Ecuador that did not exist 20 years ago and that now supplies a global market for roses. In addition, low-cost jet travel has resulted in the mass movement of people between countries. This has reduced the cultural distance between countries and is bringing about some convergence of customer tastes and preferences. At the same time, global communication networks and global media are creating a worldwide culture. Many countries now receive U.S. television networks such as CNN, MTV, and HBO, and Hollywood films are shown the world over. In any society, the media are primary conveyors of culture; as global media develop, we must expect the evolution of something akin to a global culture. A logical result of this evolution is the emergency of global markets for consumer products. The first signs of this are already apparent. It is now as easy to find a McDonald’s restaurant in Tokyo as it is in New York, to buy an iPod in Rio as it is in Berlin, and to buy Gap jeans in Paris as it is in San Francisco.
Despite these trends, we must be careful not to overemphasize their importance. While modern communication and transportation technologies are ushering in the “global village,” significant national differences remain in culture, customer preference, and business practices. A firm that ignores differences between countries does so at its peril. We shall stress this point repeatedly throughout this
book and elaborate on it in later chapters.
The Changing Demographics of the Global Economy
Hand in hand with the trend toward globalization has been a fairly dramatic change in the demographics of the global economy over the past 30 years. As late as the 1960s, four trends described the demographics of the global economy. The first was U.S. dominance in the world economic and world trade picture. The second was U.S. dominance in world foreign direct investment. Related to this, the third fact was the dominance of large, multinational U.S. firms on the international business scene. The fourth was that roughly half the globe－the centrally planned economies of the Communist world－were off-limits to Western international businesses. As will be explained below, all four of these qualities either have changed or are now changing rapidly.
THE CHANGING WORLD OUTPUT AND WORLD TRADE PICTURE
In the early 1960s, the United States was still by far the world’s dominant industrial power. In 1963 the United States accounted for 40.3 percent of world economic activity, measured by Gross Domestic Product (GDP). By 2006, the United States accounted for
19.7 percent of the world GDP, still the world’s largest industrial power but down significantly in relative size since the 1960s (see Table 1.2). Nor was the United States the only developed nation to see its relative standing ship. The same occurred to Germany, France, and the United Kingdom, all nations that were among the first to industrialize. This change in the U.S. position was not an absolute decline, since the U.S. economy grew at a robust average annual rate of more than 3 percent from 1963 to 2006(the economies of Germany, France, and the United Kingdom also grew during this time). Rather, it was a relative decline, reflecting the faster economic growth of several other economies, particularly in Asia. For example, as can be seen from Table 1.2, from 1963 to 2006, China’s share of world GDP increased from a trivial amount to 15.1 percent. Other counties/regions that markedly increased their share of world output included Japan, Thailand, Malaysia, Taiwan, and South Korea (note that GDP data in Table 1.2 are based on purchasing power parity figures, which adjust the value of the GDP to reflect the cost of living in various economies). By the end of the 1980s, the U.S. position as the world’s leading exporter was threatened.Over the past 30 years, U.S. dominance in export markets has waned as Japan, Germany, and a number of newly industrialized countries such as South Korea and China have
taken a large share of world exports. During the 1960s, the United States routinely accounted for 20 percent of world exports of manufactured goods. But as Table 1.2 shows, the U.S. share of world exports of goods and services had slipped to 9.8 percent by 2006. Despite the fall, the United States still remained the world’s largest exporter, ahead of Germany, Japan, France, and the fast-rising economic power, China. If China’s rapid rise continues, however, it could soon overtake the U.S. as the world’s largest economy and largest exporter.
country Share of the Share of World Share of World World GDP ,2006 Exports,2006 Output ,1963 United States 40.3% 19.7% 9.8% Germany 9.7 3.9 8.9 France 6.3 2.9 4.3 Italy 3.4 2.7 3.5 United 6.5 3.2 4.6 Kingdom Canada 3.0 1.7 3.1 Japan 5.5 6.3 5.0 China NA 15.1 7.2 TABLE 1.2 The ChanginDemographics of World GDP anTrade Sources: IMF, WoEconomic Outlook, Ap2007. Data for 1963 from N. Hood and Young, The Economof the Multinationenterprise（New YorkLongman， 1973）. TGDP data are based a
As emerging economies such as China, India and Brazil continue to grow, a further relative decline in the share of world output and world exports accounted for by the United States and other long-established developed nations seems likely. By itself, this is not bad. The relative decline of the United States reflects the growing economic development and industrialization of the world economy, as opposed to any absolute decline in the health of the U.S. economy, which by measures is stronger than ever.
Most forecasts now predict a rapid rise in the share of world output accounted for by developing nations such as China, India, Indonesia, Thailand, South Korea, Mexico, and Brazil and a commensurate decline in the share enjoyed by rich industrialized countries such as Great Britain, Germany, Japan, and the United States. If current trends continue, the Chinese economy could be larger than that of the United States on a purchasing power parity basis, while the economy of India will approach that of Germany. The World Bank has estimated that today’s developing nations may account for more than 60 percent of world economic activity by 2020, while today’s rich nations, which currently account for more than 55 percent of world economic activity, may account for only about 38 percent. Forecasts are not always correct, but these