Sunny Li Sun

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BA 4371-004 International Business Class 2
Globalizing Business

• Sunny Li Sun
• August 30, 2008

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Globalizing Harry Potter

• Big news Harry Potter and The Deathly Hallows
• hit bookstores worldwide at 1201 a.m. on July
  21, 2007
• Rowlings genius the overwhelming importance of
  continuing to love in the face of death --The
  Times

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• Scholastic a record breaking first printing of
  12 million copies
• selling an unprecedented 8.3 million copies in
  its first 24 hours
• The series has already sold 325 million copies
  worldwide and been translated into 66 languages.
• "Harry Potter" films the fifth of which was
  released 2007 have grossed more than 3.8
  billion globally.

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Harry Potter a Rorschach Blot

• A worldwide character of clashes between various
  forms of traditionalism and modernism
• French whether or not "Harry Potter"
  indoctrinates youngsters into
  the orthodoxy of unfettered market
  capitalism.
• Swedish decry what they perceive as "Harry
  Potter's" Anglo-American vision of bourgeoisie
  conformity and its affirmation of class and
  gender inequality.
• Turk the pivots around issues of Turkish
  civilizational identity whether Turkey is part
  of the West, the East, or a bridge between the
  two. A few Turkish writers have even asserted
  that controversies over "Harry Potter" in the
  United States demonstrate how Turks are more
  "Western" than Americans.
• Russian a country whose concern over
  international status and prestige becomes more
  apparent each day, the newspaper Novaya Gazeta
  created a minor firestorm when it claimed that
  the film visage of Dobby the House-Elf was a
  deliberate insult to President Vladimir Putin.
• Indonesian Wahhabists view "Harry Potter" as
  promoting paganism and undermining Islam.

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Globalization

• Globalization refers to close economic
  integration of countries and peoples of the
  world.
• Its impact on
• Politics
• Culture (religion)
• Sports
• Terrorism
• Environment
• Technology
• You

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Semiglobalization

• strategy that suggests that barriers to market
  integration at borders are high but not high
  enough to completely insulate countries from each
  other
• The volume of world trade and investment has
  accelerated since the early 1980s.

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Hybridization of cultural globalization

• Unauthorized "sequels explicitly recast in
  local settings and using local
  plot devices.
• Indian fake novel Harry Potter makes friends
  with a Bengali boy and tours
  India.
• China into Chinese mythological traditions
• Fans produce a worldwide stream of fiction set in
  the Harry Potter universe, each extending
  elements of the novels to reflect their own
  interests and preferences. For all its often
  crass commercialization, "Harry Potter's" success
  owes something to a process of hybridization
  familiar to scholars of cultural globalization.
• Americans increasingly see themselves as objects
  of economic globalization, whether in the form of
  "outsourcing" or the impact of Chinese imports on
  U.S. manufacturing. But we still tend to think of
  cultural globalization as synonymous with
  "Americanization." The "Harry Potter" books
  provide a subtle rejoinder to such impressions
  and subvert the equation of globalization with
  relentless homogenization.

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Core Question in Our Class

• What determines the success of countries in the
  globalization?
• What determines the success of industries in the
  globalization?
• What determines the success of firms in the
  globalization?
• What determines the success of individuals in the
  globalization?

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Fortune 500 and MNE

• Concept
• Foreign Direct Investment (FDI) - investments in,
  controlling, and managing value-added activities
  in other countries
• Multinational enterprise (MNE) - firm that
  engages in foreign direct investments.
• Manages production establishments or delivers
  services in at least two countries.
• have a powerful influence in international
  relations and local economies.
• play an important role in globalization
• First MNCs the Dutch East India Company (1602)
• Fortune 500/2008
• Texas is home to the most companies (58) on this
  year's list. (NY55 CA 52)
• http//money.cnn.com/magazines/fortune/fortune500/
  2008/states/TX.html
• Foreign revenue account for 37.5 of total sales
• In 1970, there were approximately 7,000 MNEs
  worldwide. In 2005, the United Nations identified
  over 70,000 MNEs, which controlled 690,000 units
  overseas.
• The largest 500 account for 80 of the worlds
  FDI. Total annual sales of these 500 firms are in
  excess of 11 trillion (that is, about
  one-quarter of global output)

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How does globalization defeat or save Ford?

• In 1907 Henry Ford proclaimed, "I will
  democratize the automobile," and then made good
  on his promise.
• Today Ford Motor fights to create a future for
  itself in the face of brutal global competition
  and the green revolution.

