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Globalization Studies. International College Khon Kaen University 2011 Week 3 – Economic Globalization. Economic Globalization. The world is moving away from self-contained national economies toward an interdependent, integrated global economic system

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globalization studies

Globalization Studies

International College

KhonKaen University

2011

Week 3 – Economic Globalization

economic globalization
Economic Globalization
  • The world is moving away from self-contained national economies toward an interdependent, integrated global economic system
  • Economic globalization refers to the shift toward a more integrated and interdependent world economy
  • Economic globalization has four main features:

1) the globalization of markets (the global marketplace)

2) the globalization of production

3) rapid increases in the flow of capital between countries

4) the growth of multinational corporations

the global marketplace
The Global Marketplace
  • The most obvious aspect of the new global marketplace is consumerism:

“If you want to do well, sell people what they need; if you want to get rich, sell people what they want”

  • This basic principle of marketing, and indeed of business, is what the global marketplace is all about: consumers want choice, businesses want sales
the global marketplace1
The Global Marketplace
  • The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace
  • In many industries, it is no longer meaningful to talk about the “Thai market” or the “Singapore market”
  • Instead, there is only the global market
the global marketplace2
The Global Marketplace
  • Falling trade barriers (tariffs and non-tariff barriers) make it easier to sell internationally
  • Large firms benefit from the reduction of tariff and non-tariff barriers, and from access to global marketing and branding
  • Even quite small firms can engage more easily in exporting to benefit from efficiencies of larger-scale production, technology and skill advantages
the global marketplace3
The Global Marketplace
  • International marketing campaigns take advantage of the convergence of consumer lifestyles and tastes
  • Consumers benefit most from economic globalization:
    • greater choice of goods
    • more competition leading to cheaper prices and better quality
the globalization of production
The 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:
    • Land
    • Labor
    • Capital
    • Raw materials, and
    • Energy
the globalization of production1
The Globalization of Production
  • The globalization of production and the integration of the world economy increases theintensity of competition
  • Companies compete more effectively by lowering their overall cost structure or improving the quality or functionality of their products
  • They do this by establishing complex supply chains criss-crossing the world, from raw material source > processor > manufacturer > retailer and eventual customer
globalized supply chains1
Globalized Supply Chains
  • How are decisions made about where to base each stage of the supply chain process – and whether to outsource that stage?
  • The factors which influence location decisions in a supply chain can be grouped under:
    • country factors
    • technological factors, and
    • product factors
globalized supply chains2
Globalized Supply Chains
  • Country factors that can affect location decisions include:
    • the availability of skilled labor and supporting industries
    • formal and informal trade barriers
    • expectations about future exchange rate changes
    • transportation costs
    • regulations affecting FDI
globalized supply chains3
Globalized Supply Chains
  • Technological factors whichfacilitate the globalization of production are:
    • reduced transportation costs - enabling firms to disperse production to the most economical locations, even if geographically dispersed
    • reduced information processing and communication costs that enable firms to create and manage globally dispersed production systems
globalized supply chains4
Globalized Supply Chains
  • Product factorswhich impact on location decisions:
    • The product's value-to-weight ratio
    • Whether the product serves universal needs
the globalization of production2
The Globalization of Production
  • With lower production costs, middle-income and low-income countries are able to produce more of the goods consumed in high-income economies
  • This export-led growth results in:
    • higher incomes and improving standards of living in many newly industrialized countries
    • increasing levels of unemployment amongst low-skilled workers in high-wage countries
economic globalization1
Economic Globalization
  • In 1960, the United States accounted for over 40% of world economic activity
  • By 2006, the United States accounted for less than 20% of world economic activity
  • The share of global economic activity enjoyed by Japan and Western European countries is also declining
  • The share of world output accounted for by developing nations is rising and is expected to account for more than 60% of world economic activity by 2020
economic globalization2
Economic Globalization
  • Many former Communist nations in Europe and Asia are now committed to market economies and thus create new opportunities for international businesses
  • The BRIC (Brazil, Russia, India and China) economies are assuming greater importance in world trade
  • A number of other middle-income countries are not far behind the BRIC economies: Mexico, Indonesia, Vietnam, Argentina
economic globalization3
Economic Globalization
  • Multinational corporations benefit from the reduction of tariff and non-tariff barriers, and from access to global marketing and branding
  • The number of non-US multinationals is growing quickly
  • National companies operating internationally are also growing both in number and in importance
  • An important issue in economic globalization relates to the regulation of international trade and financial flows
economic globalization4
Economic Globalization
  • Institutions are needed to:
    • help manage, regulate, and police the global marketplace
    • promote the establishment of multinational, regional and bilateral treaties to govern the global business system
  • Some of the global institutions created include:
    • World Trade Organization (WTO)
    • International Monetary Fund (IMF)
    • World Bank
    • United Nations
economic globalization5
Economic Globalization

Is this shift toward a more integrated and 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
  • Globalization critics argue that falling barriers to trade cause job losses and declining wage rates for manufacturing jobs in advanced countries
economic globalization6
Economic Globalization
  • Critics also argue that the globalization of production shifts manufacturing to countries with fewer labor and environmental regulations, resulting in environmental degradation and exploitation
  • Supporters of globalization contend that the benefits of this trend outweigh the costs—that countries will specialize in what they do most efficiently and trade for other goods—and all countries will benefit