BACC 121

Course Learning Outcomes

At the end of the course, the Business

Administration Louisians are expected to:
1. Demonstrate their understanding of
the concepts of comparative
advantage and the gains from trade,
by applying the theories.
2. Demonstrate their understanding of
the determinants of the trade pattern
between countries and assess its
effects on the distribution of income
between and within these countries.
3. Understand the political economy of
trade policy and the economic
effects of different trade policy
INTERNATIONAL instruments.

BUSINESS 4. Recognise the role of international

trade institutions to domestic and

AND TRADE regional markets.

Understand the effects of
BACC 121 international trade on economic
development, international
politics/conflicts

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 For the only way in which a durable
peace can be created is by world-wide
restoration of economic activity and
international trade.
James Forrestal

MODULE ONE
The Rise of Globalization
OVERVIEW:
We live in a highly integrated and interdependent world. Business has become increasingly global in
nature, and the success of business depends on the domestic economic environment and on
developments abroad
LEARNING OBJECTIVES:
1. Explain the characteristics of globalization and describe how it functions.
2. Identify how major international institutions facilitate globalization.
3. Evaluate the need for strong and transparent institutions to adapt to global competition.
4. Describe the key policy measures that make globalization sustainable.
5. Describe the role of information technology n bridging the global digital divide.
6. Describe the validity of the anti-globalization argument.
7. Explain the case made to temporarily support those people negatively affected by
globalization.

MODULE OUTLINE:

I. What Is Globalization? Globalization encompasses the socio-economic reform process of

eliminating trade, investment, cultural, information technology, and political barriers across

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 countries, which could lead to increased economic growth and geo-political integration and
interdependence among nations of the world.
Globalization and international trade and investment are interlinked. Globalization has been
based upon changes in national policies:
• Strengthening the role of the private sector
• Supporting free-market pricing
• Eliminating barriers to free movement of goods, services, capital, and information
technology
• Promoting institutions that enforce transparency, disclosure, and rule of law
1. Emerging Economies
Prior to 2000, globalization generally implied that business expanded from developed
countries to developing or emerging economies. Now the flow of business had moved in both
directions.
• Emerging economies – countries that have been moving toward more open
trade and free-market policies
• BRIC economies – Brazil, Russia, India, and China

2. Decoupling and the Move to a Multipolar World Economic Order

• Decoupling refers to a fundamental global shift in which developing economies that
were once dependent upon industrialized countries for economic advancement begin
to solidly grow based on their own underlying economic strengths.
• Decoupling will eventually lead to a multipolar world, a world economy in which
the engines of growth could comprise the U.S., the E.U., China, India, Brazil, Russia,
and South Africa.
II. Key International Institutions that Facilitate Globalization. Globalization gained momentum
after World War II, when governments of the free world recognized the importance of international
cooperation and coordination, which has led to the emergence of three major international
organizations: the International Monetary fund (IMF), the World Bank, and World Trade
Organization (WTO). The IMF and the World Bank (IBRD) were conceived in July 1944, when
representatives of 44 countries met in Bretton Woods, New Hampshire, U.S.A., and agreed upon a
framework for international economic cooperation.

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 • The International Monetary Fund – an institution charged with overseeing the
international monetary system and providing global financial stability.
o Came into formal existence in December 1945
o Began operations on March 1, 1947, in Washington, DC
o As of September 18, 2014, 188 countries were members
o IMF continues to:
▪ Provide a forum for cooperation on international monetary problems
▪ Facilitate sustainable growth of international trade
▪ Promote exchange rate stability
▪ Lend countries foreign exchange when needed
• The World Bank.
o Primary role was to aid the reconstruction of Europe after the war.
o Today WB focuses on reconstruction and restructuring economies.
o The World Bank has several affiliated institutions.
o The World Bank Group’s Developmental Institutions include:
▪ International Bank Reconstruction and Development
▪ International Development Association
▪ International Finance Corporation
▪ Multilateral Investment Guarantee Agency
▪ International Centre for Settlement of Investment Disputes
• The World Trade Organization.
o Began in 1948 under the General Agreement on Tariffs and Trade (GATT).
o GATT primarily dealt with merchandise trade; the mandate of the WTO is
much broader.
o WTO is based in Geneva, Switzerland, and has 160 members; an additional 23
countries are negotiating to join.
o WTO helps global trade to flow smoothly, freely, fairly, and predictably by:
▪ Administering trade agreements
▪ Acting as a forum for trade negotiations
▪ Settling trade disputes
▪ Reviewing national trade policies

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 ▪ Assisting developing countries
▪ Cooperating with IMF and IBRD
III. Institutional Structure and Its Impact of Globalization.
Institutions are the rules, enforcement mechanisms, and organizations that support market
transactions. Successful institutions play three important roles: they efficiently channel information
about market conditions; they define property rights and contracts; and they promote competition
and innovation.
▪ Transparency of Political Institutions. The foundations of a globalized world are political.
Political institutions and leaders have to be transparent, otherwise social unrest will arise.
▪ Adaptive Institutions to Strengthen Public Participation. Adaptive institutions are
government organizations that create strong incentives or private investment and operate
under a system of checks and balances.
Independent Judiciary and Free Press. Investors have greater confidence when conducting
business in countries with low crime, effective courts, dependable contract enforcement, and free
press
IV. Effective Policy Measures that Promote Globalization.

