978-0134324838 Chapter 2 Solution Manual Part 2

2-18. Globalization provides numerous advantages to businesses and consumers

around the world. At the same time, some critics believe that globalization is harming

various aspects of life and commerce. In what ways is globalization good for firms and

consumers? In what ways is globalization harmful to firms and consumers?

Globalization- PROS

■ 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.

■ Those facing intense competition, shrinking profit margins, and unfavorable industry trends,

may achieve corporate survival through offshoring.

■ Both producer and consumer nations can increase their wealth and quality of life

■ Provide better-paying jobs, have more profits, pay higher taxes, and stimulate local economy.

■ Create new jobs, enhance local living standards, and challenge firms to stay competitive in a

■ Pay higher wages and provide better benefits than domestic-only firms.

■ Since the 1980s, the proportion of world population living in poverty has declined, with much

■ Need access to foreign markets in order to recoup their return on investment, especially firms

■ Over time, governments pass legislation that promotes improved environmental conditions.

■ Example- Japan endured polluted rivers and smoggy cities in the early decades of its

economic development following World War II. As Japan’s economy grew, the Japanese passed

tough environmental standards, aimed at restoring natural environments.

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Globalization- CONS

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

global marketplace poses challenges to individuals, organizations, and governments.

UNINTENDED CONSEQUENCES OF GLOBALIZATION

Contagion: Rapid Spread of Monetary or Financial Crises

■ 2008- The world economy experienced a severe financial crisis and global recession-the

worst in decades.

■ In international economics, contagion refers to the tendency for a financial or monetary crisis

■ Exhibit 2.8 illustrates how GDP growth in advanced, developing, and emerging economies

varies over time. It declined substantially in recent years, due to the global recession and the

financial crisis.

■ Historical Learning Point- even following deep recessions, the global economy has always

returned to net GDP growth.

■ 2009-10- Global growth declined sharply to levels not seen since World War II.

■ Global Interconnectedness– Living standards have been severely affected and millions of

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Loss of National Sovereignty

■ Sovereignty is the ability of a nation to govern its own affairs.

■ One country’s laws cannot be applied or enforced in another country.

■ Globalization can threaten national sovereignty.

■ MNE activities can interfere with the sovereign ability of governments to control their own

Employment- Offshoring and the Flight of Jobs

■ Offshoring is the relocation of manufacturing and other value-chain activities to cost-effective

destinations abroad.

Effect on the Poor

■ In poor countries, globalization creates jobs and tends to raise wages, yet may also result in

job losses as automation is implemented for labor-intensive jobs, e.g. in India the hand-woven

■ Example- Nike has been criticized for paying low wages to shoe factory workers in Asia,

some of whom work in sweatshop conditions.

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Effect on the Natural Environment

■ Some argue that globalization harms the environment by promoting increased manufacturing

and other business activities that result in pollution, habitat destruction, and deterioration of

the ozone.

Effect on National Culture

■ Globalization opens the door to foreign companies, global brands, unfamiliar products, and

new values.

2-19. Ethical Dilemma:

Northern Energy, Inc. (Northern) is a large oil company with production and marketing

operations worldwide. You are a recently hired manager at Northern’s subsidiary in

Nigeria, which provides jobs to hundreds of Nigerians and supports many local

merchants and suppliers. Suppose Northern’s drilling and refining practices have

severely damaged the natural environment in Nigeria, polluting the air, land, and water.

As a result, Northern has faced violent protests and much negative publicity in Nigeria.

Develop suggestions on how Northern should address these issues. Keep in mind that

top management is reluctant to invest significant new resources in Nigeria, given the

firm’s weakening business performance there.

■ The dilemma in this situation is that Northern’s business practices are harming the natural

environment in Nigeria. The air, land, and water have all been polluted. This has resulted in

violent protests against Northern by the Nigerians.

■ The facts are as follows: Top management is reluctant to send additional resources to their

Nigerian operations. Northern Energy is responsible for the pollution. The local stakeholders are

not happy with Northern Energy.

