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Globalization
Learning objectives
• Understand what is meant by the term
globalization.
• Recognize the main drivers of
globalization.
• Describe the changing nature of the
global economy.
• Explain the major arguments in the
debate over the impact of globalization.
• Understand how the process of
globalization is creating opportunities
and challenges for business managers.
This chapter introduces the emergence of
the globally integrated business world.
Globalization has reduced the traditional
barriers to cross-border trade and
investment (distance, time zones,
language, differences in government
regulations, culture, and business
systems).
To begin the discussion of contemporary
issues in international business, macro-
economic and political changes in the
last 30 years are reviewed.
Information technology and other
technological innovations have put
global markets within the reach of even
small firms in remote locations. Yet, in
spite of all its benefits, globalization has
an underside. Critics point out its
adverse effects, including those on
developing nations.
The opening case explores the growing
trend to outsource routine legal tasks to
low cost nations like India. The closing
case explores the globalization of
Starbucks and the challenges it has faced
while operating in different cultures and
political systems, as well as its efforts to
be ethically and environmentally
responsible.
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OUTLINE OF CHAPTER 1: GLOBALIZATION
Opening Case: Legal Outsourcing
Introduction
What is Globalization?
The Globalization of Markets
The Globalization of Production
Country Focus: Vizio and the Market for Flat Panel TVs
The Emergence of Global Institutions
Drivers of Globalization
Declining Trade and Investment Barriers
The Role of Technological Change
The Changing Demographics of the Global Economy
The Changing World Output and World Trade Picture
The Changing Foreign Direct Investment Picture
The Changing Nature of the Multinational Enterprise
The Changing World Order
The Global Economy of the Twenty-First Century
Country Focus: India’s Software Sector
Management Focus: China’s Hisense-An Emerging Multinational
The Globalization Debate
Anti-globalization Protests,
Globalization, Jobs, and Income
Globalization, Labor Policies, and the Environment
Globalization and National Sovereignty
Globalization and the World’s Poor
Country Focus: Protesting Globalization in France
Managing in the Global Marketplace
Summary
Critical Thinking and Discussion Questions
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Closing Case: The Globalization of Starbucks
CLASSROOM DISCUSSION POINT
Ask students to describe how international business has affected them in their day so far.
Ask them about who made the clothes they are wearing, what type of food they ate for
breakfast or lunch (muesli cereal, sushi, Italian-style coffee), what type of cell phone they
have and where it was made, where their car was designed and manufactured, where the
components for their computer were manufactured, and so on. Many students will be
surprised at just how often international business affects their daily lives. Some will
recognize that companies like Nissan have design facilities and manufacturing operations
in the United States, but will be surprised to learn that Sodexho, a cafeteria operator for
many universities, is a French company; or that many supermarket chains have been
acquired by foreign operators (Stop and Shop by the Dutch Ahold, Trader Joe’s by the
German Albrechts). The point to drive home is that our consumption patterns are already
very dependent on international business.
Next, ask students the why aspect of this issue: Why, for example, are so many of our
clothes made outside North America?
Finally, encourage students to think about the integrated world economy versus distinct
national economies by asking about the type of car they own. Drive the discussion
towards a consideration of whether talking about the nationality of a car makes sense. Is
SAAB a Swedish car? Saab is partially owned by General Motors of USA, uses many
mechanical parts imported into Sweden from GM in Germany, and assembles its cars in
Sweden for sale in the U.S. Is a Mercedes Benz assembled in Alabama an American car?
Is a Chevrolet assembled in South Korea a Korean car? Volvo is owned by Ford; Jaguar
and Rover, which had been are part of Ford are now owned by India’s Tata Motors;
BMW owns Rolls Royce. Are there any cars that are truly made in a single country?
OPENING CASE: Legal Outsourcing
Summary
The opening case explores the growing trend to outsource routine legal work to
developing nations like India. In recent years, pressures to cut costs in the legal industry
have led to the practice of outsourcing. Today, many U.S. corporations outsource legal
preparatory work in an effort to avoid spiraling costs. U.S. lawyers can charge as much
as $500 an hour to complete basic tasks, while lawyers in India are paid just $20 to $60
per hour to complete the same tasks. Discussion of the case can begin with the following
questions:
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Suggested Discussion Questions
1. Discuss the economic trends that have prompted U.S. corporations to outsource routine
legal tasks to countries like India. What makes India such an attractive location for legal
outsourcing? What does this trend suggest for the future of the U.S. law industry?
