Chapter 6: The Challenges of Globalization

Chapter 6 The Challenges of GlobalizationCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinCh. 6 Key Learning ObjectivesDefining globalization and classifying the major ways in which companies enter the global marketplaceRecognizing the major drivers of the globalization process and the international financial and trade institutions that have shaped this process in recent decadesAnalyzing the benefits and costs of the globalization of businessIdentifying the major types of political and economic systems in which companies operate across the world, and the special challenges posed by doing business in diverse settingsAssessing how businesses can work collaboratively with governments and the civil sector to address global social issues 6-*The Process of GlobalizationRefers to the increasing movement of goods, services, and capital across national borders Is considered a process – an ongoing series of interrelated eventsInternational trade and financial flows integrate the world economy, leading to the spread of technology, culture, and politics Globalization is not simply a trend or a fad but, rather, an international system6-*Entering and Competing in the Global MarketplaceDevelop global market channelsFirst build a successful business in their home country, then export products or services to buyers in other countries Establish global operationsLocate manufacturing plants or service operations in other countries as a way to cut costsDevelop global supply chains Purchase raw materials, components, or other supplies from sellers in other countries; work may also be subcontracted6-*Major Transnational Corporations (TNCs)Defined by the United Nations as firms that control assets abroad 104,000 TNCs operate in the modern global economyThey, in turn, have nine times that number of affiliates (suppliers, subcontractors, and other entities with which they have some business relationship) Most global commerce is carried out by a small number of powerful firmsNext slide lists top 10 non-financial transnational corporations, ranked in order of the value of the foreign assets they control6-*The World’s Top 10 Nonfinancial Transnational Corporations Figure 6.1 6-*Foreign Direct InvestmentAnother important aspect of globalization is the worldwide flow of capital Foreign direct investment (FDI) occurs when a company, individual, or fund invests money in another country, for example, by buying shares of stock in or loaning money to a foreign firmIn 2010, FDI was $1.24 trillion6-*The Acceleration of GlobalizationThe world’s economy is becoming increasingly integratedHigher share of output is being exported across national bordersOne-fifth of all goods and services produced worldwide is sold to other nations, rather than domesticallyThis is almost double the percentage of 1960In earlier years, most exports were of goods. An important recent trend is the globalization of services, such as travel, insurance, financial, and information services.6-*The Acceleration of GlobalizationDriven by several factors:Technological innovationEasier to communicate with employees, partners, and suppliers all over the globe in real timeTransportation systemsImprovements enable the fast and cheap movement of goods and services from one place to anotherThe rise of major transnational corporationsBigger, well-capitalized, firms are better equipped to conduct business across national boundaries than smaller firmsSocial and political reforms Rise of Pacific Rim growth economies, collapse of communism in Central and Eastern Europe have opened new regions to world trade6-*International Financial and Trade InstitutionsThree institutions that set the rules by which international commerce is transacted:World Bank (WB)International Monetary Fund (IMF) World Trade Organization (WTO)No business can operate across national boundaries without complying with rules set by the WTOMany businesses in developing countries are dependent on WB and IMF loans to survive6-*The World Bank Established in 1944Provides economic development loans to its member nationsFunds used mainly for roads, dams, power plants, pipelines, and other infrastructure projectsFunding provided by member countries and international capital marketsNegotiates “structural adjustment plans” with countries it loans toApplies conditions on these countriesConditions are considered by critics to lead to unfair burden on developing countries6-*International Monetary Fund “Sister” organization to World Bank, created at same timePurpose is to make currency exchange easier for member countries so that they can participate in global tradeLends foreign exchange to member countriesImposes conditions on governments that receive its loansHas begun to offer debt relief to some nations6-*World Trade OrganizationFounded in 1995, successor to General Agreement on Tariffs and Trade (GATT)International body that establishes the ground rules for trade among nationsIts major objective is to promote free trade; attempts to eliminate barriers to trade (e.g. quotas, duties and tariffs)Conducts “rounds” of negotiations on various topics“Most favored nation” rule means members countries cannot discriminate against foreign products for any reason6-*The Benefits and Costs of GlobalizationGlobalization is highly controversialClearly, some benefit from globalization, while others do notWhat are some of the major arguments advanced by both side in the debate over this important issue?6-*Benefits and Costs of GlobalizationFigure 6.26-*Comparative Political and Economic SystemsNations differ greatly in their political, social and economic systemsFirst important dimension to consider is how power is exercised and degree of democratic rightsPast century has been marked by spread of democratic rights to many nations for the first time6-*Comparative Political SystemsDemocracy – The presence of political freedomFour defining features of democracy (according to the U.N.)Fair electionsAn independent mediaSeparation of powers among the executive, legislative, and judicial branches of governmentAn open society where citizens have the right to form their own independent organizations to pursue social, religious, and cultural goals6-*Comparative Political SystemsMilitary dictatorships Repressive regimes ruled by dictators who exercise total power through control of the armed forcesExamples include Zimbabwe and UzbekistanRights of citizens to organize for cultural or religious freedoms is restricted in othersExamples include Iran, Saudi ArabiaAccording to United Nations estimates, 106 countries still limit important civil and political freedoms6-*Comparative Political SystemsDegree to which human rights are protected differs greatly among nationsSeveral international codes of human rights exist Most important one is United Nations Universal Declaration of Human Rights of 1948Over half world’s nations have adopted these human rights covenants Still, many violations of human rights still occur:Recent genocides in Rwanda, Sudan Systems where minority groups and indigenous peoples lack basic human rights, example of Nepal6-*Comparative Economic SystemsFree enterprise systemsBased on the principle of voluntary association and exchangeMembers of society satisfy most of their economic needs through voluntary market transactionsCentral state controlEconomic power is concentrated in the hands of government officials and political authoritiesThe central government owns the property that is used to produce goods and services6-*Challenges of Global DiversityDiversity and complexity of systems that transnational corporations face creates challengesIf a company does business in a nation that does not grant women equal rights, should that company hire and promote women at work, even if it violates local laws and customs?Should a company enter into a business venture with a government-owned enterprise if that government has a reputation for violating its citizens’ human rights?6-*Meeting the Challenges of Global DiversityNotion of constructive engagementBy operating with strong moral principles, transnational corporations can be a force for positive change in nations where they operateIn some circumstances this is not possible due to extreme conditions, provoking dilemmaAt what point do violations of political, human, and economic rights become so extreme that a company cannot morally justify doing business in that country? 6-*Collaborative Partnerships for Global Problem SolvingEmerging trend for development of collaborative, multi-sector partnerships focused on particular social issues or problems in the global economyThese partnerships have been termed global action networks, or GANs Involves 3 sectorsBusinessGovernmentCivil societyUnique capabilities of each sector is presented on following slide6-*Distinctive Attributes of the Three Major SectorsFigure 6.36-*