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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

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?

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

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

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

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

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.

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

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.”