Globalization

Introduction:
We are living in a world where borders are no longer the barriers they once were. The
term globalization is everywhere, but what does it truly mean for businesses?
This section introduces the concept of globalization and its growing influence on
businesses, cultures, and economies. Companies now face the challenge of operating in a
world that is more connected than ever before. The shift from isolated national markets to
a globalized economy affects both business strategy and operations
Ex: We can see this influence in everyday in our life from the clothes we wear to the
devices we use. Behind every products is a complex of global collaboration.

What is Globalization?
Globalization refers to the shift toward a more integrated and interdependence world
economy. Globalization has several facets, including the globalization of markets and the
globalization of production
+ Integrated ( 1 slide rieng cho 2 y nay)
Ex: Your smartphone is a typical example of integrated technology. In the same phone,
there are many individual parts such as the screen, processor, camera, and battery, with
hundreds of components and parts coming from different countries around the world.
+ Independence
Ex: Have you ever heard of the Silk Road? The Silk Road connected civilizations from
China, Central Asia, the Middle East, and Europe, creating a network for the exchange of
goods, culture, and technology. This is a typical example of early globalization, clearly
illustrating the concept of "interdependence."
Globalization of markets
The globalization of markets refers to the merging of historically distinct and separate
national markets into one huge global marketplace.
It’s mean Markets are no longer viewed in terms of distinct national markets. Instead,
separate regional markets are merging into one global market.
However significant differences still exist among national markets along many relevant
dimensions: Including
 Consumer tastes and preferences
 Distribution channels
 Business systems
  Legal regulations
Ex: KFC is present in over 150 countries with more than 25,000 locations globablly.
They offer their famous chicken while adapting certain menu to suit local tastes.

The second fact of globalization is

Globalization of production
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)
I mean there are goods, services and resources all around the world so Where do you get
the goods and services you need to make your product. Well you get them where they are
cheapest, where they are highest quality, where they are the fewest trade barriers, etc.
And do you are able to put together a product with high quality, functional product at a
low price. The outsourcing of productive activities to different suppliers results in the
creation of products that are global in nature
Ex: Samsung designs phones in South Korea, but they produces in Vietnam, China, etc....
Then assembles them in different countries to save costs.
The Emergence of Global Institutions
As markets globalize and an increasing proportion of business activity transcends
national borders, institutions are needed to help manage, regulate, and police the global
market-place and to promote the establishment of multinational treaties to govern the
global business system
To put it simply Global institution are created to manage, coordinate and support
economic and trade relations between countries. These institutions play an importan role
in promoting global economic growth, maintaining stability and reducing trade barriers.
Here are 5 important institutions of the world (1 slide riêng)
World Trade Organization (WTO): Established in 1995 (it was preceded by GATT, which
was established in 1947). WTO manage and regulate international trade by ensuring that
countries follow trade agreements and resolve trade disputes.
International Monetary Fund (IMF): Established in 1944, IMF support countries in
maintaining financial stability by providing financial assistance and advice during
economic crises
World Bank: Established in 1944, World Bank provide funding for infrastructure
development projects and reduce poverty by supporting economic development in low
income countries.
United Nations (UN): Established in 1945, UN maintain international peace and security
while promoting friendly relations among nations and addressing social, economic and
humanitarian issues.
Group of Twenty (G20): Established in 1999, G20 discuss and create policies on global
economic issues, bringing together major economies to coordinate responses to financial
crises and promote sustainable development.
Drivers of Globalization
So now we gonna finding out 2 macro factors underlie the trend toward greater
globalization:
DECLINING TRADE AND INVESTMENT BARRIERS
The economic integration is allowed by the harmonization of regulatory regimes,
particularly through trade agreements.
International trade: occurs when a firm exports goods or services to consumers in
another country
Foreign direct investment (FDI): occurs when a firm invests resources in business
activities outside its home country
  During the 1920s and 1930s, many nations erected barriers to international trade
and FDI to protect domestic industries from foreign competition
 After WWII, advanced Western countries began removing trade and investment
barriers
 Under GATT (the forerunner of the WTO), over 100 nations negotiated further
decreases in tariffs and made significant progress on a number of non-tariff issues
 According to the WTO, there is now a system to solve disputes and enforce trade
laws, there is also a plan to reduce tariffs on goods, service, etc…

