(New) what is globalization? 4 drivers of globalization | International Business
Summary
TLDRThis video script from 'Business School 101' explores globalization's impact on business, society, and the economy. It discusses how interconnectedness has grown due to advancements in technology and trade policies, leading to a global marketplace and production. The script highlights the benefits and challenges of globalization, including the convergence of consumer tastes and the sourcing of goods and services worldwide. It also touches on the four major drivers of globalization: technological, market, cost, and political factors.
Takeaways
- đ Globalization is the increased interconnectedness and interdependence of people and countries, affecting various aspects of life including trade, communication, and the spread of ideas.
- đ The globalization of markets merges national markets into a global marketplace, with companies like Apple and Coca-Cola aiming to create a global consumer market.
- đ Globalization of production involves sourcing goods and services from around the world to leverage national differences in production costs and quality.
- đ± Technology, such as the internet and smartphones, has been a key driver of modern globalization, enabling fast global communication and commerce.
- đ Historically, globalization has gone through waves, with significant growth in the 19th century and a second wave post-World War II, despite periods of downturn and scrutiny.
- đ Despite a trend towards global consumer norms, significant differences in consumer tastes, business systems, and legal regulations still exist among national markets.
- đ Companies like Apple facilitate globalization by designing products in one country but sourcing components from manufacturers worldwide.
- đĄ Globalization allows companies to lower costs and improve product quality by taking advantage of different national cost structures and production efficiencies.
- âïž Political decisions, such as trade barriers and capital controls, significantly influence the extent and nature of globalization.
- đ The COVID-19 pandemic and US-China trade war have highlighted the risks of over-reliance on global production, prompting some countries to consider reshoring essential industries.
Q & A
What does the term 'globalization' refer to according to the World Health Organization?
-Globalization refers to the increased interconnectedness and interdependence of peoples and countries.
How has globalization impacted our daily lives?
-Globalization has impacted our daily lives by influencing the products we buy, the food we eat, and the ways we communicate with one another.
What are the two interrelated perspectives through which globalization can be understood?
-Globalization can be understood from the opening of international borders to increase fast flows of goods, services, finance, people, and ideas, and the changes in institutions and policies at national and international levels that facilitate or promote such flows.
What was the first wave of globalization propelled by?
-The first wave of globalization was propelled by steamships, railroads, the telegraph, and other breakthroughs, as well as increasing economic cooperation among countries.
What are the two major facets of globalization discussed in the script?
-The two major facets of globalization are the globalization of markets and the globalization of production.
How does the globalization of markets affect consumer products?
-The globalization of markets refers to the merging of national markets into one global marketplace, making it easier to sell internationally and leading to a convergence of consumer tastes and preferences.
What is an example of a product that is designed in one country but manufactured in another?
-The iPhone is designed in California but its components are manufactured by suppliers around the world.
What are some of the key suppliers for the iPhone mentioned in the script?
-Key suppliers for the iPhone include Qualcomm for chips, Samsung for the battery, Sony for the camera, and Bosch Sensor Technology for the accelerometer.
Why do companies source goods and services from locations around the globe?
-Companies source goods and services globally to take advantage of national differences in the cost and quality of factors of production, such as labor, energy, land, and capital.
What are the four major factors driving globalization?
-The four major factors driving globalization are technological drivers, market drivers, cost drivers, and political drivers.
How has technology shaped the foundation of modern globalization?
-Technology, particularly in transportation and communication, has accelerated the pace of globalization, with the internet enabling global communication and containerization lowering shipping costs.
What are some challenges that companies face in the globalization of production?
-Challenges in the globalization of production include formal and informal barriers to trade, barriers to foreign direct investment, transportation costs, and issues associated with economic and political risk.
Outlines
đ Understanding Globalization
The first paragraph introduces the concept of globalization, emphasizing its impact on modern life and its connection to significant global issues like climate change and terrorism. It discusses both the benefits and downsides of globalization and the importance of understanding it in the business world. The paragraph outlines the definition of globalization from the World Health Organization, highlighting increased interconnectedness and interdependence. It traces the history of globalization back to the 19th century, mentioning the first wave driven by technological advancements like steamships and the telegraph. The paragraph also introduces two major facets of globalization: the globalization of markets, which refers to the merging of national markets into a global marketplace, and the globalization of production, which involves sourcing goods and services globally to take advantage of national differences in production costs and quality.
