978-0078112911 Chapter 1 Part 1

Global Business Today Ninth Edition Chapter 1

Globalization

Chapter Outline

OPENING CASE: The Globalization of Production at Boeing

INTRODUCTION

WHAT IS GLOBALIZATION?

The Globalization of Markets

The Globalization of Production

Management Focus: Vizio and the Market for Flat Panel TVs

THE EMERGENCE OF GLOBAL INSTITUTIONS

DRIVERS OF GLOBALIZATION

Declining Trade and Investment Barriers

The Role of Technological Change

THE CHANGING DEMOGRAPHICS OF THE GLOBAL ECONOMY

The Changing World Output and World Trade Picture

Country Focus: India’s Software Sector

The Changing Foreign Direct Investment Picture

The Changing Nature of the Multinational Enterprise

Management Focus: China’s Hisense – An Emerging Multinational

The Changing World Order

The Global Economy of the Twenty-First Century

THE GLOBALIZATION DEBATE

Antiglobalization Protests

Country Focus: Protesting Globalization in France

Globalization, Jobs, and Incomes

Globalization, Labor Policies, and the Environment

Globalization and National Sovereignty

Globalization and the World’s Poor

MANAGING IN THE GLOBAL MARKETPLACE

Global Business Today Ninth Edition Chapter 1

CRITICAL THINKING AND DISCUSSION QUESTIONS

CLOSING CASE: Who Makes the Apple iPhone?

Learning Objectives

1. Understand what is meant by the term globalization.

2. Recognize the main causes of globalization.

4. Explain the main arguments in the debate over the impact of globalization.

5. Understand how the process of globalization is creating opportunities and challenges for

business managers.

Chapter Summary

This opening chapter introduces the reader to the concepts of globalization and international trade,

and provides an introduction to the major issues that underlie these topics. The components of

globalization are discussed, along with the drivers of globalization and the role of the General

Agreement on Tariffs and Trade (GATT) and its successor the World Trade Organization (WTO)

in lowering trade barriers. The influence of technological change in facilitating globalization is

also discussed, along with the role of multinational firms in international business.

The chapter also describes the changing demographics of the global economy, with a special

emphasis on the increasingly important role of developing countries in world trade. This

discussion is complemented by a description of the changing world order, which was brought on

by the collapse of communism in Eastern Europe and republics of the former Soviet Union. The

chapter ends with a candid overview of the pros and cons of the trend towards globalization.

Opening Case: The Globalization of Production at Boeing

Summary

The opening case explores U.S. aircraft manufacturer Boeing’s approach to the production of its

Dreamliner 787 airplane. Boeing’s strategy was unlike any of its previous strategies. Instead of

producing much of the aircraft itself, Boeing, noting that 80 percent of its customers were foreign

airlines, decided to outsource some 65 percent of the value of the Dreamliner to suppliers located

around the world. This strategy introduced a number of challenges for Boeing, and production of

the 787 was often delayed. A discussion of the case can revolve around the following questions:

QUESTION 1: Reflect on Boeing’s decision to outsource much of the production of the

Dreamliner 787. What benefits does this strategy offer? Are there any drawbacks?

Global Business Today Ninth Edition Chapter 1

ANSWER 1: Boeing has traditionally outsourced some of the production of its aircraft, but it took

QUESTION 2: How has globalization made Boeing’s approach to the production of the

Dreamliner possible?

ANSWER 2: Students should recognize the importance of technology that facilitated Boeing’s

Chapter Outline with Lecture Notes, Video Notes, and Teaching Tips

INTRODUCTION

A) Globalization refers to the trend towards a more integrated global economic system where

barriers to cross-border trade and investment are declining, perceived distance is shrinking thanks

to advances in transportation and telecommunications, and material cultures are more similar

across borders. The effects of globalization can be seen everywhere, from the cars people drive

Global Business Today Ninth Edition Chapter 1

and the food they eat, to the jobs where they work and the clothes they wear. In 2012, some $18.3

trillion of goods, and $4.3 trillion of services were sold across borders. Today, more than $5

trillion in foreign exchange transactions are made daily.

Lecture Note: To extend this discussion, consider {http://www.businessweek.com/articles/2014-

01-16/at-davos-the-state-of-globalization-in-2014} and

{http://www.businessweek.com/news/2014-01-15/davos-defenders-of-globalization-fight-to-show-

2014-is-not-1914#p1}.

Teaching Tip: The trend towards globalization has not gone unnoticed at many premier

universities around the world. An organization called the Network of International Business

Schools {http://www.nibsnet.org/} provides a forum for schools with international business

programs to discuss their curriculums. Consider visiting this web site, and providing your students

some examples of how colleges and universities are integrating the realities of globalization into

their business curriculums.

