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Globalization. Integration and interdependence of the world economies. Economist have felt for a very long time that international free trade is good. Globalization has really taken off since the second half of the twentieth century.

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  • Integration and interdependence of the world economies. Economist have felt for a very long time that international free trade is good.
  • Globalization has really taken off since the second half of the twentieth century.
For businesses globalization allows them to sell goods and services in many different countries. Opening up huge markets for businesses.
Some businesses export their products.
  • Some use franchises
  • Others set up factories in other counties to produce their products
indicators of globalization page 152
Indicators of globalizationPage 152
  • Higher value of world trade over time
  • Foreign direct investment increases
  • Multinational corporations (MNC) are growing
  • Cultural awareness is growing
  • Multiculturalism is growing
  • International travel is growing
  • Information can spread very quickly
With globalization the world has become a smaller place.
  • Economic and political decisions in one country affect businesses all over the world.
factors contributing to the growth of globalization
Factors contributing to the growth of globalization
  • Removal of trade barriers has encouraged exports and imports.
  • Technology has made the exchange of products and ideas very quick.
  • Deregulation by countries has encouraged businesses to look at new markets.
  • Cultural exports are a huge business.
  • The wide use of English has helped with communication around the world.
  • Ex. Businesses in Germany can do business with people in Indonesia using English.
Globalization has had drawbacks. Some bad values have been given across the world

Ex. American obesity is spreading as well as breakdowns in the family in some countries.

globalization can be a threat as well as an opportunity
Globalization can be a threat as well as an opportunity
  • Competition has greatly increased because of globalization.

Customers may have more demands for their businesses.

  • Economies of scale and diseconomies of scale
  • Businesses have a greater choice of location now.
Even with Globalization businesses still need to consider the different attitudes of different countries because of local culture.
multinational corporations mnc
Multinational Corporations(MNC)
  • A business that operates in two or more countries.
reasons businesses want to become multinational
Reasons businesses want to become multinational
  • Expand customer base
  • Economies of scale
  • By producing in the country you wish to sell to some businesses can avoid protectionist policies.
  • Spread risk by being in different markets
  • Take advantage of superior products around the world.
artificial trade barriers page 157
Artificial trade barriersPage 157
  • Tariffs
  • Quotas
  • Unfair trade practices
problems for mnc s
Problems for MNC’s
  • Different cultural views can present problems to businesses that do not understand a market well.
  • Storage, transportation and distribution costs may increase.
  • External factors are a larger concern when dealing in a foreign market.
  • Infrastructures can be a problem in less developed countries.
positive effects on host countries because of mcns
Positive effects on host countries because of MCNs
  • Create jobs
  • Boost GNP
  • Introduce new technology and operation procedures.
  • Create competition in a host country helping efficiency
  • MCN’s charities can do more for a country’s people that their gov’ts can.
problems can arise because of mcns
Problems can arise because of MCNs
  • MCNs can cause unemployment because some local firms can not compete. Local gov’ts sometimes step in to protect local business.
  • Some local businesses collapse because of pressure brought on by MCNs.

Ex. Merry Mart in Chang Ping

trading blocs
Trading Blocs
  • Members of a trading bloc work together to eliminate trade barriers between countries.
the world trade organization wto
The World Trade OrganizationWTO
  • 150 countries that work together to eliminate world trade barriers.
three levels of free trade
Three levels of free trade
  • Closer Economic Partnership Agreement (CEPA) gives access to markets between countries
  • Free Trade Area (FTA) Members of an area agree to trade freely with each other but still have different trade barriers with non-member countries.

Common Market - Free trade between members as well as set restrictions on goods from outside members.

Trading blocs make it harder to export outside of the bloc since some countries will impose their own protectionist measures against the block as a whole.
european union eu
European Union EU
  • A common market that has opened up huge markets to the businesses of individual countries.

Ex. They go from their relatively small country market to the 500 million people in the EU .

  • One problem that arises is that it is hard to balance things like interest rates with so many countries involved.
list of the eu countries
List of the EU countries
  • AustriaBelgiumBulgariaCyprusCzech RepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIrelandItalyLatviaLithuaniaLuxembourgMaltaNetherlandsPolandPortugalRomaniaSlovakiaSloveniaSpainSwedenUnited Kingdom
european free trade association efta
European Free Trade AssociationEFTA

Members include Iceland, Norway Switzerland and Liechtenstein.

  • No import restrictions between these countries.
  • Allows some free trade in some ways with EU countries without having to be full members
north american free trade agreement nafta
North American Free Trade AgreementNAFTA

Members include Mexico, Canada and the U.S.A.

  • An example of an FTA
  • Free trade between members
association of south east asian nations asean
Association of South East Asian NationsASEAN
  • Close ties to the EU
  • Free trade between members but disputes about economic and social diffrences
list of asean members
List of ASEAN members
  • Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam
closer economic partnership agreement cepa
Closer Economic Partnership Agreement (CEPA)
  • An agreement between two countries to eliminate restrictions on trade.
When countries form a regional trading bloc there will be winners and losers.
  • Consumers will most likely buy the cheapest and best products.
  • At times this can really hurt non members because some countries that can produce things cheaper can not compete because of quotas and tariffs.

Ex. Europeans protect their local farmers hurting South American imports.

Globalization makes bus. managers think about their world markets.

Ex. Those businesses that do not compete in Europe the U.S. and the pacific rim are at a disadvantage.

  • Many businesses will start joint ventures with local businesses to get a foot in the door of a new market.
  • Some businesses need to change their business model to fit a local culture.