978-0077862442 Chapter 1 Part 1

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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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