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Chapter 01 - Globalization and International Linkages
Chapter 1: Globalization and International Linkages
Learning Objectives and Chapter Summary
1. ASSESS the implications of globalization for countries, industries, firms, and
communities.
Globalization—the process of increased integration among countries—continues at
an accelerated pace. More and more companies—including those from developing
countries—are going global, creating opportunities and challenges for the global
globalization and integration continues unabated.
2. REVIEW the major trends in global and regional integration.
Economic integration is most pronounced in the triad of North America, Europe,
and the Pacific Rim. The North American Free Trade Agreement (NAFTA) is
turning the region into one giant market. In South America, there is an increasing
amount of intercountry trade, sparked by Mercosur. Additionally, trade agreements
such as the Central American Free Trade Agreement (CAFTA) are linking countries
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3. EXAMINE the changing balance of global economic power and trade and
investment flows among countries.
Different growth rates and shifting demographics are dramatically altering the
distribution of economic power around the world. Notably, China’s rapid growth
will make it the largest economic power in the world by midcentury, if not before.
India will be the most populous country in the world, and other emerging markets
4. ANALYZE the major economic systems and recent developments among countries
that reflect those systems.
Different economic systems characterize different countries and regions. These
The World of International Management: An Interconnected World
1. Summary:
The opening vignette discusses and highlights how social networks, such as
Facebook YouTube, and Twitter, are revolutionizing the way people and companies
interact and communicate with each other. Social networks offer companies an
inexpensive, yet highly effective means of reaching their target audiences across the
globe. In fact, social networks are rewriting the rules for marketing. Consumers
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2. Suggested Class Discussion
1. Students should be encouraged to discuss the impact of social media on
international business and its implications for both consumers and companies.
competitive in this rapidly changing environment.
3. Related Internet Sites:
Facebook: {http://www.facebook.com/facebook}
Twitter: { https://twitter.com}
YouTube: {http://www.youtube.com}
Google: {https://www.google.com}
Chapter Outline with Lecture Notes and Teaching Tips
Introduction
1) International management is the process of applying management concepts and techniques in
a multinational environment and adapting management practices to different economic,
political, and cultural environments.
2) International management is distinct from other forms of management in that knowledge and
insights about global issues and specific cultures are a requisite for success.
3) A multinational corporation (MNC) is a firm that has operations in more than one country,
international sales, and a mix of nationalities among managers and owners.
Teaching Tip: The trend towards investing in international markets has not gone unnoticed at
many premier universities around the world. An organization called the Network of
International Business Schools {http://www.nibsnet.net/Default.aspx} The Network site
provides a forum for schools with international business programs to discuss their
curriculums. Consider visiting this website and providing your students some examples of
how colleges and universities are integrating the realities of globalization into their business
school curriculums.
Teaching Tip: Each year, Fortune magazine publishes a list of the 500 largest global
corporations {http://money.cnn.com/magazines/fortune/global500/2010/}. In 2013, the ten
largest global (or multinational) corporations were: (1) Royal Dutch Shell; (2) Wal-Mart
stores; (3) Exxon Mobil; (4) Sinopec; (5) China National Petroleum; (6) BP; (7) State Grid;
(8) Toyota Motor; (9) Volkswagen; (10) Total.
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Chapter 01 - Globalization and International Linkages
Globalization and Internationalization
Globalization, AntiGlobalization, and Global Pressures
1) Globalization is the process of social, political, economic, cultural, and technological
integration among countries around the world.
2) Outsourcing is the subcontracting or contracting out of activities to external locations instead
the process, and the potential for a “race to the bottom” in which companies and countries
place downward pressure on wages and working conditions.
Global and Regional Integration
1) World Trade Organization (WTO)―The global organization of countries that oversees rules
and regulations for international trade and investment. Various rounds of negotiations took
India, united to press developed countries to reduce barriers to agricultural imports.
Teaching Tip: The WTO website {http://www.wto.org} provides a wide range of current
information about the WTO.
Teaching Tip: The GATT Agreement is available online in Adobe Acrobat format at
{http://docsonline.wto.org}.
2) North American Free Trade Agreement (NAFTA)―A free trade agreement between the
United States, Canada, and Mexico that has removed most barriers to trade and investment.
Teaching Tip: FAS Online supplies a large amount of information dealing with the NAFTA.
The site is available at {http://ffas.usda.gov/info/factsheets/NAFTA.asp} (2010).
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3) The Free Trade Agreement of the Americas (FTAA)―a free-trade agreement among the 34
democratically governed countries of the Western Hemisphere.
4) Latin America―economic activity in Latin America continues to be volatile. Despite the
continuing political and economic setbacks these countries periodically experience, export
Teaching Tip: Many Latin American countries are using the Internet to promote themselves.
The website for Chile, which is available at {http://www.thisischile.cl/}, is an excellent
example.
5) The European Union (EU)―a unified market that in 2003 consisted of 15 nations including
Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Holland,
Teaching Tip: The EU maintains an excellent website at {http://www.europa.eu/}.
6) Japan―Although Japan has experienced economic problems since the early 1990s, it
Teaching Tip: As a way of demonstrating to your students how "global" the world has
become, consider showing them Yahoo Japan, which is the Yahoo search engine written in
Japanese {http://www.yahoo.co.jp/} or Facebook’s Japanese site {http://ja-
jp.facebook.com/}.