Countries cannot thrive on high-quality institutions alone; they also need effective policies
as complements to globalization.

• Good Governance. Policy transparency, competent administrators, and consistency over

time are measures of effective governance.
• Competitive Markets. Countries must enforce regulations that promote free markets, such
as antitrust laws – national laws aimed at maintaining competition in all sectors of the
economy and preventing monopolistic behavior of firms.
• Property Rights. Weak physical and intellectual property rights protection discourages
domestic and foreign investors from making long-term commitments.
Anticorruption Policies. Illicit dealings undermine economic performance by raising costs,
creating uncertainty, and thwarting competition and transparency

V. Impact of Information Technology on Globalization.

Innovation in information technology is radically changing the way people live all over the
world.

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 • The Digital Generation. Communication has become the fastest-growing part of
household expenditures since 1993. Millions of people all over the world use the
Internet for everything.
• Expanding the Global Use of Information Technology. Internet-based applications
underlie major advances in science, business organization, environment monitoring,
transparent management, education, and e-government. Broadband prices have been
falling, which enables policymakers to maximize the economic potential of remote
communities.
• The Digital Divide Myth. Digital divide describes the perceived IT gap between
developed and developing countries. The fall in prices of digital IT equipment and
services accelerated globalization and narrowed the digital gap.
How Countries “Leapfrog” into the Internet and Cell Phone Era. As of 2014, about 43
percent of the world’s population of 7 billion had access to the Internet. The next billions of Internet
users will be vastly different. The majority of them will be from developing countries, and they will
connect to the Internet principally via wireless networks. In developing countries, the number of cell
phone subscribers outnumbers those for fixed-line networks by more than 20 to 1. Developing
countries are skipping the use of land-line technology and moving directly to wireless systems.

VI. The Globalization Controversy.

Globalization can be viewed as a force for exploitation and injustice. Arguments against
globalization highlight problems such as the costs of disruptive economic change, including job
losses and stagnant wages, the loss of local control over economic policies, the disappearance of old
industries, and the related erosion of communities.
• Job Losses and Income Stagnation. Critics argue that globalization harms the poor
through loss of jobs and stagnant wages. FDI may take jobs from workers in
advanced industrial economies and transfer them to less expensive workers in
developing countries, while workers in developing countries might be drawn into jobs
that may exploit them.
• Sustainable Development and Environmental Degradation. Sustainable
development is defined as the development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.
Finding solutions depends upon a shared vision by governments, businesses, non-

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 governmental organizations, and society. Corporate Social Responsibility (CSR)
practices are becoming a significant factor in determining where multinational
corporations (MNCs) conduct business; rather than FDI sparking a “race to the
bottom,” MNCs are looking for long term commitment to host countries.

VII. Making Globalization Work for All.

The globalization debate should center on how to best manage the globalization process, so
that the benefits are widely shared and costs are kept to a minimum.
• Globalization’s Winners and Losers. Globalization does create winners and losers.
Millions have climbed out of poverty. Additionally, globalization has promoted civil
liberties by proliferating information and increasing choices.
• Globalization’s Losers Need Support. Countries that have not been able to seize the
opportunities to participate in globalization suffer most. National policies ought to be
implemented to help retain and educate displaced workers.

Building International Business and Trade Skills

Engage Activity
Reflection Paper
WRITING AND SPEAKING EXERCISE:
Research and determine whether the typical middle-class citizen in Philippines is already in the
smart phone era.
Explore and Explain Activity
Search Transparency International’s website and identify the ranking of the Philippines and the top
ten countries with the least corruption. Discuss the findings.

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 Elaborate and Evaluation Activity
How have job opportunities for business majors from your community been affected by global
pandemic? Do you see any particular trends or challenges?

V. References

A. Main Reference/s

1. Gaspar Julian E., Kolari, James W., Hise, Richard T., Introduction to global Business 2 nd edition–
International Edition. Canada: South-Western Cengage Learning.

B. Journals

C. Electronic Sources

Prepared by:

Prof. Glory I. De La Pena MBA, RME

Department Head EHM

Dr. Leilani I. De Guzman

Faculty EHM

Mr. Karlo Dacanay

Faculty EHM

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Property of and for the exclusive use of SLU. Reproduction, storing in a retrieval system, distributing, uploading or posting online, or transmitting in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise of any part of this document, without the prior written permission of SLU, is strictly prohibited. 9