35 terms

EXAM 1: Globalization Chapter 1 Pearson reading

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How is globalization changing business?
new technologies expose the traits and practices of other cultures

as countries reduce barriers to trade and investment, globalization forces industries to grow more competitive in order to survive

as multinationals from advanced countries and emerging markets seek out customers, competition intensifies on a global scale
How do each of us experience international transactions every day?
Much of our consumer goods (from jackets to watches) are made in other countries
international business
commercial transaction that crosses the borders of two or more nations
imports
goods and services purchased abroad and brought into a country
exports
goods and services sold abroad and sent out of a country
e-business (e-commerce)
the use of computer networks to purchase, sell, or exchange products; service customers; and collaborate with partners
How does e-business benefit
companies?
e-business is making it easier for companies to make their products abroad, not simply import and export finished goods

e.g. HP needed a new low-cost computer server. HP dispersed its design and production activities throughout a specialized manufacturing system across five Pacific Rim nations and India. This helped the company minimize labor costs, taxes, and shipping delays yet maximize productivity when designing, building, and distributing its new product. Companies use such innovative production and distribution techniques to minimize inefficiencies within their international
operations and boost their competitiveness

e.g. US businesses exploit technology by subcontracting work to Chinese companies that write computer software code and then email their end- product to the US clients (companies can lower costs, increase efficiency, and grow more competitive)
How does Hulu use globalization?
Hulu employs two technical teams -- one in the US and one in China -- to manage its website (sending codes back and forth)
What is InnoCentive?
some innovative companies use online competitions to tap global talent

InnoCentive connects companies and institutions seeking solutions to difficult problems using a global network of more than 145,000 creative thinkers (engineers, scientists, businesspeople, etc. compete to solve some of the world's toughest problems in exchange for financial awards)
globalization
trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies
Globalization is a trend characterized by ___ (national borders becoming less relevant) and is different from __ (entities cooperating across national boundaries). The greater interdependence that globalization is causing means an increasingly freer flow of goods, services, money, people, and ideas across national borders.
denationalization, internationalization
What are the two areas of business in which globalization is having profound effects?
the globalization of markets and production
globalization of markets
refers to convergence in buyer preferences in markets around the world

this trend is occurring in many product categories, including consumer goods, industrial products, and business services

L.L. Bean, Nike, and Sony are just a few companies that sell global products -- products marketed in all countries essentially without any changes
What are the four benefits of the globalization of markets for companies?
REDUCES MARKETING COSTS: companies that sell global products can reduce costs by standardizing certain marketing activities (e.g. a company selling a global consumer good, such as shampoo, can make an identical product for the global market and then simply design different packaging to account for the language spoken in each market. Companies can further achieve cost savings by keeping an ad's visual component that same for all markets but dubbing TV ads and translating print ads into local languages).

CREATES NEW MARKET OPPORTUNITIES: A company that sells a global product can explore opportunities abroad if the home market is small or becomes saturated (e.g. if not enough internet users in one's own country, can target internet users abroad)

LEVELS UNEVEN INCOME STREAMS: a company that sells a product with universal, but seasonal, appeal can use international sales to level its income stream. By supplementing domestic sales with international sales, the company can reduce or eliminate wide variations in sales between seasons and steady its cash flow (e.g. a company that produces suntan and sunblock lotions can match product distribution with the summer seasons in the northern and southern hemispheres in alternating fashion -- thereby steadying is income from these global, yet highly seasonal, products)

LOCAL NEEDS ARE IMPORTANT: Despite the potential benefits of global markets, managers must constantly monitor the match between the firm's products and markets to not overlook the needs of buyers. The benefit of serving customers with an adapted product may outweigh the benefits of a standardized one. (e.g. soft drinks, fast food, and other customer goods are global products that continue to penetrate markets around the world. But sometimes these products require small modifications to better suit local tastes. In India, where cows are sacred and the consumption of beef is taboo, McDonald's markets the "Maharaja Mac" -- two all-mutton patties on a sesame seed bun with all the usual toppings).
globalization of production
refers to the dispersal of production activities to locations that help a company achieve its cost-minimization or quality-maximization objectives for a good or service

this includes the sourcing of key production inputs (such as raw materials or products for assembly) as well as international outsourcing of services
What are the three benefits of the globalization of production for companies?
ACCESS LOWER-COST WORKERS: Global production activities allow companies to reduce overall production costs through access to low-cost labor (e.g. companies locate factories to low-wage nations -- applies to production of goods and production of services, such as accounting and research: many European and US businesses have moved their customer service and other nonessential operations to places as far away as India to slash costs by as much as 60 percent)

ACCESS TECHNICAL EXPERTISE: companies also produce goods and services abroad to benefit from technical know-how (e.g. Film Roman produces the TV series The Simpsons, but it provides key poses and step-by-step frame directions for animation to AKOM Production Company in South Korea)

