Chapter 01 – Globalization
1-1
Globalization
Learning Objectives
• LO1-1: Understand what is meant by
the term globalization.
• LO1-2: Recognize the main drivers of
globalization.
• LO1-3: Describe the changing nature
of the global economy.
• LO1-4: Explain the major arguments
in the debate over the impact of
globalization.
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, macroeconomic and
political changes in the last 50 years are
reviewed.
Information technology and other technological
innovations have put global markets within the
1
Chapter 01 – Globalization
OUTLINE OF CHAPTER 1: GLOBALIZATION
Opening Case: How the iPhone Is Made: Apple’s Global Production System
Introduction
What Is Globalization?
The Globalization of Markets
The Globalization of Production
Management Focus: Boeing’s Global Production System
The Emergence of Global Institutions
Drivers of Globalization
Declining Trade and Investment Barriers
Role of Technological Change
The Changing Demographics of the Global Economy
The Changing World Output and World Trade Picture
Country Focus: India’s Software Sector
The Changing Foreign Direct Investment Picture
The Changing Nature of the Multinational Enterprise
Management Focus: The Dalian Wanda Group
The Changing World Order
Global Economy of the Twenty-First Century
Chapter 01 – Globalization
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 toward
a consideration of whether talking about the nationality of a car makes sense. Is a
Mercedes Benz assembled in Alabama with parts produced in Mexico a German car? Is a
Chevrolet assembled in South Korea a Korean car? Volvo is now owned by Geely of
Chapter 01 – Globalization
QUESTION 1: How has globalization created opportunities for companies like Apple to
optimize their supply chains?
ANSWER 1: Apple, like other multinational companies, has capitalized on the
opportunities associated with globalization. Lower barriers to trade and investment
associated with globalization have allowed the company to optimize the production of its
iconic iPhone. Rather than producing the iPhone in the United States, Apple outsources
production to suppliers and subcontractors around the world. The company capitalizes on
the efficiency of suppliers and subcontractors regardless of their location in the world.
outside the United States for the production of the iPhone.
QUESTION 2: What factors make China such an attractive production location for
Apple? How does production in China help Apple compete?
ANSWER 2: For Apple, the decision to produce the iPhone in China is simple. The
company claims that its suppliers and subcontractors in China can quickly respond to
changing market conditions giving the iPhone maker a distinct advantage in the hotly
competitive mobile phone market. Unlike its subcontractors and suppliers in other
QUESTION 3: Why has Apple faced criticism for its decision to produce its iPhone in
China? Is the criticism warranted? Explain.
ANSWER 3: Apple has come under significant scrutiny after it was revealed that one of
its primary subcontractors treated its employees very poorly. According to critics,
workers at Foxconn, the company that produces about 50 percent of the iPhones sold
across the world, requires long hours and mandatory overtime from its employees and has
a poor safety record. While Apple defends its decision to work with Foxconn saying that
it is trying to get improvements in Foxconn worker conditions, many say that Apple has
Chapter 01 – Globalization
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The following provides a brief overview of each Power Point slide.
Slides 1-3 – 1-5 What Is Globalization?
Globalization is a shift toward a more integrated and interdependent world economy.
Globalization has two components: the globalization of markets and the globalization of
production.
The Globalization of Markets
The globalization of markets refers to the merging of historically distinct and separate
national markets into one huge global marketplace. 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 internationally; consumer tastes and preferences
Chapter 01 – Globalization
associated with economic and political risk, and the sheer managerial challenge of
coordinating a globally dispersed supply chain.
Slides 1-6 – 1-11 The 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 are the General Agreement on Tariffs and Trade (GATT), the World Trade
Organization (WTO), the International Monetary Fund (IMF), the World Bank, the
United Nations (UN), and the Group of Twenty (G20).
