Globalization &

Multi-National Companies
Globalisation
• Definition:
• An economic phenomenon?
• A social phenomenon?
• A cultural phenomenon?
• The movement towards the expansion of economic and social ties
between countries through the spread of corporate institutions and
the capitalist philosophy that leads to the shrinking
of the world in economic terms.
What is Globalization?
The shift toward a more integrated and
interdependent world economy
 Components:
The globalization of markets
The globalization of production
…
Globalization of Production – E.G.
 Vizio flat panel TV is
 designed in a small office in California
 assembled in Mexico
 From
 panels made in South Korea
 electronic components made in China
 microprocessors made in the U.S.
Globalization of markets – E.G.
 In the past, each country had its own companies in many industries and its
own products
 E.G. – Media - I never saw Japanese media (and I saw little non-Indian media) in
college (Late 1990s – Early 2000)

• Today’s times – Brands transcend boundaries

• Nintendo
• Starbucks
• Coca-Cola
• Ikea
• McDonald’s
• Samsung
 Key aspects of Globalisation
Globalisation
Thomas Friedman, “The Lexus and the Olive
Tree”
• A globalist system has replaced the Cold War system
• The new system has unique rules, logic, pressures and incentives driven by
international capitalism
• Features integration: free flow of capital, goods, ideas more broadly, faster,
deeper than anytime in the past.
• The “Golden Straightjacket”: must abide by goals of free market principles,
efficiency. Rewarded if you do.
• New key players: The “Electronic Herd.”
• Globalization promotes cultural homogenization, the “Big Mac.”
 Friedman: Globalization’s New Structure and
Balance of Power
• Traditional balance between states (countries), U.S. is
the paramount player
• Balance between states and global markets: states
can’t ignore the market any longer without costs
• Balance between individuals and states: people
influence governments through the market at home
and abroad (for good and evil).
• Globalization produces “super-empowered
individuals
Important Conclusions from Friedman’s Argument

1. Rewards. Those who participate in

globalization are rewarded, though there are
winners and losers.
2. Peace Dividend. Those engaged in
globalization have too much to lose with war.
3. Democratic Dividend. Free movement of
information with markets produces drive for
freedom and liberty—seeds of democracy.
 The Stages of Globalization
(From Thomas Friedman in The World is Flat)
• Globalization 1.0 (from 1492 to 1800)
• Globalization 2.0 (from 1800 to 2000)
• Globalization 3.0 (from 2000 to the present)
Historical Perspective
• 1820: China had 1/3 of global GDP, India more than 15%
• 1814-1828: Industrial Revolution and tariff barrier knocked out Indian
export
• Indian textile export to Britain fell by two-thirds
• British export of textile to India rose five times
• Opium wars, and other external and internal problems had
contributed to China’s declining share
Globalization 1.0

Christopher Columbus
 Globalization 2.0 (first half)

Railroads

Steam engine
Globalization 2.0 (second half)
Satellites

Fiber optics

Apple Mac Pro

OpenMoko open source smart phone
 Globalization 3.0

3.0

2.0
1.0

De-globalization: movement towards a less connected world,

characterized by powerful nation states, local solutions, and border
controls, rather than global institutions, treaties, and free movement.
Globalization 3.0 (continued)

Schematic Map of the Internet

Integration of Economies
• The increasing reliance of economies
on each other
• The opportunities to be able to buy
and sell in any country in the world
• The opportunities for labour and
capital to locate anywhere in the
world
• The growth of global markets in
finance
Stock Markets are now
accessible from anywhere in
the world!
Copyright: edrod, stock.xchng
Integration of Economies
• Made possible by:
• Technology
• Communication networks
• Internet access
• Growth of economic cooperation – trading blocs (EU, NAFTA, etc.)
• Collapse of ‘communism’
• Movement to free trade
Trade versus Aid?
• Benefits of Trade:
• Increased choice
• Greater potential for growth
• Increase international economies
of scale
• Greater employment
opportunities

