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Global Business Today Eleventh Edition Chapter 3
3-13
Click and Drag
States in Transition
Summary
This activity focuses on understanding how political upheaval in a nation changes the
attractiveness of a country as a destination for investment. International managers need to
understand the nature of the transition, why it is occurring, and what it means for the business
environment.
along with the risks and opportunities they present to international businesses.
FOCUS ON MANAGERIAL IMPLICATIONS
Benefits, Costs, and Risks of Doing Business Internationally
A) The benefits, costs, and risks associated with doing business in a country are a function of
that country’s political, economic, and legal systems. The overall attractiveness of a country as a
market and/or investment site depends on balancing the likely long-term benefits of doing
business in that country against the likely costs and risks.
Benefits
B) By identifying and investing early in a potential future economic star, firms may be able to
gain first-mover advantages (advantages that accrue to early entrants into a market) and
establish loyalty and experience in a country. Companies that are late to enter a marker may
suffer from late-mover disadvantages. Two factors that are reasonably good predictors of a
country’s future economic prospects are its economic system and property rights regime.
Costs
C) The costs of doing business in a country are determined by a number of political, economic,
and legal factors. Political costs can involve the cost of paying bribes or lobbying for favorable
or fair treatment. Economic costs relate primarily to the sophistication of the economic system,
including the infrastructure and supporting businesses.
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Risks
Video Note: The Brexit vote to leave the European Union has prompted many foreign
companies to rethink their investments in Gibraltar. To learn more, consider In Gibraltar Many
British Citizens Worry About the Effects of Brexit in the International Business Library at
http://bit.ly/MHEIBVideo. Click “Ctrl+F” on your keyboard to search for the video title.
Overall Attractiveness
E) The overall attractiveness of a country as a potential market and/or investment site for an
international business depends on balancing the benefits, costs, and risks associated with doing
business in that country.
Lecture Note: To extend this discussion, consider exploring some of the key risks for doing
business in the global economy. See https://www.dnb.com/perspectives/finance-credit-risk/10-
key-risks-for-businesses-in-global-economy.html and
http://www.bloomberg.com/news/articles/2016-07-21/the-global-economy-is-slow-but-steadier-
than-ever.
CONNECT
Click and Drag
Evaluating Country Attractiveness
Summary
This activity focuses on understanding the attractiveness of a country for doing business.
Companies need to consider many factors when looking at investment opportunities in foreign
countries. Countries with democratic regimes, strong property rights, and large and expanding
markets are generally considered attractive options.
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Activity
CONNECT
Video Case
Globalization Has Worked
Summary
This activity focuses on how globalization, its benefits and costs, and how those patterns are
driving current national policy. While globalization can generally be considered a success, some
countries and groups have not benefitted from the trend. This is prompting a push for new
policies—policies that emphasize a more inward focus rather than the more outward focus that is
associated with globalization.
Activity
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End-of-Chapter Resources
Critical Thinking and Discussion Questions
1. What is the relationship between property rights, corruption, and economic progress? How
important are anticorruption efforts in the effort to improve a country’s level of economic
development?
Answer: Innovation and entrepreneurship are widely recognized as important to long-run
economic growth. Innovation and entrepreneurship flourish in environments that are free of
2. You are a senior manager at a U.S. automobile company considering investing in production
facilities in China, Russia, or Germany. These facilities will serve local market demand. Evaluate
the benefits, costs, and risks associated with doing business in each nation. Which country seems
the most attractive target for foreign direct investment? Why?
Answer: Responses to this question will vary by student. Many will probably suggest that
3. Reread the Country Focus “India’s Economic Transformation,” and answer the following
questions.
a. What kind of economic system did India operate during 1947–1990? What kind of
system is it moving toward today? What are the impediments to completing this
transformation?
b. How might widespread public ownership of businesses and extensive government
regulations have affected (i) the efficiency of state and private businesses and (ii) the rate
of new business formation in India during the 1947–1990 time frame? How do you think
these factors affected the rate of economic growth in India during this time frame?
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c. How would privatization, deregulation, and the removal of barriers to foreign direct
investment affect the efficiency of business, new business formation, and the rate of
economic growth in India during the post-1990 time period?
d. India now has pockets of strengths in key high-technology industries such as software
and pharmaceuticals. Why do you think India is developing strength in these areas? How
might success in these industries help generate growth in other sectors of the Indian
economy?
e. Given what is now occurring in the Indian economy, do you think the country represents
an attractive target for inward investment by foreign multinationals selling consumer
products? Why?