đ± Globalization in Practice: The iPhone Example
The second paragraph delves into the practical application of globalization, using the iPhone as a case study. It discusses how various components of the iPhone are sourced from manufacturers around the world, illustrating the trend of global products. The paragraph mentions key suppliers like Qualcomm, Samsung, Sony, and Bosch Sensor Technology, emphasizing the global nature of product creation. It also touches on the outsourcing of service activities facilitated by modern communication technologies. The paragraph highlights the challenges of globalization, such as trade barriers, foreign direct investment restrictions, transportation costs, and political risks, which can impede the optimal dispersion of productive activities. The paragraph concludes by noting the trend of countries considering moving essential industries back home due to national security concerns, as seen during the US-China trade war and the COVID-19 pandemic.
đ Drivers of Globalization
The third paragraph outlines the four major factors driving globalization: technological, market, cost, and political drivers. It explains how advancements in transportation and communication technologies have accelerated globalization, with the internet and social media breaking down national boundaries. The paragraph also discusses how saturated domestic markets push companies to expand globally and how cost advantages in different countries can be exploited. Lastly, it addresses the role of political decisions in facilitating or restricting cross-border activities, such as trade tariffs, capital controls, and immigration regulations. The paragraph concludes with a summary of the day's topic, emphasizing the interconnectedness of the world and the influence of globalization on various aspects of daily life.
Mindmap
Keywords
đĄGlobalization
đĄInterconnectedness
đĄInternational Borders
đĄGlobal Marketplace
đĄConsumer Convergence
đĄCustomization
đĄGlobalization of Production
đĄOutsourcing
đĄTechnological Drivers
đĄMarket Drivers
đĄCost Drivers
đĄPolitical Drivers
Highlights
Globalization is a reality of modern life, affecting everything from products we buy to how we communicate.
Globalization is tied to major issues like climate change, trade, terrorism, and disease spread.
Globalization has both proponents and detractors, but it's crucial to understand its nature and impact.
Globalization defined by WHO as increased interconnectedness and interdependence of peoples and countries.
Globalization involves opening international borders for the flow of goods, services, finance, people, and ideas.
The first wave of globalization was driven by steamships, railroads, and the telegraph in the 19th century.
Globalization waned after World War I and was revived post-World War II by the US-led efforts.
Globalization of markets refers to the merging of national markets into a global marketplace.
Consumer tastes are converging, creating a global market for consumer products like iPhones and Coca-Cola.
Companies must customize marketing and products to match conditions in different countries.
The globalization of production involves sourcing goods and services globally for cost and quality advantages.
The iPhone exemplifies global production with components sourced from various countries.
Outsourcing of services is also a facet of globalization, with tasks like radiology and customer service being offshored.
Globalization faces impediments like trade barriers, transportation costs, and political risk.
Technological advancements like the internet and smartphones have accelerated globalization.
Market saturation drives companies to expand globally for growth opportunities.
Cost advantages in labor and services are a significant driver for globalization.
Political decisions on trade, investment, and immigration regulations impact the extent of globalization.
Globalization's impact on the US economy will be discussed in a subsequent video.
