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For use with Peng and Meyer, International Business 3e, 9781473758438, © Cengage Learning

EMEA 2019 1

Instructor Manual

Chapter 1: Globalizing Business

(Prepared by Klaus E. Meyer, March 2019)

Introduction to the Topic

Learning Objectives

1. Explain the concept of international business (IB)

2. Articulate what you hope to learn by reading this book and taking this course

4. Participate in the debate on globalization with a reasonably balance and realistic view

6. Draw implications for action by integrating global and local knowledge

General Teaching Suggestions

This chapter is essentially about motivating students engage with the complex topic of

international business, to point to the complexities and challenges – as well as to the

opportunities that arise for those who can engage in business beyond their national borders. It

initiates many of the core themes that run through the book: one core question – two

theoretical perspectives (resource- and institution-based); the importance of emerging

economies – and of Europe; and the debates around globalization.

The most suitable starting point to engage in this topic depends on the nature and experience

of the students in your class. I usually start with asking students to introduce themselves, and

their international experience in particular. In larger classes, I ask questions that students

reply to by show of hands. For example, in my most recent MBA class, I asked, “how many

of you have work experience in a country other than where you grew up”, and 1/3 raised their

hands. The more you know your students, the better you can draw on their experience – in

business, or in living in different countries – to make various topics and cases throughout the

book become alive.

The third edition builds on the second edition; instructors who has used the earlier editions

will find few adjustments needed. However, the third edition puts a somewhat stronger

emphasis on policy dimensions of IB (e.g. related to the Brexit discussions) and on e-

businesses, both of which are expected by students of IB these days.

Opening Case Discussion Guide

The opening case about adidas’s supply chain is about coming to terms with the complexity

of international business. Focusing on one company that many students will be familiar with,

the case illustrates the global nature of a) their customer base, b) their supplier network, c)

their operations, and, as a consequence, d) the stakeholders taking an interest in their

activities, and thus creating pressures for ‘socially responsible’ business. These themes will

take taken up at various places throughout this course.

To get a discussion going, you may ask your students how many would choose adidas as a

brand for their shoes or clothing, and why? What capabilities does adidas need to build this

global network? Why does their work on labour standards matter? This discussion will lead

(1) A business (firm) that engages in international (cross-border) economic activities and/or (2) the

action of doing business abroad.

multinational enterprise (MNE)

A firm that engages in foreign direct investments and operates in multiple countries.

foreign direct investment (FDI)

Investments in, controlling, and managing value-added activities in other countries.

emerging economies (emerging markets)

Economies that only recently established institutional frameworks that facilitate international trade and

investment, typically with low or middle level income and above average economic growth

BRIC

Brazil, Russia, India and China.

gross domestic product (GDP)

The sum of value added by resident firms, households, and governments operating in an economy.

gross national product (GNP)

Gross domestic product plus income from non-resident sources abroad.

gross national income (GNI)

GDP plus income from non-resident sources abroad. GNI is the term used by the World Bank and other

international organizations to supersede the term GNP.

purchasing power parity (PPP)

A conversion that determines the equivalent amount of goods and services different currencies can

purchase. This conversion is usually used to capture the differences in cost of living in different

countries.

Section 2: Why study International Business?

Key Ideas

This section emphasizes the career opportunities that open up to students capable of engaging

in international business. As an anecdote, this is a place where I changed the message from

the American text – rather than great opportunities in distant countries, in Europe you can’t

get away from international business if you want to engage in any business of a decent size.