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
treaties. The International Monetary Fund (IMF) was created to maintain order in the
international monetary system, and the World Bank was set up to promote economic
development. The United Nations (UN) was created to preserve peace through
international cooperation. The Group of Twenty (G20) is comprised of the finance
ministers and central bank governors of the 19 largest economies in the world, plus
representatives from the European Union and the European Central Bank. The G20
represents 90 percent of global GDP and 80 percent of international global trade.
Chapter 01 – Globalization
1-7
Slides 1-12 – 1-16 Drivers of Globalization
These two macro factors underlie the trend toward greater globalization: the decline in
the barriers to free flow of goods, services, and capital; and technological change in
communications, information processing, and transportation technologies.
Declining Trade and Investment Barriers
International trade occurs when a firm exports goods or services to consumers in
another country.
Role of Technological Change
While the lowering of trade barriers made globalization of markets and production a
theoretical possibility, technological change made it a tangible reality. Managers today
operate in an environment that offers more opportunities, yet is also more complex and
competitive than that of a generation ago.
CONNECT
Click and Drag
Drivers of Globalization
Chapter 01 – Globalization
centrally planned economies of the communist world—was off limits to Western
international business.
The share of world output generated by developing countries has been steadily increasing
since the 1960s, while developed countries including the United States, Canada, and
CONNECT
Click and Drag
Demographics of the Global Economy
Summary
This activity explores the demographics of the global economy. Four factors have played a
central role in the changing demographics of the global economy since 1960. They are U.S.
dominance in the world economy, U.S. dominance in world foreign direct investment, dominance
of large multinational U.S. firms, and lack of trade with centrally planned economies.
Chapter 01 – Globalization
The economic development of China presents huge opportunities and risks, in spite of its
continued Communist control. And, while Mexico and Latin America also present
tremendous new opportunities both as markets and sources of materials and production,
Bolivia, Ecuador, and Venezuela have all seen an increase in state involvement in the
past few years and are less welcoming of foreign investment.
Antiglobalization Protests
Is the shift toward a more integrated and interdependent global economy a good thing?
Antiglobalization protesters now turn up at almost every major meeting of a global
institution. Protesters fear that globalization is forever changing the world in a negative
way.
Globalization, Jobs, and Income
Critics of globalization worry that jobs are being lost to low-wage nations.
Supporters of globalization argue that free trade will result in countries specializing in the
production of those goods and services that they can produce most efficiently, while
importing goods and services that they cannot produce as efficiently.
Chapter 01 – Globalization
Another Perspective: To explore economic freedom and globalization, go to The Fraser
Institute’s Economic Freedom of the World Report at {www.freetheworld.com}.
Supporters of free trade suggest that the actions of governments have made limited
economic improvement in many countries.
CONNECT
Click and Drag
The Globalization Debate
Summary
This activity focuses on the debate on globalization. While globalization has long been viewed as
a beneficial trend, more recently, certain segments of the population have voiced their strong
opposition to the trend. Anecdotes, evidence, and arguments can be collected to support each side
of the debate.
Activity
Students are asked to match various issues in terms of whether they are arguments for or against
globalization.
Slide 1-35 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
must work within the limits imposed by governmental intervention and the global trading
system, and international transactions require converting funds and being susceptible to
exchange rate changes.
Chapter 01 – Globalization
McGraw-Hill Education.
CONNECT
Video Case
Did You Know? Trade Tripled for U.S. as a Percentage of GDP
Summary
This activity focuses on understanding the impact of globalization; what is driving it; the
opportunities and challenges it presents for international businesses; and the debate about the
process of globalization.
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
converging, and national economies are merging into an integrated, interdependent global
economic system. As companies from Japan and emerging markets like China play a
more vital role in the world economy, the dominance of companies from the United
Chapter 01 – Globalization
McGraw-Hill Education.
Kong against what is perceived to be heavy handedness by Beijing have upended what
had been a stable business environment. Before the protests, Hong Kong had been
viewed as a gateway to the immense market of mainland China, but now there is less
certainty in the market as it relates to mainland China. International businesses based in
all three locations are facing new opportunities and threats.
