CHAPTER 1
GLOBALIZATION
LEARNING OBJECTIVES:
1.1 Identify the types of companies active in international business.
1.2 Explain globalization and how it affects markets and production.
1.3 Detail the forces that drive globalization.
1.4 Outline the debate about globalization’s impact on jobs and wages.
1.5 Summarize the debate about income inequality.
1.6 Outline the debate about culture, sovereignty, and the environment.
1.7 Identify how this course will help you develop skills for your career.
CHAPTER OUTLINE:
Introduction
Key Players in International Business
Multinational Corporations
Entrepreneurs and Small Businesses
What Is Globalization?
Globalization of Markets
Reduces Marketing Costs
Creates New Market Opportunities
Levels Uneven Income Streams
Local Buyers’ Needs
Global Sustainability
Three Markets, Three Strategies
Globalization of Production
Access Lower-Cost Workers
Access Technical Expertise
Access Production Inputs
Forces Driving Globalization
Falling Barriers to Trade and Investment
World Trade Organization
Other International Organizations
Regional Trade Agreements
Trade and National Output
Technological Innovation
E-Mail and Videoconferencing
The Internet
Company Intranets and Extranets
Advancements in Transportation Technologies
Measuring Globalization
Debate about Jobs and Wages
Against Globalization
Copyright © 2019 Pearson Education, Inc.
Eliminates Jobs in Developed Nations
Lowers Wages in Developed Nations
Exploits Workers in Developing Nations
For Globalization
Increases Wealth and Efficiency in All Nations
Generates Labor Market Flexibility in Developed Nations
Advances the Economies of Developing Nations
Summary of the Jobs and Wages Debate
Debate about Income Inequality
Inequality within Nations
Inequality between Nations
Global Inequality
Summary of the Income Inequality Debate
Debate about Culture, Sovereignty and the Environment
Globalization and Culture
Globalization and National Sovereignty
Globalization: Menace to Democracy?
Globalization: Guardian of Democracy?
Globalization and the Environment
Developing Skill for Your Career
The Global Business Environment
The Road Ahead for International Business
Bottom Line for Business
A comprehensive set of specially designed PowerPoint slides is available for use with Chapter 1.
These slides and the lecture outline below form a completely integrated package that simplifies the
teaching of this chapter’s material.
Lecture Outline
I. INTRODUCTION
Globalization is reshaping our cultures, our political, legal, and economic systems, and affecting
our standards of living. It alters the global pattern of trade and investment by expanding markets
and multiplying production possibilities.
II. KEY PLAYERS IN INTERNATIONAL BUSINESS
Large firms from developed nations once dominated, but firms from Brazil, China, and India
now play a bigger role. Technological advancements allow small and midsize companies to
better compete.
A. Multinational Corporations
A multinational corporation (MNC) has direct investments abroad in multiple countries.
They generate significant jobs, investment, and tax revenue for the regions and nations
they enter.
1. Profiling the largest multinationals
a. Some MNCs have more employees than small nations have citizens (e.g.,
Walmart has 2.2 million employees globally).
b. If Walmart were a country, it would rank third behind Norway in terms
of economic power (Figure 1.1).
B. Entrepreneurs and Small Businesses
1. They are increasingly active in international business by exporting earlier and
growing faster with help from technology.
2. A born global firm is a company that adopts a global perspective and engages in
international business from or near its inception.
3. Some small Internet companies reach customers solely through the Web (e.g.,
Vellus Products, Weekend in Italy).
III. WHAT IS GLOBALIZATION?
Globalization is the trend toward greater economic, cultural, political, and technological
interdependence among national institutions and economies. It is marked by
“denationalization,” which is not “internationalization.”
A. Globalization of Markets
1. Convergence in buyer preferences in markets around the
world
a. Reduces marketing costs by standardizing activities
b. Creates market opportunities abroad if home is small or saturated
c. Levels uneven income streams for global seasonal products
d. Companies must not overlook local buyers’ needs
e. Need for global sustainability—development that meets the needs of the
present without compromising the ability of future generations to meet
their own needs.
2. Global Sustainability, Three Markets, Three Strategies. The world’s 7 billion
people live in three types of markets, yet all require companies to act in a
sustainable manner:
a. Developed markets are solidly middle class and people can consume
almost any product desired. A firm may use the latest technologies to
develop sustainable products in a sustainable manner.
b. Emerging markets are racing to catch up to rich nations and are
overloading infrastructures. Resource constraints can force companies to
develop sustainable production methods.
c. Traditional markets have mostly rural populations for whom poverty and
corruption prevail. Here, sustainability means teaching safe farming
practices, environmental stewardship, and disease awareness.
