978-0134324838 Chapter 2 Solution Manual Part 1

● SUGGESTED SOLUTIONS TO CASE QUESTIONS

QUESTIONS:

2-1. What are the main characteristics of born global firms?

■ Born globals target a dozen or more countries within the first few years of their

2-2. What drivers/causes of globalization have allowed born global firms like

Instagram to internationalize at or near their founding?

■ Globalization and recent technological advances have now made venturing abroad

2-3. What advantages do you think a young company can gain by entering

international markets soon after their inception?

■ Instagram’s advanced technology coincides with a global shift to a more visual style of

2-4. Do you think globalization and MNE activity are creating problems for the world?

What kinds of problems can you identify? What are the unintended consequences of

international business?

(LO 2.1; LO 2.6; AACSB: Application of knowledge)

As the Activist Argues that Globalization is Cultural Imperialism with severe

consequences on nations, cultures, people and the environment.

■ Globalization:

◘ Ignores human rights and employs substandard working conditions- low wages and

exploited workers.

◘ Results in domestic job losses.

2-5. Summarize the arguments in favor of globalization made by the business executive.

What is the role of technology in supporting company performance in a globalizing

business environment?

(LO 2.3; AACSB: Application of knowledge)

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Economic “globalization” refers to the increasing integration of economies around the world. It

also refers to the movement of goods and services (international trade), people (labor), capital

and knowledge (technology) across international borders.

Pro- globalization arguments:

■ Participants in the global economy:

◘ Provide better-paying jobs, have more profits, pay higher taxes, and stimulate

purchases from local suppliers.

■ Technology enables globalization: Technological advances in communications, information,

manufacturing, and transportation have served as a remarkable facilitator of cross-border trade

and investment.

2-6. What are the roles of state and federal governments in dealing with globalization?

What is government’s role in protecting citizens from the potential negative effects of

foreign MNEs conducting business in your country? What kinds of government actions

would you recommend?

■ To minimize globalization’s harm and reap its benefits, governments should strive for an open

and liberalized economic regime:

◘ Freedom to enter and compete in markets

◘ Protection of persons and intellectual property

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2-7. What is the role of education in: (i) addressing the problems raised in the roundtable;

(ii) creating societies in which people can deal effectively with public policy issues; and

(iii) creating citizens who can compete effectively in the global marketplace?

■ Education has a responsibility to cultivate individuals who will become productive members of

societies where diverse views such as those expressed by the Activist, the Business Executive

and the Trade Official represented in this case are understood and respected.

V. END OF CHAPTER QUESTIONS

● TEST YOUR COMPREHENSION

2-8. Define globalization. What are the underlying dimensions of this megatrend?

■ Globalization is a broad term referring to the interconnectedness of national economies and

the growing interdependence of buyers, producers, suppliers, and governments in different

countries.

2-9. Is globalization a recent phenomenon? Describe the phases of globalization.

(LO 2.1; LO 2.2; AACSB: Application of knowledge)

■ Globalization is not a recent phenomenon. The origins date to the Roman Empire and earlier.

■ The word ‘trade’ comes from the Anglo-Saxon term trada, which means to walk in the

footsteps of others.

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Phases of Globalization

■ Exhibit 2.1 summarizes the Phases of Globalization. Since the 1800s, the evolution of market

globalization has witnessed four distinct phases, each triggered by global events and

technological discoveries:

The First Phase of Globalization

1830 – 1880s

The Second Phase of Globalization

1900 -1930

■ The second phase of globalization began around 1900 and was correlated with the rise of

electricity and steel production.

The Third Phase of Globalization

1948 – 1970s

■ The third phase of globalization followed World War II.

■ At war’s end in 1945, substantial pent-up demand existed for consumer products, as well as

for resources to rebuild Europe and Japan.

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■ Some 149 nations are now members of the WTO.

