brief history of ib and globalization

International Business

◼ Brief History of International Business

◼ Globalization and its Forces, Impacts and Debates

Brief History of International Business

◼ International business as practice is relatively old.

◼Early Traders

▪ Well before the Christ, Phoenician and Greek merchants were sending representatives abroad to sell their goods.

▪ Sea trade (Mediterranean)

▪ Silk Road

▪ Sea Routes

◼Fall of Roman languished European Trade for long.

◼European explored sea routes to reach far east Asia.

◼ In 1600, The British East India Company established foreign branches throughout the Asia,

◼Dutch Companies joined with East India Company to expand operation in Asia.

◼By the 17 century, Mercantilism was widely accepted. Mercantilism accepted state as supreme in the trade.

◼ In 18th century principles of mercantilism was challenged by French thinkers and argued governments not to intervene the economy.

◼ In 1776, Adam Smith (British) published ‘Wealth of Nations’ and argued against the state interference in the economy and trade.

◼A number of MNCs were established by late 1800s.

◼Again mercantilism underwent in 19th century due to influence of J. M. Keynes and his followers.

◼ In middle of 19th century, the Smith Free Trade ideas emerged as against mercantilism.

◼ In 1846, Britain annulled the ‘Corn Laws’.

◼By end of 19th century, trend toward free trade continued to gain momentum.

◼First world war disrupted the World Trade again.

◼World War II made world leaders to realize what went wrong.

◼GATT to oversee Multilateral trade was created in 1947, with 23 members.

◼During the 1990s - creation of WTO

◼Now in recent years the process of globalization has speeded up

Globalization

◼ The term Globalization was first coined by Theodore Levitt in a Harvard Business Review article..

◼ He mentioned that the future belonged at global corporations that adopted strategies..

◼ Globalization refers to the increasing unification of the world's economic order through reduction of such barriers to international trade as tariffs, export fees, and import quotas.

Goal of globalization

◼ The goal is to increase material wealth, goods, and services through an international division of labor by efficiencies catalyzed by international relations, specialization and competition.

◼ It describes the process by which regional economies, societies, and cultures have become integrated through communication, transportation, and trade.

Background

Previously the national economies were self-contained entities, isolated from each other by▪ barriers to cross border trade and investment;

▪ by distance, time zones, and languages;

▪ and by national differences in government regulation, culture and business system.

◼ There is a fundamental shift occurring in the world economy

Globalization

Now the world is moving towards a world in which◼ barriers to cross border trade and investment are tumbling, ◼ perceived distance is shrinking due to the advancement in

transportation and information and telecommunication technology,

◼ material culture is starting to look similar all over the world; and national economies are merging into an interdependent global system.

◼ the process by which this is occurring is commonly referred to as globalization.

◼ so, Globalization refers to the shift towards a more integrated and interdependent world economy.

Globalization mean- Different for different people

◼ Process of world becoming a global village and creating borderless world ◼ Process of becoming world an integrated and interdependent world

marketplace◼ Process of freeing economy – free flow of goods, service, ideas, factors

◼ Globalization is both old and new concept

– old in the sense of universalization of technology, like fire, and of social institutions, like marriage, kinship, family and war, which is as old as human civilization

– new in the sense of universalization of modern technology, capital and labor, goods and services, and of dominance and exploitation

◼ Blackwell Dictionary of Sociology ”Globalization is the process in which social life within societies is increasingly affected by international influences based on everything from political to trade ties to shared music, clothing style, mass media” and so on.

Globalization for International Business context: Economic globalization

◼ Globalization at macro level – globalization of world economy, which can be called Globalization of Market

◼ Globalization at micro level – globalization of business, which can be called – Globalization of Production

Globalization for International Business context

Globalization of Market:◼ It refers to the merging of historically distinct and

separate markets into one huge global market place. ◼ Falling barriers to cross border trade have made it

easier to sell internationally. ◼ It has been argued for some time that the tastes and

preference of consumers of different nations are beginning to converge on single global norms, thereby helping to create a global marketplace. E.g. Coca Cola, McDonald’s.

Globalization for International Business context

Globalization of Production:◼ It refers to the sourcing of goods and services from

locations around the globe to take advantage of national differences in the cost and quality of factors of production (land, labor, energy, capital).

◼ By doing this companies hope to reduce their overall costs and improve their quality or functionality of their product offering, thereby allowing them to compete more effectively in the global marketplace.

◼ E.g. Boeing Company’s parts are produced in Japan, Singapore, Italy, and so on, because they are the best in world in their activities.

Globalization Broadly categorized

1) Economic globalization – increasing global linkages of the markets in goods, service, capital, labor and so on – through policies of deregulation, privatization, liberalization

2)Political globalization – many nations joining hands in the form of unions, Macro political framework for development. Exchange of views and experiences on the governance, legal system, human and women rights, sustainable development, fighting terrorism, HIV/AIDS and so on.

3) Cultural Globalization – Assimilation of cultural values globally. Cultural exchanges for understanding, peaceful co-existence with harmony, and learning. Material culture is another dimension. It can be through media, tourism, communication, technologies and consumption pattern

4) Environmental globalization: - represented by global environmental concerns. Aims at protection of global environment and ecology. Aims at preventing and addressing the global warming, ozone depletion, loss of biodiversity, and growing pollution. Rational use of renewable and non-renewable energy sources

Globalization Broadly categorized

Forces or Drivers of Globalization

The two major factors seem to be important drivers of globalization process -

◼ The first factor is the decline in the barriers to cross border flow of goods, services and capital

◼ The second factor is technological changes and developments, particularly the dramatic development in recent years in communication, information processing and transportation technologies.

