978-0078112911 Chapter 1 Part 2

Global Business Today Ninth Edition Chapter 1

countries. However, given that the wage gap between developed and developing countries is

closing, the migration of unskilled jobs to low-cost nations may only be a temporary phenomenon.

Teaching Tip: An interesting site for companies interested in exporting their services is available at

{http://www.ita.doc.gov/td/sif/exporting_services_overseas.htm}, and also through the export

assistance center at {http://www.export.gov/}.

Video Note: A video clip on exporting is available at {http://www.export.gov/}. For the video,

click on “Begin Exporting”.

Country Focus: Protesting Globalization in France

Summary

This feature describes the anti-globalization protests going on in France. The protests, led by

activist Jose Bove, started when the U.S. retaliated against EU bans on beef imports by imposing a

100% tariff on some EU products. Bove and his associates targeted McDonald’s, and also

California winemaker Mondavi as symbols of their opposition to American investments. Still,

despite the protests, foreign investment in France is at record highs, and ironically, so are French

investments abroad.

Suggested Discussion Questions

1. Consider the trade war that initiated the protests led by Bove. The EU instituted restrictions on

the import of hormone treated beef because it was feared that the product might lead to health

problems. The WTO stated that the restrictions were prohibited under WTO agreements and

ordered the EU to lift the restrictions or face retaliatory measures. In your opinion, did the WTO

2. Why was McDonald’s chosen as the target for anti-globalization protests? How can companies

like McDonald’s protect themselves from the actions of protesters like Bove?

Global Business Today Ninth Edition Chapter 1

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14

that are not. Students might recommend that companies like McDonald’s work to integrate

themselves with the host country through charitable programs, social activities, and so on.

Teaching Tip: To learn more about ongoing WTO disputes, go the WTO’s homepage:

{www.wto.org}.

Video Note: Protesting against globalization is not uncommon. The iGlobe Environmental Activist

Questions the Goals of Globalization also explores the negative effects of globalization.

Globalization, Labor Policies, and the Environment

D) A second source of concern is that free trade encourages firms from advanced nations to move

manufacturing facilities offshore to less developed countries that lack adequate regulations to

protect labor and the environment from abuse by the unscrupulous. Supporters of free trade and

greater globalization express serious doubts about this scenario. They point out that tougher

environmental regulation and stricter labor standards go hand in hand with economic progress. In

general, as countries get richer, they enact tougher environmental and labor regulations.

Lecture Note: To extend this discussion, consider {http://www.businessweek.com/ap/2014-10-

23/coal-rich-poland-ready-to-block-eu-climate-deal}.

E) Lower labor costs are only one of the reasons why a firm may seek to expand in developing

countries. These countries may also have lower standards on environmental controls and

workplace safety. Nevertheless, since investment typically leads to higher living standards, there

is often pressure to increase safety regulations to international levels. No country wants to be

known for its poor record on health and human safety. Thus supporters of globalization argue that

foreign investment often helps a country to raise its standards.

Globalization and National Sovereignty

F) A final concern voiced by critics of globalization is that in today’s increasingly interdependent

global economy, economic power is shifting away from national governments and toward

supranational organizations such as the World Trade Organization (WTO), the European Union

(EU), and the United Nations. As perceived by critics, the problem is that unelected bureaucrats

are now sometimes able to impose policies on the democratically elected governments of nation–

states, thereby undermining the sovereignty of those states.

G) With the development of the WTO and other multilateral organizations such as the EU and

NAFTA, countries and localities necessarily cede some authority over their actions. Supporters of

these organizations claim that if the organizations fail to serve the collective interests of member

states, the states will withdraw their support and the organizations will collapse.

Globalization and the World’s Poor

H) Critics of globalization argue that over the last century the gap between rich and poor has

Global Business Today Ninth Edition Chapter 1

gotten wider, and that the benefits of globalization have not been shared equally. However

supporters of free trade suggest that the actions of governments have limited economic

improvement in many countries. In addition, debt may also be limiting growth in some countries.