Trade has led to massive increases in wealth

for many countries.
Copyright: budgetstock, stock.xchng
Trade versus Aid?
• Disadvantages
of trade:
• Increase in gap between the
rich and the poor
• Dominance of global trade
by the rich, northern
hemisphere countries
• Lack of opportunities for the
poor to be able to have
access to markets
• Exploitation of workers and
growers How far does trade help children like
these?
Copyright: clesio, stock.xchng
Corporate Expansion
• Multi-national
or trans-national
corporations (MNCs or
TNCs) – businesses with
a headquarter
in one country but with
No matter where you go in the world, certain business operations in a
businesses will always have a presence.
Copyright: mkeky, stock.xchng number of others countries.
Corporate Expansion
• Characteristics:
• Expanding revenue
• Lowering costs
• Sourcing raw materials
• Controlling key supplies
• Control of processing
• Global economies
of scale

Controlling supplies may be one reason

for global expansion.
Copyright: rsvstks, stock.xchng
Corporate Domination
• Key Issues:
• Damage to the
environment?
• Exploitation of labour?
• Monopoly power
• Economic degradation
• Non-renewable resources
• Damage to cultures

Shell and Nike’s activities have

come under severe criticism
in some quarters.
Copyright: Homsel, stock.xchng
Other Issues:
• Accountability
of Global businesses?
• Increased gap between rich
and poor fuels potential
terrorist reaction
• Ethical responsibility of
business?
• Efforts to remove trade
There are plenty of people who believe that
globalisation is a negative development,
barriers
protests at the G8 summits, pollution, poverty
and concern over GM crops are just some of
the issues.
Copyright: stock.xchng
Drivers of Globalization

• Two factors underlie globalization

• “Decline in barriers to the free flow of
goods, services, and capital” that has
occurred since the end of World War II
• Technological change
 Declining Trade and Investment Barriers

• During the 1920s and ‘30s, many of nations erected formidable

barriers to international trade and
Foreign Direct Investment - FDI
• Advanced industrial nations of the West committed themselves
after World War II to removing barriers to the free flow of goods,
services, and capital between nations.
The Role of Technology
Lowering of trade barriers made globalization
possible;
Technology has made it a transforming movement
Internet Usage Growth
Globalization - acceleration in last 10,000
years
• People lived for 250,000 years in hunter-gatherer bands
• Rise of agriculture 10,000 years ago led to rise of empires and nation-
states
• Science and ‘enlightenment’ after 1680 produced global trade and
empires
• Free trade and technology after 1980 produced globalization

What is the age of

Homo Sapiens?
The Emergence of Global Institutions
Notable global institutions include:
 World Trade Organization (WTO) which is responsible for policing the world
trading system and ensuring that nations adhere to the rules established in
WTO treaties
 International Monetary Fund (IMF) which maintains order in the
international monetary system
 …

WTO Countries & % of

trade?
The Changing Roles of Countries in the Global Economy

In the 1960s:
 The U.S. dominated the world economy and the world trade picture
 U.S. multinationals dominated the international business scene
 About half the world-- the centrally planned economies of the
communist world-- was off limits to Western international business
Today, much of this has changed.

India Service sector –

numbers?
The Changing World Output and World Trade Picture

 In the early 1960s, the U.S. was the world's dominant industrial
power accounting for about 40.3% of world manufacturing output
 By 2007, the U.S. accounted for only 20.7%
 Other developed nations experienced a similar decline

% of world trade?
India?
China?
US?
Euro Zone?
https://www.theglobaleconomy.com/rankings/share_world_exports/
The Changing Nature of the Multinational Enterprise

