The Global-Local Dilemma

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The Global-Local Dilemma: Foundations of International Strategic Management, Ethics and Social Responsibility

What is meant by Globalization?
Form 5 Groups, discuss the questions below for 30 Minutes in your group; each group presents its findings to the class. What is Globalization? What is being “globalized”? Establish a ranking of degree of globalization. Develop a definition and discuss your definition in terms of the factors below Advantages, Disadvantages, Opportunities, Threats For participating and not participating For Nations, Companies, Individuals

Globalization Defined
Many authors have attempted to define globalization. Despite differing opinions about developing a definition, all authors agree on one thing: that defining this term is anything but easy. Proposed Definition of “Globalization” by the “Geneva Centre for Security Policy”: “Globalization is a process that encompasses the causes, course, and consequences of transnational and transcultural integration of human and non-human activities.”

International Trade of Goods, Services and Ideas (Patents) Appears to be a Core Globalization Activity Thus the Question: Why do Companies, People or Nations Trade?

Copyright: Peter B. Grubenmann

Why do People or Nations Trade

Countries engage in international trade for two basic reasons: – They are different from each other in terms of climate, land, capital, labor, and technology. – They try to achieve scale economies in production. The Ricardian model, developed by English Economist David Ricardo (1772 – 1832), tries to explain why Nations trade.

Copyright: Peter B. Grubenmann

Why do People or Nations Trade
Ricardo’s theory is based on technological differences across countries. These technological differences are reflected in differences in •the productivity of labor •and opportunity costs that determine •COMPARATIVE ADVANTAGE

Copyright: Peter B. Grubenmann

Labor Productivity, Opportunity Costs and Comparative Advantage: The Ricardian Model

Copyright: Peter B. Grubenmann

The Ricardian Model
• The constant labor productivity is: – The unit labor requirement as the number of hours of labor required to produce one unit of output. • Denote with aLW the unit labor requirement for wine (e.g. if aLW = 2, then one needs 2 hours of labor to produce one gallon of wine). • Denote with aLC the unit labor requirement for cheese (e.g. if aLC = 1, then one needs 1 hour of labor to produce a pound of cheese).

Copyright: Peter B. Grubenmann

The Ricardian Model
Absolute Advantage – A country has an absolute advantage in a production of a good if it has a lower unit labor requirement than the foreign country in this good. Symbols with an * indicate the foreign country. – Assume that aLC < a*LC and aLW < a*LW • This assumption implies that Home has an absolute advantage in the production of both goods meaning that Home is more productive in the production of both goods than Foreign. • Even if Home has an absolute advantage in both goods, beneficial trade for home and foreign is possible. • The pattern of trade will be determined by the concept of comparative advantage Copyright: Peter B. Grubenmann

The Ricardian Model
The Concept of Comparative Advantage • Opportunity Cost – The opportunity cost of a product x in terms of a product y is the ratio of the two products’ labor input requirements, per unit of output or • Comparative Advantage – A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries.

Copyright: Peter B. Grubenmann

The Ricardian Model
Comparative Advantage – Assume that aLC /aLW < a*LC /a*LW • This assumption implies that the opportunity cost of cheese in terms of wine is lower in Home than it is in Foreign. • In other words, in the absence of trade, the relative price of cheese at Home is lower than the relative price of cheese at...
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