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Globalization of Markets and the Internationalization of the Firm

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Marina Andrijevic

on 18 October 2012

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Transcript of Globalization of Markets and the Internationalization of the Firm

Firms interact more efficiently with foreign partners and value chain- members than ever before.

Technological advances and developments have had the greatest impact in several key areas: Globalization of Markets and the Internationalization of a Firm Societal Consequences of Market Globalization Contagion: Rapid spread of financial or monetary crises from one country to another Loss of National Sovereignty Offshoring and the flight of jobs Effect on the poor Effect on the natural environment Effects on national culture Contagion - the tendency of a financial or monetary crisis in one country to spread rapidly to other countries, due to the ongoing integration of national economies The latest financial crisis raised questions about the merits of globalization the crisis began in the US - how did it spread so quickly to other countries? MNE activities can interfere with sovereign ability of governments to control their own economies, social structures and political systems. $421 billion $ 18.15 billion $ 271 billion $ 235.1 billion Market forces dictate behavior of the companies DRIVERS OF MARKET GLOBALIZATION A way to success:
open and liberalized economies! Offshoring:the relocation of manufacturing and other value chain activities to cost-effective locations abroad WORLDWIDE REDUCTION OF BARRIERS TO TRADE AND INVESTMENT MARKET LIBERALIZATION AND ADOPTION OF FREE MARKETS The result: job losses in numerous mature economies INDUSTRIALIZATION, ECONOMIC DEVELOPMENT AND MODERNIZATION Began in 1960s and 1970s with the shift of U.S. and European manufacturers of cars, shoes, electronics, textiles etc. INTEGRATION OF WORLD FINANCIAL MARKETS ADVANCES IN TECHNOLOGY DIMENSIONS OF MARKET GLOBALIZATION The next wave began in 1990s, with the exodus of service sector jobs in credit card processing, software code writing, accounting, health care and banking services. Integration and interdependence of national economies Rise of regional economic integration blocs Growth of global investment and financial flows Convergence of buyer lifestyles and preferences Globalization of production activities Globalization of services An Organizing Framework drivers or causes of globalization
dimensions or manifestations of globalization
societal consequences of globalization
firm-level consequences of globalization SOCIETAL CONSEQUENCES OF GLOBALIZATION FIRM-LEVEL CONSEQUENCES OF GLOBALIZATION Contagion: Rapid spread of financial or monetary crisis from one country to another
Loss of national sovereignty
Offshoring and the flight of jobs
Effect on the poor
Effect on the natural environment
Effect on the national culture Countless new business opportunities for internationalizing firms
New risks and intense rivalry from foreign competitors
More demanding buyers who source from suppliers worldwide
Greater emphasis on proactive internationalization
internationalization of firm's value chain Technological Advances in Globalization Process Firms devise multicountry operations through:
- trade;
- investment;
- geographic dispersal of company resources;
- integration and coordination of value-chain activities.

VALUE CHAIN - sequence of value-adding activities performed by the firm in the course of developing, producing, marketing and servicing a product.

- these activities of firms give a rise to economic integration;
- government have facilitated this integration by lowering barriers to international trade and investment, harmonizing their monetary and fiscal policies within regional economic integration blocs (trade blocs) and developing supernational institutions (WTO, WB, IMF). Technological advances are one of the main driving force of the globalization processes since 1980s.

Technological advances provide means for happening of globalization.

Technological advances have opened up the world, both economically and socially.

Technology as a sociological term? Sociological term of technology Technology is socialized knowledge of producing goods and services. The term technology can be described with five important elements: Technology

(With technology, the world has changed drastically) Production
(We need technology to produce something) Knowledge
(Technology is type of intellectual property) Instruments
(The instruments indicate the usage of technology by human beings) Possession
(Those people that posses technology also control it) These blocs consist of groups of countries within which trade and investment flows are facilitated through reduced trade and investment barriers.

- In common market, barriers to the cross-border flow of factors of production (mostly labour and capital) are removed.

Examples include:
- NAFTA (North American Free Trade Agreement area)
- APEC (Asia Pacific Economic Cooperation zone)
- Mercosur in Latin America In the process of conducting international transactions, firms and governments buy and sell large volumes of national currencies (dollars, euros... ).

The free movement of capital around the world (globalization of capital) extends economic activities across the globe.

Commercial and investment banking is a global industry. Information Technology IT Communications Manufacturing Transportation Consumers spend their money in similar ways.
Lifestyles and preferences are converging.

-those major brands have gained a global following, encouraged by movies, global media, internet...

Convergence of preferences is also occurring in industrial markets, where professional buyers source raw materials, parts and components that are increasingly standardized. Intense global competition is forcing firms to reduce their costs of production and marketing companies strive to drive down prices (economies of scale, standardizing what they sell, shifting manufacturing...) The services sector is undergoing widespread internationalization.

Banking, hospitality, retailing and other service industries are rapidly expanding abroad.

For example, many people go abroad to take advantage of low- cost services. What happens in Bangalore? Globalization of Markets - refers to gradual integration and interdependence of national economies

- manifested by the production and marketing of branded products and services worldwide

- provides consumers and industrial buyers with a much wider choice of products and services Today, the word GLOBAL has a new meaning!

GLOBAL = a boundless mobility and competition in social, business and intellectual areas Globalization of the Market Through firms can see the world as integrated place that includes buyers, producers, suppliers and governments in different countries WHAT SIMPLIFIES THE
GLOBALIZATION PROCESS MNE's are known for paying low wages, exploiting workers and employing child labor vs. no job at all? Experts say - while still low by advanced economy standards, increasingly higher wages are improving lives of millions of workers and their families. - declining trade barriers

- continuous development of international business transactions

-emergence of Internet

- development of information, manufacturing and transportation technologies ... TODAY - market globalization and technological advances permit firms to more readily engage marketing and procurement activities on a global scale

- competition and innovation of internationally active firms helps in reduction of prices for consumers

- internationally active firms with their job creation are contributing to higher living standards Is Globalization Something New? Civilizations in early history contributed to the growth of cross-border trade

Birth of GLOBALIZATION - common desire of civilizations to reach out and touch one another, no matter where they developed The tendency of national governments to reduce trade and investment barriers has accelerated global economic integration.

