Welcome to BUS 201 – Introduction to Global Business

1. Welcome to BUS 201 – Introduction to Global Business Unit Convenor & Lecturer : Murray Taylor

2. What is BUS 201? • This is a broad unit. • Examine IB from a holistic perspective • Topical issues • Could influence your career!! • Need to become involved in the global world! • Newspapers, media – Get reading/viewing

3. Unit Convenor and Lecturer: • Murray Taylor • Consultation: After lectures and Monday 2-3pm in my office E4A 512 • Email: murray.taylor@mq.edu.au • Phone: +61 2 9850 4883 • Lecture 1: Monday 4pm-6pm MQ Theatre Teaching staff

4. Lectures – 2 hour format • Location of lectures/tutorials: see personal timetable • Tutorials commence in week 2 (week commencing 10th March) • NB: Students are required to attend their allocated tutorial. We have almost 500 students in the course and all of you have competing interests. You need to be responsible for managing those demands. Lectures & tutorials

5. Errr…what am I doing? - Unit outline • Lets go through the unit outline!

6. Chapter 1 Globalisation

7. Learning Objectives • Explain the process and drivers of globalisation and the opportunities and challenges it creates for business. • Illustrate how the global economy has changed over the past 50 years. • Justify the labelling of the twenty-first century as the Emerging Markets Century. • Debate the impact of globalisation on issues such as job security, income inequality and the environment. • Compare how the management of international business differs from the management of domestic business.

8. What Is Globalisation? • Globalisation - the shift toward a more integrated and interdependent world economy

9. The world at night – the old pattern

10. New markets are turning on the light

11. What Is The Globalisationof Markets? • Historically distinct and separate national markets are merging • It no longer makes sense to talk about the “German market” or the “American market” • Instead, there is the “global market”

12. What Is the Globalisationof Markets? • Firms of all sizes benefit and contribute to the globalization of markets • 97% of all U.S. exporters have less than 500 employees • 98% of all small and mid-sized German companies participate in international markets

13. What Is the Globalisationof Markets? • Ikea illustrates how one company is taking advantage of the globalization trend to expand internationally. • Ikea, which generates just 8 percent of its revenues from its home country, is using the same basic formula to sell its merchandise around the globe.

14. What is the Globalisation of Production? • 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

15. Boeing 787 Dreamliner Forward fuselage: Kawasaki Heavy Industries (Japan) Spirit Aerosystems (USA) Wing box: Mitsubishi Heavy Industries (Japan) Wing ice protection: GKN Aerospace (UK) Centre fuselage: Alenia Aeronautica (Italy) Escape slides: Air Cruisers (USA) Rear fuselage: Boeing South Carolina (USA) Vertical Stabiliser: Boeing Commercial Airplanes (USA) Doors & windows: Zodiac Aerospace (USA) PPG Aerospace (USA) Lavatories: Jamco (Japan) Flight deck seats: Ipeco (UK) Raked wing tips: Korean Airlines Aerospace division (Korea) Horizontal Stabiliser: Alenia Aeronautica (Italy) Engines: GE Engines (USA), Rolls Royce (UK) Centre wing box: Fuji Heavy Industries (Japan) Aux. power unit: Hamilton Sundstrand (USA) Engine nacelles: Goodrich (USA) Tools/Software: Dassault Systemes (France) Navigation: Honeywell (USA) Pilot control system: Rockwell Colins (USA) Wiring: Safran (France) Passenger doors: Latécoère Aéroservices (France) Landing gear: Messier-Dowti (France) Electric brakes: Messier-Bugatti (France) Tires: Bridgestone Tires (Japan) Cargo doors: Saab (Sweden) Prepreg composites: Toray (Japan) Final assembly: Boeing Commercial Airplanes (USA)

16. Why Do We Need Global Institutions? • Examples include • theGeneral Agreement on Tariffs and Trade (GATT) • theWorld Trade Organization (WTO) • theInternational Monetary Fund (IMF) • theWorld Bank • theUnited Nations (UN) • theG20

17. What Do Global Institutions Do? • The World Trade Organization (like its predecessor GATT) • polices the world trading system • makes sure that nation-states adhere to the rules laid down in trade treaties • promotes lower barriers to trade and investment • 159 members in 2013

18. What Do Global Institutions Do? • The International Monetary Fund (1944) • maintains order in the international monetary system • The World Bank (1944) • promotes economic development via low interest loans for Infrastructure projects

19. What Do Global Institutions Do? • The United Nations(1945) • maintains international peace and security • develops friendly relations among nations • cooperates in solving international problems and in promoting respect for human rights • is a center for harmonizing the actions of nations • The G20 • forum through which major nations tried to launch a coordinated policy response to the 2008-2009 global financial crisis

20. What Is Driving Globalization? • Declining barriers to the free flow of goods, services, and capital • average tariffs are down • more favourable environment for FDI • facilitates global production

21. What Does Globalization Mean For Firms? • Lower barriers to trade and investment • But, firms may also find their home markets under attack by foreign firms