2. How have advances in telecommunications and diminishing barriers to cross border
trade and investments created opportunities for companies like Pangea3?
3. Consider the implications of the trend toward outsourcing skilled work like legal and
accounting services on the economies of countries like India. How does this trend help
level the playing field between developed and developing countries?
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by
clicking on “view”, then on “notes”. The following provides a brief overview of each
Power Point slide along with teaching tips, and additional perspectives.
Slide 1-3 What is Globalization?
Globalization is a shift toward a more integrated and interdependent world economy.
Slides 1-4 -1-5 Globalization of Markets
In many markets the emergence of a global marketplace has begun to occur. There are
three causes: falling barriers to cross-border trade have made it easier to sell
Slide 1-6 Globalization of Production
The globalization of production refers to the sourcing of goods and services from
locations around the globe to take advantage of national differences in the cost and
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Slides 1-7 – 1-11 Emergence of Global Institutions
Globalization has created the need for institutions to help manage, regulate and police the
global marketplace. Institutions that have been created to help perform these functions
The World Trade Organization (WTO) is primarily responsible for policing the world
trading system and making sure nation-states adhere to the rules laid down in trade
Slide 1-11 Drivers of Globalization
The two macro factors underlie the trend towards greater globalization: the decline in the
Slides 1-12 – 1-13 Declining Trade and Investment Barriers
Slides 1-14 -1-15 Globalization and Firms
The lowering of trade barriers made globalization of markets and production a theoretical
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Slides 1-16-1-18 The Changing World Output and World Trade Picture
In the 1960s: the U.S. dominated the world economy and the world trade picture, U.S.
Slides 1-19-1-21 The Changing Foreign Direct Investment Picture
Slide 1-23 The Changing World Order
The collapse of communism in Eastern Europe represents a host of export and investment
Slide 1-24 The Global Economy of the Twenty-First Century
Firms should be aware that while the more integrated global economy presents new
Slide 1-25 The Globalization Debate
Is the shift toward a more integrated and interdependent global economy a good thing?
Slide 1-26 Globalization, Jobs, and Income
Critics of globalization worry that jobs are being lost to low-wage nations.
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Slide 1-27 Globalization, Labor Policies, and the Environment
Critics of globalization argue that that free trade encourages firms from advanced nations
to move manufacturing facilities offshore to less developed countries with lax
environmental and labor regulations.
Slide 1-28 Globalization and National Sovereignty
Critics of globalization worry that economic power is shifting away from national
governments and toward supranational organizations such as the World Trade
Organization (WTO), the European Union (EU), and the United Nations.
Slide 1-29 Globalization and the World’s Poor
Critics of globalization argue that the gap between rich and poor has gotten wider and
that the benefits of globalization have not been shared equally.
Slide 1-30 Managing in the Global Marketplace
Managing an international business (any firm that engages in international trade or
investment) is different from managing a domestic business because countries differ,
managers face a greater and more complex range of problems, international companies
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CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Describe the shifts in the world economy over the last 30 years. What
are the implications of these shifts for international businesses based in Great Britain?
North America? Hong Kong?
ANSWER 1: Over the last 30 years, there has been a shift away from a world in which
national economies are relatively self-contained entities, isolated by barriers to trade and
investment, and differences in government regulation, culture, and business systems and
toward a world where barriers to trade and investment are declining, cultures are
QUESTION 2: “The study of international business is fine if you are going to work in a
large multinational enterprise, but it has no relevance for individuals who are going to
work in small firms.” Evaluate this statement.
ANSWER 2: Globalization is changing the world economy. Firms, even small ones, can
no longer ignore events going on outside their borders because what occurs in one
country has implications for the rest of the world. Individuals who believe they can act in
isolation by working for a small firm are not being realistic, but rather myopic and
QUESTION 3: How have changes in technology contributed towards the globalization
of markets and of production? Would the globalization of production and markets have
been possible without these technological changes?
