Chapter 01 – Globalization
Globalization
Learning objectives
Understand what is meant by the term globalization.
Recognize the main drivers of globalization.
Describe the changing nature of the global economy.
Explain the major arguments in the debate over the impact of globalization.
Understand how the process of globalization is creating opportunities and
This chapter introduces the emergence of the globally integrated business world. Globalization
has reduced the traditional barriers to cross-border trade and investment (distance, time zones,
language, differences in government regulations, culture, and business systems).
To begin the discussion of contemporary issues in international business, macro-economic and
political changes in the last 30 years are reviewed.
Information technology and other technological innovations have put global markets within the
reach of even small firms in remote locations. Yet, in spite of all its benefits, globalization has an
underside. Critics point out its adverse effects, including those on developing nations.
The opening case explores the growth of medical tourism in the twenty-first century, spurred in
part by rising health care costs, a shortage of medical specialists, and the emergence of a global
health care marketplace. The closing case explores Boeing’s decision to outsource much of the
production of its 787 Dreamliner and the impact that this decision has had on manufacturing.
Outline OF CHAPTER 1: GLOBALIZATION
Opening Case: Medical Tourism and the Globalization of Health Care
Introduction
What Is Globalization?
The Globalization of Markets
The Globalization of Production
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Chapter 01 – Globalization
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
The Changing Foreign Direct Investment Picture
Country Focus: India’s Software Sector
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
Globalization, Jobs, and Income
Country Focus: Protesting Globalization in France
Globalization, Labor Policies, and the Environment
Globalization and National Sovereignty
Globalization and the World’s Poor
Managing in the Global Marketplace
Summary
Critical Thinking and Discussion Questions
Closing Case: Building the Boeing 787
CLASSROOM DISCUSSION POINT
Ask students to describe how international business has affected them in their day so
far. Ask them about who made the clothes they are wearing, what type of food they ate
for breakfast or lunch (muesli cereal, sushi, Italian-style coffee), what type of cell phone
they have and where it was made, where their car was designed and manufactured,
where the components for their computer were manufactured, and so on. Many students
will be surprised at just how often international business affects their daily lives. Some
will recognize that companies like Nissan have design facilities and manufacturing
operations in the United States, but will be surprised to learn that Sodexho, a cafeteria
operator for many universities, is a French company; or that many supermarket chains
have been acquired by foreign operators (Stop and Shop by the Dutch Ahold, Trader
Joe’s by the German Albrechts). The point to drive home is that our consumption
patterns are already very dependent on international business.
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Chapter 01 – Globalization
Next, ask students the why aspect of this issue: Why, for example, are so many of our
clothes made outside North America?
Finally, encourage students to think about the integrated world economy versus distinct
national economies by asking about the type of car they own. Drive the discussion
towards a consideration of whether talking about the nationality of a car makes sense. Is
a Mercedes Benz assembled in Alabama an American car? Is a Chevrolet assembled in
South Korea a Korean car? Volvo is now owned by Geely of China; Jaguar and Land
Rover, which had been part of Ford, are now owned by India’s Tata Motors; and BMW
owns Rolls-Royce. Are there any cars that are truly made in a single country?
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with
this instructor’s manual. The PPT slides include additional notes that can be viewed by
clicking on “view,” then on “notes.” The following provides a brief overview of each
Power Point slide.
Slide 1-3 What Is Globalization?
Globalization is a shift toward a more integrated and interdependent world economy.
Globalization has two components: the globalization of markets and the globalization of
production.
Slides 1-4 and 1-5 Globalization of Markets?
In many markets the emergence of a global marketplace has begun to occur. There are
three causes: falling barriers to cross-border trade have made it easier to sell
internationally; consumer tastes and preferences are converging on some global norm
helping to create a global market; and firms are facilitating the trend by offering
standardized products worldwide creating a global market.
Slide 1-6 Globalization of Production
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 labor, energy, land, and capital). By doing
this, companies hope to lower their overall cost structure and/or improve the quality or
functionality of their product offering, thereby allowing them to compete more
effectively.
Slides 1-7 through 1-11 Emergence of Global Institutions
Globalization has created the need for institutions to help manage, regulate and police
the global marketplace. Institutions that have been created to help perform these
functions are the General Agreement on Tariffs and Trade (GATT), the World Trade
Organization (WTO), the International Monetary Fund (IMF), the World Bank, and
the United Nations (UN), and the G20.
Another Perspective: A comprehensive overview of GATT is available at
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Chapter 01 – Globalization
{http://www.ciesin.org/TG/PI/TRADE/gatt.html}.