Average Tariff Rates on Manufactured Products as Percentage of Value

Since 1950, average tariffs have fallen significantly and are now at about 1.6% and
countries have opened their markets to FDI
Lower trade barriers help companies:
 See the world as a single market
 Establish production activities in optimal locations around the globe
This has led to an acceleration in the volume of world trade and investment since the
early1980s
ROLE OF TECHNOLOGICAL CHANGE
The lowering of trade barriers made globalization of markets and production a theoretical
possibility. Technological change has made it a tangible reality.
Communications: ( 1slide )
 Since World War II, there have been major advances in communication,
information processing, and transportation
  The development of the microprocessor has lowered the cost of global
communication and therefore the cost of coordinating and controlling a global
organization
Internet of Things(1 slide)
 The explosive growth of the Internet since 1994, when the first web browser was
intro-duced, is the latest expression of the development of the so-called Internet of
Things
 Internet Users: From fewer than 1 million users in 1990, the number grew to 50
million by 1995 and reach 3.8 million by 2017, accounting for 51% of the global
population
 E-commerce: U.S retail e-commerce sales are projected to exceed $520 billion by
2020, up from nearly zero in 1998. Global e-commerce sales surpassed $2 trillion
for the first time in 2017
 Global impact: The internet has become the backbone of the global economy,
removing barriers related to location, scale and time zones.
Transportation Technology: (1slide)
In addition to developments in communications technology, several major innovations in
transportation technology have occurred since the 1950s
 Commercial jet aircraft and super freighters and the introduction of
containerization have greatly simplified trans-shipment from one mode of
transport to another
Implications for the Globalization of Production: 1slide
 Lower transportation costs make a geographically dispersed production system
more economical and allow firms to better respond to international customer
demands
Ex: Tesla used advanced robot technology in its factories to automate the electric car
production process. This technology allows Tesla to make car faster and save cost,
increasing its competitiveness in the global
Implications for the Globalization of Markets:1slide
 Low cost communications networks have helped create electronic global
marketplaces
 Low cost transportation have enabled firms to create global markets, and have
facilitated the movement of people from country to country promoting a
convergence of consumer tastes and preferences
Ex: Amazon has changed the way people shop around the world. With its online platform,
customers from different countries can easily buy products. As a result, small businesses
can reach global customer, while consumer have more product choices from other
countries.

The Changing Demographics of the Global Economy

Over the past 30 years, the global economy has changed a lot, reshaping international
business. In the 1960s, four important points described the global economy:
 U.S Leadership in the Global Economy and Trade: The United States was the top
country in world trade and production.
 U.S Leadership in Foreign Direct Investment (FPI): The U.S was the main country
providing FDI to other nations.
 Big U.S Multinational Companies: Large American companies were the most
powerfull in global business.
 Communist Countries Closed to Western Business: About half of the world,
mostly communist nations, did not allow Western companies to operate.
Today, much of this has changed.
THE CHANGING WORLD OUTPUT AND WORLD TRADE PICTURE

Changing Demographics of World Output and World Exports

In the early 1960s, The United States was the dominant industrial power, accounting for
38.3% of global output. By 2018, this dropped to 15.8%, while China rose to 17.1%
becoming the world leader. This decline was relative, as the U.S economy still grew, but
other nations like China, Japan and South Korea grew faster.
Countries like Brazil, Russia, India and China (BRIC) are expected to keep growing,
leading to a smaller share of world output for developed nations. By 2025, developing
countries may make up over 60% of the world economy, bringing new opportunities and
competition.

THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE

In the 1960s, U.S companies were the biggest players in foreign direct investment (FDI),
accounting for 66.3% of total flows. British companies came next at 10.5% and Japanese
companies were far behind at just 2%. This strong presence of U.S companies worried
European countries, especially France, leading them to think about limiting U.S
investment
 The stock of foreign direct investment (total cumulative value of foreign
investments) generated by rich industrial countries has been on a steady decline
 The stock of foreign direct investment (total cumulative value of foreign
investments) generated by rich industrial countries has been on a steady decline
 There has been a sustained growth in cross-border flows of foreign direct
investment
 The largest recipient of FDI has been China