• U.S. market share continued its decade-long slide
  - from 25 in 1997 to 15.6 in 2007
• Lost 20.1B pretax in the past 2 year in North
  America, but make 1.1B in Europe.
• Gain 1M in Asia, 1Q 2008 (lost 26M in 2007)
• Sell 90,791 cars in China, 1Q 2008 (47 growth)

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How does globalization defeat or save Ford?

• 1970s, First world car Escort
• Midsize Ford Mondeo designed in Europe, called
  Contour in US.
• One Ford" integrating design, engineering, and
  manufacturing round the world.
• simplifies engineering requirements,
• reduces time to market
• costs less
• Complexity is reduced
• purchasing becomes more efficient.
• In 2004, the European team began designing the
  Fiesta, and the United States dithered over
  whether to join up.

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Assume you are a number of Ford Fiesta global
design team.

• Mk7 Fiesta will be built by AutoAlliance Thailand
  (shares platform with Mazda 2) and Cologne plant
• Concept
• expatriate manager (expat) - manager who works
  abroad
• international premium - significant pay raise
  commanded by expats when working overseas
• What will you do in Thailand or Germany?
• Americans want more powerful air conditioning and
  can't stand hatchbacks (think about BMW new
  1-series)
• Synchronize new-model plans for each of the major
  markets
• Ford used to use 28 different seat structures
  around the world, involving frames, springs, and
  so forth. Now it has two.

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Fortune Global 500 Rank distribution by country

• In general, over 80 of the 500 largest MNEs
  come from the Triad.
• Since 1990, the United States has contributed
  about one-third of these firms,
• the European Union has maintained a reasonably
  steady increase,
• Japan has experienced the most dramatic variation
  (roughly corresponding to the boom and bust of
  its economy with several years of delay).

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Fortune Global 500 Rank distribution by country

• Among MNEs from emerging economies, those from
  South Korea and Brazil have largely maintained
  their presence,
• Those from China have been increasingly visible
  since the mid 1990s

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Competing on World's manufacturing

• Measured in real value-added terms, China's share
  in global manufacturing is projected to overtake
  that of the United States by 201617. This is
  helped by the Asian giant's rapid gains in the
  market shares of textiles, basic metals, computer
  equipment, appliances, and mineral products.

• The manufacturing sector in US 12.5 of GDP,
• 36 of the Chinese economy is engaged in
  manufacturing.
• Compound annual growth rate China 1015
  (based on real, value-added terms) US 3
• Globally, manufacturing accounts 17 of GDP,
  service sector 65. The U.S. share 21.4 ,
  China 10.8, India 4.6 (based on Purchasing
  Power Parity (PPP) )

• http//www.globalinsight.com/Perspective/Perspecti
  veDetail13718.htm

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History

• Until the 19th century, China had been the world
  leader in manufacturing for over a millennium
• 1840, Britain became the worlds biggest
  manufacturer after its Industrial Revolution.
• The U.S. has been the largest manufacturer by a
  wide margin for over a century. It took the
  global mantle from a declining Britain and held
  off challenges from Germany, the Soviet Union,
  and Japan
• Over a recently 23-year period, China's share in
  world industrial output rose from 2.2 percent to
  6.9 percent (2006) India's share increased from
  0.9 percent to 1.2 percent
• On a per capita basis, American workers are far
  more productive than their Chinese counterparts.

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The new shape of Chinese manufacturing

• An economic weakling only 20 years ago, China is
  now the worlds second largest manufacturing
  power next to the US
• FT.Com Published August 7 2008
  http//www.ft.com/cms/s/0/bd9b31ec-644f-11dd-af61-
  0000779fd18c.html

• Case 1 Anshan Steel, Chinas second largest
  steelmaker, potentially partners with Arcelor
  Mittal.
• Case 2 How China plays a bigger role in the
  global operation of Luxottica, the worlds
  biggest maker of spectacle frames
• Case 3 A British entrepreneur who started in
  China with just 5,000 but is aiming to achieve
  an annual sales of 15m in five years

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Chinas rise in Global StagePressures or
Opportunities?

• Friedman attends the spectacular closing ceremony
  at the Beijing Olympics
• 1/Holy mackerel, the energy coming out of this
  country is unrivaled.
• 2/We are so cooked. Start teaching your kids
  Mandarin.