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ANSWER 3: Technological change has made globalization a reality. Major advances in
communication, information processing, and transportation have brought the world closer
together. The development of the microprocessor is perhaps the single, most important
innovation as it increased the amount of information that could be processed by
individuals and firms. The Internet has facilitated the creation of a 24/7/365 market place
QUESTION 4: “Ultimately, the study of international business is no different from the
study of domestic business. Thus, there is no point in having a separate course on
international business.” Evaluate that statement.
ANSWER 4: There are at least four reasons why studying international business is
important. First, countries are different; and managers must understand the reasons for
the differences and their implications for business. Second, the range of problems
confronted by a manager in an international business is wider and the problems
QUESTION 5: How does the Internet and the associated World Wide Web affect
international business activity and the globalization of the world economy?
ANSWER 5: Internet usage has explored over the last two decades. In 1990, there were
fewer than 1 million people connected to the Internet. Today, that figure has risen to
more than 1.6 billion! One of the biggest implications of the Internet and the World
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QUESTION 6: If current trends continue, China may emerge as the world’s largest
economy by 2020. Discuss the possible implications for such a development for a. the
world trading system; b. the world monetary system; c. the business strategy of today’s
European and U.S.-based global corporations; and d. global commodity prices.
ANSWER 6: China is continuing to move toward greater free market reforms, and if it
stays on its present track, could become an industrial superpower in the near future.
QUESTION 7: Reread the Country Focus “Vizio and the Market for Flat Panel TVs,”
then answer the following questions:
a) Why is the manufacturing of flat panel TVs migrating to different locations around the
world?
b) Who benefits from the globalization of the flat panel display industry? Who are the
losers?
c) What would happen if the U.S. government required that flat panel displays sold in the
United States had to also be made in the United States? On balance, would this be a good
or a bad thing?
d) What does the example of Vizio tell you about the future of production in an
increasingly integrated economy? What does it tell you about the strategies that
enterprises must adopt in order to thrive in highly competitive global markets?
ANSWER a): The market for flat panel televisions is huge. U.S. consumers spend more
than $35 billion annually on flat panel televisions. However, competition is intense
forcing producers to continually look for new ways to cut costs. In their quest for
efficiency, most manufacturers have developed global supply chains. American-based
b): Consumers are clearly benefiting from the globalization of the flat panel television
market. Thanks to the intense competition in the industry, prices have fallen
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c): If the U.S. government required flat panel televisions to be manufactured in the
United States, prices would almost surely rise. While such a requirement could bring
new jobs to American workers, consumers would probably buy far fewer televisions, and
Summary
The closing case explores the international expansion of Starbucks. The company has
expanded over the last thirty years from a single store in Seattle to more than 16,700
locations spread across 50 different countries. As Starbucks has expanded, it has been
forced to meet the challenges of operating in different cultures and political systems.
Today, Starbucks is focused on continuing its global expansion and at the same time,
helping the
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environment and small coffee farmers through its commitment to buying only Free Trade
Certified coffee. A discussion of the case can revolve around the following questions:
QUESTION 1: Where did the original idea for the Starbucks’ format come from? What
lesson for international business can be drawn from this?
ANSWER: The original idea for the Starbucks format came from Italy. The founder of
Starbucks, Howard Schultz, was inspired to start the chain after experiencing Italy’s
coffeehouses on a visit to the country. Most students will probably recognize that
opportunities for international business exist everywhere. Howard Schultz for example,
QUESTION 2: What drove Starbucks to start expanding internationally? How is the
company creating value for its shareholders by pursuing and international expansion
strategy?
ANSWER: After Starbucks grew from a single store to more than 700 locations in just a
decade, the company began to explore growth opportunities elsewhere. Today, Starbucks
QUESTION 3: Why do you think Starbucks decided to enter the Japanese market via a
joint venture with a Japanese company? What lesson can you draw from this?
ANSWER: Starbucks’ began its international expansion in Japan with a 50/50 joint venture with
a local company, Sazaby Inc. Because it was important for the company to replicate its U.S.
QUESTION 4: Is Starbucks a force for globalization? Explain your answer.
ANSWER: Most students will probably agree that Starbucks in indeed a force for
globalization. The company has successfully replicated its coffeehouse experience in
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QUESTION 5: When it comes to purchasing coffee beans, Starbucks adheres to a “fair
trade” program. What do you think is the difference between fair trade and free trade?