Today, there are various efforts underway to encourage debt relief programs.

MANAGING IN THE GLOBAL MARKETPLACE

A) An international business is any firm that engages in international trade or investment.

B) As their organizations increasingly engage in cross-border trade and investment, managers need

to recognize that the task of managing an international business differs from that of managing a

purely domestic business in many ways. Countries differ in their cultures, political systems,

economic systems, legal systems, and levels of economic development.

C) These differences require that business people vary their practices country by country,

recognizing what changes are required to operate effectively. It is necessary to strike a balance

between adaptation and maintaining global consistency, however.

D) As a result of making local adaptations, the complexity of international business is clearly

greater than that of a purely domestic firm. Firms need to decide which countries to enter, what

mode of entry to use, and which countries to avoid. Rules and regulations also differ, as do

currencies and languages.

E) Managing an international business is different from managing a purely domestic business for

at least four reasons: 1) countries differ, 2) the range of problems and manager faces is greater and

more complex, 3) an international business must find ways to work within the limits imposed by

governmental intervention and the global trading system, and 4) international transactions require

converting funds and being susceptible to exchange rate changes.

Critical Thinking and Discussion Questions

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?

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16

Korea. This trend is also reflected 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 first 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 little 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 influence of the United States 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 fine 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 firms.”

Evaluate this statement.

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?

Global Business Today Ninth Edition Chapter 1

4. “Ultimately, the study of international business is no different from the study of domestic

business. Thus, there is no point in having a separate course on international business.” Evaluate

this statement.

5. How does the Internet affect international business activity and the globalization of the world

economy?

Global Business Today Ninth Edition Chapter 1

reach of large, resource rich firms.

6. If current trends continue, China may emerge as the world’s largest economy by 2020. Discuss

the possible implications of such a development for:

• The world trading system.

• The world monetary system.

• The business strategy of today’s European and U.S. based global corporations.

• Global commodity prices.

7. Reread the Management Focus on Vizio and answer the following questions:

a) Why is the manufacturing of flat panel TVs migrating to different locations around the world?

b) Who benefits from the globalization of the flat panel industry? Who are the losers?

c) What would happen if the U.S. government required that flat panel displays sold in the United

States had to also be made in the United States? On balance, would this be a good thing or a bad

thing?

d) What does the example of Vizio tell you about the future of production in an increasingly

integrated global economy? What does it tell you about the strategies that enterprises must adopt

in order to thrive in highly competitive global markets?

Global Business Today Ninth Edition Chapter 1

workers, consumers would probably buy far fewer televisions, and therefore any new jobs that

Closing Case: Who Makes the Apple iPhone?

Summary

This case explores the international expansion of Apple’s production over the last thirty years. In

1983, Apple produced its products in the United States, but by 2004, most production had shifted

to foreign countries, and in particular China. Today, Apple’s popular iPhone is assembled in

China, but contains parts made around the world. Despite its reliance on foreign manufacturing

however, Apple has maintained its R&D and marketing functions in the United States. A

discussion of the case can revolve around the following questions:

QUESTION 1: What are the benefits to Apple of outsourcing the assembly of the iPhone to

foreign countries, and particularly China? What are the potential costs and risks to Apple?

QUESTION 2: In addition to Apple, who else benefits from Apple’s decision to outsource

assembly to China? Who are the potential losers here?

Global Business Today Ninth Edition Chapter 1

ANSWER 2: Most students will probably recognize that consumers are a main beneficiary of

QUESTION 3: What are the potential ethical problems associated with outsourcing assembly jobs

to Foxconn in China? How might Apple deal with these?

ANSWER 3: Apple has come under fire for choosing to work with suppliers that run factories

QUESTION 4: On balance, do you think that the kind of outsourcing undertaken by Apple is a

good thing, or a bad thing for the American economy? Explain your reasoning.

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21

Lecture Note: Students may also want to explore the situation at Foxconn, Apple’s Chinese

supplier at {http://www.businessweek.com/articles/2012-09-27/whats-behind-the-foxconn-worker-riots}.

