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Globalization (Outsourcing (Firms source goods and services from locations…
Globalization
Outsourcing
Firms source goods and services from locations around the globe to capitalize on national differences in the cost and quality of factors of production like land, labor, energy, and capital
Companies can: lower their cost structure and improve quality and functionality of the product offering
Definition
The shift toward a more integrated and interdependent world economy
Moving away from self-contained national economies toward an interdependent, integrated global economic system.
Historically distinct and separate national markets are merging
No longer about the "German market" or the "American market" , instead it will be the "global market"
Driving Globalization
Declining barriers to free flow of goods, services and capital
- average tariffs are now at just 4%
– more favorable environment for FDI • global stock of FDI was $20.4 trillion in 2011
– facilitates global production
• Technological change – microprocessors and telecommunications – Internet: information backbone of the global economy – transportation technology
Globalization to Firms
Lower barriers to trade and investments mean firms can: view the world rather than a single country, as a market, base production in the optimal location for that activity, expect lower cost of doing business
Technological change means – lower transportation costs • help create global markets and allow firms to disperse production to economical, geographically separate locations – low cost information processing and communication • firms can create and manage globally dispersed production – low cost global communications networks • help create an electronic global marketplace – global communication networks and global media • create a worldwide culture and a global consumer product market
Disadvantages
• Critics worry that globalization will cause – job losses – environmental degradation – the cultural imperialism of global media and MNEs • Anti-globalization protesters now regularly show up at most major meetings of global institutions
Critics argue that falling barriers to trade are destroying manufacturing jobs in advanced countries Supporters contend that the benefits of this trend outweigh the costs – countries will specialize in what they do most efficiently and trade for other goods—and all countries will benefit
Cause of Globalization
falling trade barriers make it easier to sell globally
consumers’ tastes and preferences are converging on some global norm
firms promote the trend by offering the same basic products worldwide
Advantages
Supporters believe that increased trade and cross border investment mean – lower prices for goods and services – greater economic growth – higher consumer income, and more jobs
Affecting Managers
Managing an international business differs from managing a domestic business because – countries are different – the range of problems confronted in an international business is wider and the problems more complex than those in a domestic business – firms have to find ways to work within the limits imposed by government intervention in the international trade and investment system – international transactions involve converting money into different currencies