INTBUS (P)

• Globalization is the process by which the world becomes increasingly interconnected through the growth of trade, communication, and cultural exchange
• It involves the integration of countries into a global economy, allowing goods, services, capital, and technology to move freely across borders
• Globalization is characterized by the free flow of goods, services, capital, and people across borders
• Globalization is the process of scaling a company’s operations to achieve international influence, operating in multiple territories and across different cultures
• Globalization has led to the increasing interconnectedness of the world’s economies, cultures, and populations
• Economic Globalization:

  • Integration of national economies into the international economy through trade, investment, and financial transactions
  • Led to the emergence of multinational corporations (MNCs) operating across borders
  • Has both positive and negative impacts on countries and their economies
• Positive impacts of Economic Globalization:

  • Increased trade and investment leading to economic growth and job opportunities
• Negative impacts of Economic Globalization:

  • Job losses due to outsourcing and increased competition from foreign companies
• Political Globalization:

  • Spread of democratic values, establishment of international organizations like the United Nations, and proliferation of global treaties and agreements
  • Easier collaboration on issues such as climate change, human rights, and global security
• Cultural Globalization:

  • Spread of cultural ideas, values, and practices across the world
  • Facilitated by advances in technology like the internet and social media
• Technological Globalization:

  • New technologies and innovations across the world
  • Facilitated by advancements in communication, transportation, and information technology
• Main Drivers of Globalization:

  • Technological advancements
  • Liberalization of trade policies
  • Increased foreign direct investment (FDI)
  • Globalization of capital markets
  • Economic interdependence
  • Investment
  • Migration
  • Cultural exchange
• Impact of Globalization on Companies’ Financial Exchange Choices:

  • Companies have more options to manage their finances due to globalization
  • Companies often choose financial exchanges that benefit from globalization, like investing in emerging markets or diversifying assets globally
• Types of Financial Exchange Choices in a Globalized Economy:

  • International Debt and Equity Offerings
  • Cross-border Mergers and Acquisitions (M&A)
  • Foreign Direct Investment (FDI)
  • Foreign Portfolio Investment (FPI)
• Challenges and Opportunities in Globalization and Companies’ Financial Exchange Choices:

  • Currency risk
  • Political risk
  • Regulatory risk
  • Cultural differences
• Positive Effects of Globalization:

  • Economic growth
  • Poverty reduction
  • Increased consumer choice
  • Technological advancements
• Negative Effects of Globalization:

  • Job displacement
  • Income inequality
• Globalization has led to increased income inequality within and between countries
• Globalization has contributed to environmental degradation by increasing resource consumption and pollution
• The spread of Western culture and values through globalization has been criticized for undermining local cultures and traditions
• Globalization has significant implications for organizational decision-making, including factors like global competition, localization, supply chain management, regulatory environment, and sustainability
• The changing nature of the global economy is driven by factors like the rise of emerging markets, technological advancements, and shifting demographics
• Globalization in the automotive industry has impacted research and development, market expansion, environmental regulations, supply chain integration, manufacturing, and standardization
• International trade involves the exchange of goods and services between countries through processes like export, import, and entrepot trade
• International trade allows countries to specialize in goods and services they have a comparative advantage in, leading to increased efficiency and economic growth
• Types of international trade include import trade, export trade, entrepot trade, bilateral/multilateral trade
• Reasons for international trade include comparative advantage, access to resources, market expansion, and economic efficiency
• Advantages of international trade include economic growth, specialization, consumer benefits, exchange of technology and ideas, economies of scale, competition, and job creation
• Disadvantages of international trade include dependency, trade barriers, environmental impact, job displacement, unfair competition for new companies, threat to national security, and pressure on natural resources
• Importance of international trade includes providing consumer access to a wider variety of goods at competitive prices
• Importance of International Trade:

  • Consumer Access: Provides a wider variety of goods
  • Price Reduction: Lower costs due to access to global markets
  • Economic Growth: Trade contributes to GDP and job creation
  • Cultural Exchange: Facilitates cross-cultural interactions
  • Global Interdependence: Countries rely on each other for mutual benefit
• International Trade Theories:

  • Frameworks that explain the patterns and benefits of trade between countries
  • Help economists and policymakers understand the reasons behind international trade and its impact on economies
• Classical or Country-Based Trade Theories:

  • Primarily concerned with the country as the principal unit in international trade
  • Theories include Mercantilism, Absolute Advantage, Comparative Advantage, and Heckscher-Ohlin
  • Focus on factors like national resources and productivity
  • Suggest that countries should specialize in producing and exporting goods they can produce more efficiently or at a lower cost than other countries
• Mercantilism:

  • Economic theory suggesting a country should export more than it imports to accumulate wealth
  • Emphasizes a positive balance of trade and accumulation of reserves
  • Example: England's Navigation Act of 1651
  • Advantages: Increased domestic production and trade, strengthening national economies
  • Disadvantages: Inefficiency, corruption, empire building, and poverty of colonies
• Absolute Advantage:

  • Proposed by Adam Smith, states a country should specialize in producing goods it is more efficient in than other countries
  • Suggests countries should produce and export goods they can produce more efficiently than other countries
  • Example: Middle East's absolute advantage in oil production
  • Advantages: Provides a justification for trade advantages
  • Disadvantages: Does not account for costs or barriers to trade
• Comparative Advantage:

  • Introduced by David Ricardo, argues that countries can benefit from trade by specializing in goods they have a comparative advantage in
  • Suggests countries should specialize in producing goods with lower opportunity cost
  • Example: Saudi Arabia's comparative advantage in oil production
  • Advantages: Shows trade can be beneficial to both trading partners
  • Disadvantages: May promote poor working conditions, resource depletion, and over-specialization
• Heckscher-Ohlin:

  • Suggests countries should export products that use resources they have in abundance and import products that require resources they lack
  • States countries will export products using abundant and cheap factors of production
  • Example: Country X exporting labor-intensive goods and importing capital-intensive goods
• Modern Firm-Based Theories:

  • Look at international trade from the perspective of the firm
  • Theories include Country Similarity, Product Life Cycle, Global Strategic Rivalry, and Porter's National Competitive Advantage
  • Consider factors like product characteristics, technology, production scale, and firms' strategic decisions
  • Suggest firms gain competitive advantages in the production of certain products, driving international trade
• Country Similarity:

  • Firms prefer to engage in international trade with countries culturally, economically, or politically similar to their own
  • Proposed by Steffan Linder, suggests companies first produce for domestic consumption before exploring exporting
  • Example: Developed countries trade more with developed countries due to matching demand and user conditions
• Product Life Cycle:

  • Suggests a product goes through stages of development, each best produced in different locations based on factors like cost and market demand
  • Developed by Raymond Vernon, predicts a product's production and sales pattern from introduction to withdrawal from the market
  • Example: The personal computer's stages of development from introduction to standardized product