Continuous Case Concept

This feature allows you to integrate the material presented in each chapter of the text using a single

industry, the auto industry. For each chapter, ideas will be presented on how to link the chapter

contents to the current situation in the auto industry. This discussion can take place at the

beginning of a new unit, at the end, or it could be threaded through the chapter material. In some

cases, you may want to use the feature more than once. By using the continuous case concept,

students will have the opportunity to understand how the elements presented throughout the text

apply to an evolving, real situation.

• Sketch out a diagram of the auto industry showing the major players such as Ford,

Chrysler, Toyota, Nissan, BMW, Mercedes, Tata, and Hyundai. Look at recent changes in

corporate structure. For example, Italian automaker Fiat recently took control of Chrysler.

Global Business Today Ninth Edition Chapter 1

globalEDGE Exercises

The resources for each exercise can be easily located by using the search box at the top of the

globalEDGE website at http://globalEDGE.msu.edu

Exercise 1

Search phrase: trade forecasts or HSBC Global Connections

Resource Name: HSBC Global Connections

Website: https://globalconnections.hsbc.com/us/en

globalEDGE Category: Globalization

Additional Info:

Once on the HSBC Global Connections website, the Trade Forecast Tool can be found under the

Tools & Data section of the site. It’s an interactive chart, where you can see the trade routes that

are forecasted to exhibit the largest annual growth over the next several years.

Exercise 2

Search phrase: FDI Confidence Index

Resource Name: A.T. Kearney: Foreign Direct Investment Confidence Index

Website: http://globaledge.msu.edu/global-resources/rankings

globalEDGE Category: Rankings

Additional Info:

This ranking study, published regularly since 1998 surveys over 300 hundred executives from

multinationals with more than $500 million revenues from 28 countries. The Index is calculated as

a weighted average of the number of high, medium, and low responses to questions about the

likelihood of direct investment in a market over the next three years. Index values are based on

non-source-country responses (so the rating for India does not include responses from Indian

multinationals).

Additional Readings and Sources of Information

Apple vs. Google: Starkly Different China Experiences

http://www.businessweek.com/articles/2012-06-12/apple-and-google-are-having-very-different-

china-experiences

China Imports Pharmaceutical Professionals

http://www.businessweek.com/technology/content/sep2010/tc20100915_284108.htm

Call-It Chimerica: The U.S. and China Grow Ever Closer

http://www.businessweek.com/articles/2012-10-11/call-it-chimerica-the-u-dot-s-dot-and-china-

Global Business Today Ninth Edition Chapter 1

grow-ever-closer#r=hpt-ls

The F-35’s Global Supply Chain

http://www.businessweek.com/magazine/the-f35s-global-supply-chain-09012011-gfx.html

Will Foxconn Findings Change Apple’s Supply Chain

http://www.businessweek.com/videos/2012-03-29/will-foxconn-findings-change-apples-supply-

chain

The Must Read Globalization: World’s Vicious Cycle

http://www.businessweek.com/videos/2012-10-15/the-must-read-globalization-worlds-vicious-

cycle

Globalization: Key Issues

http://www.imf.org/external/np/exr/key/global.htm

What Would a Fair Labor iPod Cost?

http://www.businessweek.com/managing/content/jul2009/ca20090731_483871.htm

Why Globalization is Going into Reverse

http://www.businessweek.com/articles/2013-11-25/why-globalization-is–going-into-reverse

Vizio’s Outsourcing Hits a Profitable Note

http://www.businessweek.com/management/vizios-outsourcing-hits-a-profitable-note-

07292011.html

Rushing to Finish a Global Free-Trade Deal

http://www.businessweek.com/articles/2012-05-31/rushing-to-finish-a-global-free-trade-deal

Foreign Makers Tune into China’s TV Market

http://www.businessweek.com/stories/2010-08-11/foreign-makers-tune-in–to-chinas-tv–market