Chapter 01 – Globalization
1-1
Globalization
Learning objectives
• Understand what is meant by the term
globalization.
• 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).
Information technology and other
technological innovations have put
global markets within the reach of even
The opening case explores the rise of
Ecuador’s rose industry over the past 30
years, spurred in part by the U.S.
government’s decision to reduce tariffs
1
Chapter 01 – Globalization
1-2
OUTLINE OF CHAPTER 1: GLOBALIZATION
Opening Case: The Rise of Ecuador’s Rose Industry
Introduction
What Is Globalization?
The Globalization of Markets
The Globalization of Production
The Changing Demographics of the Global Economy
The Changing World Output and World Trade Picture
The Changing Foreign Direct Investment Picture
Management Focus: China’s Hisense—An Emerging Multinational
The Globalization Debate
Antiglobalization Protests
Globalization, Jobs, and Income
Globalization, Labor Policies, and the Environment
Summary
Closing Case: Who Makes the Apple iPhone?
Chapter 01 – Globalization
1-3
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
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 a
OPENING CASE: The Rise of Ecuador’s Rose Industry
Summary
The opening case explores the rise of Ecuador’s rose industry over the past 30 years
when the U.S. government decided to reduce the tariffs on some South American
Chapter 01 – Globalization
1-4
Suggested Discussion Questions
1. Discuss the factors that led to the shifting of rose growing from the United States to
countries such as Ecuador. What makes Ecuador such an attractive location to grow
roses?
3. Some of the large rose growers in the country have been accused of misusing a toxic
mixture of pesticides and other chemicals to grow and export unblemished, pest-free
flowers. How can government officials and active environmentalists work together to
keep the rose economy growing while taking care of the workers?
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 and 1-5 Globalization of Markets
In many markets the emergence of a global marketplace has begun to occur. There are
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
Chapter 01 – Globalization
1-5
Slides 1-7 through 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
are the General Agreement on Tariffs and Trade (GATT), the World Trade
Organization (WTO), the International Monetary Fund (IMF), the World Bank, and
the United Nations (UN), and the 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.
Slides 1-12 through 1-14 Drivers of Globalization
The two macro factors underlie the trend towards 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.
Chapter 01 – Globalization
1-6
Slides 1-16 through 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 through 1-21 The Changing Foreign Direct Investment Picture
The share of world output generated by developing countries has been steadily increasing
Slide 1-22 The Changing Nature of the Multinational Enterprise
A multinational enterprise is any business that has productive activities in two or more
countries.
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.
Chapter 01 – Globalization
1-7
Slide 1-27 Globalization, Labor Policies, and the Environment
Critics of globalization argue that that free trade encourages firms from advanced nations
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
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
Chapter 01 – Globalization
1-8
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
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
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?
Chapter 01 – Globalization
ANSWER 3: Technological change has made globalization a reality. Major advances in
communication, information processing, and transportation have brought the world closer
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
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. Today, that figure has risen to
1-10
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 Management Focus on Vizio and 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 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
Chapter 01 – Globalization
1-11
CLOSING CASE: Who Makes the Apple iPhone?
Summary
The closing case explores Apple’s decision to manufacture its iconic iPhone off shore.
Components for the phone are manufactured around the globe and final assembly takes
place in China by Foxconn, Apple’s major subcontractor. A discussion of the case can
revolve around the following questions:
QUESTION 1: What are the benefits to Apple of outsourcing the assembly of the iPhone
to foreign countries, and particularly China? What are the potential costs and risks to
Apple?
ANSWER: In addition to labor costs being much lower in China than in the United
States, Apple points out that the ability of its Chinese subcontractors to respond quickly
to scaling production up and down has been critical to the company’s success. Another
Chapter 01 – Globalization
1-12
QUESTION 2: In addition to Apple, who else benefits from Apple’s decision to
outsource assembly to China? Who are the potential losers here?
ANSWER: In China, factories are clustered together. Many of the factories providing
iPhone components for final assembly are located close to Foxconn’s assembly plant and
QUESTION 3: What are the potential ethical problems associated with outsourcing
assembly jobs to Foxconn in China? How might Apple deal with these?
ANSWER: Some of Apple’s major subcontractors in China have been targeted for their
QUESTION 4: On balance, do you think that the kind of outsourcing undertaken by
Apple is a good thing or a bad thing for the American economy? Explain your reasoning.
ANSWER: Students’ answers will vary. In some respects, outsourcing to China probably
keeps company and consumer costs down, allowing Apple to spend more money on
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: World Bank: East Asia and Pacific Economic Update May 2012
Run Time: 3:41
Abstract: This video describes the positive economic situation in East Asia and the
Pacific and the challenges ahead for the region as its export-oriented economic model
becomes less viable in a troubled global economy.
Chapter 01 – Globalization
1-13
Key Concepts: exports, global economy, globalization, World Bank, national trade
policy, foreign investment, level of economic development
Notes: According to a recent report by the World Bank, the economic situation in East
Asia and the Pacific good. Regional GDP in 2011 was up 8.2 percent, two percentage
points higher than the global average for developing countries. However, the report also
cautions that while the region had the strongest economic performance in the world,
growth is actually following a downward trend.
Changes in China are also beginning to affect the region. As the country moves up the
income ladder, it is expected that it will shift from being a labor-intensive manufacturing
location to be an importer of consumer goods and also a source of investment funds.
This trend is likely to prompt a rebalancing of both political and economic clout in the
region.
Discussion Questions and Answers:
1. Why is growth slowing in East Asia and the Pacific? How does growth in high income
countries affect the region? What does this imply about the global economy?
Answer: Despite posting the strongest economic performance in the world in 2011, the
World Bank is concerned about the slowing rate of growth in the East Asia and Pacific
2. Discuss the export-oriented model that has sustained East Asia and the Pacific for so
many years. Is the model still viable? Why or why not?
Answer: For decades, much of East Asia has followed an economic policy focused on
Chapter 01 – Globalization
1-14
3. Reflect on the changes in China. What does a more prosperous China mean for East
Asia? What does it mean for the world?
Answer: Over the last few decades, China has moved from being a very poor,
underdeveloped to being a thriving, prosperous, and increasingly powerful player in the
4. How can companies in high income countries like the United States capitalize on the
newly prosperous China and East Asia? How should companies approach the market?
Answer: Countries like the United States have been a key variable in Asia’s export-led
growth. Now, high-income countries in Europe as well as the United States are hoping to
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.
Chapter 01 – Globalization
1-15
Key Words
❖ Globalization
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
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
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.
Chapter 01 – Globalization
1-16
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?
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?
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
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
Chapter 01 – Globalization
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
Search Phrase: “World Population Data Sheet”
Resource Name: World Population Data Sheet
Exercise 2
The report can be accessed by searching for the term “FDI Confidence Index” at
Search Phrase: “FDI Confidence Index”