Transcripts
hello everyone welcome to business
school 101
we live in an increasingly
interconnected and interdependent world
globalization touches every part of our
lives from the products we buy to the
food we eat to the ways we communicate
with one another
globalization is also tied to some of
the other biggest issues we face
in the modern era including climate
change trade
terrorism and the spread of deadly
diseases
being intertwined with countries and
markets all over the world has both
benefits
and downsides so globalization has both
proponents and attractors
no matter which side you're on
globalization is simply a reality of
modern life
therefore it's critical to understand
what exactly globalization is
how it changes the business world and
what factors drive those changes
in this video i hope to answer those
questions
according to the definition from the
world health organization
globalization refers to the increased
interconnectedness
and interdependence of peoples and
countries it can also be understood from
two interrelated perspectives
the opening of international borders to
increase fast flows of goods
services finance people and ideas
and the changes in institutions and
policies at national
and international levels that facilitate
or promote such flows
since ancient times humans have sought
distant places to settle
produce and exchange goods enabled by
improvements in technology and
transportation
but it wasn't until the 19th century
that global integration took off
following centuries of european
colonization and trade activity
the first wave of globalization was
propelled by steamships
railroads the telegraph and other
breakthroughs
and by increasing economic cooperation
among countries
the globalization trend eventually waned
and crashed in the catastrophe of world
war one
followed by post-war protectionism the
great depression
and world war ii after world war ii
in the mid-1940s the united states led
efforts to revive
international trade and investment under
negotiated ground rules
starting a second wave of globalization
which remains ongoing
though buffeted by periodic downturns
and mounting political scrutiny
there are two major facets of
globalization first
the globalization of markets the
globalization of markets refers to the
merging of historically distinct and
separate national markets into one huge
global marketplace
falling barriers to cross-border trade
have made it easier to sell
internationally
it has been argued for some time that
the tastes and preferences of consumers
in different nations are beginning to
converge on some global norm
thereby helping to create a global
market consumer products such as apple's
iphone
coca-cola soft drinks sony's playstation
mcdonald's hamburgers starbucks coffee
and ikea's furniture
are frequently held up as prototypical
examples of this trend
firms such as those just cited are more
than just benefactors of this trend they
are also facilitators of it
by offering the same basic product
worldwide they hope to create a global
market
however significant differences still
exist among national markets
along many relevant dimensions including
consumer tastes and preferences
distribution channels culturally
embedded value systems
business systems and legal regulations
these differences frequently require
companies to customize marketing
strategies
product features and operating practices
to best match conditions in a particular
country
if you visit the world of coca-cola a
museum located in atlanta georgia
you will find that it not only showcases
the history of the coca-cola company
but it also exhibits more than 50
different flavors of coca-cola which
have been made to meet consumers various
tastes in different countries
therefore the most global markets
currently are not markets for consumer
products
but markets for industrial goods and
materials that serve a universal need
the world over
these include the markets for
commodities such as aluminum oil and
wheat
for industrial products such as
microprocessors computer memory chips
and commercial jet aircraft
the second facet of globalization is the
globalization of production
globalization of production refers to
the sourcing of goods and services
from locations around the globe to take
advantage of national differences
in the cost and quality of factors of
production such as labor
energy land and capital by doing this
companies hope to lower their overall
cost structure or improve the quality or
functionality of their product offering
thereby allowing them to compete more
effectively
let's use the iphone as an example
anyone who has bought an iphone has
likely seen the note on the company's
packaging
that its products are designed in
california but that doesn't mean they
are manufactured there
manufacturing is a process of making the
components that go into the iphone
while apple designs and sells the iphone
it doesn't manufacture its components
instead apple uses manufacturers around
the world to deliver individual parts
because there are hundreds of individual
components in every iphone
it is impossible to list every
manufacturer whose products are found on
the phone
here are some of the suppliers of key
parts of the iphone
chips from qualcomm based in the us with
locations in australia
brazil china india indonesia
japan south korea and more than a dozen
locations throughout
europe and latin america the battery
from samsung based in south korea with
locations in 80 countries
the camera from sony based in japan with
manufacturing facilities
and support centers all over the world
the accelerometer from bosch sensor
technology
based in germany with locations in the
us china south korea and japan
as a consequence of this trend
exemplified by companies such as apple
samsung sony and bosch in many cases it
is becoming irrelevant to talk about
american products
japanese products german products or
korean products
the outsourcing of productive activities
to different suppliers
results in the creation of products that
are global in nature
that is global products beside
manufacturing activities
companies are taking advantage of modern
communications technologies
to outsource service activities to other
nations as well
for example the internet has allowed
some hospitals to outsource
radiology work to india where images
