Chapter 01 – Globalization
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Globalization
Learning objectives
• Understand what is meant by the term
globalization.
• Describe the changing nature of the
global economy.
globalization.
• Understand how the process of
This chapter introduces the emergence of the
globally integrated business world.
Globalization has reduced the traditional
business systems).
To begin the discussion of contemporary
Information technology and other
technological innovations have put global
markets within the reach of even small firms
Critics point out its adverse effects,
including those on developing nations.
The opening case explores the growth of
German automaker BMW and how its focus
on the future has been instrumental to its
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OUTLINE OF CHAPTER 1: GLOBALIZATION
Opening Case: Globalization of BMW, Rolls-Royce, and the MINI
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 Order
The Global Economy of the Twenty-First Century
The Globalization Debate
Antiglobalization Protests
Globalization, Jobs, and Income
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Uber: Going Global from Day One
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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.
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 toward
a consideration of whether talking about the nationality of a car makes sense. Is a
Mercedes Benz assembled in Alabama with parts produced in Mexico a German 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?
OPENING CASE: Globalization of BMW, Rolls-Royce, and the MINI
Summary
The opening case explores the success of German automaker BMW. The company,
which sells cars, motorcycles, and aircraft engines, has a reputation for streamlined
quality and luxury. Selling about 2.4 million vehicles a year, BMW is a leader in the
global auto market. Much of BMW’s success can be attributed to its emphasis on being
innovative in every part of its business. One example of this is its “product genius” who
helps to ensure that customers are satisfied with their purchase and feel that their money
was well spent. In addition to its BMW brand, the company also owns the British brands,
Rolls-Royce and MINI, allowing it to target different parts of the market. Discussion of
the case can begin with the following questions:
QUESTION 1: Discuss the role of innovation as a key to BMW’s success. How does this
focus help position BMW for the future?
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ANSWER 1: BMW defines itself through its focus on innovation. Indeed, innovation is
integral to every part of the automaker’s day–to-day work, where there is always a goal of
QUESTION 2: Reflect on the changing dynamics of the global marketplace and the
implications of those changes for BMW.
ANSWER 2: The recent vote by the United Kingdom to leave the European Union is just
one example of the changing dynamics of the global economy. For companies like BMW
QUESTION 3: In addition to its BMW brand, the BMW Group owns two iconic British
brands, Rolls-Royce and MINI. Discuss the importance of these brands to BMW.
ANSWER 3: Most students will probably suggest that while the BMW brand is known
for its innovative, high-power technology, Rolls-Royce has a reputation of extreme
luxury and refinement, and MINI has an appealing mix of quirky fun. Together, these
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LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
clicking on “view,” then on “notes.” The following provides a brief overview of each
Power Point slide.
Slides 1-3 – 1-5 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.
Economist Robert Reich argues that because firms frequently outsource production,
products can now often be considered “global products.” However, firms are not always
able to produce in the optimal location because of formal and informal barriers to trade
between countries, barriers to foreign direct investment, transportation costs, issues
associated with economic and political risk, and the sheer managerial challenge of
coordinating a globally dispersed supply chain.
Slides 1-6 – 1-12 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, the
United Nations (UN), and the G20.
international monetary system, and the World Bank was set up to promote economic
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development. The United Nations (UN) was created to preserve peace through
international cooperation. The Group of Twenty (G20) is comprised of the finance
areas of international trade, and the status current talks.
Slides 1-12 – 1-17 Drivers of Globalization
These two macro factors underlie the trend toward 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.
Knowledge Society and Trade Agreements
The pressure from customers to make available any goods and services anywhere for
their needs and wants has been facilitated by country governments removing restrictions
on imports to their countries. However, declining barriers to cross-border trade and
investment cannot be taken for granted.
Slides 1-18 – 1-25 The Changing Demographics of the Global Economy
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.
The share of world output generated by developing countries has been steadily increasing
since the 1960s, while developed countries including the United States, Canada, and
several European countries have seen a relative decline. If current growth trends
continue, China’s economy could be larger than that of the United States by 2030.
There has been a sustained growth in cross-border flows of foreign direct investment.
Developing nations, especially China, have been the recipients of much of the
investment.
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A multinational enterprise is any business that has productive activities in two or more
countries. In the 1960s, U.S. multinationals dominated the global marketplace, but by
2017, that share had dropped as multinationals from other countries, including
developing economies, have emerged as significant players. The global landscape is also
changing with the rise of mini-multinationals.
The economic development of China presents huge opportunities and risks, in spite of its
continued Communist control. And, while Mexico and Latin America also present
tremendous new opportunities both as markets and sources of materials and production,
Bolivia, Ecuador, and Venezuela have all seen an increase in state involvement in the
past few years and are less welcoming of foreign investment.
Slides 1-25 – 1-33 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
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.
helps a country to raise its standards.
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.