Chapter One

Globalization and
International Linkages

McGraw-Hill/Irwin
 Chapter1. Globalization and
International Linkages

 The specific objectives of this chapter are to

1. ASSESS the implications of globalization for

countries, industries, firms, and communities.

2. REVIEW the major trends in global and

regional integration.

3. EXAMINE the changing balance of global

economic power among countries.

4. ANALYZE the major economic systems

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 Chapter1. Globalization and
International Linkages

1. International Management

2. Globalization and Internationalization

3. Global Economic Systems

4. Economic Performance by Major

World Region
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 1. International Management

International management involves

Applying management concepts and techniques
in a multinational environment and
Adapting management practices to different
economic, political, and cultural environments
Multinational corporation (MNC)
Operations in more than one country
International sales
Mix of nationalities
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2. Globalization and Internationalization

Globalization
Process of social, political,
economic, cultural, and
technological integration among
countries around the world.

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2. Globalization and Internationalization

Hastened by
Offshoring
Process by which companies undertake
some activities at offshore locations
instead of their countries of origin.
Outsourcing
Subcontracting or contracting out of
activities to external organizations that
had previously been performed by the
firm.

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2. Globalization and Internationalization
Globalization: Pros and Cons
Benefits of Globalization
 Wealth
 Jobs
 Technology
 Lower prices

Criticisms of Globalization
 off-shoring of business service jobs to lower-wage
countries
 growing trade deficits
 slow wage growth
 environmental and social impacts

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 Global and Regional Integration

Global Agreements
General Agreement on Tariffs and Trade (GATT)
World Trade Organization (WTO)

How do they differ?

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 Global and Regional Integration

Regional Agreements
NAFTA: North American Free Trade Agreement
CAFTA-DR: Central America-Dominican
Republic-United States Free Trade Agreement
 EU: European Union
 ASEAN: Association of Southeast Asian Nations
 T-TIP: Trans-Atlantic Trade and Invesment
Partnership
 CPTPP: Comprehensive and Progressive
Agreement for Trans-Pacific Partnership
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CAFTA-DR: Central America-Dominican
Republic-United States Free Trade
Agreement 1-12
Atlantic Ocean 1-13
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CPTPP (Comprehensive and Progressive
Agreement for Trans-Pacific Partnership) 1-16
Global and Regional Integration

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Global and Regional Integration

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ASEAN: Association of Southeast Asian Nations1-19
FTA of Vietnam 1993 ASEAN
1 AFTA
2 ACFTA 2003 ASEAN, China
3 AKFTA 2007 ASEAN, Korea
4 AJCEP 2008 ASEAN, Japan
5 VJEPA 2009 Vietnam, Japan
6 AIFTA 2010 ASEAN, India
7 AANZFTA 2010 ASEAN, Australia, New Zealand
8 VCFTA 2014 Vietnam, Chile
9 VKFTA 2015 Vietnam, Korea
VN – EAEU
10 2016 Vietnam, Rusia, Belarus, Amenia, Kazakhstan, Kyrgyzstan
FTA
CPTPP Vietnam, Canada, Mexico, Peru, Chile, New Zealand,
11 2019
(TPP) Australia, Japan, Singapore, Brunei, Malaysia, UK
12 AHKFTA 2019 ASEAN, Hong Kong (China)
13 EVFTA 2020 Vietnam, EU (27 countries)
14 UKVFTA 2021 Vietnam, UK
15 RCEP 2022 ASEAN, China, Korea, Japan, Australia, New Zealand

16 VIFTA 2023 Vietnam, Israel 1-20

The Shifting Balance of Economic Power
in the Global Economy

Shifting landscape due to

Economic integration
Economic potential of emerging markets
BRICS countries (Brazil, Russia, India,
China, South Africa) could be among the four
most dominant economies by 2050)
E7
N11

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 Trends in Trade and
International Investments
Foreign direct investment (FDI)
Investment in property, plant, or
equipment in another country
Growing at healthy rate
Outpacing domestic growth in most
countries
Some emerging countries received
more FDI than developed ones.

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 3. Global Economic Systems

Market Economy?
Command Economy?
Mixed Economy?