 Since the 1960s,

 there has been a rise in non-U.S. multinationals
 there has been a rise in mini-multinationals
 The Globalization Debate
Cons
Pros  Destroys manufacturing jobs in
 Lower prices for goods and wealthy nations
services  Wage rates of unskilled in advanced
 Economic growth countries decline
 Increase in consumer income  Companies move to countries with
 Creates jobs (for many) fewer labor and environment
 Countries specialize in regulations
production of goods and  Loss of sovereignty
services that are produced most  Homogenized cultures
efficiently
 Pros
 increases economic
prosperity and opportunity
 higher degrees of political
and economic freedom in the
form of democracy
 Improved standard of living
– reduction in poverty
 Improved gender relations
 Increased life-span
Cons  Increased environmental damage
 increased poverty, inequality, injustice
 erosion of traditional culture
 Corporations are motivated by profit
and have little concern for people
 economic globalization developments
feed into ethnic, religious, and factional
tensions that lead to wars and help
breed terrorism
 Terrorists now globally interconnected
and empowered with knowledge, create
a whole new category of warfare based,
in part, on the disruption of the
interconnections which are both created
by and necessary for globalization
Corporations shape political policy of
countries e.g. over fishing
Further Problems: Global Warming
Another arena in which global social injustices are being played out
• Major source of pollution in the North
• Major consequences in the South
Discontent with Globalization:
Other Values Dominated by Economics
• Environment sacrificed for short run commercial interests
• Reduced access to life saving medicines
• While no compensation provided to developing countries for
environmental services
• Biodiversity
• Carbon sequestration
• And no protection for traditional knowledge
• Traditional cultures weakened, and WTO rules make support
difficult
• Democratic processes undermined, e.g. by IMF conditionality
Discontent with Globalization:
Processes
• Global governance is undemocratic
• Voice of developing countries not heard
• But even when it is heard, it is not listened to
• Dominated by North and by special interests
• Rules made by advanced nations for advanced nations
• For their interests, or for special interests within them
• Problems of global governance highlighted by problems at the World Bank
and IMF
• Governance problems contribute to bad outcomes
• Failures of global governance also reflect failures in “democracy”
within advanced industrial countries
• Special interests dominating national interests
• Problems aggravated by “smokestack structure”—trade ministers
meet with trade ministers to decide on trade issues, with little
attention to environmental, health consequences
• Markedly different from way decisions are made within countries
• And globalization, as it has been managed, has undermined
democracy
• Conditionalities
• Reducing the scope for democratic decision making
FUNDAMENTAL PROBLEM
• Economic globalization has outpaced “political globalization”
• Views about democracy, social justice, “social solidarity,” even the “rule of law” change at the
border
• Democracies have learned how to temper the market economy, to make sure
that most individuals benefit
• But we have not yet learned how to temper the excesses of globalization
• It has put new demands on the nation state (growing inequality)
• But reduced their ability to respond
• Part of the reason is that we have not yet democratized globalization
Matters Have Become Worse in Recent Years
• Cold War made Emerging Markets battle fields
• Little care about virtues of government (Pinochet)
• But considerable concern about limiting alienation of people
• With end of Cold War there was a choice
• To pay more attention to human rights, democratic values, global social justice, fundamental
values, OR
• more willingness to engage in economic exploitation and impose doctrinal policies
• U.S. missed opportunity for global leadership, used new position to advance
parochial commercial interests, often in “unilateralist” manner
• Unilateralism especially severe in last six years
• Further weakens ability to have global democratic cooperation
NATURE OF OPPOSITION TO ECONOMIC
GLOBALIZATION
• Not so much to globalization itself but to the way it has been
managed
• Economic values dominating other values
• Undemocratic processes
• And to the particular set of ideologies that have underlay the policies
• Market fundamentalism
• In developing countries, “Washington Consensus” policies
Globalization and Trade
Why Free Trade?
• Some nations have an advantage over others in the production of particular goods.
• Resources will be used most efficiently when each country produces that for which it
enjoys a cost advantage.
• The law of comparative advantage. - economy's ability to produce a particular
good or service at a lower opportunity cost than its trading partners. The
theory of comparative advantage introduces opportunity cost as a factor
for analysis in choosing between different options for production.
• It is argued that free trade will stimulate competition, reward individual initiative,
increase productivity, and improve national well-being.
• Job opportunities, and a wider variety of goods and services at minimum prices and
with higher quality.
Pressures for Protectionism
• Most domestic businesses, whether engaged in foreign trade or not, feel
pressures from foreign competitors with better products and lower prices.
• Three justifications are often given for protectionist measures.
• The trade deficits that must be reduced & managed for currency stability.
• Protectionists want to shield industries from foreign competition.
• Trade barriers in foreign countries restrict imports to them.
Free Trader Responses to Protectionists
• One main argument is the logic for free trade.
• The cause of the exceptional rise in world trade, say antiprotectionists, has been
in no small measure the world’s reduction in tariff barriers.
• Some argue that rich countries should reduce tariff barriers and poor ones should
be allowed to maintain them since the underdeveloped countries do not have the
infrastructure and institutions to open their markets to free trade.
 Managing an international business is
different
 Countries are different
 International transactions involve converting money into
different currencies
 Range of problems in an international business is wider and
problems are
more complex
 International business must cope with different, conflicting
government rules and systems
 Different strategic approaches required
 Regional Trade Agreements
• Besides economic organizations, regional trade agreements
form a key part of the institutional structure of the world
economy
• Regional trade agreements have proliferated around the
world since the beginning of the 1990s
 Five Types of Regional Trade Agreements
• 1. Partial trade agreement – two or more
countries liberalize trade in a selected group of
product categories
• 2. Free trade area (FTA) – trade in goods and
services fully liberalized between two or more
countries
• North American Free Trade Agreement
(NAFTA)
 Five Types of Regional Trade Agreements
(cont.)
• 3. Customs union (CU) – an FTA plus a common
external tariff (CET)
• European Union in the 1970s and 1980s
• MERCOSUR in South America
• 4. Common market – a CU plus free mobility of
factors of production
• European Union in the 1990s
Slide 2-64
 Five Types of Regional Trade Agreements
(cont.)
• 5. Economic Union – common market with
coordination of macroeconomic policies
(including common currency, harmonization