22. Declining Trade And Investment Barriers Average Tariff Rates on Manufactured Products as Percent of Value

23. 100 97 90 82 62 52 -80 -60 -40 -20 0 20 40 60 80 100 Driving Globalization – real world consequences Percentage change for 2000-2010 Computer software engineers, applications Computer support specialists Computer software engineers, systems software Network and computer systems administrators Personal and home care aids Medical assistants Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010

24. -61 -35 -28 -26 -25 -20 -20 -80 -60 -40 -20 0 20 40 60 80 100 Driving Globalization – real world consequences Percentage change for 2000-2010 Railroad brake, signal, and switch operators Telephone operators Loan interviewers and clerks Meter readers, utilities Farmers and ranchers Order clerks Insurance claims and policy processing clerks Winners and Losers in Selected Occupations: Percentage Change Forecasts for 2000-2010

25. What Does Globalization Mean For Firms? • Technological change means • lower transportation costs • low cost information processing and communication • low cost global communications networks • global communication networks and global media

26. The Changing Demographics Of The Global Economy • Four trends are important: • The changing world output and world trade picture • The changing foreign direct investment picture • The changing nature of the multinational enterprise • The changing world order

27. How Has Foreign Direct Investment Changed Over Time? In the 1960s, four stylised factors described the global economy: • The US dominated the world economy and the world trade picture. • There was US domination in foreign direct investment (FDI). • US multinationals dominated the international business scene.

28. How Has Foreign Direct Investment Changed Over Time? Today… • The US does not dominate the world economy nearly as much… • FDI is not dominated by the US • US multinationals do not dominate IB

29. How Has World Output And World Trade Changed? • In 1960, the U.S. accounted for over 40% of world economic activity, but by 2009, the U.S. accounted for just 24% • a similar trend occurred in other developed countries • In contrast, the share of world output accounted for by developing nations is rising • expected to account for more than 60% of world economic activity by 2020

30. How Has World Output And World Trade Changed? The Changing Demographics of World GDP and Trade

31. How Has Foreign Direct Investment Changed Over Time? Percentage Share of Total FDI Stock 1980-201

32. How Has Foreign Direct Investment Changed Over Time? FDI Inflows 1991-2011

33. What Is A Multinational Enterprise? • Multinational enterprise (MNE) - any business that has productive activities in two or more countries • Since the 1960s • the number of non-U.S. multinationals has risen • the number of mini-multinationals has risen

34. What Is A Multinational Enterprise? • National origin of largest 100 MNEs, 1998 and 2011 (per cent)

35. The Changing World Order • Many former Communist nations in Europe and Asia are now committed to democratic politics and free market economies • China and Latin America are also moving toward greater free market reforms

36. How Will The Global Economy Of The 21st Century Look? • The world is moving toward a more global economic system… • But globalization is not inevitable • there are signs of a retreat from liberal economic ideology in Russia • Globalization brings risks • the financial crisis that swept through South East Asia in the late 1990s • the recent financial crisis that started in the U.S. in 2007-2008, and moved around the world • Financial crisis in EU 2010 - now

37. Is An Interdependent Global Economy A Good Thing? • 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 • 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

38. How Does Globalization Affect Jobs And Income? • 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

39. How Does Globalization Affect Labor Policies And The Environment? • Environmental Regulations • Critics argue that firms avoid the cost of adhering to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced • Supporters claim that tougher environmental and labor standards are associated with economic progress • as countries get richer from free trade, they implement tougher environmental and labor regulations

40. How Does Globalization Affect The environment? Grossman & Krueger (1995) • Environmental Regulations • Critics argue that firms avoid the cost of adhering to labor and environmental regulations by moving production to countries where such regulations do not exist, or are not enforced • Supporters claim that tougher environmental and labor standards are associated with economic progress • as countries get richer from free trade, they implement tougher environmental and labor regulations

41. How Does Globalization Affect National Sovereignty? • Is today’s global economy shifting economic power away from national governments toward supranational organizations like the WTO, the EU, and the UN? • Critics argue that unelected bureaucrats have the power to impose policies on the democratically elected governments of nation-states • Supporters claim that the power of these organizations is limited to what nation-states agree to grant • the power of the organizations lies in their ability to get countries to agree to follow certain actions

42. How Is Globalization Affecting The World’s Poor? • Is the gap between rich nations and poor nations getting wider? • Critics believe that if globalization was beneficial there should not be a divergence between rich and poor nations • Supporters claim that the best way for the poor nations to improve their situation is to • reduce barriers to trade and investment • implement economic policies based on free market economies • receive debt forgiveness for debts incurred under totalitarian regimes

43. How Does The Global Marketplace Affect 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

44. Homework (that you should do but probably won’t do) • Revise Chapter 1 in the textbook (relevant to the slides presented today) and review the slides. • Based on the slides and textbook material try to write two broad essay questions that might be asked in an exam • Do the readings and prepare for your first tutorial • You should do this for every week of BUS 201…seriously