 Understanding Globalization

o Globalization is the spread of products, technology, information, and jobs across national borders and
cultures. In economic terms, it describes an interdependence of nations around the globe fostered through
free trade
o Corporations gain a competitive advantage on multiple fronts through globalization. They can reduce
operating costs by manufacturing abroad, buy raw materials more cheaply because of the reduction
or removal of tariffs, and most of all, they gain access to millions of new consumers.
o Globalization is a social, cultural, political, and legal phenomenon.
o Socially, it leads to greater interaction among various populations.
o Legally, globalization has altered how international law is created and enforced.
o On one hand, globalization has created new jobs and economic growth through the cross-border flow
of goods, capital, and labor. On the other hand, this growth and job creation are not distributed
evenly across industries or countries.
o Globalization is not a new concept. Traders traveled vast distances in ancient times to buy
commodities that were rare and expensive for sale in their homelands. The Industrial Revolution
brought advances in transportation and communication in the 19th century that eased trade across
borders.
o Governments worldwide have integrated a free market economic system through fiscal policies and
trade agreements over the last 20 years. The core of most trade agreements is the removal or
reduction of tariffs.
o This evolution of economic systems has increased industrialization and financial opportunities in
many nations. Governments now focus on removing barriers to trade and promoting international
commerce.

 Global Company Distinctions

o A global company has a foothold in multiple countries but the offerings and processes are consistent
in each country.
o The company uses the same ingredients and manufacturing processes, regardless of local culture. In a
global model, the business does not adapt to local norms, but rather, it imposes its existing business
model on the country.
o A global corporation, also known as a global company, is coined from the base term ‘global’, which
means all around the world. It makes sense to assume that a global company is a company that does
business all over the world.
o To be a global company, you need to introduce not only your products, but also your company to
people who live in another country. You need to conduct significant research to figure out which
country is your best choice for expansion and how to introduce yourself. Probably, you'll have to
send some of your employees to that country to speak with people face-to-face and to experience that
country on a first-hand basis, before you decide whether the country is right for your company. Once
you expand to another country and establish yourself successfully, it's only natural that you will want
to try an additional country, and another, and yet another. That is how global companies have started,
and now they have a massive list of countries in which they do business.

 Characteristics of A Global business

o In the world of finance and investing, a global corporation is one that has significant investments and
facilities in multiple countries and lacks a dominant headquarters.
o Global corporations are governed by the laws of the country where they are incorporated.
 o A global business connects its talent, resources and opportunities across political boundaries.
Because global corporation is more invested in its overseas locations, it can be more sensitive to local
opportunities -- and also more vulnerable to threats.
 United States country profile
o The USA is the world's foremost economic and military power, with global interests and an
unmatched global reach.
o America's gross domestic product accounts for close to a quarter of the world total, and its military
budget is reckoned to be almost as much as the rest of the world's defence spending put together.
o The country is also a major source of entertainment: American TV, Hollywood films, jazz, blues,
rock and rap music are primary ingredients in global popular culture.

 The economic context of the United States

o The United States is the world's largest economy, ahead of China. After a decade of growth, the
country’s GDP growth rate turned negative in 2020 (-4.3%; IMF est.) following the COVID-19
crisis, exacerbated by rising inequalities and obsolete infrastructure, which are slowing down
potential GDP growth.
o Following a deep contraction in Q2 2020 that reflected the impact of the containment measures, the
U.S. economy rebounded strongly by an annualized rate of 33.1%, though the second wave of the
infection resulted in new restrictions, making the situation even more uncertain
o In its most recent January 2021 update of the World Economic Outlook, the IMF has revised its GDP
growth projections for the United States to 5.1% in 2021 and 2.5% in 2022 (representing a difference
from October 2020 WEO projections of +2% and -0.4%, respectively).
o In 2020, the budget deficit reached a record level of 15% as a result of the measures adopted to
mitigate the impact of the COVID-19 crisis (which accounted for around 14% of GDP). Such budget
deficit should decrease progressively in 2021 and 2022 (to 7.6% and 6.1% respectively, IMF
forecast).
o The U.S., however, enjoys unmatched financing flexibility, being the issuer of the US dollar, the
world's main reserve currency.
o According to the Employment Situation of Dec 2020 described by the Bureau of Labor Statistics, in
November the unemployment rate edged down to 6.7%: such rate is down by 8% from its recent high
in April but is 3.2% higher than it was in February. The number of unemployed persons, at 10.7
million, continued to trend down in November, but it is still 4.9 million higher than in February.
o American citizens enjoy one of the highest GDP (PPP) per capita in the world, estimated at USD
65,118 in 2019 by the World Bank.
o According to a Columbia University study, however, the monthly poverty rate increased from 15% to
16.7% from February to September 2020 due to the crisis propelled by the COVID-19 pandemic.
o The United States is a highly industrialised country with high levels of productivity and the use of
modern technologies. Key sectors include agriculture (corn, soy, beef, and cotton); manufacturing of
machinery, chemical products, food, and automobiles; and a booming tertiary market focused on
finance, new technologies, insurance, real estate, rentals, and leases.
o According to data from the U.S. Department of Agriculture, keeping into consideration also food and
related industries, the primary sector contributed USD 1.109 trillion to the U.S. GDP in 2019, a 5.2%
share (the output of America’s farms alone contributed USD 136.1 billion). In the same year, 22.2
million full- and part-time jobs were related to the agricultural and food sectors. The USDA forecasts
the net farm income to increase USD 18.3 billion (21.7%) from 2019 to USD 102.7 billion in 2020,
notwithstanding the COVID-19 crisis.
o Including a broad range of activities, the industrial sector contributes over 18.2% of GDP and
employs 20% of the workforce. Besides the industries mentioned above, the country is also the world
leader in the aerospace and pharmaceutical industries. The country is the world's largest producer of
liquid natural gas, aluminium, electricity and nuclear energy. It is the world's third-largest oil
producer and, for several years, has also been developing shale gas extraction on a large scale.
 o The American economy is essentially based on services. The tertiary sector accounts for more than
three-fourths of GDP (77.4%) and employs over 79% of the country's workforce. A big portion of
GDP is composed of finance, insurance, real estate, rental, and leasing sector (21% in 2019); as well
as the professional and business services (12.8%). The governmental sector (at federal, state and
local level) accounted for around 12.3% of the country’s GDP in 2019 (U.S. Department of
Commerce).

