978-1259929441 Chapter 1 Part 2

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Chapter 01 – Globalization

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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.

Another Perspective: To explore economic freedom and globalization, go to The Fraser

Institute’s Economic Freedom of the World Report at {www.freetheworld.com}.

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 1-34 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.

CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 1: Describe the shifts in the world economy over the last 30 years. What are

the implications of these shifts for international businesses based in Great Britain? North

America? Hong Kong?

ANSWER 1: Over the last 30 years, there has been a shift away from a world in which

national economies are relatively self-contained entities, isolated by barriers to trade and

investment, and differences in government regulation, culture, and business systems and

toward a world where barriers to trade and investment are declining, cultures are

converging, and national economies are merging into an integrated, interdependent global

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within China. International businesses based in all three locations are facing new

opportunities and threats.

QUESTION 2: Evaluate this statement: “The study of international business is fine if you

are going to work in a large multinational enterprise, but it has no relevance for

individuals who are going to work in small firms.”

ANSWER 2: Globalization is changing the world economy. Firms, even small ones, can

no longer ignore events going on outside their borders because what occurs in one

QUESTION 3: How have changes in technology contributed toward the globalization of

markets and production? Would the globalization of markets and production have been

possible without these technological changes?

ANSWER 3: Technological change has made globalization a reality. Major advances in

communication, information processing, and transportation have brought countries of the

world closer together. The development of the microprocessor is perhaps the single, most

QUESTION 4: Evaluate this statement: “Ultimately, the study of international business is

no different from the study of domestic business. Thus, there is no point in having a

separate course on international business.”

ANSWER 4: There are at least four reasons why studying international business is

important. First, countries are different; and managers must understand the reasons for

the differences and their implications for business. Second, the range of problems

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international transactions involve converting money into different currencies. Managers

who fail to appreciate these basic differences greatly increase their chance for failure.

QUESTION 5: How does the Internet affect international business activity and the

globalization of the world economy?

ANSWER 5: Internet usage has exploded over the last two decades. In 1990, there were

fewer than 1 million people connected to the Internet. By 2017 that figure had risen to

more than 3.8 billion, some 51 percent of the global population! One of the biggest

QUESTION 6: If current trends continue, China may emerge as the world’s largest

economy by 2030. Discuss the possible implications for such a development for (a) the

world trading system; (b) the world monetary system; (c) the business strategy of today’s

European- and U.S.-based global corporations; and (d) global commodity prices.

ANSWER 6: China is continuing to move toward greater free market reforms, and if it

stays on its present track, could become an industrial superpower in the near future.

While the United States is still the world’s largest economy, in 2018, China became the

QUESTION 7: Reread the Management Focus on Boeing and answer the following

questions:

a. What are the benefits to Boeing of outsourcing manufacturing of components for the

Boeing 787 to firms based in other countries?

b. What are the potential costs and risks to Boeing of outsourcing?

c. In addition to foreign subcontractors and Boeing, who else benefits from Boeing’s

decision to outsource component-part manufacturing assembly to other nations? Who are

the potential losers?

d. If Boeing’s management decided to keep all production in America, what do you think

the effect would be on the company, its employees, and the communities that depend on

it?

e. Do you think that the kind of outsourcing undertaken by Boeing is a good thing or a

bad thing for the American economy? Explain your reasoning.

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ANSWER 7:

a. Student answers will vary. In some respects, outsourcing to overseas suppliers

probably keeps company and consumer costs down, allowing Boeing to spend more

b. Many of the costs and risks associated with outsourcing were underscored by Boeing’s

experience with the 787. Boeing lost much of the control it once had over the complex

c. By awarding many manufacturing contracts to overseas suppliers, Boeing created

thousands of jobs in foreign countries—jobs that would normally be held by workers in

d. Boeing faced extensive criticism in the United States for its decision to outsource jobs

overseas, particularly after the 787 project began to experience setbacks. By bringing

production back to the United States, Boeing would benefit from positive publicity and

e. There are several reasons that Boeing decided to outsource manufacturing to foreign

firms. First, many of the firms are located in countries that are home to major airlines,

and awarding large contracts to businesses in these countries may result in airlines

CLOSING CASE: Uber: Going Global from Day One

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Summary

The closing case explores the global strategy of ride-for-hire, Uber. From its inception,

Uber has focused on developing market share in large metropolitan areas around the

world. Critics have argued that Uber’s attempt to use the same business model in all

markets may have hurt the start-up though, as the company has been banned from

operating in markets like Brussels and Delhi. A discussion of the case can begin with the

following questions:

QUESTION 1: Companies like Uber, Lyft (one of Uber’s main competitors), and Airbnb

(an online marketplace that enables people to lease or rent short-term lodging) are

innovating in fields that traditionally have been very complex and regulated. Can Uber’s

business model be applied in other industries globally?