from mri scans and the like are red at
night while american physicians sleep
and the results are ready for them in
the morning
many software companies including ibm
and microsoft
now use indian engineers to perform test
functions on software design in the
united states
other companies from travel agents to
banks are outsourcing
customer service functions such as
customer call centers to developing
nations where labor is cheaper
if you call the service center of bank
of america
or expedia in the evening and hear a
strange accent don't be surprised
most likely the other side is sitting
somewhere in the philippines
however companies must be careful not to
push the globalization of production too
far
as we have seen during the us-china
trade war and the covet-19 pandemic
substantial impediments still make it
difficult for firms to achieve the
optimal dispersion of their productive
activities to locations around the world
these impediments include formal and
informal barriers to trade between
countries
barriers to foreign direct investment
transportation costs and
issues associated with economic and
political risk
that is why after the pandemic many
countries are considering moving some
essential industries
such as healthcare products or
semiconductor industries
back to their homelands for the national
security concern
there are four major factors driving the
move toward greater globalization
first technological drivers
technology shaped and set the foundation
for modern globalization
the developments in the transportation
and communication technologies
have accelerated the pace of
globalization over the past 40 years
the internet has enabled fast 24 7
global communication
and the use of containerization has
enabled vast quantities of goods and
commodities
to be shipped across the world at
extremely low cost
more recently the rise of social media
means that national boundaries have
become irrelevant as producers use new
forms of communication and marketing to
target international consumers
the widespread use of smartphones has
also enabled global shoppers to have
easy access to
virtual global markets similarly
the rise of new electronic payment
systems including e-invoices
and mobile pay apps also facilitate
increased global trade
market drivers as many domestic markets
become more and more saturated
the opportunities for growth are limited
and global expansion is a way most
companies choose to overcome the
situation
common customer needs are also
incentives for firms to choose
internationalization
many fortune 500 companies such as apple
samsung
toyota microsoft pfizer and general
electric
generate more revenue from foreign
markets than their domestic market
besides companies many countries also
depend more on the international market
than their domestic markets
for example according to a recent report
from the world bank
france great britain and germany all
derived more than 55 percent of their
gross domestic product
from world trade third
cost drivers sourcing efficiency and
costs
vary from country to country and firms
can take advantage of this fact
labor costs are the greatest source of
potential savings
accounting for approximately sixty
percent of the total cost advantage
a factory worker in the united states or
europe typically costs between fifteen
to thirty dollars per hour in contrast
for the same type of job
a thailand factory worker earns less
than five dollars per hour
giving thailand a three to six fold
advantage
the cost advantages are similarly
impressive in the service industries
for example an english-speaking indian
employee
typically costs 50 to 60 percent less
than his or her
u.s or western european counterpart an
accounting employee might cost a
business
26 dollars to 30 per hour in the united
states
while a similarly qualified worker would
cost just ten dollars to twelve dollars
per hour in india
and fifteen dollars to eighteen dollars
per hour in eastern europe
lastly political drivers
economic processes are not operating in
a political or institutional vacuum
reducing or even eliminating barriers to
trade and goods
services labor and capital are political
decisions
at the end of the day whether
economically motivated cross-border
activities do actually take place or not
depends on the policy frameworks in
place therefore
whether cross-border activities are
facilitated made more difficult or even
completely forbidden are heavily
impacted by the global and local
political environment
for example the decision of a country to
reduce import tariffs
is essential for the size and structure
of international trade in goods and
services
lower barriers in trade increase the
incentive to trade with other countries
this decision is in the hand of the
national government or parliament
the same applies to the decision to
reduce capital controls which are used
by national governments in order to
regulate the inflow
and outflow of capital finally
immigration regulations of individual
countries are an important limitation of
international migration flows
the removal of these restrictions within
the fundamental freedoms of the european
internal market is supposed to increase
cross-border migration between european
union countries
okay let's do a quick summary of today's
topic after centuries of technological
progress and advances in international
cooperation
the world is more connected than ever
globalization not only helps companies
to explore new opportunities
and expand their business overseas but
also helps firms to sourcing goods and
services
from locations around the globe to take
advantage of national differences
in the cost and quality of factors of
production
there are four major factors driving the
move toward greater globalization which
are technological drivers
market drivers cost drivers and
political drivers
because globalization is such a critical
topic and influences almost every single
aspect of our daily lives i'm going to
discuss the pros and cons of
globalization
to the us economy in another video so
do you have any questions about the
impact of globalization
please share your thoughts below i hope
that you guys enjoyed this video
and if you did make sure to give it a
thumbs up thanks for watching and i'll
see you next time
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