Lecture Note: The U.S. Census Bureau offers an extensive web site that maintains, among other

things, monthly statistics on trade between the United States and its trading partners. The web site

is {http://www.census.gov/foreign-trade/top}.

B) The rapidly emerging global economy raises a multitude of issues for businesses including all

sorts of new opportunities for business to expand their revenues, drive down their costs, and boost

their profits. It also gives rise to challenges and threats such as how best to expand into a foreign

market, whether and how to customize product offerings, marketing policies, human resources

practices, and business strategies in order to deal with national differences in culture and how best

to deal with the threat posed by efficient foreign competitors entering the home market place.

C) Globalization is also unleashing new anxieties for people who, until recently, had felt fairly

secure in their jobs. Thanks to advances in technology, lower transportation costs, and an increase

in skilled workers in low cost nations such as India, and China, services that had been performed

locally can be exported.

Lecture Note: Having a global mindset is becoming an important variable in the hiring selection

process at some companies. To learn more, go to {http://www.businessweek.com/articles/2014-

10-01/international-experience-will-help-you-get-a-job-at-goldman-sachs}.

D) The accounting services industry is just one of many that have been transformed as a result of

globalization. Today, many accountants in India, trained in the U.S. accounting code, perform

work for U.S. accounting firms. These accountants access individual tax returns stored on

computers in the United States, perform routine calculations, and save their work. A U.S.

counterpart then inspects their work, and bills the U.S. client for services.

WHAT IS GLOBALIZATION?

A) Globalization refers to the shift towards a more integrated and interdependent world economy.

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Video Note: There are several videos in the International Business Library on Pinterest

(http://www.pinterest.com/mheibvideos/) that look at globalization from various perspectives. To

explore globalization from the perspective of a CEO, consider CEO Weighs Consequences of

Globalization. To see globalization as viewed by graduate students, see Graduate Students

Recount Experiences with Globalization.

The Globalization of Markets

B) The globalization of markets refers to the merging of historically distinct and separate national

markets into one huge global marketplace in which the tastes and preferences of consumers in

different nations are beginning to converge upon some global norm. The global acceptance of

Coca-Cola, Citigroup credit cards, IKEA furniture, and McDonald’s hamburgers are all examples.

These firms not only benefit from the globalization of markets, they also, by offering the same

basic products worldwide, facilitate the trend. Yet there are still significant differences between

markets that frequently require that marketing strategies, product features, and operating practices

be customized for a country. In fact, the most global markets are for industrial goods and

materials that serve a universal need around the world like microprocessors, rather than for

consumer products. In many industries, there is no such thing as a “German market” or an

“American market,” there is only a global market.

The Globalization of Production

C) The globalization of production refers to the sourcing of goods and services from locations

around the globe to take advantage of national differences in the cost and quality of factors of

production (such as land, labor, capital, and energy), thereby allowing them to compete more

effectively against their rivals. Building Boeing’s 777 for example, involves eight Japanese

suppliers, and a supplier from Singapore. Boeing outsources 65 percent of its 787 aircraft to

foreign companies. Similarly, American maker of flat panel TVs, Vizio, is outsourcing parts from

China, South Korea, and the United States, assembling them in Mexico, and selling them in the

United States. The Internet is also facilitating efforts by service companies to outsource activities

to low-cost nations. Some hospitals for example, outsource radiology work to India, and IBM and

Microsoft outsource software testing to engineers in India.

Management Focus: Vizio and the Market for Flat Panel TVs

Summary

This feature explores the evolution of the flat panel television industry over recent decades. While the

technology for flat panel televisions was developed in the United States in the 1960s, virtually all

production now takes place in low-cost locations. The feature examines the strategy of one company,

American-based Vizio, and clearly demonstrates the impact of globalization, and in particular the

globalization of production.

Suggested Discussion Questions

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international trade, and the status current talks.

Teaching Tip: To extend this discussion and to explore the potential for a Trans-Pacific

Partnership go to {http://www.businessweek.com/articles/2013-11-21/bloomberg-view-free-trade-

and-secrecy-dont-mix} and {http://www.businessweek.com/articles/2013-12-12/global-trade-in–

retreat-world-economys-future-depends-on-revival}.

C) This removal of barriers to trade has taken place in conjunction with increased international

trade, world output, and foreign direct investment. World Trade Organization data shows that the

volume of world merchandise trade has grown at twice the rate of the world economy since 1950.

In 2012, the volume of world merchandise trade was three times larger than it was in 1990.

International trade in services has also grown significantly since the 1980s, and now accounts for

about 19 percent of the value of all world trade.

