IBF Chapter-1 Glonalization1

1. INTERNATIONAL BUSINESS FINANCE
ACFN542-CREDIT HOURS:2
CHAPTER-ONE
GLOBALIZATION
PROF. DR. ANBALAGAN CHINNIAH
PROFESSOR OF ACCOUNTING AND FINANCE
COLLEGE OF BUSINESS AND ECONOMICS
SAMARA UNIVERSITY, AFAR STATE, ETHIOPIA, EAST AFRICA
MAIL ID:DR.CHINLAKSHANBU@GMAIL.COM

2. GLOBALIZATION
 Defining Globalization
 Components of Globalization
 Thinking About Globalization—Globalists
vs. Skeptics
 Dilemmas of Globalization

3. Definitions of Globalization
1.Joseph Nye and John Donahue:
“Globalism is a state of the world involving
networks of interdependence at multi-
continental distances.”
2. World Bank: Globalization is the growing
integration of economies and societies
around the world.

4. 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.
 New key players: The Electronic Herd.(group)
 Globalization promotes cultural homogenization.

5. 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

6. 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.

7. Components of Globalization
 Economic Globalization
 Political Globalization
 Cultural Globalization

8. Is there a global economy?
If so, is this good?
 Globalizers (Integrationists) : Yes
1. Increased integration has brought a
higher volume of trade. This means
more goods and services for most of the
world.
2. Increased GDPs and overall standard of
living for those that participate

9. Increasing World Trade (Billions of
US$)
20 33 21 53 94 154
574
1,972
3,824
7,465
0
1 , 0 0 0
2 , 0 0 0
3 , 0 0 0
4 , 0 0 0
5 , 0 0 0
6 , 0 0 0
7 , 0 0 0
8 , 0 0 0
1913 1933 1958 1973 1993
Year
World
Exports
(US$
Billions)

10. Merchandise Exports as percentage of GDP in 1990 prices,
world and major regions, 1870-1998
______________________________________________
1870 1913 1950 1773 1998
______________________________________________
Western Europe 8.8 14.1 8.7 18.7 35.8
Eastern Europe &
former USSR 3.3 4.7 3.8 6.3 12.7
Latin America 9.7 9.0 6.0 4.7 9.7
Asia 1.7 3.4 4.2 9.6 12.6
Africa 5.8 20.0 15.1 18.4 14.8
World 4.6 7.9 5.5 10.5 17.2
______________________________________________

11. “Development cycle” working well
 Economies in post-industrial societies
increasingly depend on the service sector
 Developing countries are industrializing. By the
late 1990s almost 50% of total world
manufacturing jobs were located in developing
economies while over 60% of developing
country exports to the industrialized world were
manufactured goods.

12. America
 Loss of manufacturing jobs natural. 2.6 million
between 1979 and 1999, but overall job
increases, especially in the 1990s.
 Increasing role of the service sector: IT, banking,
insurance, service industries—help raise GDP
per capita and the overall standard of living
 Cheaper goods and services with global market

13. Is economic globalization good?
 “All boats rising” (for those who participate)
but at different rates
 Raised incomes, though not equal
 More individual choice and freedom in the
marketplace
 Costs of goods and services go down

14. World Bank Policy Research Report:
Globalization, Growth and Poverty, 2002.
Key Points:
1. Strong correlation between integrating
into the world economy and economic
growth.
2. Poor countries with around 3 billion
people have broken into the global
market for manufactures and services.
3. Higher growth rates increase a country’s
GDP and standard of living.

15. 3. Globalization has reduced the number of
people living in poverty by over 120
million.
4. Globalization has not increased income
inequality (as many skeptics claim).
5. Globalization has reduced poverty, but not
everywhere.
6. About 2 billion people have been left out of
the globalization process.

17.  The success stories or “new globalizers”
include:
China
India
Bangladesh
Uganda
Vietnam
 Why successful?
Good investment climate
Social policies that aid human capital

18. Related Study by David Dollar and
Aart Kraay, “Spreading the Wealth,”
Foreign Affairs, 2002.
 The current wave of globalization (starting
around 1980) has reduced poverty and
promoted economic equality
 Key examples: China and India
-account for 36% of the world’s population
-important examples of “how to do it.”

19. UN 2003 Report
 China has lifted 150 million people out of
poverty in the last 10 years—the biggest
success story in international poverty
alleviation.
 Why?
1. Rapid economic growth
2. Political will centralized (government)
3. Economic and policy reforms—more open
trade, investment, technology

20. Skeptics (Separatists):
1. Not a “globalized” economy. Trade is
overwhelmingly dominated by the
developed countries (U.S. and Europe).
These countries amass 76% of the
exports in goods and services.
2. World economy is dominated by the U.S.
and major western powers.
3. Major U.S. trade partners: Canada,
Mexico, Japan, China, Germany, U.K.
South Korea, Taiwan, France, Italy.

21. LOCATIONS OF THE WORLD’S 500 LARGEST MULTINATIONAL
ENTERPRISES
Country/bloc
Number of MNEs in 1999
United States 179
European Union 148
Japan 107
Canada 12
South Korea 12
Switzerland 11
China 10
Australia 7
Brazil 3
Other 11
Source: Held and McGrew, 2002, p. 43.