How might a fair trade policy benefit Starbucks?
ANSWER: Fair trade focuses on non-exploitative and environmentally sound growing
policies while free trade refers to trade without barriers. Starbucks’ fair trade program is
INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: Will Japan’s Crisis Disrupt Global Economic Recovery?
Run Time: 6:49
Abstract: This video explores the global economic impact of the recent earthquake and
tsunami disasters in Japan.
Key Concepts: exports, outsourcing, offshore manufacturing, foreign direct
investment, firm strategy, global economy, globalization, global supply chain
Notes: As Japan continues to assess damage caused by a recent earthquake and tsunami,
questions are arising as to what the disaster means for the rest of the world. When a
strong earthquake followed by a huge tsunami wave hit Japan earlier this year, no one
was prepared for the full extent of the complete devastation caused by the two events.
Compounding the problem was the news that nuclear reactors in the region had also been
damaged and could be leaking dangerous radiation. Now, as Japan grapples with how to
best help those affected and clean up the mess, the real implications of the disaster are
beginning to set in. Not only did people lose their homes and belongings, the country’s
infrastructure was also affected. Power plants around the country are implementing
rolling blackouts making it difficult for factories to operate. Consequently, shortages and
supply disruptions are becoming a problem. Now the questions many people are asking
are ‘how long will this all last,’ and ‘when will things be back to normal?’
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Japan is the third largest economy in the world, and therefore plays an active and vital
role in the global economy both as a consumer and as a supplier. The damage in Japan is
threatening the supply of numerous parts used in the manufacture of other products in
other markets forcing companies in other countries to adjust their strategies as they wait
to see what happens next. This uncertainty may be one of the biggest challenges for
foreign companies. Japan is one of the world’s largest suppliers of semiconductors and
In addition to the issues related to manufacturing, there is grave concern regarding
Japan’s approach to energy and how the recent devastation might affect the price of oil.
In an effort to reduce its dependence on fossil fuels, Japan had turned to nuclear power as
a main source of energy. However, the damage to the reactors has raised the issue of
Discussion Questions:
1. Reflect on the implications of the recent natural disasters in Japan. How might
Japanese companies like Toyota and Honda that operate in the United States be affected?
2. How might U.S. companies that rely on parts from Japan be affected by the recent
earthquake and tsunami? Consider the implications of the disaster for U.S. consumers.
3. The damage to Japan’s nuclear reactors has raised new questions regarding the safety
of nuclear energy. Discuss the global implications of a potential decision by Japan to
lessen its dependency on nuclear energy and increase its consumption of fossil fuels.
4. Consider Japan’s role in the global economy. How might a slow recovery in Japan
affect economic growth in the rest of the world? What does your response tell you about
the interdependency of markets in today’s world?
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INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following from
International Business DVD Volume 6:
Title: Rise of Twitter
Learning Objectives
The purpose of this video is to help you:
❖ Understand the role of technology in the globalization of markets.
❖ Identify how social media may be a force for cultural change.
❖ Explore how social media can provide insight into global trends and markets.
❖ Recognize how companies can leverage social media platforms in their marketing
strategies.
Key Words
❖ Globalization
❖ Globalization of markets
❖ Technological change
❖ Culture
❖ Cultural change
❖ International marketing
Synopsis
Twitter appears to have caught the attention of the entire world. Politicians joke about it,
yet use it to communicate their perspectives on the issues. Companies use Twitter to
encourage consumers to try new products. Activist groups Tweet about their causes
while lawmakers Tweet about the President’s speech to Congress. Even protesters in
Iran used Twitter to get their message out to the rest of the world. But it is the average
person who may be the most important user of the technology. Twitter has captured the
imagination of millions of people everywhere who use it to provide their opinion on just
about anything, let people know what they are doing at any given time, and generally
provide information about themselves to others. Indeed, Twitter is changing the way the
world communicates.
