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Global Business Today Eleventh Edition Chapter 1
1-1
Globalization
Table of Contents
Learning Objectives
Chapter Summary
Chapter Opening Activity
Chapter Outline
Opening Case: GM and Its Chevrolet Supercar, the Corvette ZR1
Introduction
What Is Globalization?
The Globalization Debate
Managing in the Global Marketplace
End-of-Chapter Resources
Critical Thinking and Discussion Questions
globalEDGE™ Research Task
Closing Case: Globalization of BMW, Rolls-Royce, and the MINI
Continuous Case Concept
Additional Readings and Sources of Information
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Learning Objectives
1-1 Understand what is meant by the term globalization.
1-2 Recognize the main drivers of globalization.
1-3 Describe the changing nature of the global economy.
1-4 Explain the main arguments in the debate over the impact of globalization.
1-5 Understand how the process of globalization is creating opportunities and challenges for
management practice.
Chapter Summary
This opening chapter introduces the reader to the concepts of globalization and international
trade and provides an introduction to the major issues that underlie these topics. The components
of globalization are discussed, along with the drivers of globalization and the role of the General
Agreement on Tariffs and Trade (GATT) and its successor the World Trade Organization
(WTO) in lowering trade barriers. The influence of technological change in facilitating
globalization is also discussed, along with the role of multinational firms in international
business.
Chapter Opening Activity
Conduct this activity during the first week of class, as an icebreaker.
After students introduce themselves, ask them what their aspirant professional job will be after
graduation. Organize the responses into groups on the whiteboard: accountants, supply chain
managers, ERP managers, business owner or entrepreneur, marketing and sales reps, etc. Then,
ask what additional skills they will need to do those jobs with international customers, suppliers,
and co-workers.
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Chapter Outline
GM and Its Chevrolet Supercar, the Corvette ZR1
opening case
Summary
The opening case explores global auto giant GM’s strategy to sell its vehicles in markets around
the world. With its 180,000 strong workforce that collectively speaks 70 different languages, the
multinational company has developed eight distinctive brands designed to appeal to consumers
in more than 125 countries. One of GM’s most popular brands is Chevrolet. GM sells vehicles
under the Chevrolet brand name in every market around the world including the iconic Corvette.
The Corvette was originally introduced in 1953 and remains one of GM’s most recognized cars
around the world.
Discussion Questions
1. Discuss globalization and how GM epitomizes the phenomenon. How has globalization, and
specifically the globalization of markets and production, facilitated the company’s success?
2. Why has China become such an important market for GM? How is GM responding to the high
demand for its products in China?
Global Business Today Eleventh Edition Chapter 1
Copyright © 2020 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education.
1-4
Introduction
A) Globalization refers to the trend towards a more integrated global economic system where
barriers to cross-border trade and investment are declining, perceived distance is shrinking
thanks to advances in transportation and telecommunications, and material cultures are more
similar across borders.
B) The effects of globalization can be seen everywhere, from the cars people drive and the food
they eat to the jobs they have and the clothes they wear.
Lecture Note: To extend this discussion, consider
http://review.chicagobooth.edu/economics/2018/article/globalization-close-its-holy-cow-moment
and https://hbr.org/2017/07/globalization-in-the-age-of-trump. The first provides an alternative
perspective of globalization and in particular, the role of services. The second explores
globalization under the Trump Administration.
Lecture Note: The U.S. Census Bureau offers an extensive website that maintains, among other
things, monthly statistics on trade between the United States and its trading partners:
https://www.census.gov/foreign-trade/index.html.
What Is Globalization?
A) Globalization refers to the shift towards a more integrated and interdependent world
economy.
Video Note: To explore globalization from the perspective of Volvo’s global strategy, consider
Volvo Cars: CEO: It’s Important to Build Cars in the U.S. in the International Business Library
at http://bit.ly/MHEIBVideo. Click “Ctrl+F” on your keyboard to search for the video title.
