International Business - Essay Example

264). The barriers to international investment and trade have decreased, and there exists enormous markets for goods and services. Companies from different nations are investing into many countries at an unprecedented scale, and the competition is increasing and becoming intense. The mangers now need to understand the competition from an international perspective, and consider how globalization is affecting their companies’ abilities to compete with other companies, and the strategies they need to adopt so as to exploit the unfolding opportunities and deal with any competitive barrier (Hill & Jones 2007, p. 264). Historical background to globalization of production and markets The past half of the 20th century has resulted into dramatic lowering of barriers to international investment and trade.

For example, the average tariff rate on goods manufactured and traded between advanced nations continues to decrease from 40% to 4 %. Similarly, governments have removed regulations that prohibit foreign companies from entering into domestic markets or establishing production facilities or acquiring domestic companies. The two developments have resulted into an increase in the volume of the foreign direct investment and international trade. The volume of the world goods continues to grow faster than the world economy since 1950.

From the year 1970-2005, the volume of world merchandise traded throughout the world continues to surpass the expansion of world production. Additionally, between the year 1992- 2005, the world trade value increased by 140%, the world output by 40% and the total flow of foreign direct investment globally increased by over 500%. These trends have resulted into the globalization of production and the globalization of markets (Hill & Jones 2007, p. 265). Globalization of Production Globalization of production is the tendency by many companies to source goods and services from different countries around the world so as to benefit from the existing differences in the quality and the cost of factors of production such as energy, land, capital and labor.

Through globalization of markets, companies reduce risks and cost and compete effectively with other companies (Weng Feng Xiang 2009, p. 9). Companies establish globally organized production system so as to integrate production activities across many countries. Globally organized production also refers to global commodity chains and is of two types: Produce driven chain and Buyer driven chain. The Producer-driven chain is responsible for coordination of production networks across countries as in the production of computers.

Buyer driven chains comprise of large footwear and clothing manufacturers and large retailers. Companies establish the chains in low wage economies to produce low-cost goods that have brands to represent the manufacture or retailer. A good example of a buyer driven chain in the world is the Nike Company (Needle 2010, p.19). The globalization of production increases as companies take advantage of decreasing barriers to international investment and trade to disperse crucial aspects of their production process throughout the world.

For example, foreign companies built 30% of the Boeing Company commercial jet aircrafts (777). The Boeing Company is pushing the outsourcing of its jet airliner 777 model further to foreign companies (65%), 35% to three Japanese companies and 20% to Singapore, Italy and the United Kingdom. The reason behind outsourcing by