How does globalization affect the United States? The old saying “No man is an island” can be used to describe globalization. Globalization, the movement toward a more interconnected and interdependent world economy, may be one of the most profound factors affecting people in the United States and around the globe. Why is this? Whatever happens today in the U.S. economy—the world’s largest economy—will have a significant impact on people not only in the Unites States but also worldwide. Meanwhile, economic conditions in other countries also affect the U.S. economy, producing changes and challenges for U.S. consumers, businesses, and workers.

One example of this can be seen in the booming economies of India and China. Their growth is a major reason for the increasing global demand for energy. Increased energy demand is a major cause of the world’s rising oil prices, which have created higher prices at the gas pump for people around the world. As a result, people have less money to spend on other things, such as eating out. Local restaurants and businesses feel the pinch, so their sales fall, and they must curtail their production and lay off employees. Higher energy prices can also drive up production costs, which, in turn, drive up the prices businesses must charge for products.

How does globalization offer more marketing opportunities to businesses? Globalization has two main components:

• The globalization of markets

• The globalization of production

The globalization of markets refers to the movement away from thinking of the market for your products as being local or national and the entire world instead. This offers incredible new opportunities for businesses. Companies such as General Electric (GE), Dell, and Toyota are not just selling to customers in Dallas or Atlanta, or Japan or Europe; they’re selling to customers all over the globe. For example, all auto manufacturers are looking to sell their vehicles in China. Why China? Because more than 1.3 billion consumers live there. That’s more than quadruple the number of consumers who live in the United States.

When it comes to doing business abroad, most marketing experts advise firms to “think globally and act locally.” In other words, companies should adjust their products or marketing campaigns to suit the unique tastes and preferences of their local customers, wherever they may be. For example, Coca-Cola often must tweak its recipes to appeal to the tastes of consumers in different parts of the world. In India, Coca-Cola adapted its Minute Maid orange soda recipe to suit the tastes of people there, most of whom prefer a sweeter version of the drink than the version sold in the United States.2 Similarly, many foreign-owned companies advertise or adapt their products for sale in the United States to attract consumers here.

How does globalization make it easier to manufacture products? The globalization of production refers to the trend of moving a firm’s production to different locations around the globe to take advantage of lower costs or enhance the quality of products. Outsourcing is often part of the globalization of production. Outsourcing is the assignment of certain tasks, such as production or accounting, to an outside company or organization. Currently, much outsourcing is offshore outsourcing (or offshoring), which involves moving production from a domestic site to a foreign location. In addition, companies may decide to relocate at least some of their own production facilities to other countries where production costs are lower.

Why has globalization accelerated so rapidly? Two main factors underlie the trend toward greater globalization:

• A dramatic decline in trade and investment barriers. Trade and investment barriers are government restrictions that prevent the flow of goods, services, and financial capital across countries. Lowering trade barriers makes global business cheaper and easier to conduct and allows a firm to move its different production activities to the lowest-cost locations. For example, a firm might design its product in one country, produce parts for it in two or three other countries, assemble the product in yet another country, and then export it around the world.

• Technological innovations. Advances in technology, communications, and transportation have made it possible to better manage the global production and marketing of products. Using web conferencing tools, a business manager in New York can meet with contacts at a firm’s European and Asian operations centers without ever leaving the office. This has significantly reduced the cost of doing business. Technological advancements are a great equalizer for small companies, enabling them to inexpensively access customers worldwide through their websites and effectively compete with huge global corporations.

The globalization of production has resulted in some international firms ­becoming so large that they actually generate more revenue than the gross domestic product of many nations. As you can see in Figure 4.2, several U.S. companies rank above many countries in the world in terms of the total revenue they generate.

Figure 4.2

Company Revenue versus National Incomes

Where will trends in global business take us? Some noteworthy global business trends likely to continue are as follows:

1. A growing role for developing nations. Over the last several decades, developing countries, including China, India, and Brazil, have been expanding rapidly. This trend is expected to continue as countries like these increase their presence on the world economic stage.

2. A rise in non-U.S. foreign direct investment. Previously, the United States was the world’s leader in terms of foreign direct investment, which is the purchasing of property and businesses in foreign nations. Now many other countries are investing in businesses abroad, including businesses and property located in the United States. You might think of Budweiser as a U.S. company, but did you realize that it was purchased by the Dutch firm In-Bev? Not only is more foreign direct investment flowing into the United States than ever before, but more and more foreign direct investment is flowing into developing nations.

3. A rise in multinational enterprises. Over the last several decades, there has been a rise in the importance of multinational enterprises, businesses that manufacture and market products in two or more countries. Moreover, mini-multinationals (small- and medium-sized multinational enterprises) have become prominent on the world stage. Consider Transferwise, a company that allows people to electronically transfer money between accounts in different countries quickly and at much lower rates than what banks offer. By using technology to change how international banking is done, Transferwise has been able to expand its services abroad rapidly.

4. Increasing democratization. With the movement toward democratization and the adoption of free-market economies around the globe, many more nations are becoming involved in the global economy. If this trend continues, the opportunities for international business will be enormous as the global marketplace expands and more locations open as potential production sites.