D) The growth of foreign direct investment is a direct result of nations liberalizing their

regulations to allow foreign firms to invest in facilities and acquire local companies. With their

investments, these foreign firms often also bring expertise and global connections that allow local

operations to have a much broader reach than would have been possible for a purely domestic

company. In 2013, FDI flows were about $1.5 trillion, below the peak of $2 trillion in 2007, but

showing a strong upward trend.

The Role of Technological Change

E) While the lowering of trade barriers made globalization of markets and production a theoretical

possibility, technological change made it a tangible reality.

Microprocessors and Telecommunications

F) Since the end of World War II, there have been major advances in communications and

information processing.

G) Moore’s Law predicts the power of microprocessor technology doubles and its cost of

production falls in half every 18 months. As this happens, the cost of global communication

plummets, lowering the cost of coordinating and controlling a global organization.

The Internet and the World Wide Web

H) The Internet and the World Wide Web, which have experienced explosive growth worldwide,

promise to develop into the information backbone of tomorrow’s global economy. The Internet

effectively allows its 2.4 billion users in 2012 to find each other. For business, it can be a

goldmine. In the United States, online retails sales in 2012 were about $365 billion and global e-

commerce sales surpassed $1 trillion in 2012.

Video Note: Internet use in China is exploding. However, as shown in the video Growing Internet

Use in China Reflects Changing Society in the International Business Library on Pinterest

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(http://www.pinterest.com/mheibvideos/), it is also creating a cultural divide between those who

have access and those who do not.

I) The Web is being seen as an equalizer in that it reduces some of the constraints such as location,

scale, and time zones that typically limit global expansion by companies.

Video Note: There are several videos in the International Business Library on Pinterest

(http://www.pinterest.com/mheibvideos/) that look at globalization from various perspectives. To

explore how companies used the Internet to start the Black Friday shopping tradition in the United

Kingdom, consider: Black Friday Goes Global.

Transportation Technology

J) In addition to these developments, several major innovations in transportation technology have

occurred since World War II. In economic terms, the most important are probably development of

commercial jet aircraft and super freighters and the introduction of containerization, which greatly

simplifies trans-shipment from one mode of transport to another.

Implications for the Globalization of Production

K) Improvements in transportation technology, including jet transport, temperature controlled

containerized shipping, and coordinated ship-rail-truck systems have made firms better able to

respond to international customer demands. The Internet has been a major force facilitating

international trade in services.

Implications for the Globalization of Markets

L) As a consequence of these trends, a manager in today’s firm operates in an environment that

offers more opportunities, but is also more complex and competitive than that faced a generation

ago. While there has been some convergence of consumer tastes and preferences between markets,

firms must still address differences between countries.

THE CHANGING DEMOGRAPHICS OF THE GLOBAL ECONOMY

A) As late as the 1960s, four stylized facts described the demographics of the economy. The first

was the U.S. dominance in the world economy and the world trade picture. The second was U.S.

dominance in world foreign direct investment. The third fact was the dominance of large,

multinational U.S. firms on the international business scene. The fourth was that roughly half of

the globe- the centrally planned economies of the Communist world, was off limits to Western

international business.

The Changing World Output and the Changing World Trade Picture

B) In the early 1960s, the U.S. was still by far the world’s dominant industrial power. In 1960, for

example, the U.S. accounted for 38.3 percent of world manufacturing output. By 2012, the United

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States accounted for only 23.1 percent. This decline in the U.S. position was not an absolute

decline, rather, it was a relative decline, reflecting the faster economic growth of several other

economies, most notably those in Asia.

C) Given the rapid economic growth now being experienced by countries such as China, Brazil,

Russia, and India, further relative decline in the U.S. share of world output and world exports

seems likely.

Video Note: The video in the International Business Library on Pinterest

(http://www.pinterest.com/mheibvideos/) Brazil Seeks to Break New Ground in Global

Marketplace explores how Brazil is currently trying to become a leader in the production and

export of ethanol.

D) If we look into the future, most forecasts now predict a rapid rise in the share of world output

accounted for by developing nations such as China, Russia, India, Indonesia, Thailand, Mexico,

Brazil, and South Korea, and a commensurate decline in the share enjoyed by rich industrialized

countries such as Great Britain, Germany, Japan, and the United States. For international

companies, these trends suggest that future economic opportunities may be greater in developing

nations, and that new competitors are like to emerge from these countries.

Country Focus: India’s Software Sector

Summary

This feature explores the growth of India’s software industry. Starting from nothing just twenty–

five years ago, the industry now generates revenues in excess of $60 billion, and exports of $70

billion. With global spending on information technology expected to be over $250 billion by

2010, Indian companies are primed to capture a significant share of the pie, forcing their Western

counterparts to make changes to their strategies.