Key Concepts

expatriate assignment

A temporary job abroad with a multinational company

Section 3: A Unified Framework

Key Ideas

The unified framework introduced in this section – see Figure 1.3 – provides a simple

structure that ties the various chapters together. While it may be very simple, I suggest you

spend a few minutes on explaining it because it helps students seeing the common themes

running through the book: One question ‘what determined the success of failure of firms

around the globe; Two core perspectives: an institution-based view (formal and informal

rules of the game) and a resource-based view (firm-specific resources and capabilities)

Key Concepts

Most concepts relating to the two views are formally introduced in chapters 2, 3, and 4. Here

we introduce only one concept which may instructors also will find new. You may be more

familiar ‘liability of foreignness’ from Johansen and Vahlne (1977). Yet, we have decided to

move forward and adopt the new broader concept from their 2009 paper, winner of the 2019

JIBS Decade Award (also see Fig 1.4):

liability of outsidership

the inherent disadvantage that outsiders experience in a new environment because of their lack of

familiarity

Section 4: Understanding Globalization

Key Ideas

This section introduces the notion of globalization and what different people associate with

the word. On this basis, you may then discuss how best to define the word ‘globalization’ –

for which we propose a definition by Mauro Guillen.

Another important discussion in this section concerns the historical context. A common

fallacy of globalization debates is to suggest that everything is new. Some things are new,

other aren’t. Students tend to find it difficult to see their own life experience in a historical

context – the benefit of being young. So, instructors talking from experience help setting

things into perspective. In the classroom, I often find it helpful to confront students with

historical maps obtained from the internet that illustrate a very different structure of the

global economy. In line with In Focus 1.2, this map may depict the world economy of the

year 1900.

Alternatively, I also find it very instructive to present a map of Zheng He’s journeys in the

early 1400 – well before Christopher Columbus ‘discovered’ America some 70 years later

using a much smaller ship, the Santa Maria.

The other relatively new theme in globalization is the rise of emerging economies, which

raises issues from the ‘bottom of the pyramid’ (Figure 1.5) to ‘new patterns of global

innovation’ (In Focus 1.3). You can extend the discussion on GE and its innovations in India

by playing a video interview of Prof Vijai Govindarayan with the The Economist in which he

mentions GE as leading example:

http://www.facebook.com/video/video.php?v=453101145816&ref=mf. The interview also

For use with Peng and Meyer, International Business 3e, 9781473758438, © Cengage Learning

EMEA 2019 6

The identification and assessment of risks and the actions taken to minimize their impact.

Section 5: A Glance at the Global Economy

Key Ideas

The main purpose of this section is to introduce a few ‘big names’ in terms of both countries

and companies. These are the big players in the global economy, and what they do or say

matters. Instructors could quiz students on various items in these tables to challenge their

curiosity.

Moreover, you should set your (the students’) own country into perspective of other

countries. One instructive exercise is to compare the size of your own country (by population

or by GDP) to Chinese provinces or Indian states. I am writing these notes in Shanghai, a city

of 23 to 27 million inhabitants – that is more than Romania or Australia.

Data to make such a comparison for classroom use can be found on Wikipedia:

• https://en.wikipedia.org/wiki/Provinces_of_China

• https://en.wikipedia.org/wiki/States_and_union_territories_of_India

• https://en.wikipedia.org/wiki/List_of_countries_and_dependencies_by_population

Here is a trivia question to get students to consult their maps: How many Chinese Provinces /

Indian States / EU member states have more than 90 million inhabitants? Answer: three

(Guandong, Shandong and Henan)/ four (Uttar Pradesh, Maharashtra, Bihar & West Bengal) /

none (Germany only has 81 million people, Russia has 146 million but is not in the EU).

Key Concepts

None.

Section 6: Implications for Practice

Key Ideas

This is the first ‘implications for practice’ section that you will find at the end of each

chapter. These challenge students to think beyond the material presented in the chapter, and

consider its applications to their personal experience and their careers.

Key themes in this section are the challenges created by globalization, and the biases that

students are likely to have – or how their own views may not be representation of society

more generally.

Key Concepts

Ethnocentric perspective

A view of the world through the lens of one’s own culture.

Not-invented-here syndrome

The tendency to distrust new ideas coming from outside of one’s own organisation of community.

Cosmopolitans

The people embracing cultural diversity and the opportunities of globalization

Review Questions

Review questions are provided to students on the website accompanying the book. They

directly ask to summarize the material provided in the text. Instructors may also use the

questions to structure their lectures or review sessions.

Normally, there are 15 questions. However, for chapter 1 – given its breadth, I have provided

a few more.

