Globalization and RecentEconomic Developments

Chapter 1

Overview of MGMT 529

The GlobalBusiness

Environment

Culture andInternationalManagement

InternationalStrategic

Management

Global Human

ResourcesManagement

Motivatingand

Leadinga Global

Work Force

International Management

The process of applying management concepts and

techniques in a multinational environment and

adapting management practices to different economic, political, and cultural environments

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Firms Involved in International Business

Multinational corporations (MNC's) Operations in more than one country International sales, Nationality mix of managers and owners

Small and medium-sized enterprises (SME's)

McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Globalization of Business Globalization of business functions

Marketing Manufacturing and service operations Finance Purchasing and supplier networks Business process outsourcing: call centers,

technical service, financial research Global business environment with global

competition

Globalization as an Integration Process

Process of integration among countries around the world Social Political Economic Cultural Technological

Arguments for GlobalizationWealth creationJob creationTechnology is more widely available

Lower prices

Criticisms of Globalization Offshoring of business services jobs to

lower-wage countries Growing trade deficits Slow wage growth Environmental impacts Social impacts

Example: child labor Loss of local and national culture

World Trade Organization More than 150 member countries Has removed many barriers to free trade in goods 70 countries have agreed to remove barriers to free

trade in financial services and telecommunications Protects intellectual property rights Removes some restrictions on foreign investment There is a dispute resolution process. Most countries have negotiated some exceptions to

the rules. (EU negotiates as a unit.)

World Trade Organization (2) More lenient policies for developing

countries 31 WTO members are considered to be

developing countries. Developing countries

Can impose more tariffs than developed countries

Did not have to comply with intellectual property rights agreement until 2005

Can impose more restrictions on foreign investment

Trends in InternationalInvestment and Trade

International investments 80 percent of foreign direct investment

(FDI) is from developed countries Investments are made in developed

countries and in developing countries Over one-half of world trade is

accounted for by the United States, European Union (EU), and Japan

Gross Domestic Product - 2003

10 Largest Economies

Rank Country

Billion $

1 United States 10,882

2 Japan 4,326

3 Germany* 2,401

4United Kingdom* 1,795

5 France* 1,748

6 Italy* 1,466

7 China 1,410

8 Spain* 836

9 Canada 834

10 Mexico 626

TOTAL 26,324* EU member

GoodsService

sGoods &Services

Exports 713.1 307.4 1,020.5

Imports (1,260.7) (256.3) (1,517.0)

Tradebalance

(547.6) 51.1 (496.5)

CountryU. S. merchandise

trade balance

China (124.0)

Japan (66.0)

Canada (54.7)

Mexico (40.6)

Germany

(39.2)

U. S. Trade Balance – 2003 (Billion $)

5 Largest U. S. Merchandise Trade Deficits - 2003

Economic Power of the EU 450 million people 25 member countries 2002 GDP exceeded 9.1 trillion dollars 5 members in the top 10 economies 11 members in the top 25 economies Most new members are not as

prosperous as those who joined earlier Receive development assistance from the EU

European Union – A Single Market

Free trade in goods and services among member countries

Common tariffs on goods imported from outside the EU

Common trade policy Common (minimum) product standards –

CE mark is required to sell many goods Many regulations that must be met

EU – A Single Market (2) Free movement of capital among

member countries Rights of EU citizens

Travel freely among EU countries To live and work in other EU countries Citizens of new EU member countries will

not have full work and residence rights until 2011

EU Members (1) EU-15 (joined the EU between 1956

and 1999) (dark blue on map) Total population of 375 million Located primarily in western Europe 12 members of the EU-15 use the euro

currency United Kingdom, Denmark, and Sweden

do not use the euro

New EU Members (10 total)

Total population of 75 million Post-Communist countries (8)

Central Europe: Poland, Hungary, Czech Republic, Slovakia, and Slovenia

Major recipients of foreign direct investment

Large automotive industry Financial services industry Poland has a population of 38.6 million

people (6th largest population in the EU)

New EU Members (slide 2) Post-Communist countries (continued)

Baltic countries: Estonia, Latvia, Lithuania

Formerly part of the Soviet Union Small countries Large Russian minorities

Large agricultural sectors Also members of the WTO and NATO

New EU Members (slide 3) Other new members: Cyprus and Malta

Mediterranean islands with small populations

Also WTO members All the new members hope to join the

euro currency by 2010 Slovenia and Estonia will probably

meet requirements for the euro by 2007

Requirements to Join the EU Be a stable democracy, respecting

human rights, the rule of law, and the protection of minorities.

Have a functioning market economy that can compete in the EU.

Adopt EU law – more than 10,000 laws, product standards, and regulations.

Show that the government can enforce EU law and control immigration.

Requirements to Join the Euro Currency

Control inflation. Control the annual budget deficit

of the government. Control the national debt. Control long-term interest rates. Currency must be stable with

respect to the euro for 2 years.

EU Candidate Countries Scheduled to join in 2007 if all

requirements are met (Bulgaria and Romania)

Scheduled to start membership negotiations in October: Turkey

Can start membership negotiations if a war criminal is turned over to the International Court of Justice: Croatia