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1.9 Globalization

1.9 Globalization. Chapter 9. What is Globalization?. The growing trend towards world-wide markets in products, capital and labor, and unrestricted by barriers. Why is this possible?. Increased international trade as barriers are reduced

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1.9 Globalization

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  1. 1.9 Globalization Chapter 9

  2. What is Globalization? • The growing trend towards world-wide markets in products, capital and labor, and unrestricted by barriers.

  3. Why is this possible? • Increased international trade as barriers are reduced • Growth of multinational businesses in all countries as freedom of capital investments is allowed • Movement of workers between countries

  4. Why would you become a multinational company? Closer to your markets means: • Lower transportation costs • Better market information – you are closer to your customers • May be considered a local company and gain customer loyalty BMW builds cars in South Carolina.

  5. Why would you become a multinational company? Lower costs of production: • Lower labor rates – compared to more developed economies • Cheaper rent / cost of production facilities • Government tax incentives to encourage development

  6. Why would you become a multinational company? Avoid import restrictions • By producing locally you avoid import duties (taxes) and other import restrictions

  7. Why would you become a multinational company? Access to local natural resources • These resources may not be available in your country or very limited.

  8. Why would you become a multinational company? Take advantage of expanding markets • Increased sales, profits, and growth opportunities

  9. Impact of going “Global” • Investment dollars are positive for foreign “host” countries • Employment opportunities for local economy; generation of additional “supplier” jobs • Local firms maybe forced to increase their own quality of products • Tax revenues generated for local governments • Management talent increases in the local population as they are trained by expert foreign managers • Total GDP increased for host country

  10. Drawbacks of going “Global” • Exploitation of local workforce • Lack of local labor laws and safety rules • Pollution because of lower environmental standards • Local firms may be squeezed out of the market • Western business maybe seen as imposing culture in other parts of the world • Profits may not be reinvested in the host country • Depletion of natural resources in host country

  11. World Trade Organization (WTO) • An International organization that promotes trade among member nations. • 150 members; China joined in 2001 • Acts as an arbitrator for member countries when they have trade disputes.

  12. Regional Trade Blocs • Free Trade Areas / Agreements (NAFTA)Free trade with no tariffs, quotas, or restrictions. Each country controls non-members themselves. • Customs Unions(Mercosur – Argentina, Brazil, Paraguay, Uruguay, and Venzuela)These are free trade areas but members AGREE on restrictions for non-members. • Common Markets(European Union – EU – the worlds largest common market. There are 27 member countries.)Free trade of capital AND people between members as well as common product standards (i.e. emission standards for cars). • Economic and monetary unions(EMU) i.e. EurozoneThese members share a common currency and an interest rate that is determined by a central bank. (EU has 16 members of the Eurozone)

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