978-1337406826 Chapter 1 Lecture Notes

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Chapter 1: Globalizing Business
Chapter 1
Globalizing Business
Learning Objectives
After studying this chapter, students will be able to accomplish the following objectives:
1. Explain the concepts of international business and global business.
2. Give three reasons why it is important to study global business.
3. Articulate the fundamental question that the study of global business seeks to answer and
the two perspectives from which to answer it.
4. Identify three ways of understanding what globalization is.
5. Appreciate the size of the global economy and the strengths of multinationals.
6. Understand the organization of this book.
Chapter Summary
Global business, or international business, is one of the most exciting, challenging, and relevant
subjects offered by business schools today. Chapter 1 of GLOBAL, Globalizing Business, begins
with a discussion of what global business is. The chapter then gives an overview of the global
economy, focusing on the Triad of North America, Western Europe, and Japan, as well as on
emerging countries. Next, the chapter presents a unified framework for the study of global
business centered on a single question: What determines the success and failure of firms around
the globe? The chapter then introduces the institution- and resource-based views that shape the
answers to this question that solidify throughout the remainder of the text. The chapter then
introduces three different views on globalization and explains why the globalization debate
matters. Finally, Chapter 1 outlines the organization of the book into three overarching parts—
foundations, tools, and managing.
Opening Case Discussion Guide
Shanghai Disneyland
On June 16, 2016, the world’s biggest Disneyland opened in Shanghai with a great deal of
fanfare. Approximately 80 percent of the Shanghai rides, such as the Tron lightcycle roller
coaster, are unique. Chinese elements are extensively found. More than 330 million people live
within a three-hour drive or train ride. Disney is eager to turn them into lifelong customers not
only for the $5.5-billion theme park, but also for movies, games, toys, clothes, books, TV
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Chapter 1: Globalizing Business
programs, cruises, and resorts.
Mickey’s journey to the Middle Kingdom has been a tortuous one. The two-decade courtship
started in the late 1990s, when Jiang Zemin was president of China and Michael Eisner chairman
and CEO of Disney. Eisner then introduced Iger, Disney’s international president at that time, to
be in charge of negotiations for a theme park. The negotiations were slow and painful. By 2009,
the Chinese government finally gave its blessing, but only after Disney agreed to be a minority
partner.
Disney took a 43 percent stake in the Shanghai Disney Resort. Disney’s joint venture (JV)
partner, the state-owned Shanghai Shendi Group controlled by the Shanghai government, owned
a 57 percent stake. Why was Disney so eager to go to China? While China’s pull in terms of
market size and potential is obvious, Disney is also pushed by its lackluster performance in other
areas such as cable, movies, and some of its other theme parks.
For Shanghai Disneyland, the attention to detail was meticulous. When first unveiled in March
2016, Shanghai Disneyland’s website registered five million hits within 30 minutes. The first two
weeks of tickets sold out in hours. Yet as Shanghai Disneyland celebrated its first Chinese New
Year in January 2017, disappointing news came. In its first six months ending on December 31,
2016, 5.6 million guests came. Although impressive, these numbers fell far short of rosy initial
projections of an estimated 15 million visitors for the first year. If attendance continued at its
current pace, then the first full-year result would barely reach over 10 million. As the Magic
Kingdom embarks on its residence in the Middle Kingdom, one thing is clear: this China
business is not going to be Mickey Mousy.
Lesson Plan for Lecture
Brief Outline and Suggested PowerPoint Slides
Learning Objectives PowerPoint Slides
Learning Objectives Overview 2: Learning Objectives
LO1
Explain the concepts of international
business and global business.
3: Global Business Concepts
4–5: Emerging Markets (Emerging
Economies)
6: Exhibit 1.1: The Global Economic
Pyramid
LO2
Give three reasons why it is important to
7: Exhibit 1.2: Why Study Global
Business?
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Chapter 1: Globalizing Business
study global business.
LO3
Articulate the fundamental question that
the study of global business seeks to
answer and two perspectives from which to
answer it.
8: Exhibit 1.4: A Unified Framework for
Global Business
9: Institution-Based View
10–11: Resource-Based View
LO4
Identify three ways of understanding what
globalization is.
12: Advantages of Globalization
13: Disadvantages of Globalization
14: Views on Globalization
15–16: Pendulum View of Globalization
17: Semiglobalization
18: Semiglobalization Strategies
LO5
Appreciate the size of the global economy
and the strengths of multinationals.
19: Exhibit 1.7: Recent Changes in the
Fortune Global 500
20: Organization of the Book
Key Terms 21–22: Key Terms
Summary 23–24: Summary
Chapter Outline
LO1: Explain the concepts of international business and global business.
1. Key Concepts
Traditionally, international business (IB) is defined as a business (firm) that engages in
international (cross-border) economic activities. It can also refer to the action of doing
business abroad. There are two key words in IB: international (I) and business (B). However,
previous textbooks all focus on the international aspect (the foreign entrant) to the extent
that the business part (which also includes domestic business) almost disappears. To cover
both the I and B parts, global business is defined in this book as business around the globe—
thus the title of this book: GLOBAL. For the B part, the activities include both international
(cross-border) activities covered by traditional IB books and domestic (non-IB) business
activities. Such deliberate blurring of the traditional boundaries separating international and
domestic business is increasingly important today, because many previously national
(domestic) markets are now globalized. GLOBAL also differs from other IB books because
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Chapter 1: Globalizing Business
most focus on competition in developed economies. Here, by contrast, the authors devote
extensive space to competitive battles waged throughout emerging economies, a term that
has gradually replaced the term “developing countries” since the 1990s.