of standards and regulations)

• United States
• Canada
• European Union
Multi-National Corporations (MNCs)
Multinational Corporations
• A business firm with extensive
international operations in more
than one foreign country

MNO’s are organizations like the Red Cross,

whose nonprofit missions and operations
span the globe.

68
What is MNC?
How Transnational is a Corporation?
• Corporations vary in range of international dimensions such as ratio of domestic to
foreign operations, the number of foreign countries entered, etc.
• No single measure can capture the definitive meaning of “multinational.”
• The transnationality index is one measure used by the United Nations to rank
corporations based on the relative importance of their domestic and foreign
operations.
• means of ranking multinational corporations
• calculated as the arithmetic mean of the following three ratios (where "foreign"
means outside of the corporation's home country)

• the ratio of foreign assets to total assets

• the ratio of foreign sales to total sales
• the ratio of foreign employment to total employment
Types of MNCs
• Transnational Corporations
Strive to operate on a borderless basis and without
being identified with one national home.
• Ethnocentric
Strict headquarters control over foreign operations,
expects to operate the same way it does at home.

72
Types of MNCs
• Polycentric
Gives it foreign operations more operating
freedom, respects market differences among
countries, and treats each country as a separate
competitive domain.
• Geocentric
Like Traditional it seeks total integration of global
operations by operating without "home
country" prejudices, making major decisions for
global perspective, and employing senior
executives from many different countries.
73
Globalization & Ethics
Multinational Corporations and Ethics
• Multinationals operate extensively in more than one country, and there is no
effective way to prevent firms from forming cartels and controlling prices and
production.
• The main criticisms of MNCs in the developing world are:

• MNCs operate immorally in the Low developing nations by exploiting workers, exploiting
natural resources, and reaping exorbitant profits;

• MNCs compete unfairly in the Low developing nations, to the detriment of the host
countries; and

• MNCs are a major cause of the impoverishment of the Low developing nations and of the
unrest found there. Each of the charges has some basis in fact and history.
Multinationals and Exploitation
• Multinational corporations operate in LDCs for a variety of reasons.
They seek cheap labor, available resources, tax shelters and relief, and
markets.

