Chapter 2 Globalization of Markets and the Internationalization of the Firm International Business

1. 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

2. 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

3. Globalization Index 2006

4. The World Competitiveness Scoreboard 2007 (2006 rankings are in brackets) Source: IMD World Competitiveness Yearbook 2007 Blah

5. Global Competitiveness Index 2006-2007 International Business: Strategy, Management, and the New Realities

6. Relationship Between Globalization and Growth in Per Capita Gross Domestic Product, 1990s

7. 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

8. The Death of Distance International Business: Strategy, Management, and the New Realities

9. The Drivers and Consequences of Market Globalization

10. 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

11. 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

12. 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

13. Declining Cost of Global Communication and Growing Number of Internet Users

14. 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

15. 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

16. 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

17. 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

21. 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

22. International Business: Strategy, Management, and the New Realities

23. 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

24. 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

25. 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.

26. 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

27. 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