22. 4. Developed countries have overwhelming
advantage with investment and trade.
5. Do little to help poor countries.
6. Center for Global Development and
Foreign Policy Magazine recently ranked
overall contributions by developed
countries to developing countries.
7. The U.S. (despite having the largest
economy) ranked second to last out of 21
countries.
8. U.S. spends 0.1 percent of its GDP on
development.

23. 9. Globalization does not alleviate inequality
and poverty, it increases it.
10. Gap between rich and poor countries has
increased.
11. Gap between the rich and the poor within
countries has increased.
12. Good example? China! Top 10 percent to
bottom 10 percent income ratio: 1:35.
13. Countries with the highest inequality in
income and consumption? Sub-Saharan
Africa.

24. 14. Intentions and statistics of the World
Bank and the International Monetary
Fund suspect.
Joseph Stiglitz, Chief Economist for the
World Bank. Book: Globalization and Its
Discontents, 2002.
These organizations put the interests of
Wall Street and the financial community
ahead of the poorer nations.

25. 15. Globalization hurts workers in developing
countries—forced to work for cheap
wages and in poor working conditions
e.g. China, India. Rights of workers
ignored.
16. Cheap foreign competition and off-shore
production of manufacturing hurts
American workers e.g. Pillowtex.
17. Globalization is undermining the white-
collar class as well with the export of jobs,
for instance, to India.

26. 18. Labor is anything but “global.”
19.Developed countries are still protectionist.
This hurts developing countries, limits
globalization, and only helps the already
developed.

27. Important Points
1. China and India are important cases but
they don’t represent “the world.”
2. Need to ask what life would be like in
China, India and other globalizers without
reforms.
3. Rich countries have grown richer, and
most of the very poor countries have
stayed poor.

28. 4. Some governments clearly fail to provide
a sufficient environment for economic
growth and development. Others fail to
create fair tax systems e.g. Guatemala.
Role of ethnic conflict?
5. Some governments are politically
unready to even try to provide the a
proper environment e.g. “failed states.”

29. 6. Key differences between the Globalists
and Skeptics revolve around:
a. Efficiency
b. Fairness
c. Quality of life under globalization
Need policies that address all of them:
“Sustainable development”

30. Global Culture
 Globalists
1. Decline of nationalism.
2. Growing universal language:
English
3. Universal Market of popular culture:
entertainment, the Internet, food,
etc.

31. 4. Globalization does not destroy local
cultures, though it may influence them.
5. Likely growth of a democratic culture.
6. Over 120 democracies today, including
over ½ of the world’s population.
7. Most of these encompass capitalist
economies.

32.  Skeptics
1. Nationalism and ethnic nationalism are alive
and well in many parts of the world.
2. Globalization = Americanization, a “McWorld”
led by the U.S. Vast majority of products
originate from the U.S.
3. Globalization undermines and destroys local
cultures e.g. Guatemala and Mayan culture.
4. Globalization engenders a backlash and
resistance.

33. Globalization reconfigured Political
Power and National Interests
 Globalists
1. The power of governments has
declined in the face of the market.
2. Downside: states are more
vulnerable—economic pressures
and non-state actors e.g. terrorists.

34. 3. Societies are freer of government control;
people are better able to “link up” for
common purposes.
4. War is less likely because of the costs
5. The U.S. is the dominant power but it
acts as a positive force in the
globalization process providing “rules” of
the market and “creative destruction.”
6. States are losing their sovereignty to the
market and other multilateral
organizations

35.  Skeptics
1. States are still powerful, some clearly
more than others—US unilateralism.
2. National interest? Each state still defines
its own if it can.
3. States ignore the goals and regulations
of multilateral organizations when it
benefits them.

36. Dilemmas and Strategies
1. Each side can muster evidence for its
cause—what is the broad, sustainable
picture?
2. Globalization can be “train wrecked”
- Economic collapse
-War
-Terrorism

37. 3. Globalization’s impact on the
environment and our future? Global
warming, resource use, rainforest
destruction, etc.
4. Can everyone “globalize” at once?
5. How can governments provide a stable
economic environment in the face of
ethnic conflict?
6. Gender discrimination and empowerment

38. America Comprehensive Policy
1. Support globalization but negotiate a more
level playing field for American workers.
2. Improve worker training and “retooling at
home.”
3. Support governments that both liberalize their
economies and attempt to improve human
capital. Offer “sweet deals.”
4. Bring cases of worker exploitation to the
spotlight.

39. 5. Encourage and negotiate improvements in
human rights in other countries but protect the
market of opportunity.
6. Encourage the economic empowerment of
women.
7. Better entrust and finance UN agencies to
achieve sustainable development.

40. Suggestions for Readings
 Thomas Friedman, The Lexus and the Olive Tree, 1999
 David Held and Anthony McGrew, Globalization/Anti-Globalization,
2002
 Manfred B. Steger, Globalism. The New Market Ideology, 2002
 Jackie Smith & Hank Johnston (eds), Globalization and Resistance,
2002
 Joseph Stiglitz, Globalization and Its Discontents, 2002
 Frank Lechner & John Boli (eds), The Globalization Reader, 2000
 Robert M. Jackson (ed), Global Issues 03/04, Annual Editions, 2003