact

Human Rights Businesses should support & respect the

protection of internationally proclaimed human right.

Businesses should make sure they are not complicit in human rights abuses.

UN Global Compact

Labor Standards Businesses should uphold the freedom of

association and the effective recognition of the right to collective bargaining.

Businesses should uphold the elimination of all forms of forced & compulsory labor.

Business should uphold the effective abolition of child labor.

Businesses should uphold the elimination of discrimination in employment & occupation.

UN Global Compact

Environment Businesses should support a

precautionary approach to environmental challenges.

Businesses should undertake initiatives to promote greater environmental responsibility.

Business should encourage the development & diffusion of environmentally friendly technologies.

UN Global Compact

Anticorruption Businesses should work against all forms

of corruption, including extortion and bribery.

The OECD Guidelines for Multinational Enterprises Governmental initiative endorsed by 30

members of Organization for Economic Cooperation and Development (OECD) and 9 nonmembers, promoting principles and standards of behavior in the following areas: human rights, information disclosure, anticorruption, taxation, labor relations, environment, competition, and consumer protection.