ACCESS PRODUCTION INPUTS: Globalization of production allows companies to access resources that are unavailable or more costly at home. The quest for natural draws many companies into international markets (e.g. Japan has very few natural resources, esp. paper. Nippon Seishi, Japan's largest paper company, does more than import wood pulp. The company owns forests and corresponding processing facilities in Australia, Canada, and the US. This gives the firm not only access to an essential resource but also control over earlier stages in the papermaking process
What are some challenges of globalization regarding security?
as well as the need to secure lengthy supply chains and distribution channels, companies must secure their facilities, information systems, and reputations
What are the two main forces underlying the globalization of markets and production?
falling barriers to trade and investment

technological innovation

Greater competition is simultaneously driving companies worldwide into more direct confrontation and cooperation

local industries once isolated by time and distance are increasingly accessible to large international companies based many thousands of miles away

some small and medium-sized firms are compelled to cooperate with one another or with larger international firms to remain competitive. other local businesses revitalize themselves in a bold attempt to survive the competitive onslaught

on a global scale, consolidation is occurring in many industries as former competitors link up to challenge others on a world-wide basis
FALLING BARRIERS TO TRADE AND INVESTMENT: General Agreement on Tariffs and Trade (GATT)
Treaty designed to promote free trade by reducing both tariffs and nontariff barriers to international trade

tariffs are essentially taxes levied on traded goods, and nontariff barriers are limits on the quantity of an imported product

revision clearly defined intellectual property rights -- giving protection to copyrights (including computer programs, databases, sound recordings, and films), trademarks and service marks, and patents (including trade secrets and know-how)

created World Trade Organization
FALLING BARRIERS TO TRADE AND INVESTMENT: World Trade Organization (WTO)
International organization that enforces the rules of international trade

the three main goals of the WTO are to help the free flow of trade, help negotiate the further opening of markets, and settle trade disputes among its members

it is the power of the WTO to settle trade disputes that really sets it apart from its predecessor, the GATT. The various WTO agreements are essentially contracts between member nations that commit them to maintaining fair and open trade policies. Offenders must realign their trade policies according to WTO guidelines or face fines and, perhaps, trade sanctions (penalties). Because of its ability to penalize offending nations, the WTO's dispute settlement system truly is the spine of the global trading system. The WTO replaced the institution of GATT but absorbed all the former GATT agreements.

153 members and 30 "observer" members

new round of negotiations in Doha, Qatar in 2001: designed to lower trade barriers further and to help poor nations in particular
FALLING BARRIERS TO TRADE AND INVESTMENT: Regional trade agreements
In addition to the WTO, smaller groups of nations are integrating their economies as never before by fostering trade and boosting cross-border investment

North American Free Trade Agreement (NAFTA): Canada, Mexico, and US free-trade

European Union (EU): 27 countries

Asia Pacific Economic Cooperation (APEC): 21 members

aims of smaller trade pacts are similar to those of the WTO but are regional in nature. Moreover, some nations are placing greater emphasis on regional pacts because of resistance to worldwide trade agreements
FALLING BARRIERS TO TRADE AND INVESTMENT: Trade and national output
Trade theory tells us that openness to trade helps a nation to produce a greater amount of output

economic growth is greater in nations that have recently become more open to trade, such as China, India, and Russia, than in many other countries
gross domestic product (GDP)
value of all goods and services produced by a domestic economy over a one-year period

GDP excludes a nation's income generated from exports, imports, and the international operations of its companies

we can speak in terms of world GDP when we sum all individual nations' GDP figures

GDP is a somewhat narrower figure than GNP
gross national product (GNP)
the value of all goods and services produced by a country's domestic and international activities over a one-year period
GDP or GNP per capita
Nation's GDP or GNP divided by its population
TECHNOLOGICAL INNOVATION: email and videoconferencing
operating across borders and time zones complicates the job of coordinating and controlling business activities. But technology can speed the flow of information and ease the tasks of coordination and control

electronic mail (email) is an indispensable tool that managers use to stay in contact with international operations and to respond quickly to important matters

videoconferencing allows managers in different locations to meet in virtual face-to-face meetings

primary reasons for 25 to 30% annual growth in videoconferencing include lower-cost bandwidth (communication channels) used to transmit information, lower-cost equipment, and the rising cost of travel for businesses
TECHNOLOGICAL INNOVATION: Internet and world wide web
companies use the internet to quickly an cheaply contact managers in distant locations, for example, to inquire about production runs, revise sales strategies, and check on distribution bottlenecks

they also use the internet to achieve longer term goals, such as sharpen their forecasting, lower their inventories, and improve communication with suppliers

the lower cost of reaching an international customer base especially benefits small firms, which were among the first to use the web as a global marketing tool

further gains arise from the ability of the internet to cut postproduction costs by decreasing the number of intermediaries a product passes through on its way to the customer