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 3. Global Economic Systems

Market Economy: private enterprise monitors

the production and distribution of goods and
services while the state simply supports
competition
Command Economy: government has explicit
control over the price and supply of a good or
service.
Mixed Economy

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 4. Economic Performance
by Major World Region
 Established Economies
 North America
 European Union
 Japan
 Emerging Economies
 Central and Eastern Europe
 China
 Other Emerging Markets of Asia
 India
 Developing Economies on the Verge
 South America
 Middle East and Central Asia
 Africa

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Case: Greece

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 Established Economies
North America
 One of the four largest trading blocs in the world
Combined purchasing power of U.S., Canada and
Mexico approaches $12 trillion
 Free-market-based economy is attractive to private
firms

United States
 Foreign MNC’s find U.S. a lucrative expansion market
 Foreign firms welcomed as investors in U.S. market
 U.S. firms hold market dominance in many European
markets; gaining market share in Asia

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 Established Economies
Canada
 U.S.’s largest trading partner
 Most of the largest foreign-owned Canadian
companies are totally or heavily U.S.-owned
 Legal and business environment in Canada is similar
to that in U.S.

Mexico
 Strongest Latin American economy
 Very strong maquiladora industry
 Trade with both Europe and Asia has increased
 Now competitive with Asia for the U.S. market

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 Established Economies
European Union
 Ultimate objective
Eliminate all trade barriers among member countries
Emergence of the EU as an operational economic union
 A unified Europe could become the largest economic market in
terms of purchasing power in the world
 Foreign MNCs trying to gain foothold in EU
Acquisitions, alliances, cooperative R&D efforts
 Economic linkages between the EU and newly
emerging Central and Eastern European countries
Challenge is to absorb former communist bloc countries
 Financial crises in Greece and Ireland putting
pressure on the euro
 Brexit!
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 Established Economies
Japan
 Huge economic success in 1970s and 1980s. Culture?
 Ministry of International Trade and Industry (MITI)
 Keiretsus
Vertically integrated industries
Holdings provide assistance needed in providing goods and
services to end users
 Decade long recession in 1990s
More competition from emerging economies
Poor management decisions
 Remains a formidable competitor in the Pacific Rim,
North America, and Europe
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 Emerging Economies
Central and Eastern Europe
Russia
Dismantling of price controls and privatization
Membership in International Monetary Fund
(IMF) controlling inflation
Crime and political uncertainty
 Czech Republic, Hungary, Poland
Privatization
Inflation
Political uncertainty
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 Emerging Economies
China
 Real economic growth of 12 percent in 2007, 9
percent in 2008, and 11.5 percent in 2009
Savings glut in corporate sector
Vast developmental needs
Unemployment concerns
 Attractive to investors despite political risk
Product pirating is a major problem
Currency value
Government policies favor domestic firms

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 Emerging Economies
South Korea
 Chaebols
Very large family-held conglomerates
 Solid economy, moderate growth and inflation, low
unemployment

Hong Kong
 Part of People’s Republic of China
 Uncertainty about the role the Chinese government

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 Emerging Economies
Singapore
 Success story
 Leader and financial center for region

Taiwan
 Progressed from labor-intensive economy to one
dominated by technologically sophisticated
industries
banking, electricity generation, petroleum refining and
computers

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 Emerging Economies
Thailand, Malaysia, Indonesia
 Large population base
 Inexpensive labor
 Considerable natural resources
 Attractive to outside investors

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 Emerging Economies
India
 Large population
 Recent trend of locating software and high value-
added services to this country boosting middle- and
upper-class market for goods and services
 Attractive to U.S. and British investors
well educated, English speaking, technologically
sophisticated workers

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Developing Economies on the Verge
South America
 Hampered by foreign debt and severe inflation
 But, intercountry trade is increasing
Countries looking to do business with U.S.

Brazil
 Economy is now flourishing and attracting
investment from MNCs
Privatization and stable government

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Developing Economies on the Verge
Chile
 Uncertain future, but helped by trade agreements

Argentina
 Abundant natural resources
 Economic problems persist

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Developing Economies on the Verge
Middle East and Central Asia
 Large oil reserves
 Highly unstable geopolitical and religious forces
 Plagued by continuing economic problems

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Developing Economies on the Verge
 Africa
 Considerable natural resources
 African nations remain very poor and undeveloped
 International trade is not a major sources of income
 Populace divided into 3,000 tribes that speak 1,000
languages.
 Major political instability
 Poverty, starvation, illiteracy, corruption,
overcrowding among many social problems
negatively affecting economic sector

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 Review

 Globliization?
 NAFTA?

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 Chapter1. Globalization and
International Linkages

1. International Management

2. Globalization and Internationalization

3. Global Economic Systems

4. Economic Performance by Major

World Region
1-45