8/9/2012

Contd..

◼ Decline in trade and investment barriers

▪ emergence of international institutions (GATT,WTO,IMF, WB System, UN Agencies)

▪ Emergence of regional cooperation and trade blocs

▪ Revolutionary economic reforms and policies (liberalization, privatization, deregulation)

◼ Development in the technology

▪ Telecommunication

▪ Information

▪ Transportation

Contd..

There are other forces or drivers-◼ Quality and availability of resources◼ Knowledge and technology transfer - Rising

aspirations and wants of global citizens.◼ Competition – in attempt to defend from

competition; move due to lack of sufficient market size

◼ Costs advantage of production – exploit cheaper resources

218/9/201

2

Ball, Donald A. (2002) identifies five major forces of globalization

◼ Political – unification and socialization of global community

▪ Progressive reduction in barriers to trade and investment

▪ Privatization of state owned resources and enterprises

◼ Technological – Advancement in ICT◼ Market – search for market due to competition in domestic

market and saturation of it ◼ Costs – to achieve economies of scale firms globalizes the

production◼ Competition – increasing intensely; firms entered in global

market; firms are defending their home market by entering into competitors market

Globalization and its Impacts

Globalization has various aspects which affect the world in several different ways-

◼ Industrial- emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies

◼ Financial- better access to external financing for borrowers

◼ Economic- realization of a global common market, based on the freedom of exchange of goods and capital


◼ Political- the creation of sub-state and supra-state institutions, the state loses power of policy making and thus sovereignty.

◼ Informational- technological change with the advent of fiber optic communications, satellites, and increased availability of telephone and Internet.

◼ Language- the most popular second language is undoubtedly English.

◼ Ecological- the advent of global environmental challenges that might be solved with international cooperation.


◼Cultural- Growth of cross-cultural contacts.◼Technical- the development of a Global

Information System, and greater trans-border data flow.

◼Religious- interrelations of various religious groups, ideas, and practices.

◼Cultural effects- patterns of human activity

◼Economic LiberalizationAccording to Jagdish Bhagwati, a former adviser to the U.N. on globalization-“Although there are obvious problems with overly-rapid development, globalization is a very positive force that lifts countries out of poverty”. According to him, it causes a virtual economic cycle associated with faster economic growth.


◼ Jobs- Brain drains, Income inequality and

Sweatshops

◼Natural resources

◼Health

◼Global Market- Expansion, financial

interdependencies , Drug and illicit goods trade.

Institutions and Globalization

The institutions involved in globalization mainly includes: ◼ International Bank for Reconstruction and Development

(the World Bank), and the International Monetary Fund◼ Globalization has been facilitated by advances in

technology which have reduced the costs of trade, and trade negotiation rounds, originally under the auspices of the General Agreement on Tariffs and Trade (GATT), which led to a series of agreements to remove restrictions on free trade.

◼ Since World War II, barriers to international trade have been considerably lowered through international agreements — GATT and its successor, the World Trade Organization(WTO).

Globalization and Nepal

◼ Nepal was not prepared for the waves of globalization

◼ After the restoration of democracy in 1990, Nepal’s economy started to liberalise

◼ Nepal joined the WTO in 2003

◼ For a landlocked country such as Nepal, chances of exchange of goods, people, knowledge, and ideas are opportunities that globalization has brought to Nepal

Globalization and Nepal

◼ Nepal focusing on areas where there is an edge for business and trade

◼ Should focus on its internal infrastructure to be more competitive

Pros & Cons of Globalization

◼ Advantages

▪ Enhances productivity

▪ Offers benefits of transfer of technology, capital and knowledge

▪ Help increase trade

▪ Increases employment opportunities

▪ Promotes newly industrialized economies

▪ Disadvantages▪ Poses threats to socio-

cultural values▪ Inequitable distribution

of benefits & resources▪ Erosion of national

sovereignty ▪ Insecurity in jobs and

income▪ Environmental

degradation▪ Rise in unfair competition

1. Is It Really Happening?

▪ Proclaim that “national economies” are disappearing and companies no longer have a nationality; only people do.

▪ However, critics argue that the globalization trend has been really overstated.

▪ The economy is indeed becoming more international but not more global.

2. Does It Undermine the Authority of Nation-States?

◼ Supporters argue that the spread of multinational corporations creates “destructive political tensions,” within and across nation-states.

◼ They argue that governments are losing control◼However, critics feel the international arena, far

from threatening states, actually fosters them. ◼Globalization reinforces the importance of

domestic policies

3. Is Globalization Different from Modernity?

◼Some believe that there is nothing new since globalization is in fact age-old capitalism

◼They argue that “modernity is essentially globalizing.”

◼However, critics argue that globalization is a “transformation, not a culmination.”

◼We are entering a "global age"

4. Is there a rise of a Global Culture?

◼Globalization leads to cultural homogeneity

▪ interaction and integration diminish difference

▪ global norms, ideas or practices overtake local traditions

▪ many cultural flows reflect exclusively Western interests

◼Heterogeneity that results from globalization▪ interaction is likely to lead to new mixtures of

cultures and integration is likely to provoke a defense of tradition

▪ global norms or practices are interpreted differently according to local tradition, and one such norm stresses the value of cultural difference itself;

▪ cultural flows now originate in many places and America has no dominant grasp on a world

Conclusion

◼Globalization is changing the nature of the world. However, it is neither always a civilizing force nor a destructive one.

◼ Its impact varies across countries, societal sectors, and time.

◼The complexity of globalization certainly invites additional research.

◼The End

brief history of ib and globalization

Education