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 toward the globalization of
markets and production? Would the globalization of markets and production have been
possible without these technological changes?
ANSWER 3: Technological change has made globalization a reality. Major advances in
communication, information processing, and transportation have brought countries of 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 marketplace
where information is available in real time. Advances in transportation have enabled
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 this 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
Chapter 01 – Globalization
QUESTION 5: How does the Internet affect international business activity and the
globalization of the world economy?
ANSWER 5: Internet usage has exploded over the last two decades. In 1990, there were
fewer than 1 million people connected to the Internet. By 2018 that figure had risen to 4
billion, some 52 percent of the global population! One of the biggest implications of the
Internet is its role as an equalizer. Firms are no longer constrained by size, location, scale,
QUESTION 6: If current trends continue, China may emerge as the world’s largest
economy by 2035. 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.
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.
Indeed, the United States’ position as the world’s largest economy is being challenged by
China. China has also surpassed the United States in world exports of goods and services.
QUESTION 7: Reread the Management Focus “Boeing’s Global Production System”
and answer the following questions.
a. What are the benefits to Boeing of outsourcing manufacturing of components for the
Boeing 787 to firms based in other countries?
b. What are the potential costs and risks to Boeing of outsourcing?
Chapter 01 – Globalization
ANSWER 7:
a. Student answers will vary. In some respects, outsourcing to overseas suppliers
probably keeps company and consumer costs down, allowing Boeing to spend more
money on research and innovations to create more products in the United States. When a
company, workers, and consumers.
b. Many of the costs and risks associated with outsourcing were underscored by Boeing’s
experience with the 787. Boeing lost much of the control it once had over the complex
production process, resulting in failures of communication, unexpected delays, and
c. By awarding many manufacturing contracts to overseas suppliers, Boeing created
thousands of jobs in foreign countries—jobs that would normally be held by workers in
the United States. This not only benefits foreign workers and their families (while
negatively affecting workers in the United States) but also benefits state and local
governments in areas where subcontractors are located, generating higher tax revenues
and lowering unemployment rates.
d. Boeing faced extensive criticism in the United States for its decision to outsource jobs
overseas, particularly after the 787 project began to experience setbacks. By bringing
e. There are several reasons that Boeing decided to outsource manufacturing to foreign
firms. First, outsourcing offers Boeing the chance to build loyalty. Many of the firms are
located in countries that are home to major airlines. Awarding large contracts to
businesses in these countries may result in those airline companies placing larger orders
for Boeing aircraft. Second, outsourcing offers Boeing the opportunity to optimize
could transfer some of the risks and costs associated with manufacturing to its suppliers.
Chapter 01 – Globalization
CLOSING CASE: General Motors in China
Summary
The closing case explores General Motors’ strategy in China. The U.S. company, in
response to falling domestic sales, recently closed several plants in the United States
prompting criticism from Donald Trump who suggested that GM close its factories in
Mexico and China instead. GM sells some 3.64 million vehicles in China in conjunction
with its Chinese joint venture partner, SAIC Motor. The two companies hold an equal
share in the partnership and receive subsidies from Beijing as part of the country’s efforts
to move to electric vehicles. GM made the decision to serve the growing Chinese market
using local production rather than exports in 1997. Producing locally means that the
company can avoid costly tariffs and be closer to the market, something that GM feels is
important to its marketing effort. Ironically, another U.S. automaker, Tesla, which had
been exporting its cars to China, the approach endorsed by Donald Trump, has seen its
QUESTION 1: What are the long-term prospects for the Chinese market?