B. Globalization of Production
1. Dispersal of production activities to locations that help a
company to minimize costs or maximize quality
a. Access lower-cost workers to cut overall production costs
b. Access technical expertise
c. Access production inputs unavailable or more costly at home
IV. FORCES DRIVING GLOBALIZATION
Forces increase competition among nations by leveling the global business playing field.
A. Falling Barriers to Trade and Investment
1947 General Agreement on Tariffs and Trade (GATT) was designed to promote free
trade by reducing tariffs and nontariff barriers. 1994 GATT revision (1) reduced tariffs
and lowered subsidies for agricultural products; (2) defined and protected intellectual
property rights; and (3) created the WTO.
1. World Trade Organization
a. World Trade Organization (WTO) is the international organization that
enforces the rules of international trade.
b. WTO goals: (1) to help the free flow of trade, (2) help negotiate the
further opening of markets, and (3) settle trade disputes.
c. WTO agreements are contracts committing members to fair and open
trade policies. WTO dispute settlement system is the spine of the global
trading system.
2. Other International Organizations
a. World Bank – The initial purpose of the World Bank
(www.worldbank.org) was to finance European reconstruction following
the Second World War. The World Bank later shifted its focus to the
general financial needs of developing countries, and today it finances
many economic development projects (infrastructure development) in
Africa, South America, and Southeast Asia.
b. International Monetary Fund – is an agency created to regulate fixed
exchange rates and to enforce the rules of the international monetary
system. Among the purposes of the IMF (www.imf.org) are promoting
international monetary cooperation, facilitating the expansion and
balanced growth of international trade, avoiding competitive exchange
devaluation, and making financial resources temporarily available to
members suffering from severe balance of payment problems.
3. Regional Trade Agreements
a. Smaller groups of nations also are integrating their economies (e.g.,
NAFTA, European Union).
4. Trade and National Output
a. Effect of the WTO and regional trade pacts is greater global trade and
cross-border investing (Map 1.1).
b. Trade growth has been faster than world output.
c. Gross Domestic Product (GDP) is the value of all goods and services
produced by a domestic economy over a one-year period. Gross national
product (GNP) adds income from international activities.
B. Technological Innovation
Technology accelerates globalization by making it easier, faster, and less costly to move
data, goods, and equipment around the world.
1. E-mail and Videoconferencing
a. Speed information flows and ease the tasks of coordination and control,
which are complicated by operating across borders.
b. Driving growth in videoconferencing are lower-cost bandwidth and
equipment, and decreased travel for cost or safety reasons.
2. The Internet
a. Helps firms sharpen forecasting, lower inventories, improve
communication with suppliers, and communicate quickly and cheaply
with distant managers
b. Reduces the cost of reaching an international customer base, which is
essential for the competitiveness of small firms
3. Company Intranets and Extranets
a. Intranets are private networks of company Web sites and other
information sources that allow employee access to information from
distant locations.
b. Extranets are computer networks that give distributors and suppliers
access to a company’s database so they can place orders or restock
inventories electronically and automatically.
4. Advancements in transportation technologies
a. Make global shipping more efficient and dependable (e.g., GPS)
C. Measuring Globalization
1. The KOF Swiss Economic Institute’s Globalization Index ranks nations on their
economic, social, and political engagement.
2. Richest nations are the most global, with many in Europe. The United States is
currently ranked 27th (see Table 1.1).
3. The least global nations are found in Africa, East Asia, South Asia, Latin
America, and the Middle East. Low technological connectivity slows global
integration.
V. DEBATE ABOUT JOBS AND WAGES
A. Against Globalization
1. Eliminates jobs in developed nations as good-paying manufacturing jobs go
abroad to developing countries. Low-priced goods are not worth lost jobs.
2. Lowers wages in developed nations by causing worker dislocation that gradually
lowers wages. New jobs that replace lost manufacturing jobs often pay less.
3. Exploits workers in developing nations who work cheaply servicing western
consumers.
B. For Globalization
1. Increases wealth and efficiency in all nations because trade openness raises
output. Firms grow more efficient and pass savings on to consumers.
2. Generates labor market flexibility in developed nations that allows an economy
to rapidly deploy labor where demand is relatively high.
3. Advances the economies of developing nations by injecting capital that creates
higher-paying jobs, which expands the middle class and raises standards of
living.
C. Summary: Although globalization eliminates jobs in some economic sectors, it creates
jobs in other sectors. Gains in national economies are worth lost livelihoods that
individuals may suffer.
D. Globalization’s Impact on Labor, the Environment, and Markets
1. Labor standards
a. Trade unions claim that firms continually move to nations with low labor
standards, which reduces labor’s bargaining power and forces overall
labor standards lower.
b. But studies of developing nations’ export processing zones instead find
evidence that contradicts such claims.
