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Chapter Outline
Chapter Summary
This chapter sets the scene for the rest of the book. We have seen how
the world economy is becoming more global, and we have reviewed the main
drivers of globalization and argued that they seem to be thrusting nation-states
toward a more tightly integrated global economy. We have looked at how
the nature of international business is changing in response to the changing
global economy; we have discussed some concerns raised by rapid globalization;
and we have reviewed implications of rapid globalization for individual
managers. These major points were made in the chapter:
- Over the past two decades, we have witnessed the globalization
of markets and production.
- The globalization of markets implies that national
markets are merging into one huge marketplace. However, it is important
not to push this view too far.
- The globalization of production implies that firms
are basing individual productive activities at the optimal world locations
for the particular activities. As a consequence, it is increasingly
irrelevant to talk about American products, Japanese products, or German
products, since these are being replaced by "global" products.
- Two factors seem to underlie the trend toward globalization:
declining trade barriers and changes in communication, information,
and transportation technologies.
- Since the end of World War II, there has been a significant
lowering of barriers to the free flow of goods, services, and capital.
More than anything else, this has facilitated the trend toward the globalization
of production and has enabled firms to view the world as a single market.
- As a consequence of the globalization of production
and markets, in the last decade, world trade has grown faster than world
output, foreign direct investment has surged, imports have penetrated
more deeply into the world's industrial nations, and competitive pressures
have increased in industry after industry.
- The development of the microprocessor and related developments
in communications and information processing technology have helped
firms link their worldwide operations into sophisticated information
networks. Jet air travel, by shrinking travel time, has also helped
to link the worldwide operations of international businesses. These
changes have enabled firms to achieve tight coordination of their worldwide
operations and to view the world as a single market.
- Over the past three decades, a number of dramatic changes
have occurred in the nature of international business. In the 1960s,
the US economy was dominant in the world, US firms accounted for most
of the foreign direct investment in the world economy, US firms dominated
the list of large multinationals, and roughly half the world-the centrally
planned economies of the communist world-was closed to Western businesses.
- By the mid-1990s, the US share of world output had
been cut in half, with major shares now being accounted for by Western
European and Southeast Asian economies. The US share of worldwide foreign
direct investment had also fallen, by about two-thirds. US multinationals
were now facing competition from a large number of Japanese and European
multinationals. In addition, the emergence of mini-multinationals was
noted.
- The most dramatic environmental trend has been the
collapse of communist power in Eastern Europe, which has created enormous
long-run opportunities for international businesses. In addition, the
move toward free market economies in China and Latin America is creating
opportunities (and threats) for Western international businesses.
- The benefits and costs of the emerging global economy
are being hotly debated among business people, economists, and politicians.
The debate focuses on the impact of globalization on jobs,
wages, the environment, working conditions, and national sovereignty.
- Managing an international business is different from managing a domestic
business for at least four reasons: (i) countries are different, (ii)
the range of problems confronted by a manager in an international business
is wider and the problems themselves more complex than those confronted
by a manager in a domestic business, (iii) managers in an international
business must find ways to work within the limits imposed by governments'
intervention in the international trade and investment system, and (iv)
international transactions involve converting money into different currencies
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