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Class notes International Strategy

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International strategy notes taken during the lectures

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  • 7. dezember 2021
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Sofie Julia Polman
2641939
Lecture 1: Introduction to international strategy
Globalization
Learning objectives
1. Understand what is meant by the term globalization
2. Recognize the main drivers of globalization
3. Describe the changing nature of the global economy

What is globalization?
 The globalization of markets
Refers to the merging of historically distinct and separate national markets into one huge global marketplace
 Falling barriers to cross-border trade and investment
 Global tastes
 Benefits small and large companies
 Significant differences between national markets!
 Products that serve universal needs are global: oil, paper
 Competitors may not change among nations
o McDonalds competitors in the Netherlands is the same as in the US

 The globalization of production
Sourcing goods to take advantages of differences in cost and quality of factors of production
 Factors of production include labor, energy, land, capital
Early outsourcing was confined to manufacturing
 Modern communications technology has advanced outsourcing today for service activities
Robert Reich and “global products” (Big Mac): produced and marketed the same all around the world.
Impediments (belemmeringen) prevent optimal dispersion of activities:
 Formal and informal barriers to trade
 Barriers to foreign direct investment
 Transportation costs
 Political and economic risk
 Challenge of coordinating globally dispersed supply chain

The emergence of global institutions
Institutions needed help to manage, regulate and police global marketplace
 World Trade Organization
 International Monetary Fund
 The World Bank
 The United Nations
Standards are the guidelines that describes the best way of doing something
 ISO
 Fairtrade
 Sustainable Development goals

Drivers of globalization: decline in trade and investment barriers
1920s and 1930s: many barriers to international trade and foreign direct investment
 International trade: when a firm exports goods or services to consumers in another country
 Foreign direct investment: when a firm invests resources in business activities outside of its home country
Global Agreement on Tariffs and Trades (GATT) lowered barriers: Uruguay Round (1993) extended GATT and
established WTO.
 Between 1960 and 2018 the value of the world economy has increased 9.4 times, while the value of
international goods increased 22.4 times  producing a lot more, but mainly selling and trading more
worldwide
 Trade in goods and services and the value of foreign direct investment have all been growing faster than
world output.
o More firms dispersing production process to different locations around the globe

, Sofie Julia Polman
2641939
o Economies of the world’s nation-states are becoming more intertwined.




Figure 1.1 Value of world merchandised trade and world production 1960 to 2019

Drivers of globalization: role of technological change
Communications
 Development of microprocessor single most important innovation since World War II
 Moore’s Law predicts that the power of microprocessor technology doubles and its cost of production falls in
half every 18 months
 Far easier to communicate with people all around the world
The Internet
 More than half of the world’s population uses the Internet
 Global e-commerce sales over $2.5 trillion
 The Internet acts as an equalizer
Transportation technology
 Commercial jets, super freighters and containerization have all “shrunk the globe”
Implications
 Locating production in geographically separate locations has become more economical
Implications
 Cultural distance has been reduced and has brought some convergence of consumer tastes and preferences

The changing demographics of the global economy
 The changing World Output and World Trade Picture
 1960: US accounted for 38.3 percent of world output
 2018: US accounted for 24 percent of world output
 This reflects the faster the economic growth of several other economies, particularly in China
 China and BRIC countries growing more rapidly
 Developing nations may account for more than 60 percent of world economy activity by 2025

 The changing Foreign Direct Investment Picture
As barriers to the free flow of goods and services fell, non-US firms increasingly invested across national borders
 Desire to disperse production activities to optimal locations and to build a direct presence in major foreign
markets
 Outward stock of foreign direct investment: the total cumulative value of foreign investments by firms
domiciled in nations outside of that nation’s borders

 The changing Nature of the Multinational Enterprise
Multinational enterprise (MNE) is any business that has productive activities in two or more countries.
Non-US multinationals:
 In 2003, 38.8 percent of the world’s 2000 largest multinationals were US firms
 By 2019, 28.8 percent of the top 2000 global firms were US multinationals, a drop of 201 firms

, Sofie Julia Polman
2641939




Figure 1.2 National share of the largest 2000 multinational corporations in 2019

The rise of mini-multinationals
 Growth in the number of medium- and small-sized businesses
 Internet is lowering barriers that smaller firms faced in international trade

 The changing World Order
Former communist countries present export and investment opportunities
 Sings of growing unrest and commitment to market-based economic systems cannot be assumed
 Risk of doing business in these countries are high
China moving to industrial superpower
In Latin America, debt and inflation are down, more private investors, expanding economies.

 Global economy of the Twenty-First Century
 Barriers to the free flow of goods, services and capital have been coming down.
 Strengthened by the widespread adoption of liberal economic policies by countries that has opposed them
 Globalization is not inevitable:
o Countries may pull back
o Risks are high

The globalization debate
Anti-globalization Protests
 Began with 1999 protests at WTO meeting in Seattle
 Protestors now typically show up at major meetings of global institutions
 Protestors believe globalization causes detrimental effects on living standards, wage rates, and the
environment

Lecture 2: Corporate Strategy, an international perspective
International firms face two pressures: cost reduction and local responsiveness




Choosing a strategy

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