• The relative decline in U.S. manufacturing's
  world share is not a sign of weakening future
  prospects for the United States. Rather, China's
  rapid manufacturing growth will help raise its
  consumer income and infrastructural development
  needs, thus opening up vastly greater trade
  opportunities for the U.S. manufacturing and
  service industries
• The expanding Chinese market is more likely to
  open up greater opportunities for the United
  States as well as other producers. Several
  important areas of economic growthsuch as
  finance, information technologies, and business
  services,
• In addition to such manufacturing industries as
  aircraft, pharmaceuticals, heavy capital
  equipment, and scientific and medical
  equipmentare all expected to remain larger in
  the United States than in China.

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Debate on Globalization
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• GDP Density GDP per capita Number of people
  per square kilometer.The darker the colors, the
  higher the GDP density.

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Two sides of globalization

• Contributions of globalization
• higher economic growth and standards of living,
• increased sharing of technologies
• more extensive cultural integration.
• Critics on globalization
• undermines wages in rich countries
• exploits workers in poor countries
• devastates the environment,
• compromises human rights,
• diminishes national sovereignty
• gives large MNEs too much power

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Is globalization increase inequality?

• Globalization has dramatically increased the
  world's supply of low-skilled labor, damping
  wages for such workers in developed countries.
• Rapid technological change also has boosted
  demand for high-skilled workers, whose wages have
  risen as demand has exceeded supply.
• labor unions have lost ground and workers' wages
  have suffered as wealthy countries have shifted
  to service industries from manufacturing
• http//online.wsj.com/article/SB121961240961667287
  .html?moddjem_jiewr_swwps_082808

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Is globalization increase inequality?

• It's hard to know what to do about it, other than
  to accept it and repair it, rather than try to
  prevent it." In practice, that's likely to mean
  higher taxes on wealthier citizens.
• Opening up is a good thing for countries that
  have the administrative capacity to deal with it,
  e.g., India.

• Economic policy
• Brazil global growth has boosted low-wage
  workers' income levels more than the levels of
  higher earners.
• Argentina its per capita GDP slide by some 20
  in the 1980s as a series of government
  administrations piled on a debt load that
  eventually became crippling. Since then, real
  wages have fallen and the gap between rich and
  poor has widened.

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Three views on globalization

• A new force sweeping through the world in recent
  times
• A long-run historical evolution since the dawn of
  human history

• a pendulum that swings from one extreme to
  another from time to time.
• Nafta (1994)
• Free Trade Agreements with Colombia, Panama and
  South Korea (not passed Congress).
• Is Reagan (or Thatcher) revolution dead? Back New
  Deal (Roosevelt), Great Society (LBJ)?
• http//blogs.wsj.com/agenda/category/trade/

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Debates on Globalization Is World Flat or not?

• Friedman, Thomas leading columnist on the New
  York Times, won three Pulitzer prizes.
• http//www.thomaslfriedman.com
• Globalization 1.0 (1500 to 1800) shrank the world
  through the application of energy (sail and later
  steam).
• Globalization 2.0 (1800 to 2000) shrank it
  further, the great agent of change being
  multi-national companies (no mention at all of
  world-wide colonisation!) and the changes being
  powered by falling transportation and later
  telecommunication costs.
• Globalization 3.0 (2001- ) We have just entered
  is powered by software linked to a global
  telecommunication network and is unique in giving
  individuals the power to collaborate and compete
  globally and allowing anyone, anywhere to take
  part and drive development.

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Ten flatteners

• 1/the decline of Russian communism, reduction in
  regulation and freeing of trade etc round the
  world
• 2/the growth of browser software and fibre optic
  cable
• 3/work-flow software
• 4/Open source software (e.g.,Linux, Wikipedia)
• 5/Strategic outsourcing
• 6/Offshoring
• 7/Coordinated global supply chains
• 8/Insourcing
• 9/'In-forming' (e.g.,information power of Google)
• 10/'The steroids' - the growth of wireless
  communication

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Washington Consensus

• EE will need to fit themselves into the "Golden
  Straitjacket,"
• Privatization
• free trade
• low government spending
• The path is "not always pretty or gentle or
  comfortable. But it's here and it's the only
  model on the rack this historical season."
• --Thomas Friedman The Lexus and the
  Olive Tree

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The Myth of Free Trade and the Secret History of
Capitalism

• Ha-Joon Chang a heterodox economists at the
  University of Cambridge.
• Today's rich nations are effectively kicking away
  the ladder ... in order to deprive others of the
  means of climbing up after them.
• The history of capitalism most of these Bad
  Samaritans suffer a form of historical amnesia
  and do not even realize that they are hurting the
  developing countries with their policies.
• Fact 1 the Japanese government kicked out
  General Motors and Ford in 1939, subsequently
  bailed out Toyota with public money, and even
  then, the company failed badly with its first
  U.S. export attempts in 1958. Yet Japan
  persevered in its support of the industry, with
  the result that "today, Japanese cars are
  considered as 'natural' as Scottish salmon or
  French wine.

