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Summary International Business (6012B0427Y)
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International Business CHAPTER 1, 2, 4, 6, 7, 11, 9Week 1
Chapter 1: Globalisation
———————————————————————————————————————————
Globalisation = the shift toward a more integrated and interdependent world economy.
Two kinds:
- Globalisation of markets
= the merging of historically distinct and separate national markets into one huge global
marketplace. The most global markets are not for consumer products, but for industrial goods
and materials. Falling barriers and investments make it easier to sell internationally. Tastes and
preferences of consumers in different nations are beginning yo converge to some global norm,
thereby helping create a global market.
New markets
Many markets are exhibiting greater uniformity
- Globalisation of production
= the sourcing of goods and services from locations around the globe to take advantage of
national differences in the cost and quality of factors of production (such as labour, energy, land,
and capital).
The aim of companies is lower their overall cost structure or improve their quality, thereby
allowing them to compete more effectively.
It is not only the outsourcing of manufacturing activities, but also communication & technology
and health care.
Access to lower cost workers
Access to technical expertise
Access to production inputs
Why has globalisation occurred?
1. Technology:
Microprocessors & telecommunications, internet, and transportation
2. Declining trade and investment barriers:
GATT, WTO
,Global institutions:
- General Agreement on Tariffs and Trade (GATT)
The aim of the barrier ‘high tariffs on import’ was to protect domestic industries from foreign
competition.
Consequence: “beggar thy neighbour” = economic and trade policies that a country enacts that
end up adversely affecting its neighbours/trading partners (can hurt economies of other
countries). Also, countries are progressively raising trade barriers against each other.
The Great Depression was a consequence of these practises.
- United Nations (UN)
Four purposes:
1. To maintain international peace and security
2. To develop friendly relations among nations
3. To cooperate in solving international problems and in promoting respect for human rights
4. To be the centre for harmonising the actions of nations
Nearly every nation in the world belongs to the UN, except for two: Vatican City and Palestine.
- World Trade Organisation (WTO)
Responsible for:
1. Policing the world trading system and making sure nation-states adhere to the rules laid down
in treaties.
2. Facilitating the establishment of additional multinational agreements among WTO member
states.
- International Monetary Fund (IMF)
To maintain order in international monetary system and function as the lender of the last resort.
- World Bank
To promote economic developments.
Focused on making low-interest loans to short-in-money governments in poor nations that wish
to undertake significant infrastructure investments.
- The Group of Twenty (G20)
Made up of the finance ministers and central bank governors of the 19 largest economies in the
world + representatives from the European Union + European Central Bank.
Collectively, the G20 represents 90% of global GDP and 80% of international global trade.
Response to the financial crisis.
How has the global stage changed?
1. US dominance:
The U.S. has become less dominant on worldwide stage.
The U.S. has less share of the total trade and global output.
2. Developing nations:
Increasing role of developing nations in Economic growth and Foreign Direct Investments.
3. Changing nature of MNEs (multinational enterprises):
There are stronger non-US and mini MNEs in the world today.
, MNE: at least 2 countries
All MNE’s are internal businesses
4. Globalisation debates:
Anti-globalisation: e.g. global income distribution
What is the right approach
5. A tentative non-conclusion:
Pros:
- Wealth
- Jobs (increases in average consumer income)
- Technology
- Lower prices for goods and services
- Economic growth stimulation
- Countries specialise in goods and services that are produced most efficiently (closer to
economic ideal)
- Greater competition
Cons:
- Off-shoring of business service jobs to lower-wage countries
- Environmental and social impacts
- Reduces blue-collar jobs and wages in developed countries
- Greater income disparity (ongeleikheid) — both within and across countries
- Businesses more powerful than government?
- Loss of traditional culture
- Environmental damage
International trade occurs when a firm exports goods or services to consumers in another country.
Foreign direct investment (FDI) occurs when a firm invests resources in business activities
outside its home country.
World trade and regional trade agreements have spiked (high peaks and valleys, but growing)
enormously.
World population has been growing steadily.
Nowadays, a greater portion of production is being traded across national borders than any time in
modern history.
The knowledge society that we live in has resulted in consumers knowing more than ever about
goods and services being produced worldwide.
The larger the difference between the growth rates of world trade and world production, the greater
the extent of globalisation and the more important in becomes to understand international business.
World trade has been growing faster than world GDP, which implies the following:
1. More countries outsource part of their production
2. The economies of the world’s nation-states are becoming more intertwined (met elkaar
verweven) and dependent
3. The world has become significantly wealthier in the last two decades, because of the
implication that rising trade is the engine that has helped pull the global economy along.
, Moore’s Law: the power of microprocessor technology doubles and its costs of production falls in
half every 18 months. —> communication improvements/developments
Internet of Things: the incorporation of internet in products to become connected.
The stock of foreign direct investments (FDI) = the total cumulative value of foreign investments
as a percentage of the country’s GDP.
Clearly, we invest more today outside of our own country than we did in 1995.
Concern of globalisation: international trade destroys manufacturing jobs in wealthy economies.
If the critics of globalisation are correct, three things must be shown:
1. The share of national income received by labour should have declined in advanced nations.
2. Even though labour’s share of the economic pie may have declined, this does not mean lower
living standards if the size of the total pie has increased sufficiently to offset the decline in
labour’s share.
3. The decline in labour’s share of national income must be due moving production to low-wage
countries, as opposed to improvement in production technology and productivity.
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