IBT PRELIM

• Globalization refers to the shift toward a more integrated and interdependent world economy
• Globalization of Markets:

  • Refers to the merging of historically distinct and separate national markets into one huge global market
  • Most global markets are for industrial goods and materials that serve universal needs
• Globalization of Production:

  • Refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in cost and quality of factors of production
• Robert Reich argued that companies are pushing for "Global Products" and it is becoming irrelevant to talk about products based on their country of origin
• Impediments to globalization of production:

  • Formal and informal barriers to trade between countries
  • Barriers to foreign direct investment
  • Transportation costs
  • Economic and political risks
  • Managerial challenge of coordinating a globally dispersed supply chain
• Emergence of Global Institutions:

  • General Agreements on Tariffs and Trade (GATT)
  • World Trade Organization
  • International Monetary Fund
  • World Bank
  • United Nations
  • Aim to maintain order in the international monetary system, promote economic development, and preserve peace through international cooperation
• Drivers of Globalization:

  • Decline in barriers to the free flow of goods, services, and capital
  • Technological change in communication, information processing, and transportation technologies
• Declining Trade and Investment Barriers:

  • During 1920s-1930s, nation-states erected formidable international trade and foreign direct investment barriers
  • After World War II, barriers were reduced with the General Agreement on Tariffs and Trade and establishment of the World Trade Organization
• Role of Technological Change in driving globalization
• Implications of Globalization
• The Globalization Debate
• International Trade involves the transfer of products and services between countries through exports and imports
• Nations trade internationally when there are not enough resources or capacity to satisfy domestic needs and wants
• Countries develop and exploit domestic resources to produce a surplus, which can be used to buy goods they need from abroad
• International trade has existed for more than 9,000 years
• Long distance trade dates back to when pack animals and ships first came onto the scene
• Modern industrialized world relies on import and export for its existence
• Reasons for importing goods and services include price, quality, availability, and demand
• Comparative Advantage: trade encourages nations to specialize in producing goods and services they can deliver more effectively at the best price
• Economies of Scale: selling goods globally requires producing more, leading to greater economies of scale and lower production costs
• Competition in international trade boosts prices and quality, benefiting consumers with more choice and top-quality goods
• Transfer of Technology increases due to international trade, with technology transferring from the originator to secondary users, often developing nations
• Great trading nations like Japan, Germany, the UK, USA, and South Korea have lower levels of unemployment due to their involvement in international trade
• International Business refers to business activities conducted across national boundaries
• Ways to internationalize a domestic business include importing/exporting, licensing, franchising, and strategic partnerships/joint ventures
• Multinational companies have investments in other countries but do not have coordinated product offerings in each country
• Global companies are present in many countries and market their products using the same coordinated image/brand in all markets
• Transnational companies have invested in foreign operations but give decision-making, R&D, and marketing powers to each individual foreign market
• International Business focuses on the problems and opportunities that emerge when a firm operates in more than one country
• Companies engage in international business to expand sales, acquire resources, and minimize risk
• Understanding a company's external environment requires knowledge of basic social sciences, political sciences, law, anthropology, sociology, psychology, economics, and geography
• Problems of International Business include political and legal differences, cultural differences, economic differences, differences in currency unit, language differences, marketing infrastructure differences, trade restrictions, high costs of distance, and differences in trade practices
• Globalization creates a "Global Village" for business, interconnecting different organizations and creating global dependency
• Globalization is a process of interconnectedness and interdependence of countries
• In the business landscape, globalization requires solid leadership, close communication, and careful coordination
• Expansion of business challenges in international markets include overseas profit, growth opportunities, and success in competitive markets