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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.