- tariffs on the import of automobiles have declined nearly to zero in many countries, encouraging freer international exchange of goods and services.

Falling trade barriers are facilitated by WTO. - remarkable facilitator of cross-boarder trade and investment. - makes it possible for internationally active firms to raise capital, borrow funds and engage in foreign currency transactions

Cross-border transactions are made easier partly as a result of the ease with which funds can be transferred between buyers and sellers, through the network of international commercial banks. IT is the science and process of creating and using information resources.

Its effect on business has been revolutionary.

The use of IT improved the firm’s productivity of their operations.

Now IT allows firms to adapt more effectively their products for international market.

IT changed the structure of industries the rules of competition.

IT has led to creation of new products and new processes (Google, Yahoo etc). Connects millions of people across the globe.

Costless compared to ways of communication in the past.

Firms can communicate more efficiently with foreign partners and value chain- members.

Mobile phone infrastructure contributed to development of many countries by providing access to banking services and because it eased communication between suppliers and customers. Computer-aided design of products, robotics and production lines are transforming manufacturing by reducing the cost of production.

Developments now permit low-scale and low-cost manufacturing .

Those developments allow to efficiently adopt products to markets and to compete with foreign competitors . Beginning of 1960s technological advances led to development of jumbo jets and giant oceangoing freighters.

The result the cost of transportation and travel has dramatically declined.

Allowed people to quickly travel all around the world. Firm-Level Consequences of Market Globalization:
Internationalization of the firm’s value chain The globalization has opened up countless new business opportunities for internationalizing firms.

But in the same time firms must accommodate new risks and rivalry from foreign competitors.

The most direct implication of market globalization is on the firm’s value chain. Firm’s value chain •Information technology IT
•Transportation -Increased manufacturing results in pollution, habitat destruction and deterioration of the ozone layer - built in 1961, the Berlin Wall separated the communist East Berlin from the democratic West Berlin
- 1989 was demolition of Berlin Wall
- China's free-market reforms all signaled the end of 50-year Cold War
- China smoothed the integration of former economy into the global economy
- East Asian economies (South Korea to Malaysia and Indonesia)
- India also joined trend in 1991

These events opened 1/3 of the world freer international trade and investment. Industrialization implies that developing markets (Asia, Latin America, Eastern Europe) are moving from being low value-adding producers , dependent on cost labour - to sophisticated competitive producers and exporters (electronics, computers, aircraft)

Brazil --

Czech Republic --

India -- integration and interdependence of national economies

rise of regional economic integration blocs

growth of global investment and financial flows

convergence of buyer lifestyles and preferences

globalization of production activities

globalization of services Research & Development Procurement Manufacturing Marketing Distribution Sales & Services Firm’s value chain concept is useful in international business, since it helps to determine what activities are performed where in the world.

Each value-adding activity is subject to internationalization and it can be performed anywhere abroad.

It can be done by:

offshoring or outsourcing

Globalization droves firms to relocate key value-adding activities to most advantageous locations in the world.
Market globalization forced firms to organize their sourcing, manufacturing, marketing and other value-adding activates on global scale. Phases of Globalization each phase was accompanied by revolutionary technological development & international trends -However, it's generally held true that these effects tend to decline in the long run - as economies develop... But what is this long run? Early History Positive examples of concerned corporations: First Phase Second Phase Third Phase Fourth Phase Exchange of the goods between old civilizations 1830 - 1899 peak of the phase was around 1880 Globalization exerts strong pressure on national culture - growth of the railroads
- efficient ocean transport
- rise of the large manufactoring and trading firms
- invention of telegraph and telephone in late 1800s -> facilitated information flows -> help in organizing of early supply chains Mc Donaldization & Coca-Colonization Homogenization of world cultures aided by information and communication technologies
---> promotion of Western lifestyle Examples of France, Belgium and Canada: laws have been passed in order to protect national law and culture 1900 - 1930 peak of the phase was just before the Great Depression - rise of electricity and steel production
- Europe's colonization led to establishment of the earliest subsidiaries of multinational enterprises (MNEs)
- some companies established foreign manufacturing plants (Nestle, Siemens, British Petroleum) after World War II - 1970s - USA became the world's dominant economy
- government aids helped in recovery of economies
- Bretton Woods Conference in 1947 (23 nations) -> General Agreement on Tariffs and Trade (GATT)
- international trade and investment barriers were reduced
- subsidiaries of MNEs were selling much the same products in the markets worldwide
- MNEs began to seek cost advantages (developing countries and low labor cost)
- Europe & Japan began to challenge the dominance of US MNEs GATT transformed into the World Trade Organization.

WTO is multilateral governing body which is empowered to regulate international trade and investment
From original 23 members of GATT, WTO grew to 157 member nations. In this phase some of the firms developed internationally recognized trade names early 1980s - present Capital began to flow freely across national borders, leading to integration of global financial markets - enormous growth in cross-border trade and investments -> FDIs

- fast development of PCs, Internet

- collapse of the Soviet Union

- trade liberalization in Central & Eastern Europe, Asia and Central & South America

- all technological advances helped the rise of small and medium-sized enterprises (SMEs) & service sector (banking, entertainment, tourism etc.) Zuka Adi
Zonjic Aleksandra
Andrijevic Marina
Agic Kanita Prepared by:

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