Chapter 1: Globalization
1. Describe the shifts in the world economy over the last 30 years. What are the implications of these
shifts for international businesses based in Great Britain? North America? Hong Kong?
Answer: The world economy has shifted dramatically over the past 30 years. As late as the 1960s, four
stylized facts described the demographics of the global economy. The -rst was U.S. dominance in the
world economy and world trade. The second was U.S. dominance in the world foreign direct investment
picture. Related to this, the third fact was the dominance of large, multinational U.S. firm in the
international business scene. The fourth was that roughly half of the globe – the centrally planned
economies of the Communist world – was o2-limits to Western international businesses. All of these
demographic facts have changed. Although the U.S. remains the world’s dominant economic power, its
share of world output and world exports have declined signiticantly since the 1960s. This trend does not
re5ect trouble in the U.S. economy, but rather reflect the growing industrialization of developing
countries such as China, India, Indonesia, and South Korea. This trend is also re5ected in the world
foreign direct investment picture. As depicted in Figure 1.2 in the textbook, the share of world output (or
the stock of foreign direct investment) generated by developing countries has been on a steady increase
since the 1960s, while the share of world output generated by rich industrial countries has been on a
steady decline. Shifts in the world economy can also be seen through the shifting power of multinational
enterprises. Since the 1960s, there have been two notable trends in the demographics of the
multinational enterprise. The -rst has been the rise of non-U.S. multinationals, particularly Japanese
multinationals. The second has been the emergence of a growing number of small and medium-sized
multinationals, called mini-multinationals. The fall of Communism in Eastern Europe and the republics of
the former Soviet Union have brought about the final shift in the world economy. Many of the former
Communist nations of Europe and Asia seem to share a commitment to democratic politics and free
market economies. Similar developments are being observed in Latin America. If these trends continue,
the opportunities for international business may be enormous. The implications of these shifts are
similar for North America and Britain. The United States and Britain once had the luxury of being the
dominant players in the world arena, with li@le substantive competition from the developing nations of
the world. That has changed. Today, U.S. and British manufacturers must compete with competitors
from across the world to win orders. The changing demographics of the world economy favor a city like
Hong Kong. Hong Kong (which is now under Chinese rule) is well located with easy access to markets in
Japan, South Korea, Indonesia, and other Asian markets. Hong Kong has a vibrant labor force that can
compete on par with the industrialized nations of the world. The decline in the in5uence of the U.S. and
Britain on the global economy provides opportunities for companies in Hong Kong to aggressively pursue
export markets.
2. “The study of international business is -ne if you are going to work in a large multinational enterprise,
but it has no relevance for individuals who are going to work in smaller firm.” Evaluate this statement.
Answer: If the small firm is actively involved in international trade – as are most small firms in certain
sectors in Europe, for instance – then international business is a very relevant subject to study; especially
if combined with modern European languages. One of the big brakes on the development of small firms is
the fact that many of those that could expand internationally fail to do so, because they lack any staff at
management level with the skills to help them expand abroad.
But obviously, if the small firm is a local service company, for example a store or a graphic services
company, then it has little scope for international development, and an international business qualification
is of little value.
3. How have changes in technology contributed to the globalization of markets and of production?
Would the globalization of production and markets have been possible without these technological
changes?
Answer: Changes in technology have contributed to the globalization of markets and of production in a
very substantive manner. For instance, improvements in transportation technology have paved the way
for companies like Coca-Cola, Levi Strauss, Sony and McDonalds to make their products available
worldwide. Similarly, improvements in communications technology have had a major impact. The
ability to negotiate across continents has been facilitated by improved communications technology, and
the rapidly decreasing cost of communications has lowered the expense of coordinating and controlling
a global corporation. Finally, the impact of information technology has been far reaching. Companies
can now gain worldwide exposure simply by seCng up a homepage on the Internet. This technology
was not available just a few short years ago. The globalization of production and markets may have been
possible without improvements in technology, but the pace of globalization would have been much
slower. The falling cost of technology has made it a2ordable for many developing nations, which has
been instrumental in helping these nations improve their share of world output and world exports. The
inclusion of these nations, such as China, India, Thailand, and South Korea, has been instrumental in the
globalization of markets and production. In addition, improvements in global transportation and
communication have made it relatively easy for business executives from di2erent countries to converse