■ Additional global cooperation led to the formation of key international organizations such as

■ Early multinationals from this third phase of globalization originated from the U.S., Western

■ U.S. multinationals such as IBM, Boeing, Texas Instruments, Xerox, and McDonnell Douglas

■ Gradually, MNEs began seeking cost advantages by locating factories in developing countries

■ 1960s- Growing MNE activities and early efforts at trade liberalization resulted in substantial

■ 1960s/1970s- Recovered from World War II, MNEs in Europe and Japan began to

The Fourth and Current Phase of Globalization 1980s – Present

■ The fourth and current phase of globalization began in the early 1980s.

■ This period witnessed enormous growth in cross-border trade and investment activity. The

following innovations caused this phase:

■ Growing global prosperity began to reach emerging markets such as Brazil, India and

Mexico.

■ 1980s – Huge increases in FDI, especially in capital- and technology- intensive sectors

■ Internationalization made feasible for small and medium-sized enterprises (SMEs) –

■ These technologies also facilitated the globalization of the service sector in areas such as

banking, entertainment, tourism, insurance, and retailing.

■ Growing integration inspired mergers/acquisitions such as GM acquiring Saab in Sweden,

■ Globalization and technological advances resulted in the “death of distance”. That is, a

2-10. Summarize the six dimensions of globalization. Which of these do you think is the

most visible manifestation of globalization?

There is no one right answer for the second part of this question, as long as you justify your

selection. Here are the six dimensions:

A. Integration and interdependence of national economies.

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■ The multicounty aggregate activities of reconfiguring and integrating value-chain activities

gives rise to economic integration

■ Governments contribute to this integration by:

B. Rise of regional economic integration blocs.

■ Since the 1950s, the emergence of regional economic integration blocs

■ Trade bloc: consist of groups of countries within which trade and investment flows are

■ Examples– the North American Free Trade Agreement area (NAFTA), the Asia Pacific

■ Economic and Monetary Union: A single market with a common currency. This is

■ Example- Currently, the only example of an economic and monetary union is the European

C. Growth of global investment and financial flows.

■ Foreign direct investment (FDI) has grown dramatically due to global sourcing.

■ Firms and governments undertake global currency trading to finance cross-border trade and

investment.

■ Negative effect of integration, Examples-

◘ 2008- When the U.S. experienced a banking crisis, the contagion quickly spread to

◘ 1997- When Thailand and Malaysia experienced a monetary crisis, it quickly spread to

D. Convergence of consumer lifestyles and preferences.

■ Lifestyles and preferences are converging, i.e. increasingly standardized, resulting in global

■ Double-edged sword- While converging tastes facilitate the marketing of standardized

E. Globalization of production.

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■ Intense global competition has made economies of scale a critical key success factor. Global

■ This explains why offshoring to low labor-cost locations such as China, Mexico, and Eastern

F. Globalization of services

■ The services sector is also undergoing global sourcing.

■ Firms in banking, hospitality, retailing, and other service industries are rapidly expanding

■ Examples-

◘ The real estate giant RE/MAX has established more than 5,000 offices in over 50

■ Example-

◘ Medical tourism – consumers travel abroad for medical procedures such as

hysterectomies, cataract, knee and cosmetic surgeries.

■ The distribution of foreign direct investment has changed markedly, from an emphasis on

manufacturing to services.

2-11. Describe the five drivers of globalization.

A. Worldwide reduction of barriers to trade and investment.

■ National governments have sought to reduce trade and investment barriers, which has

accelerated global economic integration.

■ The World Trade Organization (WTO) has facilitated this.

B. Market liberalization and adoption of free markets.

■ The Berlin Wall, built in 1961, separated the communist East Berlin from the democratic West

Berlin.

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C. Industrialization, economic development, and modernization

■ Industrialization transitions emerging markets- Asia, Latin America, and Eastern Europe- from

being low value-adding commodity producers, dependent on low-cost labor, to sophisticated

competitive producers and exporters of premium products (higher-value products) such as

electronics, computers, and aircraft.

