Globalization: Characteristics, Markets, and Impact
Characteristics of Globalization
Globalization is the ability to use technology to exchange and communicate goods and services between two or more nations. Example: Making a product in China and selling that product all over the world.
Globalization of Markets
The globalization of markets means that nations are not constrained to their own borders; they are now all connected. Example: Buying products online that are produced all over the world.
Globalization of Production
This means that companies can now work around the clock to produce goods or services by handing off work to other countries (within the same company) that are just beginning their day.
Role of the World Trade Organization
It’s an organization that deals with the rules of trade between nations.
Outsourcing and Competition
A company can take advantage of resources in other countries, like lower labor costs and raw materials. Example: A company using low labor costs in China to produce a good and sell it worldwide.
Impact of Technology on Global Markets
Technological advances have made it easier to communicate between countries in real time. This has created many opportunities for companies to expand their markets. Example: The use of the internet to sell products.
Transportation Innovations and Global Trade
Containers can easily be loaded, stacked, and sent over long distances in various transportation formats, such as container ships, rail cars, and semi-trucks.
The Uruguay Round
It was a multilateral trade negotiation (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT). The Round led to the creation of the World Trade Organization.
Demographics of World Trade Since the 1960s
In the early 1960s, the U.S. was the world’s dominant industrial power, accounting for over 40 percent of world output. By 2008, the United States accounted for 20.7 percent of world GDP, still the world’s largest industrial power but down significantly in relative size since the 1960s. Other industrialized countries also saw their relative standing slip. Taking their place as active exporters are the newly industrializing countries of South Korea and China. Most forecasts predict that the share of world output accounted for by developing countries such as China, India, and Mexico will rise over the next 20 years, while at the same time rich industrialized countries will continue to see their share of world output decline.
Changes in Foreign Direct Investment Since the 1960s
The U.S. accounted for about two-thirds of worldwide foreign direct investment flows in the 1960s, followed by British firms with about 10 percent of FDI flows, and Japanese firms with 2 percent. As barriers to trade fell, non-U.S. firms increased their investments around the world in search of optimal production locations and a direct presence in major markets. During the 1990s, FDI to both developing nations increased dramatically. China also emerged as an important destination for FDI.
Managing International vs. Domestic Business
International transactions involve converting money, and an international business must find ways to work within different languages. The range of problems confronted by a manager in an international business is different than those confronted by a manager in a domestic business.