Global Trade Operations
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Week1LectureSlidesupdated-OMGT2243.pptx
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OMGT 2243:
Global Trade Operations
Topic: 1
International Trade and Global Supply Chains
Learning objectives
At the end of this unit you should be able to:
Explain the concepts of globalisation and international trade.
Explore the various factors that contribute to globalisation.
Examine and discuss the pros and cons of globalisation
Where is it coming from?
China
Germany
Taiwan
Thailand
Japan
Assembled in Bangladesh
Where is it coming from?
What is globalisation?
Globalisation refers to the shift towards a more integrated and interdependent world economy
Globalisation, which means
the spatial expansion of the economy,
more complex global economic integration,
the upcoming network of global flows and hubs.
Globalisation is realised in two forms:
the globalisation of markets
the globalisation of production.
Globalisation:
Changes the very nature of the firm
firm strategy and structure
Impacts the forces of competition for the firm
the competitive game is ‘enlarged’ and intensified
Impacts the consumer and the buyer
democratisation effects.
Drivers of globalisation
Two macro factors underlie the trend toward greater globalisation:
the decline in barriers to the free flow of goods, services and capital that has occurred since the end of World War II.
technological change across various dimensions, but essentially those that “lubricate” international transacting.
Declining trade and investment barriers
International trade occurs when a firm exports goods or services to consumers or other producers in another country.
Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.
After World War II, advanced countries made a commitment to lower barriers to trade and investment.
Since 1950, average tariffs have fallen significantly and are now at about 4%.
Countries have also been opening markets to FDI.
Rationale of International Trade
International Trade. An exchange of goods or services across national jurisdictions. Inbound trade is defined as imports and outbound trade is defined as exports. Subject to the regulatory oversight and taxation of the involved nations, namely through customs.
International Trade - Immediate Motivations
Market motives can be offensive or defensive.
An offensive motive is to seize market opportunities in foreign countries through trade or investment.
A defensive motive is to protect and hold a firm’s market power or competitive position in the face of threats from domestic rivalry or changes in government policies.
Economic motives apply when firms go internationally to increase their return through higher revenues and/or lower costs. International trade and investment are vehicles enabling a firm to benefit from inter-country differences in costs of labor, natural resources, and capital, as well as differences in regulatory treatments, such as taxation.
Strategic motives lead firms to participate in international business when they seek, for instance, to capitalize on distinctive resources or capabilities developed at home (e.g., technologies and economy of scale). By deploying these resources or capabilities abroad or increasing production through international trade, firms may be able to increase their cash inflows. Firms may also go international to be the first-mover in the target foreign market before a major competitor gets in, gaining strategic benefits such as technological leadership, brand image, customer loyalty, and competitive position.
International Trade - Immediate Motivations
Declining trade and investment barriers
Lower barriers to trade and investment mean:
that firms can view the world, rather than a single country, as their market:
The globalisation of markets.
that firms can base production in the optimal location for that activity:
The globalisation of production.
The globalisation of markets
The globalisation of markets refers to the merging of historically distinct and separate national markets into one global marketplace.
In many industries, it is no longer meaningful to talk about the “German market”, “American market”, “Chinese market” or the “Australian market”.
– Rather, there is one global market in some industries.
Falling trade barriers make it easier to sell internationally.
The tastes and preferences of consumers are converging to some global norms.
Firms help create the global market by offering the same products worldwide.
However, country differences do remain.
The globalisation of production
The globalisation 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 land, labour and capital).
For example, Australian and New Zealand firms outsource and offshore manufacturing activity into China and services activity into India.
The competitive imperative demands that firms compete more effectively by lowering their overall cost structure or improving the quality or functionality of their product offering.
“Here” may not be the best place to undertake a particular economic activity.
The role of technological change
Technological change has made the globalisation of markets a reality.
Important advances have occurred in:
microprocessors and telecommunications
the Internet and World-Wide-Web
transportation technology.
Implications of technological change for the globalisation of production include:
lower transportation costs that enable firms to disperse production to economical, geographically separate locations
lower information processing and communication costs that enable firms to create and manage globally dispersed production systems.
The role of technological change
Implications of technological change for the globalisation of markets include:
low cost global communications networks help create an electronic global marketplace
low-cost transportation help create global markets
global communication networks and global media are creating a worldwide culture, and a global market for consumer products.
Consequences of globalisation
The changing demographics of the global economy
There has been a drastic change in the demographics of the world economy in the last 30 years
Four trends are important:
the changing world output and world trade picture
the changing foreign direct investment picture
the changing nature of the multinational enterprise
the changing world order.
The changing world output and world trade picture
In 1960, the United States accounted for over 40% of world economic activity.
By 2006, the United States accounted for less than 20% of world economic activity.
A similar trend has occurred in other developed countries.
The share of world output accounted for by developing nations is rising and is expected to account for more than 60% of world economic activity by 2020.
The changing foreign direct investment picture
In the 1960s, US firms accounted for about two-thirds of worldwide FDI flows.
Today, the United States accounts for less than one-fifth of worldwide FDI flows.
Other developed countries have followed a similar pattern.
In contrast, the share of FDI accounted for by developing countries has risen from less than 2% in 1980 to almost 12% in 2005.
Developing countries, especially China, have also become popular destinations for FDI.
The changing nature of the multinational enterprise
A multinational enterprise (MNE) is any business that has productive activities in two or more countries.
Since the 1960s, there has been a rise in non-US multinationals, and a growth of mini-multinationals.
The internationalisation activities of firms from small, open economies such as Australia and New Zealand are characterised by small and medium sized firms:
refer to the Management Focus: Rising Sun Pictures and New Line Cinema: Aussies and Kiwis taking on Hollywood.
refer to the Country Focus: Tasmanian cherries will fetch a sweet price of up to
$1.50 each in Japan.
The nature and form of multinationals is changing with the globalisation of production:
The boundaries of firms are changing, producing “new form” enterprises.
The changing world order
Many former Communist nations in Europe and Asia are now committed to democratic politics and free market economies and so create new opportunities for international businesses.
China and Latin America are also moving toward greater free market reforms.
The global economy of the twenty-first century:
The world is moving toward a more global economic system, but globalisation is not inevitable.
Globalisation also brings risks like the financial crisis that swept through South-East Asia in the late 1990s, US in 2008 (GFC) and entire world now (Covid_19)….
Changes in the Global Trade Environment
Changes in the Global Trade Environment
Changes in Global Trade Flows
Summary
International trade is complex, dynamic and multifaceted
International trade directly linked to economic development and higher levels of prosperity
Globalisation has a massive impact on international trade
Functional and geographic integration is commonly prevalent
Emergence of large logistics hubs and complex network.
Summary
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Questions ???
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