7) The Association of Southeast Asian Nations (ASEAN), made up of Indonesia, Malaysia, the
Philippines, Singapore, Brunei, Thailand, and in recent years Cambodia, Myanmar, and
8) The Trans-Pacific Partnership (TPP) currently includes Australia, Brunei Darussalam,
Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and
9) Central and Eastern Europe, Russia, and the other republics of the former Soviet Union are
The Shifting Balance of Economic Power in the Global Economy
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1) Economic integration and the rapid growth of emerging markets are creating a shifting
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Chapter 01 - Globalization and International Linkages
Teaching Tip: New York Times supplies a website with current world business articles:
{http://www.nytimes.com/pages/business/worldbusiness/index.html}.
b) The economic potential of Brazil, Russia, India, and China (the “BRIC” economies) may
constitute four of the top five most dominant economies by the year 2050, with China
Pakistan, Philippines, Turkey, South Korea, and Vietnam.
e) African countries could constitute the next wave of dynamic emerging markets.
2) International trade and investment patterns.
a) Despite the global recession of 2009, global trade and investment continues to grow at a
interdependent economically.
Teaching Tip: International trade is not without controversy. Many labor groups, in
countries all over the world, fear that imports cost domestic workers their jobs and
threaten their national sovereignty. Proponents of international trade argue that imports
provide consumers more choices and cost savings, and actually create domestic
employment because consumers can take the money that they save by buying imports and
purchase more domestically produced products. It is appropriate to point out these two
sides of the issue to your students. Many websites are dedicated to the debate
surrounding these issues. An example is the site at {http://www.usw.org}. The site is
sponsored by the United Steelworkers of America and supports labor's point of view.
Global Economic Systems
1) The evolution of global economies has resulted in three main systems: a market economy, a
command economy, and a mixed economy.
Market Economy
1) Market economy―Private enterprise reserves the right to own property and monitor the
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Chapter 01 - Globalization and International Linkages
Command Economy
1) Command economy―Comparable to a monopoly in the sense that the organization, in
Mixed Economy
1) Mixed economy―A combination of a market and command economy. While some
Economic Performance and Issues of Major Regions
Established Economies
1) North America: One of the four largest trading blocs in the world. The combined purchasing
power of the United States, Canada, and Mexico is more than $12 trillion.
2) United States: MNCs have holdings throughout the world. At the same time, foreign MNCs
4) Mexico: By the early 1990s, Mexico had recovered from its economic problems of the
previous decade and become the strongest economy in Latin America. In 1994, Mexico
became part of NAFTA, and it appeared to be on the verge of becoming the major economic
and re-export.
Teaching Tip: An excellent chart of the advantages of doing business in Mexico is
available at {http://www.calpacifico.com/mexicoadvantajes.htm}. The site is maintained
by Cal Pacifico, a company that specializes in helping American firms establish
manufacturing operations in Mexico. The chart reports that the average production
worker compensation in Mexico in 2008, including benefits, was $3.12 per hour. This
compares with $25.65 in the U.S., $23.15 in Japan, and $36.07 in Germany. Some
students may raise ethical issues when looking at these numbers. Is it ethical for an
American firm to pay Mexican workers only $3.12 per hour, even though that is the
going rate in Mexico?
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5) The EU: the ultimate objective of the EU is to eliminate all trade barriers among member
countries.
a) This economic community eventually will have common custom duties as well as unified
resulted from both structural conditions and shorter-term economic pressures.
6) Japan: during the 1970s and 1980s, Japan's economic success had been without precedent.
However, there has been a steady decline in Japan’s overseas investments since the 1990s
due to a slowing Japanese economy, poor management decisions, and competition from
emerging economies, such as China.
Teaching Tip: to learn more about MITI go to {http://www.meti.go.jp/english/}.
b) Keiretsus―an organizational arrangement in Japan in which a large group of vertically
integrated companies whose holdings supply much of the assistance needed in providing
goods and services to end users.
Emerging Economies
1) Central and Eastern Europe: Russia’s economy continues to grow as poverty declines and
the middle class expands. Direct investment in Russia, along with its membership in the
Teaching Tip: Current information about Russia can be obtained on a daily basis via
Ria Novosti,a news site available at {http://en.ria.ru/}.
2) Other countries including Hungary, Poland, and the Czech Republic are also growing and
attracting foreign investment. Albania still struggles but is slowly making progress.
3) China: China’s GDP has remained strong, growing at 9.1 percent in 2009, 10.4 percent in
2010, 9.3 percent in 2011, and 8.0 percent in 2012, despite the global economic crisis.
However, concerns about undervaluation of China’s currency, the remnimbi (also know as
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4) Other Emerging Markets of Asia: In addition to Japan and China, there are a number of
other important economies in Asia (see also Table 1-14 in the text).
a) South Korea― In South Korea, the major conglomerates, called chaebols, are very large,
family-held conglomerates that have considerable political and economic power.
grow steadily and is now dominated by more technologically sophisticated industries.
e) Other countries in Southeast Asia, including Thailand, Malaysia, Indonesia, and Vietnam,
are also showing string economic growth trends. The relatively large populations and
inexpensive labor in these countries are attractive to international investors.
5) India: With a population of about 1 billion and growing. India has traditionally had more
than its share of political and economic problems. Nonetheless, for a number of reasons,
India is attractive to multinationals, and especially to U.S. and British firms.
Developing Economies on the Verge
1) South America: Countries in South America have had difficult economic problems.
Although most have tried to implement economic reforms reducing their debt, periodic
economic instability and the emergence of populist leaders have had an impact on the
attractiveness of countries in the region.
a. Brazil’s economy has evolved into a flourishing system. Though Brazil’s GDP has
slowed somewhat since 2011, its growth continues to outpace most developed
d. Another major development in South America is the growth of intercountry trade,
spurred by the progress toward free market policies.
2) Middle East and Central Asia: Because most industrial nations rely, at least to some
3) Africa: Even though they have considerable natural resources, many African nations remain
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