Globalization

Globalization of Production
 Globalization of Production
• Sourcing of goods & services from the
locations around the globe

• To take advantage of national differences

in the cost & quality of factors of
productions
 Drivers of Globalization

1. Declining Trade and Investment Barriers

2. The Role of Technological Change

3. The changing Demographics of the Global economy

4. The changing foreign Direct Investment Picture

5. The changing nature of the multinational enterprise

6. The changing world order

7.The Global economy of the 21st century

 Declining barriers to trade

• Globalization of markets and production

has been facilitated by
– Reduction in trade barriers
– Removal of restrictions to foreign direct
investment
Pattern of declining tariffs
Volume of world trade and production,
1950-2002
• Two things are implied:

– More firms are involved in globalization of

markets & production

– Economies are becoming more intertwined

– Large to mini multinationals are increasing

their FDI
 The role of technological change

• Microprocessors and telecommunications

• The internet and world wide web

• Transportation technology
The shrinking globe
 Changing demographics of the world
economy

• World output and trade

• Changing foreign direct investment
• Changing nature of multinationals
– Mini multinationals
– Non US multinationals
The changing pattern of world output and
trade
Percentage share of total FDI stock
Volume of FDI inflows, 1994-2002
($ billions)
National origin of largest multinational
corporations
 Mini-multinationals
• Growth of medium size and small multinationals
•
• Bharat Forge - an Indian maker of steel car components,
the company recently bought forges in the United States
and Germany

• Another mini-multinational is Videsh Sanchar Nigam

Ltd., or VSNL, the former state monopoly for
international telephone calls that was privatized in 2002.

• The company recently paid $130 million for 60,000

kilometers of undersea cables owned by the US giant
Tyco International. Now, with trans-Atlantic, trans-Pacific
and inter-American cables, the company's ambitions
stretch beyond India. VSNL wants to establish itself, as a
"one-stop telecommunications provider for global
businesses."
 Globalization debate-Pro

• Lower prices for goods and services

• Economic growth stimulation
• Increase in consumer income
• Creates jobs
• Countries specialize in production of
goods and services that are produced
most efficiently
Environmental performance and income
 Globalization debate-Con

• Destroys manufacturing jobs in wealthy,

advanced countries
• Wage rates of unskilled workers in
advanced countries declines
• Companies move to countries with fewer
labor and environment regulations
• Loss of sovereignty
 Cycle Diagram
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 Progress Diagram
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