2. Key Terms
LO2: Give three reasons why it is important to study global business.
1. Key Concepts
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Chapter 1: Globalizing Business
2. Key Terms
Expatriate Manager (expat): A manager who works outside his or her native country
International premium: A significant pay raise commanded by expatriates when
working overseas
LO3: Articulate the fundamental question that the study of global business seeks to answer
and the two perspectives from which to answer it.
1. Key Concepts
2. Key Terms
Institution: Formal and informal rules of the game
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Chapter 1: Globalizing Business
3. Discussion Exercise
LO4: Identify three ways of understanding what globalization is.
1. Key Concepts
Globalization, generally speaking, is the close integration of countries and peoples of the
world. This section outlines three views on globalization, recommends the pendulum view,
and introduces the idea of semiglobalization.
2. Key Terms
LO5: Appreciate the size of the global economy and the strengths of multinationals.
1. Key Concepts
The global economy in 2015 was an approximately $75-trillion economy (total global GDP
calculated at official, nominal exchange rates—alternatively, $110 trillion on a PPP basis).
One frequent observation in the globalization debate is the enormous size and power of
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Chapter 1: Globalizing Business
2. Discussion Exercise
On September 23, 2009, a group of protesters from the Non-Governmental Organization
(NGO) Greenpeace hung an enormous banner off of Pittsburgh’s West End Bridge that read
“Danger: Climate Destruction Ahead. Reduce CO2 Emissions Now.” This act was part of
wide-scale protests that took place in the city in anticipation of the G20 summit. Greenpeace
called on G20 leaders to “put money on the table to support developing countries” and to
“agree to kick-start economic recovery through clean energy investment.” How would one,
as a proponent of global business, respond to these protests? What is the role of global
business in the development of emerging economies and in resolving environmental issues?
(Source: “Greenpeace Activists Greet G20 Leaders with Massive Banner on the West End Pittsburgh Bridge”
http://www.greenpeace.org/usa/news/greenpeace-activists-greet-g20/)
LO6: Understand the organization of this book.
1. Key Concepts
This book has three parts. Part 1 is foundations. Part 2 covers tools, focusing on trade,
foreign investment, foreign exchange, and global and regional integration. Part 3 focuses on
managing around the world.
Debate: Ethical Dilemma
Are U.S. Multinationals Good for America?
1. Key Concepts
Most debates on multinational enterprises (MNEs) around the world focus on their impact
on host countries that receive foreign direct investment (FDI). Recent debates highlight the
role of home-grown MNEs in the U.S. economy itself. On the positive side, U.S. MNEs are
productive, innovative, employing more skilled workers, and paying higher wages—at least
6 percent more than non-MNEs in the United States. On the non-positive side, in the past
decade U.S. MNEs have been decoupling from the U.S. economy. U.S. MNEs are also
increasingly shy about paying U.S. taxes.
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Chapter 1: Globalizing Business
Closing Case Discussion Guide
Two Scenarios of the Global Economy in 2050
Focusing on the future of the global economy, two scenarios have emerged with a view toward
2050. Known as “continued globalization,” the first scenario is a rosy one. Spearheaded by
Goldman Sachs, whose chairman of its Asset Management Division, Jim O’Neil, coined the term
“BRIC” nearly two decades ago, this scenario suggests that—in descending order—China, the
United States, India, Brazil, and Russia will become the largest economies by 2050 (Exhibit 1.8).
Goldman Sachs’s predictions have been largely supported by other influential forecasting
studies. Underpinning this scenario of “continued globalization” are three assumptions: (1)
emerging economies as a group will maintain strong (albeit gradually reduced) growth; (2)
geopolitical events and natural disasters (such as climate changes) will not create significant
disruption; and (3) regional, international, and supranational institutions continue to function
reasonably.
The second scenario can be labeled “de-globalization.” It is characterized by (1) prolonged
recession, high unemployment, droughts, climate shocks, disrupted food supply, and conflicts
over energy (such as “water wars”) on the one hand; and (2) public unrest, protectionist policies,
and the unraveling of certain institutions that are taken for granted (such as the EU and NAFTA)
on the other hand. As protectionism rises, global economic integration suffers. The upshot? Weak
economic growth around the world. While global de-integration would harm economies
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Chapter 1: Globalizing Business
worldwide, regional de-integration would harm countries of Europe, especially those outside a
likely residual core of the EU. Brexit will make Britain a weaker economy. Unable to keep
growing sustainably, BRIC may become “broken bricks” and may fail to reach their much-hyped
potential.
In both scenarios, one common prediction is that global competition will heat up. Competition
under the “de-globalization” scenario would be especially intense since the total size of the “pie”
will not be growing sufficiently (if not negatively). Competition under the “continued
globalization” scenario would also be intense, but in different ways. The hope is that a rising
“tide” may be able to lift “all boats.”
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