ANSWER 1: Responses to this question will vary by student; however, many will

probably suggest that indeed there is room for this type of business model in other

QUESTION 2: Are cities around the world doing a disservice to citizens or visitors, or

both, by banning it outright from operating in their community?

ANSWER 2: This question will probably generate significate debate as students will

probably have various opinions on this issue. Some may suggest governments have no

QUESTION 3: Uber’s strategy has been to break these regulations, establishing its

service first, and then fighting attempts by regulators to shut the service down. This goes

along with the old saying, “do first, ask questions later.” Is this business approach viable

globally in the long run?

ANSWER 3: Responses to this question will vary by student. Some will argue that

Uber’s sometimes combative approach to entering markets does the company a disservice

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which are important to future success. Still other students may admire Uber for changing

the way consumers think about transportation, but question the company’s long term

strategy pointing out that Uber’s brash approach could be costly going forward if local

regulators, knowing the company’s reputation, refuse to bargain and simply ban the

company as they did in Delhi and Brussels.

Another Perspective: Students can find out more about Uber at

{https://hbr.org/2017/06/uber-cant-be-fixed-its-time-for-regulators-to-shut-it-down}.

MHE International Business Video Library

Please click here to visit our International Business Video Library which provides an

ongoing stream of updated video suggestions correlated by key concept and major topic.

Every new clip posted is supported by teaching notes and discussion questions. Please

feel free to leave comments in the library that you feel might be helpful to your

colleagues.

INCORPORATING globalEDGE™ EXERCISES

Use the globalEDGE™ site {globaledge.msu.edu/} to complete the following exercises:

Exercise 1

As the drivers of globalization continue to pressure for both the globalization of markets

and the globalization of production, we continue to see the impact of greater globalization

on worldwide trade patterns. HSBC, a large global bank, analyzes these pressures and

trends to identify opportunities across markets and sectors through its trade forecasts.

Visit the HSBC Global Connections site and use the trade forecast tool to identify which

export routes are forecasted to see the greatest growth over the next 15 to 20 years. What

patterns do you see? What types of countries dominate these routes?

Exercise 2

You are working for a company that is considering investing in a foreign country.

Investing in countries with different traditions is an important element of your company’s

long-term strategic goals. As such, management has requested a report regarding the

attractiveness of alternative countries based on the potential return of FDI. Accordingly,

the ranking of the top 25 countries in terms of FDI attractiveness is a crucial ingredient

for your report. A colleague mentioned a potentially useful tool called the Foreign Direct

Investment (FDI) Confidence Index. The FDI Confidence Index is a regular survey of

global executives conducted by A.T. Kearney. Find this index and provide additional

information regarding how the index is constructed.

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Exercise 1 Answer

Search phrase: trade forecasts or HSBC Global Connections

Resource Name: HSBC Global Connections

Website: https://globalconnections.hsbc.com/us/en

globalEDGE™ Category: Globalization

Additional Info:

Once on the HSBC Global Connections website, the Trade Forecast Tool can be found

under the Tools & Data section of the site. It’s an interactive chart, where you can see the

trade routes that are forecasted to exhibit the largest annual growth over the next several

years.

Exercise 2 Answer

Search phrase: FDI Confidence Index

Resource Name: A.T. Kearney: Foreign Direct Investment Confidence Index

Website: http://globaledge.msu.edu/global-resources/rankings

globalEDGE™ Category: Rankings

Additional Info:

This ranking study, published regularly since 1998 surveys over 300 hundred executives

from multinationals with more than $500 million in revenues from 28 countries. The

Index is calculated as a weighted average of the number of high, medium, and low

responses to questions about the likelihood of direct investment in a market over the next

three years. Index values are based on non-source-country responses (so the rating for

India does not include responses from Indian multinationals).

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