Review Questions

(as provided to students on the website)

Material in the Book

1. What do we call a firm that is engaged in foreign direct

investment?

2. What is international business?

3. Explain why businesses in Europe need to engage with

both European integration and with the global economy

outside Europe!

4. Explain the difference between GDP and GNP!

5. Why do some organizations report GDP data by

‘Purchasing Power Parity’ (PPP) rather than market

exchange rates?

6. What are the attractions of an expatriate assignment?

for employees working in purely domestic firms?

8. What is the overarching question in the field of

international business?

9. What is the main focus of the institution-based view of

international business?

10. What is the main focus of the resource-based view of

international business?

11. Explain the concept of liability of outsidership!

12. Name four simplifying views on globalizations!

13. How do we define globalization in this book?

14. Why was 19th century liberalization important for the

acceleration of globalization?

15. Why did British Historian Geoff Jones describe the 19th

and 20th century as two waves of globalization?

Page 5

Page 5-6

In Focus 1.1

Page 7-8

Page 9-10

Page 10

Page 10-11

Page 11 and Fig 1.4

Page 14-15

Page 13

Page 14 and 15 (In Focus 1.2)

Page 14

Page 13-15

16. How was the global economy in 1900 different from the

global economy in 2010? How about the global

economy in 1950?

17. Why did globalization gather speed in the 1990s?

18. Why is understanding emerging economies important

for European businesses?

19. Explain the concept of ‘base of the pyramid’?

20. Does the financial crisis of 2008/09 mark the end of

globalization?

21. Name the largest country by GDP, by population, and

by stock of outward FDI!

22. Name some of the largest companies in the world!

23. Which country has experienced the largest increase in

companies listed in the “Fortune 500”?

24. Why do cosmopolitans tend to have different views

about globalization than people who spend all their life

in the same town?

25. Explain why universalists and exceptionalists are likely

to fail in global business

In Focus 1.2

Page 16-17

Page 17-18, esp. Figure 1.5

Page 18

Table 1.2, Page 20

Table 1.3, Page 21

Table 1.4, Page 22

Page 24

Page 22-24

Critical Discussion Questions

At the end the chapter, we provide discussion questions that aim to stimulate students

thinking beyond memorizing the material learned in the chapter. They are designed to be

used at a basis for in-class discussions, group work, or individual assignments. Below, I

provide some indicative answers of issues that may be raised in response to these questions.

Discussion Questions

(as provided in the book)

Indicative Responses

1. A classmate says: “Global business is relevant

for top executives such as CEOs in large

companies. I am just a lowly student who will

struggle to gain an entry-level job, probably in

a small domestic company. Why should I care

historical cases don’t really help me in the 21st

century”. How do you convince him that he

1. A powerful way to address this

question is to explore the day-to–

day work of any individual

working company above the very

basic level. What is it you direct

boss is doing day in, day out?

Quickly they will find out how

many international interaction are

involved.

lessons from that time had been

essentially stable contributed to the

crisis. History is important to avoid

international business easily by catering

to small groups (e.g. in business-to–

should care about lessons from the past?

3. What are some of the darker sides (in other

words, costs) associated with globalization?

How can business leaders make sure that the

benefits of their various actions outweigh

their drawbacks (such as job losses in

developed economies)?

4. Some argue that aggressively investing in

emerging economies is not only economically

beneficial but also highly ethical because it

may potentially lift many people out of

poverty (see Closing Case). However, others

caution that in the absence of reasonable

hopes of decent profits, rushing to emerging

economies is reckless. How would you

participate in this debate?

making the same mistakes again

(or at least reducing the costs).

3. The darker sides include increased

concentration of power, both

economically and politically,

beyond the national level, and

increased inequality within

developed economies. Businesses

can engage in socially responsible

actions (see Chapter 9) to soften

the impact, and to work with

stakeholders to ensure ‘fair’

distribution of the gains of

globalization – for instance by

offering training.

4. Many views may be taken on this

question. Personally, I think the

second argument is nonsense

because returns in emerging

economies are often high – even

though (or because) they are

associated with high risks.