2. Environmental protection
a. Globalization opponents say it creates a “race to the bottom” in
environmental conditions and regulations: countries compete in reducing
environmental protection laws.
b. But evidence shows pollution-intensive U.S. firms tend to invest in
countries with stricter environmental standards. Also, closed economies
historically are the worst polluters.
3. Future markets
a. Protesters claim international firms pay locals the lowest possible wage
and export their goods back to the home country.
b. Today, firms want to build local markets in developing nations, not
simply exploit workers and foment local animosity.
VI. DEBATE ABOUT INCOME INEQUALITY
A. Inequality within Nations
1. Globalization critics claim that income disparity in rich nations is increasing as
firms move factory jobs to poor nations.
2. Evidence is mixed, but poor people in developing nations seem to benefit from
an open economy.
B. Inequality between Nations
1. Globalization opponents say it is widening the gap in average incomes between
rich and poor nations.
2. Looking closely at the evidence, we see that open nations are benefiting from
trade whereas closed ones are not.
C. Global Inequality
1. Opponents of globalization say it is widening income inequality among all
people of the world.
2. Studies tend to agree that global inequality has fallen in recent decades, though
they disagree on the extent of the decline.
D. Summary of the Income Inequality Debate
VII. DEBATE ABOUT CULTURE, SOVEREIGNTY AND THE ENVIRONMENT
A. Globalization and Culture
1. Critics say globalization homogenizes our world and lets MNCs destroy cultural
diversity and wipe out small local businesses.
2. Yet globalization allows nations to: (1) specialize and trade for goods they do
not produce, (2) import other peoples’ cultural goods, and (3) still protect deeper
moral and cultural norms.
B. Globalization and National Sovereignty
1. Globalization: Menace to Democracy?
a. Supranational institutions with international goals and appointed officials
undermine national sovereignty and democracy.
b. Elected officials undercut democracy and local and regional authority
with “international” agreements on citizens’ behalf.
2. Globalization: Guardian of Democracy?
a. Globalization has helped spread democracy worldwide (e.g., more
democratic nations than ever).
b. Some losses of sovereignty have had positive social impacts, as in human
rights, workers’ rights, and discrimination.
3. Globalization and the Environment
a. Most international firms today support reasonable environmental laws
because (if for no other reason) they want to expand future local markets
for their goods and services. They recognize that healthy future markets
require a sustainable approach to business expansion.
VIII. DEVELOPING SKILLS FOR YOUR CAREER
Skills required for a career in International Business include: critical thinking, an understanding
of business ethics and social responsibility, communication and knowledge application and
awareness.
A. The Global Business Environment – What makes international business special is that it
occurs within a dynamic, integrated system that weaves together four distinct elements:
1. Globalization is transforming our societies and commercial activities. It also
increases competition everywhere, forcing companies to be vigilant.
2. Each national business environment consists of unique cultural, political, legal,
and economic characteristics. Companies must be attentive to nuances and adapt
products and practices as needed.
3. The international business environment influences how business is conducted so
firms must closely monitor events.
4. Context of international business management is defined by the characteristics
of the national and international business environments. Managers must abide by
the prevailing rules in each market in which it operates.
B. The Road Ahead for International Business
Part 1 (Chapter 1): Globalization
Part 2 (Chapters 2–4): National Business Environments
Parts 3 and 4 (Chapters 5–8 and 9–10): International Business Environment
Part 5 (Chapters 11–16): International Business Management
IX. BOTTOM LINE FOR BUSINESS
A. Harnessing Globalization’s Benefits
1. The most global nations tend to have the greatest equality, robust environmental
protection, inclusive political systems, lowest levels of corruption, healthiest
lifestyles, and be where women have achieved the most social, educational, and
economic progress.
2. The debate has opened a dialogue on how globalization can be harnessed to
make its benefits exceed its costs.
B. Intensified Competition
1. Continued globalization is taking companies into previously isolated markets
and increasing competitive pressures worldwide.
2. As it gets easier and less costly to manage widely dispersed marketing and
production activities, new opportunities and threats emerge.
C. Wages and Jobs
1. Low wages are not all that draws investment by multinationals. A location must
offer low-cost, adequately skilled workers in an environment with acceptable
levels of social, political, and economic stability.
2. Labor mobility is increasing with globalization—depressing wages in some job
categories but developing new job opportunities in others.
D. The Policy Agenda
1. Rich nations could open their markets, slash agricultural subsidies, and increase
development aid. Poor nations could improve their investment climates and
improve social protection for the poor.
2. Rich nations could offer workers their wage insurance, subsidized health
insurance if out of work, and improve education. Rich nations could help enforce
labor standards, help clarify environmental agreements, and research the
environmental implications of trade agreements.