978-1305500891 Chapter 1 Lecture Note

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CHAPTER 1

GLOBALIZING BUSINESS

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. explain the concepts of international business and global business, with a focus on

emerging economies.

2. give three reasons why it is important to study global business.

3. articulate one fundamental question and two core perspectives in the study of global

business.

4. identify three ways of understanding what globalization is.

5. state the size of the global economy and its broad trends and understand your likely bias

in the globalization debate.

GENERAL TEACHING SUGGESTIONS

Begin with motivation: help students see how the course relates to them regardless of whether

they are convinced that they will never be involved in international business. (That concept

should be challenged by pointing out that even if they work for a company that does business

only in the local area, the company could be acquired by a foreign-owned firm. If they work for a

local government, they might eventually need to work with foreign-controlled contractors and

firms that serve that government entity.) Help them to see applications to the goods and services

they buy and the nation’s economy. Suggestion: break the class up into groups that are given the

task of showing the relevance of the course in a variety of situations.

OPENING CASE DISCUSSION GUIDE

Emerging Markets: The Rebirth of the East India Company can be used to help students

understand how global businesses have changed over time. The original East India Company was

a colonial trading company that introduced products from a far-away, exotic location to Great

Britain. The company was relaunched in 2005 as a business that was “born global” and intended

to expand to even more markets.

CHAPTER OUTLINE: KEY CONCEPTS AND TERMS

Sections I through VI of Chapter 1

I. WHAT IS GLOBAL BUSINESS?

1. Key Concept

International business is typically defined as (1) a business (firm) that engages in

international (cross-border) economic activities and (2) the action of doing business

abroad. Global business is defined in this book as business around the globe. This book

goes beyond competition in developed economies. It devotes extensive space to

competitive battles waged in emerging economies and the base of the global economic

pyramid.

2. Key Terms

Base of the pyramid (BoP) is economies where people make less than US$2,000

per capita per year.

BRIC stands for Brazil, Russia, India, and China.

BRICS stands for Brazil, Russia, India, China, and South Africa.

Emerging economies (emerging markets) are countries that are starting to emerge

as new players in the world economy.

Foreign direct investment (FDI) is direct investment in, controlling, and managing

value-added activities in other countries.

Global business is defined in this book as business around the globe. The activities

include both (1) international (cross-border) business activities covered by traditional

IB books and (2) domestic business activities.

Great Transformation is the transformation of the global economy that is embodied

by the tremendous shift in economic weight and engines of growth toward emerging

economies in general and BRIC(S) in particular.

Gross domestic product (GDP) is the sum of value added by resident firms,

households, and governments operating in an economy.

Gross national product (GNP) is GDP plus income from nonresident sources

abroad.

Gross national income (GNI) is GDP plus income from nonresident sources abroad.

International business (IB) is defined as (1) a business firm that engages in

international (cross border) economic activities and/or (2) the action of doing

business abroad.

Multinational enterprise (MNE) is defined as a firm that engages in foreign direct

investment by directly investing in, controlling, and managing value-added activities

in other countries.

Purchasing power parity (PPP) is an adjustment to reflect the differences in cost of

living in various countries.

Reverse innovation is an innovation that is adopted first in emerging economies and

is then diffused around the world.

Triad refers to North America, Western Europe, and Japan.

II. WHY STUDY GLOBAL BUSINESS?

1. Key Concept

Reasons for reading this book and taking this course: to better compete in the corporate

world that will require global expertise and to enhance your understanding of what is

going on in the global economy.

2. Key Terms



Expatriate Manager (expat) is a manager who works abroad.



Group of 20 (G-20) is the group of 19 major countries plus the European Union

(EU) whose leaders meet on a biannual basis to solve global economic problems.



International premium is a significant pay raise when working overseas.

III. A UNIFIED FRAMEWORK

1. Key Concept

Our most fundamental question is: What determines the success and failure of firms

around the globe? The two core perspectives are (1) the institution-based view and (2)

the resource-based view. We develop a unified framework by organizing materials in

every chapter according to the two perspectives guided by the fundamental question.

2. Key Terms

Institution based view suggests that the success and failure are enabled and

constrained by institutions.

Institutions are the rules of the game. Formal institutions include laws, regulations,

and rules. Informal institutions include cultures, ethics, and norms.

Liability of foreignness is the inherent disadvantage that foreign firms experience in

host countries because of their nonnative status.

Resource-based view focuses on a firm’s internal resources and capabilities.

IV. WHAT IS GLOBALIZATION?

1. Key Concept

Some view globalization as a recent phenomenon, and others believe that it is a

one-directional evolution since the dawn of human history. We suggest that globalization

is best viewed as a process similar to the swing of a pendulum.

2. Key Terms

Globalization is the close integration of countries and peoples of the world.

Risk management is the identification and assessment of risk and the preparation to

minimize the impact of high-risk, unfortunate events.

Scenario planning is a technique to prepare and plan for multiple scenarios (either

high- or low-risk scenarios).

Semiglobalization is a perspective that suggests that barriers to market integration at

borders are high, but not high enough to insulate countries from each other

completely.

V. GLOBAL BUSINESS AND GLOBALIZATION AT A CROSSROADS

1. Key Concept

A basic understanding of the global economy is necessary. It is important to critically

examine your own personal views and biases regarding globalization.

2. Key Term

Nongovernmental organization (NGO) is an organization that is not affiliated with

governments.

VI. ORGANIZATION OF THE CONTENT

1. Key Concepts

Part I is foundations. This part contains an overview of international business and the

two leading perspectives—institution- and resource-based views.

Part II covers tools. This involves trade, foreign investment, foreign exchange, and

global and regional integration.

Part III covers strategy. This includes internationalization of small, entrepreneurial

firms, ways to enter foreign markets, management of competitive dynamics, alliances

and acquisitions, and strategizing, structuring, and learning.

Part IV builds excellence in different functional areas. The areas include marketing

and supply chain, human resource management, finance and corporate governance,

and corporate social responsibility.