This chapter sets the scene for the rest of the book. We have seen how the world economy is becoming more global, and we have reviewed the main drivers of globalization and argued that they seem to be thrusting nation-states toward a more tightly integrated global economy. We have looked at how the nature of international business is changing in response to the changing global economy; we have discussed some concerns raised by rapid globalization; and we have reviewed implications of rapid globalization for individual managers. These major points were made in the chapter:
- Over the past two decades, we have witnessed the globalization of markets and production.
- The globalization of markets implies that national markets are merging into one huge marketplace. However, it is important not to push this view too far.
- The globalization of production implies that firms are basing individual productive activities at the optimal world locations for the particular activities. As a consequence, it is increasingly irrelevant to talk about American products, Japanese products, or German products, since these are being replaced by "global" products.
- Two factors seem to underlie the trend toward globalization: declining trade barriers and changes in communication, information, and transportation technologies.
- Since the end of World War II, there has been a significant lowering of barriers to the free flow of goods, services, and capital. More than anything else, this has facilitated the trend toward the globalization of production and has enabled firms to view the world as a single market.
- As a consequence of the globalization of production and markets, in the last decade, world trade has grown faster than world output, foreign direct investment has surged, imports have penetrated more deeply into the world's industrial nations, and competitive pressures have increased in industry after industry.
- The development of the microprocessor and related developments in communications and information processing technology have helped firms link their worldwide operations into sophisticated information networks. Jet air travel, by shrinking travel time, has also helped to link the worldwide operations of international businesses. These changes have enabled firms to achieve tight coordination of their worldwide operations and to view the world as a single market.
- Over the past three decades, a number of dramatic changes have occurred in the nature of international business. In the 1960s, the US economy was dominant in the world, US firms accounted for most of the foreign direct investment in the world economy, US firms dominated the list of large multinationals, and roughly half the world-the centrally planned economies of the communist world-was closed to Western businesses.
- By the mid-1990s, the US share of world output had been cut in half, with major shares now being accounted for by Western European and Southeast Asian economies. The US share of worldwide foreign direct investment had also fallen, by about two-thirds. US multinationals were now facing competition from a large number of Japanese and European multinationals. In addition, the emergence of mini-multinationals was noted.
- The most dramatic environmental trend has been the collapse of communist power in Eastern Europe, which has created enormous long-run opportunities for international businesses. In addition, the move toward free market economies in China and Latin America is creating opportunities (and threats) for Western international businesses.
- The benefits and costs of the emerging global economy are being hotly debated among business people, economists, and politicians. The debate focuses on the impact of globalization on jobs,
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