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THE GLOBALIZATION OF MARKETS
B) The globalization of markets refers to the merging of historically distinct and separate
national markets into one huge global marketplace in which the tastes and preferences of
consumers in different nations are beginning to converge upon some global norm. The global
acceptance of Coca-Cola, Citigroup credit cards, IKEA furniture, and McDonald's hamburgers
are all examples. Firms, large and small, not only benefit from the globalization of markets, but
they also, by offering the same basic products worldwide, facilitate the trend.
C) Yet there are still significant differences between markets that frequently require that
marketing strategies, product features, and operating practices be customized for a country. In
fact, most global markets are for industrial goods and materials that serve a universal need
around the world like microprocessors, rather than for consumer products. In many industries,
there is no such thing as a “German market” or an “American market,” there is only a global
market.
THE GLOBALIZATION OF PRODUCTION
D) 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 quality of factors of
production (such as land, labor, capital, and energy), thereby allowing them to compete more
effectively against their rivals.
Video Note: To explore the role of globalization and the globalization of production, consider
Was Your T-Shirt Made in North Korea? in the International Business Library at
http://bit.ly/MHEIBVideo. Click “Ctrl+F” on your keyboard to search for the video title.
Did You Know Video Clip
The video clip asks: “Did you know that your iPhone was assembled in China? It’s not what you
might think.”
Discussion Questions
1. Why do labor costs made up such a small percentage of the cost to produce an iPhone?
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2. Why is it more difficult for Apple to find engineers in the U.S. than in China?
3. Where are the iPhone’s components produced and purchased?
management FOCUS: Boeing’s Global Production System
Summary
The feature explores U.S. aircraft manufacturer Boeing’s approach to the production of its
Dreamliner 787 airplane. Boeing’s strategy was unlike any of its previous strategies. Instead of
producing much of the aircraft itself, Boeing, noting that 80 percent of its customers were
foreign airlines, decided to outsource some 65 percent of the value of the Dreamliner to suppliers
located around the world. This strategy introduced several challenges for Boeing, and production
of the 787 was delayed by four years.
Discussion Questions
Please see Critical Thinking and Discussion Question #7 for discussion of this feature.
The Emergence of Global Institutions
A) Over the last half-century, several global institutions have been created to help manage,
regulate, and police the global marketplace, as well as to promote the establishment of
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responsible for policing the world trading system and making sure that nations adhere to the
rules established in WTO treaties. As of 2017, the 164 nations that account for about 98 percent
CONNECT
Click and Drag
Global Institutions
Summary
This activity focuses on the global institutions that shape the international business system.
Countries have established these institutions to address the global issues that span their borders.
The functions of these organizations have been established in international treaties. International
businesses need to be aware of the functions of these organizations as they can have a profound
impact on trade and commerce.
Activity
Students are asked to match various global institutions to the functions they perform.
Class Discussion
Global institutions are essential to international business and the movement of goods, services,
and capital between nations. Discuss each institution and the role it plays in facilitating
international business.
Drivers of Globalization
A) Two macro factors seem to underlie the trend toward greater globalization. First, the decline
in barriers to the free flow of goods, services, and capital that has occurred since the end of
DECLINING TRADE AND INVESTMENT BARRIERS
B) International trade occurs when a firm exports goods or services to consumers in another
country. Foreign direct investment (FDI) occurs when a firm invests resources in business
activities outside its home country. After WWII, the industrialized countries of the West started a
process of removing barriers to the free flow of goods, services, and capital between nations.
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Teaching Tip: A comprehensive overview of GATT is available at
http://www.ciesin.org/TG/PI/TRADE/gatt.html.
Teaching Tip: The World Trade Organization maintains an excellent website at
http://www.wto.org. This site provides information about recent trade disputes, "hot" areas of
international trade, and the status of current talks.
C) This removal of barriers to trade has taken place in conjunction with increased international
trade, world output, and foreign direct investment.
D) The growth of foreign direct investment is a direct result of nations liberalizing their
regulations to allow foreign firms to invest in facilities and acquire local companies. With their
investments, these foreign firms often also bring expertise and global connections that allow
local operations to have a much broader reach than would have been possible for a purely
domestic company.