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● GlobalEDGE™ INTERNET EXERCISES http://globaledge.msu.edu

2-20. The KOF Swiss Economic Institute prepares the annual KOF Index of Globalization,

which ranks the most globalized countries (enter “KOF Index of Globalization” at

globalEDGE™ or other search engine). The index uses three different dimensions to

measure globalization: economic globalization, political globalization, and social

globalization. Visit the index and explain what each dimension represents, and why each

is important for a nation to achieve a substantial presence in the global economy.

The KOF Index of Globalization uses three dimensions to measure globalization:

economic globalization, political globalization, and social globalization.

Each of the three dimensions is determined using sub-indices.

Economic globalization is determined by the following sub-indices:

oActual Flows

oRestrictions

Political globalization is determined by the following sub-indices:

Social globalization is determined by the following sub-indices:

oData on Personal Contact

International Tourism

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Telephone Traffic

International Letters

Foreign Population

Transfers

oData on Information Flows

oData on Cultural Proximity

Technological Integration

Information and communication technology (ICT) continues to spread the globe as more and

more countries enlarge their ICT infrastructures. Internet connections are a powerful accelerator

Each of the four components is important for a nation to achieve a substantial presence

in the global economy. The components are interconnected, integrated, and impacted by

the other three.

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Countries, particularly emerging and developing ones, cannot afford to bypass the

More countries are becoming members of international organizations such as the WTO

Globalization allows firms and consumers to view the world as one large marketplace – it

2-21. Service-sector jobs are increasingly outsourced to lower-cost locations abroad. The

globalEDGE™ web site has various resources that detail the nature and location of jobs

that have been transferred abroad. Some experts believe the resulting foreign investment

and increased demand in lower-cost countries will cause wages to rise in those

countries, eliminating cost advantages from offshoring and narrowing the income gap

between developed economies and low-cost countries. In other words, offshoring will

help to reduce global poverty. Others believe that manufacturing jobs will be consistently

moved to low-cost countries, making China and India the world’s center of innovation

and production. What do you think? Find three articles on outsourcing at globalEDGE™

by doing a search using the keywords “global outsourcing” or “offshoring,” and write a

report on the most likely consequences of these trends for your country, its workers, and

consumers.

Consequences of offshore outsourcing for country, workers and consumers

Offshore outsourcing effects at the country level. At the macroeconomic level, there are benefits

and costs to offshore outsourcing. My country is doing much offshoring because of the higher

Offshore outsourcing effects at the workers’ level.

Companies that are or planning to participate in global outsourcing are reducing employment

opportunities for local workers in the blue-collar and white-collar areas. However, as companies

insatiable search for lower cost, high productivity, greater efficiency and customer service

continues, high-skilled, white-collar employment (e.g., computer programming, software

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As firms in my country increase their global competitiveness via lower costs, greater efficiency,

productivity, quality, better service and revenues, conceivably, local consumers will experience

2-22. A key characteristic of globalization is the increasingly integrated world economy.

MNEs and many nations have a vested interest in maintaining the globalization trend. If

the trend were somehow reversed, participants in international business, such as

exporters, would likely suffer big economic losses. In many ways, globalization’s role in

the world economy is critical. But just how big is the global economy? What is the extent

of international trade relative to the size of the global economy? What is the proportion

of international trade in the GDPs of each of the following countries: Australia, Canada,

Sweden, United Kingdom, and the United States? Consult globalEDGE™ to address

these questions.

Globalization refers to the gradual integration and growing interdependence of national

economies. Globalization allows firms to view the world as an integrated marketplace that

includes buyers, producers, suppliers, and governments in different countries. Globalization is

The globalization of markets is evident in several related trends. First is the unprecedented

growth of international trade. In 1960, cross-border trade was modest—about $100 billion per

year. Today, it accounts for a substantial proportion of the world economy, amounting to some

Export growth has outpaced the growth of domestic production during the last few decades,

illustrating the fast pace of globalization. Much of the difference in the growth of exports versus

GDP is due to advanced (or developed) economies such as Britain and the United States now

■ During the recent global recession, China surpassed the U.S. as the world’s leading exporter

in total dollar terms, trade accounts for about 45% of its GDP (U.S. is 23% of its GDP).

