Globalization

Globalization - refers to the shift toward a more integrated and interdependent world economy. Globalization has several facets, including the global- ization of markets and the globalization of production.
• Integration of global economic system
• No more “German Market, or American Market”
• Instead there is the Global Market
Firms of all sizes benefit and contribute to the globalization of markets.
• 97% of all U.S. exporters have less than 500 employees
• 98% of all small and mid-sized German companies participate in international markets.
The globalization of markets - refers to the merging of historically distinct and separate national markets into one huge global marketplace.
• Falling trade barriers make it easier to sell globally on global norm
• Consumers’ tastes and preferences are converging on some global norm
• Firms promote the trend by offering the same basic products worldwide
The globalization of production refers - to 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 labor, energy, land, and capital).
• Companies are lowering overall cost and improving the quality and functionality of their products.
Global Institutions - General Agreement on Tariffs and Trade (GATT), World Trade Organization, International Monetary Fund, World Bank, United Nations, and G20
• Help manage, regulate, and police the global marketplace & promote treaties.
Drivers of Globalization
• Declining barriers to the free flow of goods, services and capital
• Average tariffs are now at just 4%
• More favorable environment for FDI
• Global stock of FDI was $15.5 trillion in 2009
• Facilitates global production
• Technological change… e.g., internet, microprocessors, worldwide web, transportation
Lower Trade Barriers
• Means firms can view the world, rather than a single country, as a their market
• Base production in the optimal location for that activity
• Firms may also find their home markets under attack by foreign firms

Foreign Direct Investment (FDI) - occurs when a firm invests resources in business activities outside its home country.
• In the 1960s U.S. firms accounted for about 2/3s of the world FDI flows; today, less than one 1/5th
• In contrast, the share of FDI accounted for by developing countries has (China)
International Trade - occurs when a firm exports goods or services to consumers in another country.
Four trends that is important
1. The changing world output and world trade picture
2. The changing foreign direct investment picture
3. The changing nature of the multinational enterprise
4. The changing world order
Multinational Enterprise – any business that has productive activities in two or more countries.