Knowledge Society and Trade Agreements
E) World Trade Organization data show that the volume of world merchandise trade has grown
consistently faster than the rate of the world economy since 1960. In fact, by 2020, the value of
world trade is expected to be 167 times larger than it was in 1960. Cross-border trade is 2.6 times
higher than world production.
G) The fact that world trade is growing faster than world GDP suggests that firms are dispersing
their production to optimal locations around the world, that economies are becoming intertwined,
and that the world is becoming wealthier.
H) FDI is also playing a bigger role in the global economy. The global stock of FDI is about $28
trillion.
ROLE OF TECHNOLOGICAL CHANGE
I) While the lowering of trade barriers made globalization of markets and production a
theoretical possibility, technological change made it a tangible reality.
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Communications
J) Since the end of World War II, there have been major advances in communications and
information processing.
Transportation Technology
M) In addition to these developments, several major innovations in transportation technology
have occurred since World War II. In economic terms, the most important are probably the
development of commercial jet aircraft and super freighters and the introduction of
containerization, which greatly simplifies transshipment from one mode of transport to another.
Implications for the Globalization of Production
N) Due to technological innovations, the real costs of information processing and
communication have fallen dramatically over the past two decades. These developments make it
possible for a firm to create and then manage a globally dispersed production system, further
facilitating the globalization of production. A worldwide communications network has become
essential for many international businesses.
Implications for the Globalization of Markets
O) As a consequence of these trends, a manager in today's firm operates in an environment that
offers more opportunities but is also more complex and competitive than that faced a generation
ago. While there has been some convergence of consumer tastes and preferences between
markets (a global culture), firms must still address differences between countries.
CONNECT
Click and Drag
Drivers of Globalization
Summary
This activity focuses on the drivers of globalization. Two major factors are driving globalization:
the decline in barriers to the free flow of goods, services, and capital; and technological change.
Business has fueled these trends and has been the beneficiary of these trends.
Activity
Students are asked to match driving forces and their implications for business.
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Class Discussion
It is essential that international businesses understand what’s driving globalization and its
implications for their organization. Ask students to discuss the drivers of globalization as they
relate to various types of international businesses.
The Changing Demographics of the Global Economy
A) As late as the 1960s, four facts described the demographics of the economy. The first was the
U.S. dominance in the world economy and the world trade picture. The second was U.S.
dominance in world foreign direct investment. The third fact was the dominance of large,
THE CHANGING WORLD OUTPUT AND THE CHANGING WORLD TRADE
PICTURE
B) In the early 1960s, the U.S. was still by far the world's dominant industrial power. In 1960,
for example, the U.S. accounted for 38.3 percent of world manufacturing output. By 2018, the
United States accounted for only 15.8 percent. This decline in the U.S. position was not an
absolute decline, rather, it was a relative decline, reflecting the faster economic growth of several
other economies, most notably those in Asia. China, now the world’s largest economy, is
responsible for 17.1 percent of world output.
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.
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Activity
Students are asked to match various issues with the descriptors of change.
Class Discussion
Changes in the demographics of the global economy have important implications for
international companies. Discuss the changes, why they are happening, and what they mean for
international organizations.
country FOCUS: India’s Software Sector
Summary
This feature explores the growth of India’s software industry. Starting from nothing just twenty-
five years ago, Infosys Technologies now generates revenues of $10.2 billion and exports of
more than $100 billion. India’s growth in the software sector is based on its abundant supply of
engineers, low labor costs, India’s fluency in English, and time differences between India and the
U.S. As Indian firms have done more business with large U.S. firms, U.S. firms have begun
investing in their own Indian operations.
Discussion Questions
1. What factors have contributed to the growth of India’s software industry? In your opinion, is
the growth of India’s software sector a reflection of the growth of the overall economy or is the
growth of the software sector prompting the growth of the entire economy?
2. How has India’s software industry changed in recent years? What are the implications of these
changes for American companies like IBM and Microsoft?
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THE CHANGING FOREIGN DIRECT INVESTMENT PICTURE
E) As shown in Figure 1.3 in the textbook, the share of total foreign direct investment stock since
the 1980s for developed economies such as the United States and the United Kingdom has
declined. Meanwhile, the same statistic indicates a considerable increase in developing
economies.