 HOW DO GLOBAL COMPANIES AFFECT THE ECONOMIC STATUS OF THE USA?

o The worldwide operations of U.S. multinationals are highly concentrated in America in their U.S.
parents, not abroad in their foreign affiliates. The idea that U.S. multinationals have somehow
“abandoned” the United States is not supported by the facts. They maintain a large presence in America,
both relative to the overall U.S. economy and relative to the size of their foreign affiliates.
o International engagement drives the overall strength of U.S. multinational companies. Although the
United States is still the world’s largest single-country market, in the past generation it has been a slow-
growth market compared with much of the world. Even with today’s worldwide recession, this means that
the overall strength of U.S. multinationals is increasingly tied to their success in both America and
abroad. It also means that viewing the domestic and foreign operations of U.S. multinationals as unrelated
is increasingly incorrect. U.S. multinationals must make strategic investment and employment decisions
from a truly global perspective, with links across all locations and with dynamic variation in successful
strategies both across companies at a point in time and within companies over time.
o Foreign-affiliate activity tends to complement, not substitute for, key parent activities in the United
States such as employment, worker compensation, and capital investment. Being globally engaged
requires U.S. multinationals to establish operations abroad and also to expand and integrate these foreign
activities with their U.S. parents. The idea that global expansion tends to “hollow out” U.S. operations is
incorrect. Rather, the scale and scope of U.S. parent activities increasingly depends on successful
engagement abroad. Expansion by U.S. parents and their affiliates contributes to the productivity and
average standard of living of all Americans.
o U.S. parent companies perform large shares of America’s productivity-enhancing activities that
lead to high average compensation for American workers.
• Output: Parent companies accounted for 24.9% of all private-sector output (measured in terms of gross
domestic product)—over $2.5 trillion.
• Capital Investment: Parent companies purchased $442.6 billion in new property, plant, and equipment
— 31.3% of all private-sector capital investment.
• Exports: Parent companies exported $495.1 billion of goods to the rest of the world. This constituted
nearly half—48.0%—of the U.S. total.
• Research and Development: To discover new products and processes, parent companies performed
$187.8 billion of research and development. This was 75.8% of the total R&D performed by all U.S.
companies. All these productivity-enhancing activities contribute to larger average paychecks for the
millions of employees of U.S. multinationals.
• Parent companies employed over 21.7 million U.S. workers. This was 19.1% of total private-sector
payroll employment. • Total compensation at U.S. parent companies was over $1.36 trillion—a per-
worker average of $62,784. This average was $12,163—fully 24.0%—above the average for the rest of
the private sector of $50,621.

Resources:

 https://www.investopedia.com/terms/g/globalization.asp
 https://smallbusiness.chron.com/global-company-vs-multinational-company-35107.html
 https://smallbusiness.chron.com/global-corporation-63267.html
 https://www.bbc.com/news/world-us-canada-16761057#:~:text=The%20USA%20is%20the
%20world's,world's%20defence%20spending%20put%20together.
 https://www.nordeatrade.com/no/explore-new-market/united-states/economical-context?#:~:text=According
%20to%20the%20IMF's%20October,of%20several%20COVID%2D19%20vaccines.&text=This%20trend
%20is%20expected%20to,134.5%25%20of%20GDP%20by%202022.
 https://voxeu.org/article/understanding-global-role-us-economy
 https://opentextbc.ca/businessopenstax/chapter/global-trade-in-the-united-states/