AlexTsui

Overview of the Lecture
 What is globalisation?
 Drivers of globalisation
 The changing demographics of global economy

Lecture One:

 The globalisation debate

Globalisation

Opening case: Flat Panel TVs and the global economy
Discussion questions related to the case:
 Why is the manufacturing of flat panel TVs migrating to different locations around the world?
 Who benefits from the globalization of the flat panel display industry? Who are the losers?
 What would happen if the U.S. government required that flat panel displays sold in the United States had to also be made in the United States? On balance, would this be a good or a bad thing?

What is globalization?
 It refers to the shift towards a more integrated and

interdependent world economy.
 It contains two major components:
 The globalization of markets
 The globalization of production

Globalization of markets

Globalization of markets

 The merging of distinctly separate national markets

 Significant differences still exist between national

into a global marketplace

markets on many relevant dimensions

 falling trade barriers make it easier to sell globally
 Tastes and preferences converge onto a global norm;
 Firms offer standardized products worldwide creating a

world market.

 These differences require that marketing and

operating strategies and product features be customized to best match conditions in a country.

1

Globalization of markets

Globalization of production

 Countries are different

 Refers to sourcing of goods and services from locations

 Range of problems are wider and more complex
 Government intervention in trade and investment

creates problems
 International investment is impacted by different currencies around the world to take advantage of
 Differences in cost or quality of the factors of production




Labor
Land
Capital

 Companies can:
 Lower their overall cost structure
 Improve the quality or functionality of their product offering Globalization of Production
 Historically this has been primarily confined to

manufacturing enterprises
 Increasingly companies are taking advantage of modern communications technology, and particularly the Internet, to outsource service activities to low-cost producers in other nations

Emergence of global institutions
 Globalization has created the need for institutions to

help manage, regulate and police the global marketplace  GATT
 WTO
 IMF
 World bank
 United Nations

Global drivers

Declining barriers to trade

 Macro factors that underlie trend towards greater

 Globalization of markets and production has been

globalization

facilitated by
 Reduction in trade barriers

 Decline in trade barriers

 Removal of restrictions to foreign direct investment

 Technological change

2

Declining Trade and Investment Barriers

Effects of Lowering Trade Barriers

Average Tariff Rates on Manufactured Products as Percent of
Value

Figure 1.1: Volume of World Trade and World
Production, 1950-2004
3100

Index 1950=100

2600
2100
1600
1100
600

19
50
19
54
19
58
19
62
19
66
19
70
19
74
19
78
19
82
19
86
19
90
19
94
19
98
20
02

100

Total Merchandise Exports

World Production

The shrinking globe
The role of technological change
 Microprocessors and telecommunications
 The internet and world wide web
 Transportation technology

Changing demographics of the world economy Changing demographics of the world economy  World output and trade
 Changing foreign direct investment
 Rise of the economies in developing countries
 Changing nature of multinationals
--Mini multinationals
--Non US multinationals

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Changing nature of multinationals
 Multinational enterprise (MNE) - any business that

has productive activities in two or more countries
 Since the 1960s
 the number of non-U.S. multinationals has risen
 the number of mini-multinationals has risen

The Changing World Order
 Many former Communist nations in Europe and

Asia are now committed to democratic politics and free market economies
 creates new opportunities for international businesses

 China and Latin America are also moving toward

greater free market reforms

 between 1983 and 2010, FDI in China increased from less

than $2 billion to $100 billion annually

 but, China also has many new strong companies that

could threaten Western firms

Globalization debate-Positive

Globalization debate-Negative

 Lower prices for goods and services

 Destroys manufacturing jobs in wealthy, advanced

 Economic growth stimulation
 Increase in consumer income
 Creates jobs
 Best use of resources worldwide

countries
 Wage rates of unskilled workers in advanced countries

declines
 Companies move to countries with fewer labor and

environment regulations
 Loss of sovereignty, especially for developing countries

Next week
Theories of international trade and investment 4