ANSWER 1: In 2006, GM, together with its partner SAIC Motors, sold less than half a
million vehicles in China. By 2011, that number had more than doubled. Today, the joint
venture is selling nearly 4 million vehicles. Prospects for continued rapid growth are
strong. In China, the number of vehicles per person is just 173 as compared to 833 per
capital in the United States. Moreover, China is making a major push into electric cars,
providing subsidies to automakers and buyers as an incentive. This would suggest that
Chapter 01 – Globalization
actions by Beijing and seemingly enables it to share in benefits offered to local
companies.
QUESTION 2: Does it make sense for GM to produce automobiles for the Chinese
market in China? Why?
ANSWER 2: Most students will probably agree that GM’s decision to produce its cars in
China makes sense. By producing locally, GM can capitalize on China’s lower labor
costs and avoid shipping costs as well as potential tariffs like those currently affecting
QUESTION 3: What do you think would happen if GM tried to serve the Chinese
market by exporting production from the United States?
ANSWER 3: Responses to this question will vary by student. Some will argue that if GM
tried to export its product from the United States it would almost certainly have gotten
caught up in the trade war that has crippled Tesla’s exports to China. Other students are
likely to point out that the shipping costs associated with exporting lower end vehicles
may have been prohibitively expensive and that without local production, GM may not
have made a serious push into the growing Chinese market. Students taking this
perspective may note that many of the cars currently being sold in China are lower
margin vehicles making any added shipping costs out of the question. Still other students
may argue that local production has enabled GM to better understand the Chinese market
QUESTION 4: Why do you think GM went into partnership with a state-owned
company to produce automobiles in China? What are the possible benefits of such a
venture? What might be the downside?
Chapter 01 – Globalization
1-17
ANSWER 4: GM’s joint venture with China’s GAIC Motors has proved to be
enormously successful. Together, the two companies sell more than 3.5 million vehicles
in China and that number is expected to grow. For GM, the joint venture offered instant
knowledge of the local market and the opportunity to be “local”. The 50/50 joint venture
also meant that GM shared the cost and risk of building market share in China with SAIC
Motors. At the same time, though, GM must now share profits and control with its
QUESTION 5: What does this case teach you about benefits and costs of import tariffs?
ANSWER 5: This question may generate some discussion among students. The ongoing
trade war between the United States and China has become a hotly debated topic, one that
is generally politically charged, and one that is divisive depending on an individual’s
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library, which provides an
ongoing stream of updated video suggestions correlated by key concept and major topic.
Every new clip posted is supported by teaching notes and discussion questions. Please
feel free to leave comments in the library that you feel might be helpful to your
colleagues.
CONNECT
Geography
Summary
This activity is designed to test the student’s knowledge of geography. Questions related to
chapter material are asked, requiring students to understand the topics and the locations of the
countries involved.
Chapter 01 – Globalization
Class Discussion
Understanding the geographic location of countries is essential to the understanding of
international business. Ask students to discuss the implications of the geographic locations of the
countries in this exercise on the subject matter.
INCORPORATING globalEDGE™ EXERCISES
Exercise 1
As the drivers of globalization continue to pressure for both the globalization of markets
and the globalization of production, we continue to see the impact of greater globalization
on worldwide trade patterns. HSBC, a large global bank, analyzes these pressures and
trends to identify opportunities across markets and sectors through its trade forecasts.
Visit the HSBC Global Connections site and use the trade forecast tool to identify which
export routes are forecasted to see the greatest growth over the next 15 to 20 years. What
patterns do you see? What types of countries dominate these routes?
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
Answers to Exercises
Additional Info:
Once on the HSBC Global Connections website, the Trade Forecast Tool can be found
under the Tools & Data section of the site. It’s an interactive chart, where you can see the
trade routes that are forecasted to exhibit the largest annual growth over the next several
years.
Chapter 01 – Globalization
Additional Info:
This ranking study, published regularly since 1998 surveys over 300 hundred executives
from multinationals with more than $500 million in revenues from 28 countries. The
Index is calculated as a weighted average of the number of high, medium, and low
responses to questions about the likelihood of direct investment in a market over the next