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Class notes International Strategy
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Sofie Julia Polman2641939
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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