Book Title
International Business: The Challenge of Global Competition 13th Edition

978-0077606121 Chapter 5 Lecturers

April 7, 2019
Natural Resources and Environmental Sustainability
Learning Objectives
LO5-1 Describe how geographical features of a country or region create contextual differences that
contribute to economic, cultural, political, and social conditions important to international
LO5-2 Apply Porter's diamond model to a discussion of geographical features.
LO5-3 Summarize the importance to business of inland waterways and outlets to the sea.
LO5-4 Outline the nonrenewable and renewable energy options available and their broad business
LO5-5 Describe the issues related to nonfuel minerals that concern international business
LO5-6 Describe the concept of environmental sustainability and its potential influence on business.
LO5-7 Explain the major characteristics of sustainable business.
LO5-8 Discuss the utility of the stakeholder model for sustainable business.
International business statistics, data, and facts about countries, regions, governments, and companies can
change rapidly and dramatically. We recommend that you update this information regularly to present
your students with timely data reflecting current global events.
As an adopter of this text, McGraw-Hill Irwin offers you a complementary online resource each month,
the International Business Newsletter. The IB Newsletter gives you an array of timely and relevant
articles, videos, country profiles, teaching suggestions, and data resources to add breadth, depth, and
richness to the ever-changing topic of international business.
iGlobe is also a way to keep your courses current. In partnership with PBS, iGlobe is a free video
service for McGraw-Hill adopters that allows you to download breaking news videos onto your desktop
to show in class or online. Updated monthly, these streaming videos are complete with teaching notes and
discussion questions. Key concepts for each video are identified to save you time! See www.MHHE.com
and contact your sales representative for access codes.
The physical forces are significant because they affect many of the other forces. The international
manager will need to be familiar with the location of countries, their size, topography, and climate.
A nation’s location often explains trading relationships and political alliances. Its topography may affect
physical distribution and the product. Mountains can divide a nation into various cultures and climates.
They can also create concentrations of populations. Deserts and tropical forests also separate markets,
make distribution more difficult, and create concentrations of populations. Bodies of water usually bring
people together, also creating population concentration.
A nation’s climate can set the limits of what people can do physically and economically. Similar climates
tend to exist in the same latitudes and in the same continental position. Climatic conditions can affect a
firm’s product mix, packaging and inventory costs. Natural resources are important because they are
essential to manufacturing and also because their discovery can create new markets. The physical forces
need constant monitoring because they are constantly changing.
Knowledge of natural resources and the global challenges we face with sustainability/green issues, food,
non-renewable and renewable energy issues, and climate change is critical to international business.
Fortunately, environmental sustainability in business is increasingly common. This change represents a
new approach to business.
Suggestions and Comments
1. Many of our students took their last geography course in junior high school, so they may be
receptive to suggestion that they study economic geography in college.
2. Student interest is aroused when they realize geography’s influence on the other forces. A
discussion of the effects of geography on the Swiss economy (opening section) might be a
good way to begin discussion of this chapter.
3. Illustrate the importance of monitoring developments in natural resources in different parts of
the world. A debate topic could be: “International business people, unless they are in the
business of refining minerals or petroleum, have no need to concern themselves with world
developments in natural resources.”
4. Environmental sustainability is an area for which some students have great passion. This can
be explored and connected to global-level sustainability issues.
Student Involvement Exercises
1. Hand out a copy of a European, South American, or Asian map showing only the geographic
borders. Ask students to fill in country and capital names as thought it were a quiz. Great way
to start class. This could be done in teams, as well.
2. Ask the students to give a specific example of geography’s influence on other uncontrollable
3. If students do country-based projects for the course, they’ll have plenty to do and think about
for this chapter.
4. Sustainability and green business have become increasingly important issues globally. You
might discuss whether the popularization of the terminology has any effect on business and
how business may respond.
Guest Lecturers
1. An academic geographer, perhaps an economic geographer, would be an interesting guest
2. A marketing executive who has worked in countries such as Colombia, Brazil, Spain,
Switzerland, or in the Middle East, will be able to share interesting experiences based on
Lecture Outline
I. Geography
This section examines the impact of the physical forces on Swiss industry and agriculture. They
are even influence lace making and woodcarving. It illustrates that “the physical character of a
nation is perhaps the principal and broadest determinant of both the society found there and the
means by which the society undertakes to supply its needs.”
Some of the elements of geography which are particularly significant for the businessperson:
location, topography, climate, and natural resources.