The World Trade Organization (WTO) is primarily responsible for policing the world
trading system and making sure nation-states adhere to the rules laid down in trade
treaties. The International Monetary Fund (IMF) was created to maintain order in
the international monetary system and the World Bank was set up to promote economic
development. The United Nations (UN) was created to preserve peace through
international cooperation.
Another Perspective: The World Trade Organization maintains an excellent web site at
{http://www.wto.org/}. This site provides information about recent trade disputes, “hot”
areas of international trade, and the status current talks.
Slide 1-12 Drivers of Globalization
The two macro factors underlie the trend towards greater globalization: the decline in
the barriers to free flow of goods, services, and capital; and technological change in
communications, information processing, and transportation technologies.
International trade occurs when a firm exports goods or services to consumers in
another country.
Foreign direct investment (FDI) occurs when a firm invests resources in business
activities outside its home country.
Slides 1-13 through 1-15 Globalization and Firms
The lowering of trade barriers made globalization of markets and production a
theoretical possibility, technological change made it a tangible reality. Managers today
operate in an environment that offers more opportunities, but is also more complex and
competitive than that of a generation ago.
Slides 1-16 through 1-18 The Changing World Output and World Trade Picture
In the 1960s: the U.S. dominated the world economy and the world trade picture, U.S.
multinationals dominated the international business scene, and about half the world—
the centrally planned economies of the communist world—was off limits to Western
international business.
Slides 1-19 through 1-21 The Changing Foreign Direct Investment Picture
The share of world output generated by developing countries has been steadily
increasing since the 1960s. There has been a sustained growth in cross-border flows of
foreign direct investment.
Slide 1-22 What Is A Multinational Enterprise
A multinational enterprise is any business that has productive activities in two or more
countries.
Slide 1-23 The Changing World Order
The collapse of communism in Eastern Europe represents a host of export and
investment opportunities for Western businesses. The economic development of China
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Chapter 01 – Globalization
presents huge opportunities and risks, in spite of its continued Communist control.
Mexico and Latin America also present tremendous new opportunities both as markets
and sources of materials and production
Slide 1-24 Think Like a Manager
Hisense CEO Zhou Houjian led his company to become one of China’s top-selling
electronics manufacturers using a strategy of rapid innovation and low-cost
manufacturing. If you were given the chance to run a leading electronics company,
would you use a similar approach to grow your brand? Or would you devote more time
to research and development and produce fewer products at a higher price point?
Slide 1-25 The Global Economy of the Twenty-First Century
Firms should be aware that while the more integrated global economy presents new
opportunities, it also could result in political and economic disruptions that may throw
plans into disarray
Slide 1-26 The Globalization Debate
Is the shift toward a more integrated and interdependent global economy a good thing?
Anti-globalization protesters now turn up at almost every major meeting of a global
institution. Protesters fear that globalization is forever changing the world in a negative
way.
Slide 1-27 Globalization, Jobs, and Income
Critics of globalization worry that jobs are being lost to low-wage nations.
Supporters of globalization argue that free trade will result in countries specializing in
the production of those goods and services that they can produce most efficiently, while
importing goods and services that they cannot produce as efficiently.
Slide 1-28 Globalization, Labor Policies, and the Environment
Critics of globalization argue that that free trade encourages firms from advanced
nations to move manufacturing facilities offshore to less developed countries with lax
environmental and labor regulations.
Supporters of free trade point out that tougher environmental regulation and stricter
labor standards go hand in hand with economic progress and that foreign investment
often helps a country to raise its standards.
Slide 1-29 Globalization and National Sovereignty
Critics of globalization worry that 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.
However, supporters of globalization contend that the power of these organizations is
limited to what nation-states agree to grant, and that the power of the organizations lies
in their ability to get countries to agree to follow certain actions.
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Chapter 01 – Globalization
Another Perspective: To explore economic freedom and globalization, go to The Fraser
Institute’s Economic Freedom of the World Report at {www.freetheworld.com}.
Slide 1-30 Globalization and the World’s Poor
Critics of globalization argue that the gap between rich and poor has gotten wider and
that the benefits of globalization have not been shared equally.
Supporters of free trade suggest that the actions of governments have made limited
economic improvement in many countries.
Slide 1-31 Managing in the Global Marketplace
Managing an international business (any firm that engages in international trade or
investment) is different from managing a domestic business because countries differ,
managers face a greater and more complex range of problems, international companies
must work within the limits imposed by governmental intervention and the global
trading system, and international transactions require converting funds and being
susceptible to exchange rate changes.
Another Perspective: An interesting site for companies interested in exporting their
services is available at
{http://www.ita.doc.gov/td/sif/exporting_services_overseas.htm}.
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