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■ For other economies, merchandise trade is a much larger component of economic activity:

e.g. Belgium (125%), Netherlands (118%), and South Korea (81%).

Entrepôt economies (intermediate depot; exports = imports): Singapore, Hong Kong and

Malaysia export more than 100% of their respective GDPs.

Such countries import a large volume of products, some of which they process into higher

value-added products and some they simply re-export to other destinations

In terms of the the proportion of international trade in the GDPs of each of Australia, Canada,

Sweden, United Kingdom, and the United States, the data are available from the World Trade

The GDP and combined exports and imports of Canada were $1.28 trillion and $650 billion,

respectively. This implies that trade amounted to about 51% of the country’s GDP. The GDP and

2-23. Globalization refers to the reduction barriers to trade and investment, which is

facilitating the internationalization of countless firms. Globalization is quickening and

affecting firms around the world. Globalization is associated with various issues and

challenges that confront firms as they undertake international business. Among the

major issues are the condition of the global economy; indebtedness of national

governments; power shifts to emerging markets; and country risk in the developing

economies. Visit globalEDGE™ and enter the key word “globalization”. Explore the

information and websites that emerge from your search. Write a report on the most

important contemporary issues that firms are facing as they undertake international

business.

■ A globalEDGE™ search yields information on the following issues facing international firms:

oGlobal sourcing

oLabor laws

oGlobal financial crisis

oLack of education in emerging and developing economies

oEffects of capitalism on national identity

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The most important contemporary issues that firms are facing as they undertake

international business: (Results – 20 from a total of 1485)

gE Module: Key Industry Drivers of Globalization >> …

http://globaledge.msu.edu/global-resources/resource/595

Center for Globalization and Policy Research: Working Papers …

http://globaledge.msu.edu/global-resources/resource/592

Yale Center for the Study of Globalization >> globalEDGE …

http://globaledge.msu.edu/global-resources/resource/644

The Economist – Globalization >> globalEDGE: Your source …

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http://globaledge.msu.edu/global-resources/resource/600

Globalization >> globalEDGE: Your source for Global …

… globalEDGE Blog – By Tag: Globalization. Globalization Brings Changes to Student

Mobility. … The Changing Face of Globalization. …

http://globaledge.msu.edu/Blog/tag/Globalization

http://globaledge.msu.edu/Blog/post/1327/The-Changing-Face-of-Globalization-

globalEDGE Blog: How Globalization is Changing Business …

… globalEDGE Blog: How Globalization is Changing Business and Education. How

Globalization is Changing Business and Education. …

http://globaledge.msu.edu/Blog/post/1288/How-Globalization-is-Changing-Business-and-Educat

ion

… Protect Against Cyber-Crime. globalEDGE Blog: Germany Gets Globalization. Germany

Gets Globalization. Ben Jacquier 2/8 …

http://globaledge.msu.edu/Blog/post/977/Germany-Gets-Globalization

… globalEDGE Blog: The Current State of Globalization: How Connected is the World? The

Current State of Globalization …

http://globaledge.msu.edu/Blog/post/1277/The-Current-State-of-Globalization–How-Connected-i

s-the-World-

MyManagementLab

Go to MyManagementLab.com for Auto-graded writing questions as well as the following

Assisted-graded writing questions:

 2-24. In what areas have technological advances had their greatest effect on facilitating

world trade and investment?

 2-25. What are the pros and cons of globalization?

 2-26. MyManagementLab Only– comprehensive writing assignment for this

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chapter.

Visit MyManagementLab for suggested answers.

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