Moreover, ignoring emerging

economies risks that new

competitors emerge that the

companies fails to anticipate.

Closing Case

1. In the digital age, what barriers do

entrepreneurs face wishing to

expand their business globally?

1. When engaging with customers in other

countries, the legal, linguistic and

cultural conditions of that country

determine how one can grow the

business. It may be possible to start

2. For local businesses, such as

Airbnb hosts, what are the key

challenges of partnering with a

digital economy firm based in

another country?

3. As a traveller, what do you see

as the main pros and cons of

using Airbnb for your next trip

to an unfamiliar country?

business markets), but to reach larger

customer groups, local conditions are

important. The case offers several

examples of that.

2. For local firms, key challenges may arise

for example from the partners’ lack of

understanding of the local business

environment. For example, the

regulatory regime for hotels and B&B

are usually defined locally and the

platform or franchise conditions of a

foreign partner may or may not be

aligned with such regulatory conditions.

Examples mentioned in the case include

health and safety standards/

3. Many students will be able to speak

from experience to this question. Airbnb

has built many routines into its system

that aim to address concerns of

international travellers, including various

safety features. However, ultimately it is

a platform and the accommodation

contract is with a local partner and

subject to local laws and regulations.

Further Learning Activities

In addition to the cases and discussion questions provided in the book, instructors may want

to use any of the following activities to further engage students with the material.

(which likely will surprise many students in Europe), and thus the rapidly evolving

role of emerging economies in the global economy (Chapter 1). The case also leads

discuss different stages of entrepreneurial growth (Chapters 11, 12, 14): from an

3. A very useful assignment to raise the awareness of the complexity of the global

economy (where you are teaching) relative to others in Europe/worldwide at this

time in history.

A useful starting point for this may be any of a series of articles in publications such

as The Economist or the Financial Times. In introducing the topic, however, it will be

important to note that at different times over the past decades, different countries have

been leading economically. Newspaper reports tend to take short-term snapshots that

miss the historical dimension. For example, in the 1990s, Germany was seen as

Europe’s laggard.

4. The two papers by the two authors of the book that are provided in the further

readings provide two different views about the essence of international business. Both

views have influenced the writing of this book. Assigning these two papers as a pair

with assignment questions such as ‘how do the authors define the scope of the

subject? What do you suggest should be the scope of the subject? provides ample

opportunity to discuss the contents of this class.

5. An important aspect of globalization is the fundamental stability of the global

economic order currently in place. Thus, FDI intentions can be influenced by its

perceived sustainability to some degree. Identify the three most important issues

related to global economic stability over the next 20 years. Be sure to discuss the

sample surveyed to provide the appropriate frame of reference for discussion.

One resource which can be used is “A.T. Kearney: FDI Confidence Index”.

This website can be found by entering the search term “foreign direct investment

intentions” at the globalEDGE™ Resource Desk search box located at

http://globaledge.msu.edu/resourceDesk/. Once at the website, click on the Download

the PDF link (found in the middle). Then, scroll to page 11 of the report where Figure

9 provides an overview of the most important challenges to the sustainability of the

global economic order over the next 20 years. The three most important challenges

are: 1) global competition for scarce energy reserves; 2) climate change; and 3) global

competition for scarce nature resources (excluding energy). The respondents surveyed

included senior executives of the world’s leading corporations. Responses from C–

level executives as well as regional and business heads were included in the report.

Search Term: “foreign direct investment intentions”

Resource Name: A.T. Kearney: FDI Confidence Index

Website: http://www.atkearney.com/index.php/Publications/foreign-direct-

investment-confidence-index.html

globalEDGE™ Tag: Rankings

6. Pankaj Ghemawat’s website has an interesting tool that allows to visualize the size of

bilateral trade flows between countries, which is very useful indeed to show the

extend of globalization in trade: https://ghemawat.com/data-viz/area-map

7. A wonderful website to generate graphical illustrations of long-term trends on various

aspects of economic development and globalization is Hans Roslings’s gapminder

website https://www.gapminder.org/tools :