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Twitter was created just a few short years ago by then 29 year old Jack Dorsey. It began
with just fiver Tweeters, and now has a global following of some 40 million people, and
it is gaining more users everyday. Twitter is essentially an instant messaging system that
enables users to text messages to a single person or to thousands of other people
simultaneously. Messages, which are called Tweets, begin with an answer to the
question ‘what are you doing?’ Dorsey believes the success of Twitter lies in part with
the way it makes people more approachable. He believes that while important messages
can be conveyed via Tweets, it is the more mundane stream of updates about life’s little
moments that makes the technology so accessible and popular. Knowing that a famous
person does many of the same things as the average Joe brings the celebrity down to
everyone else’s level and makes the individual more real and relatable.
While some may wonder whether Twitter has created a monster in which everyone can
provide steady streams of information and opinions that are often of little interest to most
people, Dorsey disagrees. According to Dorsey, because the technology is controlled by
the recipient, individuals can choose to opt into a message stream or avoid it. It is this
feature that could make the technology a key link between companies and customers,
lawmakers and voters, and so on at some point in the future.
Discussion Questions
1. Consider the role of technology in the process of globalization. How does technology
like Twitter facilitate globalization? In your opinion, can Twitter be an agent of cultural
change across nations?
2. Consider the use of Twitter by lawmakers and other government officials. How can
policymakers use Twitter in their decision making? What are the implications of social
media for trade policies?
3. How are social media platforms changing the way companies and consumers interact
with each other? What does your response tell you about how companies might
incorporate Twitter into their marketing strategies? What are the advantages of using
Twitter as part of the selling process?
4. While social media like Twitter offer companies new ways to reach their customers,
they also create new challenges for companies. Discuss some of the disadvantages of
Twitter from a company’s perspective. What unique challenges might multinational
companies using Twitter as part of their marketing program face?
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INCORPORATING globalEDGE™ EXERCISES
Exercise 1
Your company has developed a new product that has universal appeal across countries
and cultures. In fact, it is expected to achieve high penetration rates in all the countries
where it is introduced, regardless of the average income of the local populace.
Considering the costs of the product launch, the management team has decided to initially
introduce the product only in countries that have a sizeable population base. You are
required to prepare a preliminary report with the top ten countries in terms of population
size. A member of management has indicated that a resource called the “World
Population Data Sheet” may be useful for the report. Since growth opportunities are
another major concern, the average population growth rates should be listed also for
management’s consideration.
Exercise 2
You are working for a company that is considering investing in a foreign country.
Investing in countries with different traditions is an important element of your company’s
long-term strategic goals. As such, management has requested a report regarding the
attractiveness of alternative countries based on the potential return of FDI. Accordingly,
the ranking of the
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top 25 countries in terms of FDI attractiveness is a crucial ingredient for your report. A
colleague mentioned a potentially useful tool called the “FDI Confidence Index” which is
updated periodically. Find this index and provide additional information regarding how
the index is constructed.
Answers to Exercise Questions
Exercise 1
Numerous statistical databases and websites provide population information. The student
may use any of these (including the CIA World Factbook or the globalEDGE Country
Insights pages) to provide the answer. However, if the search term “World Population
Exercise 2
The report can be accessed by searching for the term “FDI Confidence Index” at
http://globaledge.msu.edu/ResourceDesk/. The FDI Confidence Index is the only source
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End of Part Case Notes
Part One:
The Globalization of Healthcare
1. What are the facilitating developments that have allowed health care to start
globalizing?
Answer: Advances in technology are a primary key to making the outsourcing of medical
work possible in recent years. In particular, the Internet makes it possible to quickly
2. Who benefits from the globalization of health care? Who are the losers?
Answer: This is a difficult question. Some students might argue that the outsourcing of
medical procedures to nations where salaries of medical professional are lower clearly
benefits consumers. However, other students might suggest that the level of care in
3. Are there any risks associated with the globalization of health care? Can these risks be
mitigated? How?
Answer: Many students will probably focus on the quality of care, and whether it might
be compromised as a result of the globalization of the industry. As insurance companies
continue to pressure patients to find cheaper alternatives to health care in the United
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4. On balance, do you think that the globalization of healthcare is a good thing, or not?
Answer: When considered from a strictly economic perspective, the globalization of
health care should result in a more efficient industry. Prices in the United States should
fall as countries like India offer their services as an alternative to higher-priced American
ones. It would follow then, that Americans should have more disposable income which