■ Examples-

◘ Brazil is now a leading producer of private aircraft

◘ Czech Republic excels in the manufacture of automobiles

◘ India has become a leading supplier of computer software

■ Gross National Income (GNI) – one of the most important measures of economic

development, i.e. standards of living & discretionary income

■ Exhibit 2.3 maps the Gross National Income for various countries in $US There is a direct

correlation between low-income countries and low levels of market globalization, e.g. Africa,

India, Nicaragua.

D. Integration of world financial markets.

2-12. What is the role of the World Trade Organization?

■ The World Trade Organization (WTO) is a multilateral governing body empowered to regulate

2-13. In what areas have technological advances had their greatest effect on facilitating

world trade and investment?

Technology has revolutionized business:

■ Transformed national economies and promoted outsourcing/offshoring.

■ Information technology allows for more efficient adaptation to international markets as well as

producing smaller lot sizes to target niche markets.

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2-14. What are the pros and cons of globalization

■ Positive consequences of market globalization: Cross-border trade and investment opened

the world to innovations and progress while increasing performance standards, currently known

as global benchmarking or world class.

■ Negative consequences of market globalization: The transition to an increasingly single,

■ Examples- Ford, General Motors, and Volkswagen all have transferred thousands of jobs

 2-15. What effect does globalization have on national sovereignty, employment, the

poor, the natural environment, and national culture?

 2-16. What are the implications of globalization for company internationalization?

● APPLY YOUR UNDERSTANDING

2-17. Imagine you are studying for your international business class at a local coffee

shop. The manager spies your textbook and remarks: “I don’t get all that foreign

business stuff. I don’t pay much attention to it. I’m a local guy running a small business.

Thank goodness I don’t have to worry about any of that.” The manager’s comments

make you think. The manager’s comments make you realize there is much more to

business than just local concerns. What is the likely value chain of a coffee shop? For

example, how did the varieties of coffee beans get there? What is the likely effect of

globalization on coffee shops? Do technological advances play any role in the shop’s

value chain? Does globalization imply any negative consequences for the worldwide

coffee industry? Justify your answer.

SKUBRATS is a vertically-integrated coffee shop, owning both the upstream and

downstream activities.

■ Upstream activities = Research and development, procurement, and manufacturing.

■ Downstream activities = Marketing, distribution, and sales and service.

SKUBRATS Value Chain: Globalization and Technological Effects

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Stages in Value Chain Descriptions

Research & Development Research on coffee bean varieties: quality, taste,

consistency, availability, cost, partnership

possibilities, and plantations where pesticide

Procurement (Sourcing) Skubrats, our coffee shop, will seek low-cost and

high quality inputs along with favorable

Manufacturing Skubrats set up coffee roasting/production facilities

abroad through direct investment. For example,

Marketing Skubrats serves domestic and foreign customers

in their own markets. Employing a global strategy,

Skubrats benefits from global economies of scale-

Distribution Skubrats owns their distributors. In the foreign

markets, they have established partnerships with

Sales & Service Each Skubrats Coffee Shop is company-owned to

ensure consistency of product and service.

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What is the likely effect of market globalization on coffee shops?

■Globalization affects coffee shops in much the same way as other firms might be impacted, i.e.

Do technological advances play any role in the shop’s value chain?

(a) In the 1970s, a high-yield coffee tree was developed that flourishes in full sunlight,

but requires chemical protection from diseases. The issue is the ecological degradation of

(b) The insecticide Miral 500 CS was recalled in the mid-1990s by Ciba-Geigy following

(c) Awareness through technology, e.g. Consumers International joined the producers of

(d) The International Coffee Organization (ICO) The International Coffee Organization (ICO),

based in London, England info@ico.org (a) 77 member countries, and is the main

drinking coffee. Such promotions contribute to the fact that we remain a caffeinated people:

Does globalization imply any negative consequences for the worldwide coffee industry?

(a) Ecological degradation due to technified coffee farms.

(b) Human death/disease from insecticides

(c) Green Labels for Conscientious Coffee Drinkers

(1) Organic Crop Improvement Association, Farm Verified Organic, Naturland, or the

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