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Fact 2 US infant industries

• An array of policies to protect the country's
  "infant industries (a term coined by Hamilton)
  "protective tariffs and import bans subsidies
  export ban on key raw materials import
  liberalization of and tariff rebates on
  industrial inputs prizes and patents for
  inventions regulation of product standards and
  development of financial and transportation
  infrastructures."
• If Hamilton was the finance minister of a
  developing country today, the International
  Monetary Fund and the World Bank would certainly
  have refused to lend money to his country and
  would be lobbying for his removal from office.
• Antebellum cotton-growing South favored low
  tariffs, while the industrializing North wanted
  them high. After the Union's victory, the U.S.
  enacted tariffs that remained the highest in the
  world until World War I.

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Fact 3British

• The first episode of globalization the free
  movement of goods, people, and money that
  developed under British hegemony between 1870 and
  1913, was made possible, in large part, by
  military might, rather than market forces.
• The imperial free trade followed long years of
  high tariffs and careful protection and nurturing
  of selected British industries
• banning of superior textile imports from India,
• blocking the Irish wool industry from exporting
  to foreign nations,
• prohibiting the American iron industry from
  competing with the mother country.
• No less an authority than Adam Smith advised the
  Americans not to take up manufacturing.

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Market and democracy clash

• Even though the rich countries have low average
  protection, they tend to disproportionately
  protect products that poor countries export,
  especially garments and textiles. India paid
  almost as much in tariffs to the US government as
  France, despite the fact that the size of its
  economy was only 3 that of France in 2002!
• Market and democracy clash at the fundamental
  level. Democracy runs on the principle of 'one
  man (one person), one vote. The market runs on
  the principle of 'one dollar, one vote.
• If developing countries want to leave poverty
  behind and nurture their fledgling industries
  just as today's rich nations once did, they have
  to defy the market.

Globalization and Its Discontents (2002), the
2001 Nobel laureate Joseph E. Stiglitz
http//en.wikipedia.org/wiki/Globalization_and_Its
_Discontents
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My viewpoint looking on global sports

• International sport dates back to the 19th
  century, and the commercial exploitation of sport
  is even older than that. What is new is the
  degree of commercialisation and its spread to
  emerging markets.
• Nine of the 20 football clubs in the English
  Premier League last season were owned by
  foreigners.
• Brazilian footballers turn up in leagues from the
  Faroe Islands to Vietnam.
• India in cricket are creating powerful sports
  businesses of their own.
• Ambitious countries in Asia and the Gulf want
  their own tennis tournaments and Grand Prix.

• China Sports in Globalization
• 1932, Liu Changchun, a sprinter, made his way to
  modern Olympic games, Los Angeles.
• Xu Haifeng won Chinas first gold medal in 1984,
  LA.
• China won 51 gold medals in 2008.

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Marriage of media and sport in globalization

• The sports business is based on the idea that
  people are willing to pay to watch others play,
  and television expands the audience vastly, from
  thousands inside the stadium to millions outside.
  For broadcasters, more eyeballs mean more
  subscribers and advertisers.
• Successful sportsmen and women are now earning
  sums that the stars of a generation ago could not
  have dreamed of.
• Top main sponsors pay 866m in money, goods and
  services to the Olympics 2008.

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Summary

• "Harry Potter" is already part of the globalizing
  process, with all its complexities, tensions, and
  possibilities
• Key Concepts
• Globalization refers to close economic
  integration of countries and peoples of the
  worlds
• Semiglobalization
• Multinational enterprise (MNE) - firm that
  engages in foreign direct investments.
• Foreign Direct Investment (FDI) - investments in,
  controlling, and managing value-added activities
  in other countries
• Expatriate manager
• Key Question in IB
• What determines the success of firms in the
  globalization?
• Some trends in Globalization
• Globalization will defect or save the firm listed
  in Fortune 500?
• Over 80 of the 500 largest MNEs come from the
  Triad.
• The rise of China in manufacturing
• Three views on globalization
• Two sides of globalization
• The World is flatted by technology, but market
  and democracy could clash

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Next Week

• Formal Institutions (Chapter 2)
• Two Political Systems
• Three Legal Systems
• Three Economic Systems