Chapter 2

Globalization of Markets and the

Internationalization of the Firm

International Business: Strategy, Management, and the New Realities

 Globalization of Markets: A Macro Concept

Two mega trends have altered the international

business landscape: globalization and technological
advances.

Market globalization refers to the interconnectedness

of national economies and growing interdependence of
buyers, producers, suppliers, and governments in
different countries.

Globalization allows firms to view the world as one

large marketplace for goods, services, capital, labor,
and knowledge.

International Business: Strategy, Management, and the New Realities

 Phases of Globalization
1st Phase: 1830, peaking around 1880
Aided by railroads, ocean transport; resulting in the rise of mass
production and growing trade

2nd Phase: 1900, peaking late 1920s

Fueled by electricity and emergent modern technologies; early
MNEs

3rd Phase: 1948, peaking around 1970

End of WW II; Marshall Plan; Gradual reduction of trade barriers,
especially under General Agreement on Tariffs and Trade (GATT)

4th Phase: 1980, peaking around 1997

Fueled by information and communications technologies. Rapid
liberalization in Emerging Markets
The Drivers and Consequences of Market
Globalization
 Firms are Compelled to Internationalize

Firms implement internationalization

proactively are more successful than
those reactively engaging.

E.g., Vodafone has established

production and marketing operations
all around the world. Has some 200
million customers in 30 countries.

International Business: Strategy, Management, and the New Realities

 Technological Advances as a
Driver of Market Globalization

Advances in technology provide the means

for internationalization of firms
Advances in technology:
Reduces cost of doing international
business;
Enables even small firms to go
international
Helps coordinate worldwide activities;
Mitigates geographic distance
International Business: Strategy, Management, and the New Realities
 Communications Technology

Especially important. Includes

telecommunications, satellites, optical fiber,
wireless technology, and the Internet.
The Internet, and Internet-dependent systems
such as intranets, extranets, and e-mail, connect
millions of people across the globe.

The Internet opens up the global marketplace to

all firms, large and small

International Business: Strategy, Management, and the New Realities

Manufacturing and Transportation Technologies

Manufacturing
Revolutionary developments now permit manufacturing
that is both low-scale and low cost, with the support of
computer-aided-design of products (CAD), robotics, and
production lines managed and monitored by
microprocessor-based controls.
Transportation
Fuel-efficient jumbo jets, giant ocean-going freighters, and
containerized shipping.
Thus
, the cost of transportation has declined substantially,
spurring rapid growth in international trade.

International Business: Strategy, Management, and the New Realities

Societal Consequences of Market Globalization

Positive consequences
More jobs
Economic development and growing prosperity
Technology and knowledge transfer

Negative consequences
Natural environment
Disruptive effects in national economies
Human rights violations abroad (e.g., sweatshops)
Job losses at home

International Business: Strategy, Management, and the New Realities

 Economic Freedom Enhances Income Growth

In the long run, globalization generally

leads to:
higher living standards
more efficient resource usage
greater access to technology, products, and
services

In particular, liberalization of markets

appears to enhance income levels

International Business: Strategy, Management, and the New Realities

Partial Index of Economic Freedom, 2010
source: http://www.heritage.org/index/ranking.aspx

International Business: Strategy, Management, and the New Realities

What inferences can you make from this chart?
 Unintended Consequences of Market
Globalization
Loss of national sovereignty
Power shifts to MNEs and larger countries

Offshoring and the flight of jobs

Dislocation of jobs

Effect on the poor

Benefits of globalization are not evenly distributed

Effect on the natural environment

Effect on national culture
Loss of national cultural values and identity
QEUST
International Business: Strategy, Management, and the New Realities
 Corporate Social Responsibility

Over time, governments pass legislation that

promotes improved environmental conditions.
Question: How, when, why?
In addition, many firms now consider the
societal consequences of their actions --
Corporate Social Responsibility (CSR)
Discuss how this works in a global
environment vs. a national environment.

International Business: Strategy, Management, and the New Realities

 Firm Level Consequences of Market
Globalization

Countless new business opportunities for

internationalizing firms
New risks and intense rivalry from foreign
competitors
More demanding buyers who source from
suppliers worldwide
Greater emphasis on proactive internationalization

Internationalization of firms value chain

International Business: Strategy, Management, and the New Realities

 Examples of How Firms Value
Chain Activities Can Be Internationalized
Value Chain: Sequence of value adding activities
performed in the course of developing, producing,
marketing, and servicing a product.
 Implications for Management
Global orchestration of value-chain activities
(e.g., to cut costs, access resources, target new
markets)
Exploit knowledge acquired worldwide
Increase productivity
Collaborate with foreign partners

International Business: Strategy, Management, and the New Realities

Implications for Managers: Acquiring Global
Competence is a Requirement

Open-mindedness
Tolerance for ambiguity
Perceptiveness
Premium on personal relationships
Flexibility, adaptability, and self-reliance
Good sense of humor
Warmth in human relationships
A curious mind

International Business: Strategy, Management, and the New Realities