eliminating intermediaries greatly benefits online sellers of books, music, and travel services, among others
TECHNOLOGICAL INNOVATION: Company intranets and extranets
internal company websites and information networks (intranets) give employees access to company data using personal computers

a particularly effective marketing tool on Volvo Car Corporation's intranet is a quarter-by-quarter database of marketing and sales information. The cycle begins when headquarters submit its corporate-wide marketing plan to Volvo's intranet. Marketing managers at each subsidiary worldwide then select those activities that apply to their own market, develop their marketing plan, and submit it to the database. This allows managers in every market to view every other subsidiary's marketing plan and to adapt relevant aspects to their own plan. In essence, the entire system acts as a tool for the sharing of best practices across all of Volvo's markets

extranets give distributors and suppliers access to a company's database to place orders or restock inventories electronically and automatically. These networks permit international companies (along with their suppliers and buyers) to respond to internal and external conditions more quickly and more appropriately
TECHNOLOGICAL INNOVATION: Advancements in transportation technologies
retailers worldwide rely on imports to stock their storerooms with finished goods and to supply factories with raw materials and intermediate products. innovation in the shipping industry is helping globalize markets and production by making shipping more efficient and dependable.

operation of cargo ships is now simpler and safer due to computerized charts that pinpoint a ship's movements on the high seas using Global Positioning System (GPS) satellites. Combining GPS with radio frequency identification (RFID) technology allows continuous monitoring of individual containers from port of departure to destination. RFID can tell whether a container's doors are opened and closed on its journey and can monitor the temperature inside refrigerated containers
national sovereignty
national sovereignty generally involves the idea that a nation-state is 1) autonomous 2) can freely select its government 3) cannot intervene in the affairs of other nations 4) can control movements across its borders and 5) can enter into binding international agreements
globalization and national sovereignty
opposition groups allege that globalization erodes national sovereignty and encroaches on the authority of local and state governments

supporters disagree, saying that globalization spreads democracy worldwide and that national sovereignty must be viewed from a long-term perspective
Globalization: Menace to Democracy?
a main argument leveled against globalization is that it empowers supranational institutions at the expense of national governments

it is debatable whether the World Trade Organization, the International Monetary Fund, and the United Nations unduly impose their will on the citizens of sovereign nations. Critics argue that, by undercutting the political and legal authority of national, regional, and local governments, such organizations undercut democracy and individual liberty

opponents of globalization also take issue with the right of national political authorities to enter into binding international agreements on behalf of citizens. Critics charge that such agreements violate the rights of subfederal (local and state) governments (e.g. state and local gov'ts in the US had no role in creating NAFTA. Yet WTO rules require the US federal gov't to take all available actions to force subfederal compliance with WTO terms. Protestors say such requirements directly attack the rights and authority of subfederal governments
Globalization: Guardian of Democracy?
Globalization supporters argue that an amazing consequence of globalization has been the spread of democracy worldwide

in recent decades, the people of many nations have thrown off the chains of authoritarianism and are now better educated, better informed, and more empowered

backers of globalization also contend that it is instructive to take a long-term view on the issue of national sovereignty

witnessing a sovereign state's scope of authority altered is nothing new, as governments have long given up trying to control issues that they could not resolve

lost sovereignty over some economic issues may actually enhance the greater good
Globalization's Influence on Cultures
National culture is a strong shaper of a people's values, attitudes, customs, beliefs, and communication. Whether globalization eradicates cultural differences between groups of people or reinforces cultural uniqueness is a hotly debated topic.

protestors complain that globalization is homogenizing our world and destroying its rich diversity of cultures. Critics say that in some drab, new world we will wear the same clothes, bought at the same brand-name shops, eat the same foods at the same brand-name restaurants, and watch the same movies made by the same production companies

supporters argue that globalization allows us all to profit from our differing circumstances and skills. Trade allows countries to specialize in producing the good and services they can produce most efficiently. Nations can then trade with each other to obtain goods and services they desire but do not produce (e.g. France still produces many of the world's finest wines)
Main arguments concerning globalization and culture
MATERIAL DESIRE: globalization fosters material desire, global consumer-goods companies destroy cultural diversity (esp. in developing nations) by putting local companies out of business

ARTISTIC INFLUENCE: cultures of developing nations are thriving and the influence of their music, art and literature has grown throughout the past century (e.g. African cultures have influenced the work of Picasso and the Beatles)

WESTERN VALUES: local values and traditions are being replaced by US companies promoting western values

A FORCE FOR GOOD: globalization fosters the values of tolerance and diversity. Nations should be more tolerant of opposing viewpoints and welcome diversity among their peoples. This view interprets globalization as a potent force for good in the world.

DEEPER VALUES: globalization can cause consumer purchases and economic ideologies to converge, but these are rather superficial aspects of culture. Deeper values that embody the true essence of cultures may be more resistant to a global consumer culture