II. Competitive Advantage: Porter’s Diamond
Porter presents 4 ways a country’s economic environment affects its competitive position and
its geography are tied to each:
Factor conditions
Relate and supporting industries
Demand conditions
Firm strategy, structure, and rivalry
Distinguish between basic factors, those a country inherits (mountains, no natural resources,
etc.) and advanced factors, those a country can mould (labor, infrastructure).
III. Location: Political and Trade Relationships
Location explains many of a nation’s trade and political relationships. Austria’s location on the
border of the European Union is the reason its trading links have been so close with EU members.
Because it is also located on the borders of former communist nations Czechoslovakia and
Hungary, Austrians have captured an important share of western nations’ exports to Eastern
IV. Topography
A. The surface features of a country (mountains, plains, deserts and bodies of water) contribute
greatly to differences in a country’s economy, culture, politics and social structure.
B. Mountains and Plains
1. Mountains can divide a market into a number of small ones – Colombia, Spain,
2. Temperatures and humidity vary widely in the Tropics because of large differences in
C. Mountains create concentrations of people that often have their own culture, including
language. The Basques, for example, have their own language and they want more autonomy,
not total separation, from Spain Mountains separate Switzerland, China, and Colombia into
separate cultural regions.
D. Deserts, Topical Rain Forests, and Bodies of Water.
Deserts and tropical forests are like mountains in that they divide markets, create
concentrations of population and make transportation difficult.
1. Deserts
a. Australia is world’s driest continent. As a result, more than half of the population is
concentrated in 1/5 of the land area. Australia has one of the highest percentages of
people living in cities.
b. Because 2/3 of the population is concentrated on the coast away from the major
desert area in the center of the country, most goods are moved by coastal shipping.
Transportation adds as much as 30% to the final cost of the product. This is three
times as expensive as in the U. S. and Europe.
c. There are also parts of Australia that receive up to 100 inches of rainfall annually.
2. Tropical Rain Forest
a. These are sometimes called deserts because of their low population density.
b. Although the Brazilian Amazon occupies ½ of Brazil, it contains only 4% of the
country’s population.
c. Canadian Shield–is neither a desert nor a tropical forest, but its forbidding
characteristics make its population very low. The Canadian Shield is ½ of Canada’s
landmass, but it has only 10% of the country’s population.
d. Relevance for businesspeople–Unless they are aware that some markets such as
Brazil and Canada have geographical conditions that create concentrations of
population, businesspeople may think that these markets with low population
densities may be difficult and costly to service as compared with those having much
higher densities.
3. Bodies of Water
a. Bodies of water attract people because river valleys have fertile soil, water for
irrigation and inexpensive transportation.
b. Inland waterways, like the Rhine waterway, the main transportation artery in Europe,
provides a pathway for goods to Germany, French Rhone area, Switzerland,
Australia, Czech Danube region, and the Black Sea.
c. Extensive use is made of navigable waterways in every continent except Australia.
d. Outlets to the sea have been subject of political differences (Bolivia, Paraguay).
Bolivia’s export corridor and the Paranà and Paraguay Rivers Trade Corridor provide
outlets to the sea for Mercosur countries and Bolivia in South America.
e. Fourteen of the world’s 20 landlocked nations are in Africa. This requires them to
construct expensive highways to connect to countries with coastlines. Governments
of nations with coastlines through which the exports and imports of landlocked
nations must pass are in a position to exert considerable political influence over them.
f. The Amazon River is the major inland waterway of South America.
V. Climate
A. Climate can set the limits of what people can do both physically and economically. Similar
climates occur in similar latitudes and continental positions and the more water-dominated an
area, the more moderate is its climate. Kansas and Central Asia are both far from the sea and
at the same latitude. They are both dry and have cold winters and hot summers.
B. Climate and Development
1. Numerous experts have tried to show that differences in economic development, human
temperament and ability are caused by dissimilar climates. They claim that development
in the tropics has been slower than in the temperate zone because the climate limits
human energy and mental power.
2. Studies by the World Bank show that pests and parasites are responsible for many of the
problems in the tropics. However, as they come under control, the tropical characteristics
will give advantages in agriculture.
C. International managers do well to avoid simplistic, ethnocentric thinking about climate's
influence as is evidenced in the North-South divide theory.
