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The shift toward a more integrated and interdependent world economy.
  • Globalization of markets
    1. Merging of distinctively separate national markets into a global marketplace.
      • Tastes and preferences converge into a global norm
      • Firms often standardize products worldwide creating a world market
      • Marketing and operating strategies are adjusted to meet and match local conditions in host countries
  • Globalization of production 
    1. Refers to sourcing of various goods and services from across the world to take advantage of differences in cost or quality of the factors of production such as land, human labour, energy, capital etc.
  • Emergence of global institutions
    1. Globalization has given rise to the need for global institutions that can police and create rules for firm behavior in the global marketplace
    2. GATT, WTO, IMF, World Bank and United Nations
  • Challenges: 
  • Different tastes and preferences
  • Different business processes
  • Cultural preferences
  • Difference in level of economic development
  • Difference in legal and regulatory regimes
  • Drivers of Globalization: 
  • Declining Trade Barriers: Free trade agreements and lowering of barriers to trade across international borders
    1. 1920s-30s countries erected barriers to trade and investment
    2. As a result of the Great Depression of the 1930s
    3. Post WW II:
      • GATT was signed
        1. 1993: Establishment of WTO
        2. Lowered tariffs, FDI promotion on an increase since then
        3. Tariffs have since been declining
  1. Regulatory changes: Removal on restrictions of Foreign Direct Investment –Same as above
  • Technological changes: communication, information processing, and transportation technologies
    1. Developments in Microprocessors and Telecommunications
      • Moore’s Law
      • 1930-1990: cost of a 3-minute call from NY to London fell from $245 to $3.3
      • Communication facilitation helps in global coordination and controlling a global organization
    2. Internet and the WWW
      • Web based transactions have made it really easy to access any product anywhere
      • Made it an equalizer.
    3. Transportation Technology
      • Safer, Easier and Faster traveling
      • Easier to get permits to travel to other countries now
  • Implications of Globalization:
  • Production
    1. Dispersion becomes more economical
    2. Managing dispersed operations becomes easy
    3. Eg: Dell Computers
  • Markets
    1. Lower shipping costs create global markets
    2. Electronic global market places
    3. Evolution of cosmopolitan consumer
  
Benefits of Globalization:
  • Enhanced customer choice
  • Lowering of prices for goods and services
  • Economic growth stimulation
  • Increase in income of host countries
  • Creates jobs
  • Countries move to specialization of goods and services that are produced most efficiently
 Cons of Globalization:
  • Destroys manufacturing jobs in wealthy advanced countries
  • Wage rate of unskilled workers in advanced countries declines
  • Loss of sovereignty
  • Companies move to countries with fewer labor and environmental regulations