10.1 What Is Globalization?
Globalization is a process of closer integration and exchange between different countries
and peoples worldwide, made possible by falling trade and investment barriers, advances
in telecommunications, and reductions in transportation costs. 6 Combined, these factors
reduce the costs of doing business around the world, opening the doors to a much larger
market than any one home country. Globalization also allows companies to source supplies
at lower costs and to further differentiate products. Consequently, the world’s market
economies are becoming more integrated and interdependent.
Globalization has led to significant increases in living standards in many economies
around the world. Germany and Japan, countries that were basically destroyed after
World War II, turned into industrial powerhouses, fueled by export-led growth. The Asian
Tigers—Hong Kong, Singapore, South Korea, and Taiwan—turned themselves from
underdeveloped countries into advanced economies, enjoying some of the world’s highest
standards of living. The BRIC countries (Brazil, Russia, India, and China), with more than
40 percent of the world’s population and producing roughly half of the world’s economic
growth over the last decade, continue to offer significant business opportunities. 7 Indeed,
China with $7.5 trillion in GDP has become the second-largest economy worldwide after
the United States (with $15 trillion in GDP), in absolute terms. 8
The engine behind globalization is the multinational enterprise (MNE) —a company
that deploys resources and capabilities in the procurement, production, and distribution
of goods and services in at least two countries. By making investments in value chain
activities abroad, MNEs engage in foreign direct investment (FDI) . 9 For example, the
European aircraft maker Airbus is investing $600 million in Mobile, Alabama, to build
jetliners. 10 It’s doing so in order to avoid voluntary import restrictions, to take advantage of
business-friendly conditions such as lower taxes, labor cost, and cost of living,