VI. Natural Resources
Natural resources are defined as “anything supplied by nature on which people depend.” Natural
resources are either non-renewable (fossil fuels: petroleum, coal, and natural gas) or renewable
(hydroelectric, wing, geothermal, waves, tides, biomass, ocean thermal conversion). Some of the
principal types of natural resources important to businesspeople are energy and non-fuel minerals.
A. Energy
1. Non-renewable: petroleum is the major non-renewable energy source.
2. Renewable energy-at least 8 types: hydroelectric, solar, wind, geothermal, waves, tides,
biomass, and ocean thermal energy conversion.
B. Alternate Energy Sources
1. Heavy Oil (Oil Sands and Shale)
a. Heavy oil comes from oil sands in Athabasca, Canada, Venezuela, and Republic of
b. Extracting oil from shale oil produces 4x the greenhouse effect as drilling for oil.
c. Recovery is expensive and there are environmental problems.
C. Nuclear Power
1. Had been predicted to decline because of waste storage problems and potential nuclear
2. Nuclear generates very little pollution.
3. Increased use as oil price climbs and safer plants are designed.
4. Nuclear growth was expected in developing countries until the Fukushima disaster.
5. China, India, and Russia lead in building large-scale reactors.
D. Coal
1. Had been predicted to decline in use because of pollution.
2. Projected increase in use through 2030 because of India and China
3. Emissions directly responsible for global warming
4. Kyoto Protocol – nations to reduce global warming by reducing gas emissions that
produce it
E. Natural Gas
1. Cleanest burning fossil fuel
2. Low contributor to acid rain and pollution
3. Consumption projected to increase through 2030
F. Renewable Energy Sources
1. Expected to replace fossil fuels eventually
2. 8 sources: hydroelectric, solar, wind, geothermal, waves, tides, biomass (ethanol), and
ocean thermal energy conversion.
VII. Nonfuel Minerals (Fig. 5.21)
Nonfuel Minerals (Chrome, manganese, titanium, platinum, vanadium) are used in all aspects of
modern living in housing, computers, and motor vehicles. Mostly supplied by China
VIII. Environmental Sustainability: Commitment to operate without reducing the capacity of the
environment to sustain future generations. It is s systems concept that is both global and local.
A. Characteristics of Environmentally Sustainable Business
1. Limits: recognition that the environmental resources are exhaustible
2. Interdependence of economic, social, and ecological systems
3. Equity in distribution: for interdependence to work there cannot be vast inequalities in
B. The Stakeholder Model for Sustainable Business
1. Appropriate because sustainability impacts all business decisions
2. Based on stakeholder theory (R. Edward Freeman) – profits result from value creation
3. Understanding of how business operates that takes into account all identifiable interest
C. Examples of Sustainability in Business
1. Freeport-McMoran’s triple-bottom-line accounting for mining in Indonesia
2. Interface, Inc. — a remarkable petroleum-based company making solid progress in
sustainable production. (Fig 5.24)
3. Patagonia exists “to inspire and implement solutions to the environmental crisis.”
Social and production-related efforts to move sustainability forward.
Why Europe Leads the Way: The Environment and Business
While the United States has been lowering environmental standards and stepping away from cooperation
on environmental treaties (Kyoto Protocol, International Seabed Authority), the European Union has
pushed onward to raise environmental standards. Today they have some of the highest standards in the
world. Many of the European environmental regulations address the waste and toxic pollution that are
by-products of manufacturing. Among EU initiatives are required vehicle recycling, elaborate tracing and
checks on genetically modified crops, electronics recycling, bans on the most toxic chemicals used in
electronics, required chemical testing, and required green design.
Global debate
The focus of this Global debate explores the question, “How Immediate is the Fossil Fuel Crisis?”
Examples given show the impacts of fuel use on both business and society and possible alternatives to
their depletion. Alternative solutions are introduced. Students are presented several questions which may
challenge their own value-judgments on social, corporate, and governmental responsibility of depleting
natural resources, commitment to finding alternative clean energy resources, and their equitable global
Keep Your Course Current with Breaking News Videos from iGlobe! We know keeping your course
up to speed with the ever-changing world of business is a huge challenge, which is why we created
iGlobe. In partnership with PBS, iGlobe is a free video service for McGraw-Hill adopters that allows you
to download breaking news videos onto your desktop to show in class or online. Updated monthly, these
streaming videos are complete with teaching notes and discussion questions. Key concepts for each video
are identified to save you time! See www. MHHE.com and contact your sales representative for access