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Chapter 2 Globalization of Markets and the Internationalization of the Firm International Business Strategy Management & the New Realities by Cavusgil, Knight and Riesenberger. Globalization of Markets: A Macro Concept.

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slide1

Chapter 2

Globalization of Markets and the Internationalization of the Firm

International Business

Strategy Management & the New Realities

by

Cavusgil, Knight and Riesenberger

International Business: Strategy, Management, and the New Realities

globalization of markets a macro concept
Globalization of Markets: A Macro Concept
  • Two mega trends have altered the international business landscape: globalization and technological advances.
  • Market globalization refers to the interconnectedness of national economies and growing interdependence of buyers, producers, suppliers, and governments in different countries.
  • Globalization allows firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge.

International Business: Strategy, Management, and the New Realities

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The World Competitiveness Scoreboard 2007

(2006 rankings are in brackets)

Source: IMD World Competitiveness Yearbook 2007

Blah

global competitiveness index 2006 2007
Global Competitiveness Index 2006-2007

International Business: Strategy, Management, and the New Realities

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Phases of Globalization

1st Phase: 1830, peaking around 1880Aided by railroads, ocean transport; resulting in the rise of mass production and growing trade

2nd Phase: 1900, peaking late 1920sFueled by electricity and emergent modern technologies; early MNEs

3rd Phase: 1948, peaking around 1970End of WW II; Marshall Plan; Gradual reduction of trade barriers, especially under General Agreement on Tariffs and Trade (GATT)

4th Phase: 1980, peaking around 1997Fueled by information and communications technologies. Rapid liberalization in Emerging Markets

the death of distance
The Death of Distance

International Business: Strategy, Management, and the New Realities

firms are compelled to internationalize
Firms are Compelled to Internationalize
  • Firms implement internationalization proactively are more successful than those reactively engaging.
  • E.g., Vodafone has established production and marketing operations all around the world. Has some 200 million customers in 30 countries.

International Business: Strategy, Management, and the New Realities

technological advances as a driver of market globalization
Technological Advances as a Driver of Market Globalization
  • Advances in technology provide the means for internationalization of firms
  • Advances in technology:
    • Reduces cost of doing international business;
    • Enables even small firms to go international
    • Helps coordinate worldwide activities;
    • Mitigates geographic distance

International Business: Strategy, Management, and the New Realities

information technology
Information Technology
  • Cost of computer processing fell by 30% per year since late 1980s, and continues to fall.
  • Increases productivity across the firm
  • Impact of IT on our daily lives has been profound – laptops, intelligent cell phones, Internet, Google, etc.

International Business: Strategy, Management, and the New Realities

communications technology
Communications Technology
  • Especially important. Includes telecommunications, satellites, optical fiber, wireless technology, and the Internet.
  • The Internet, and Internet-dependent systems such as intranets, extranets, and e-mail, connect millions of people across the globe.
  • The Internet opens up the global marketplace to all firms, large and small

International Business: Strategy, Management, and the New Realities

manufacturing and transportation technologies
Manufacturing and Transportation Technologies
  • Revolutionary developments now permit manufacturing that is both low-scale and low cost, with the support of computer-aided-design of products (CAD), robotics, and production lines managed and monitored by microprocessor-based controls.
  • In the 1960s, technological advances have led to the development of fuel-efficient jumbo jets, giant ocean-going freighters, and containerized shipping.
  • Thus, the cost of transportation has declined substantially, spurring rapid growth in international trade.

International Business: Strategy, Management, and the New Realities

societal consequences of market globalization
Societal Consequences of Market Globalization
  • Positive consequences
    • More jobs
    • Economic development and growing prosperity
    • Technology and knowledge transfer
  • Negative consequences
    • Natural environment
    • Disruptive effects in national economies
    • Human rights violations abroad (e.g., sweatshops)
    • Job losses at home

International Business: Strategy, Management, and the New Realities

economic freedom enhances income growth
Economic Freedom Enhances Income Growth
  • In the long run, globalization generally leads to:
    • higher living standards
    • more efficient resource usage
    • greater access to technology, products, and services
  • In particular, liberalization of markets appears to enhance income levels

International Business: Strategy, Management, and the New Realities

unintended consequences of market globalization
Unintended Consequences of Market Globalization
  • Loss of national sovereignty
    • Power shifts to MNEs and larger countries
  • Offshoring and the flight of jobs
    • Dislocation of jobs
  • Effect on the poor
    • Benefits of globalization are not evenly distributed
  • Effect on the natural environment
  • Effect on national culture
    • Loss of national cultural values and identity

International Business: Strategy, Management, and the New Realities

corporate social responsibility
Corporate Social Responsibility
  • Over time, governments pass legislation that promotes improved environmental conditions.
  • In addition, many firms now consider the societal consequences of their actions -- Corporate Social Responsibilty (CSR)
  • Examples: Benetton in Italy (clothing), Alcan in Canada (aluminum), and Starbucks have attempted to embrace practices that protect the environment, often at the expense of profits.

International Business: Strategy, Management, and the New Realities

firm level consequences of market globalization
Firm Level Consequences of Market Globalization
  • 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

International Business: Strategy, Management, and the New Realities

examples of how firms value chain activities can be internationalized
Examples of How Firms’ Value Chain Activities Can Be Internationalized

Value Chain: Sequence of value adding activities performed in the course of developing, producing, marketing, and servicing a product.

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Implications for Management

  • Global orchestration’ of value-chain activities (e.g., in order to cut costs, access resources, target new markets)
  • Exploit knowledge acquired worldwide
  • Increase productivity
  • Collaborate with foreign partners

International Business: Strategy, Management, and the New Realities

slide27

Implications for Managers: Acquiring Global Competence is a Requirement

  • Open-mindedness
  • Tolerance for ambiguity
  • Perceptiveness
  • Premium on personal relationships
  • Flexibility, adaptability, and self-reliance 
  • Good sense of humor
  • Warmth in human relationships
  • A curious mind

International Business: Strategy, Management, and the New Realities