F) As shown in Figure 1.4, this trend is mirrored in FDI. However, fluctuations appear in the
total amount of foreign direct investment inflows due to economic factors.
THE CHANGING NATURE OF THE MULTINATIONAL ENTERPRISE
G) A multinational enterprise is any business that has productive activities in two or more
countries.
Non-U.S. Multinationals
H) In the 1960s, large U.S. multinationals dominated the global business environment,
accounting for about two-thirds of all foreign direct investment. The globalization of the world
economy has resulted in a relative decline in the dominance of U.S. firms as well as firms from
other developed countries. Today, just over a quarter of the top 2,000 global firms are U.S.
multinationals, while at the same time, powerful global competitors have emerged from
developing nations. Looking to the future, we can reasonably expect the growth of new
multinational enterprises (any business that has productive activities in two or more countries)
from the world's developing nations.
management FOCUS: Wanda Group
Summary
This feature examines the expansion of the Dalian Wanda Group from its beginning in 1988.
Originating in China, the company is well-known within the country as an important real estate
developer. In 2012, Dalian Wanda expanded by purchasing the cinema chain AMC
Entertainment Holdings in the United States. This expansion continued in 2015 with the
acquisition of an Australian cinema operator, as well. With properties in Los Angeles, Chicago,
Spain, and London, Dalian Wanda's goal is to have assets of $200 billion, revenues of $100
billion, and net profits of $10 billion by 2020.
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Discussion Questions
1. How has Dalian Wanda Group established itself in its home market of China? In other words,
what is the company best known for?
2. Why has Dalian Wanda Group expanded internationally at such a fast rate? How do the
acquisitions made fit into the company's strategy overall?
The Rise of Mini-Multinationals
I) Another trend in international business has been the growth of medium-sized and small
multinationals. These businesses are referred to as mini-multinationals.
THE CHANGING WORLD ORDER
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L) For North American firms, the growth and market reforms in Mexico and Latin America also
present tremendous new opportunities both as markets and sources of materials and production.
However, given the history of economic mismanagement in Latin America, the favorable trends
may not continue.
THE GLOBAL ECONOMY OF THE TWENTY-FIRST CENTURY
M) The path to full economic liberalization and open markets is not without obstruction.
Economic crises in Latin America, South East Asia, and Russia all caused difficulties in 1997
and 1998. While firms must be prepared to take advantage of an ever more integrated global
economy, they must also prepare for political and economic disruptions that may throw their
plans into disarray. The 2008–2009 financial crisis that began in the United States, for example,
quickly spread to much of the rest of the world.
The Globalization Debate
A) Is the shift toward a more integrated and interdependent global economy a good thing? While
many economists, politicians and business leaders seem to think so, globalization is not without
its critics. Globalization stimulates economic growth, raises the incomes of consumers, and helps
to create jobs in all countries that choose to participate in the global economy. Yet, there is a
rising tide of opposition to globalization.
ANTIGLOBALIZATION PROTESTS
B) Since 1999, when protesters against globalization targeted the WTO meeting in Seattle, anti-
globalization protesters have turned up at almost every major meeting of a global institution.
Protesters fear that globalization is forever changing the world in a negative way. This fear was
evident in the 2016 presidential election in the United States.
country FOCUS: Protesting Globalization in France
Summary
This feature describes the anti-globalization protests going on in France. The protests, led by
activist Jose Bove, started when the U.S. retaliated against EU bans on beef imports by imposing
a 100 percent tariff on some EU products. Bove and his associates targeted McDonald’s and
California winemaker Mondavi as symbols of their opposition to American investments. Still,
despite the protests, foreign investment in France is at record highs, and ironically, so are French
investments abroad.
Discussion Questions
1. Consider the trade war that initiated the protests led by Bove. The EU instituted restrictions on
the import of hormone treated beef because it was feared that the product might lead to health
problems. The WTO stated that the restrictions were prohibited under WTO agreements and
ordered the EU to lift the restrictions or face retaliatory measures. In your opinion, did the WTO
act appropriately? Should a government be permitted to make decisions as to what products are