• In such circumstances, the opportunities for exploitation are

numerous.
Multinationals and Less Developed
Countries
• The charge that MNCs compete unfairly in the LDCs has two major
components.

• MNCs are able to operate on especially favorable and uncompetitive terms.

• MNCs do not carry their fair share of the cost of social development, which
imposes greater burdens on local industries.

• The charges that MNCs use advanced technology, are more

productive, and undercut local firms are in part true.
Multinationals and Less Developed
Countries
• The charge that developed countries are the cause of the
impoverishment of LDCs and of the unrest found rests partly on the
following ideas:
• Colonialization contributed to the impoverishment of LDCs.
• People of the LDCs are also impoverished in a comparative sense. Poverty is
not only an absolute condition; it is also relative.
• Several MNCs have directly helped produce starvation in some countries. The
typical scenario is this: An MNC goes into a country and buys up large
portions of the productive land. It then grows cash crops for export, whereas,
before, local farmers grew food for local consumption.
Ethical Guidelines for Multinational
Corporations
• The following norms, or rules, could eliminate many of the abuses in LDCs:

• The first norm, “the moral minimum,” is the norm to do no intentional direct harm. This
moral minimum applies to all actions of all people, corporations, and countries.
• The second norm builds on the first. Not only should the multinational do no direct
intentional harm, but if its activity is to be morally justified, its activity must benefit the
host country.
• The third norm is to respect the human rights of the workers, consumers, and all others in
the host country.
• The fourth norm is to promote the development of just background institutions internally
within the country as well as on the international level.
• The fifth norm requires a multinational to respect the laws of a host country, as well its
culture and local values, providing these do not violate human rights or impose immoral
laws.
Underlying Historical Forces Changing the Global Business
Environment
• Historical force: Anything that does, or helps to do, work,
• Work is the power to cause events.
• Nine forces comprise this historical force: The Industrial Revolution, inequality,
population growth, technology, globalization, nation-states, dominant ideologies,
great leadership, and chance.
Inequality
• The basic political conflict in every nation, and often between nations, is the
antagonism between rich and poor.
• The industrial revolution accelerated the accumulation of wealth and widened
the persistent problem of its uneven distribution.
• Understanding inequality
• Opportunity
• Outcomes
• Global income inequality is measured by the Gini index.
• Other indices – HDI, Living planet index, innovation index, ecological footprint
index…….
Seven Key Environments of Business
The Dynamic Interaction of Historical Forces, Business Environments,
and Corporate Actions
The story of automobile industry
• Intentional or intentional
• Prime mover in an Economy
• Directly or indirectly accounts for lots of employment
• Developments in economy – highways, fossil fuels, stations, MNCs to
SMEs to MSMEs, decline in usage of railways, burning of fossil fuels,
pollution, landscape of cities, entrenched ideologies such as:
• Consumerism
• Status symbol
• Ownership of material objects
• Changes in patterns of courtship & crime
Globalization & Culture
Hofstede's Dimensions Of Culture

• Power Distance
The degree to which a society accepts the
unequal distribution of power in organizations.
• Uncertainty Avoidance
The degree to which a society tolerates risk and
situational uncertainties.

101
Hofstede's Dimensions Of Culture

• Individualism - Collectivism
The degree to which a society emphasizes
individual self-interest, or the collective values
of groups.
• Masculinity - Femininity
The degree to which a society emphasizes
assertiveness and material concerns, or
relationships with others and concerns for
feelings.

102
Hofstede's Dimensions Of Culture

• Time Orientation
The degree to which a society emphasizes short
term considerations versus greater concern for
the future.

103
 Power Distance
High Low
Philippines US Austria

Uncertainty Avoidance
Greece US Singapore

Individualism
USA Japan Venezuela

Masculinity
Japan US Sweden

Time Orientation
USA Japan

INDIA: https://www.hofstede-insights.com/country/india/ 104