Answer:
a. From 1947 to 1990, India operated under a mixed economy that included several large
state-owned enterprises, central planning, and subsidies. Today, the country is moving
b. Many students will probably agree that introducing privatization at a much earlier date
could have led to greater corporate efficiency and generated more economic growth in India.
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e. Many students will probably suggest that despite the many recent changes in India,
consumer products manufacturers could still face significant challenges in the country.
Lecture Note: To extend this discussion, consider exploring India’s efforts to lure foreign
companies to the country, https://www.bloomberg.com/news/articles/2018-01-10/modi-eases-
rules-to-lure-foreign-investors-as-india-growth-slows. Also learn more about China’s burgeoning
interest in investing in India, https://www.indiatvnews.com/business/news-nearly-600-foreign-
companies-most-of-them-chinese-plan-rs-5-5-lakh-crore-investments-in-india-406919.
globalEDGE™ Research Task
Exercise 1
Search phrase: Commercial transaction
Resource Name: Delcredere|Ducroire Country Risks
Additional Info:
Delcredere|Ducroire is a provider of credit insurance with a specialization in commercial
Exercise 2
Search phrase: Terrorism threat
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Additional Info:
The AON website includes a Terrorism Risk Map, in addition to a Political Risk map, where red
Economic Development in Bangladesh
closing case
Summary
The closing case explores the economic development of Bangladesh since 1971. At that time,
Bangladesh was a country plagued with a lack of natural resources, a poor infrastructure,
political instability, and high levels of corruption. Since the early 2000s, this country, once one
of the world’s poorest nations, has been growing and now ranks as 64th of 154 countries in the
World Bank’s global poverty database. Much of Bangladesh’s economic progress can be
attributed to the reforms that took place in the 1980s—reforms designed to reduce food and
agricultural subsidies, privatize state-owned enterprises, and the withdrawal of import
restrictions. These reforms were complemented by financial liberalization and in 2003, a floating
exchange rate. Today, the country boasts a thriving textile sector, facilitated by low-cost labor,
favorable trade agreements, and reduced import duties. The country continues to face
infrastructure challenges and a need to diversify its industrial base, as well as issues related to the
adverse effects of climate change.
Case Discussion Questions
1. What were the principal reasons for the economic stagnation of Bangladesh after its war for
independence?
2. Explain how the liberalization program in the 1990s enabled Bangladesh to start climbing the
ladder of economic progress.
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3. Bangladesh is dependent for its prosperity upon agriculture and textile exports. What are the
risks here? How might Bangladesh diversify its industrial and commercial base?
Teaching Tip: To extend this discussion and further explore the reasons behind Bangladesh’s
economic recovery, consider https://www.brookings.edu/opinions/why-is-bangladesh-booming
and http://www.worldbank.org/en/country/bangladesh/publication/bangladesh-development-
update-economy-moving-forward-despite-challenges.
CONNECT
Geography
Summary
Global Business Today Eleventh Edition Chapter 3
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This activity is designed to test the student’s knowledge of geography. Questions related to
Global Business Today Eleventh Edition Chapter 3
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Continuous Case Concept
Will Morocco become the next Detroit? The country has been working hard over the last few
years to build up its auto industry by offering various incentives to foreign companies as an
enticement for investment. Already, France’s Renault has a plant in Casablanca and is now
threatening to shift production from its Dacia plant in Romania to Morocco if workers at the
Romanian plant do not accept wage cuts. At the moment, the plant in Romania is running at near
capacity.
• Ask students to consider how Morocco’s new policies could impact economic
development in the country. How might investment in the auto industry benefit the
country? Are there any drawbacks?
• Next, ask students to reflect on the role of government in economic development. How
important are Morocco’s new incentive policies to the country? Should other
governments, like Romania, which stands to lose if Renault goes through with its threats,
follow Morocco’s lead?
• Finally, ask students to think about Morocco as an investment destination. What
challenges might a company investing in the country face? Ask students to identify the
risks involved and how each risk level might change depending on whether a firm is a
first mover as compared to a late mover.
This exercise could be used at the beginning of the discussion of this chapter’s material, and/or
again at the end. To take the discussion into greater depth, ask students to read the pertinent
selections in the Additional Readings section below. The exercise also works well at the
beginning of the Focus on Managerial Implications section.
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Additional Readings and Sources of Information
Wheels of fortune: how Morocco plans to overtake SA motor industry
https://www.businesslive.co.za/bd/opinion/2018-05-28-wheels-of-fortune-how-morocco-plans-
to-overtake-sa-motor-industry
Bangladesh could well march past India on the growth past
https://www.financialexpress.com/economy/bangladesh-could-well-march-past-india-on-the-
growth-path/1185577
McDonald’s and Starbucks hit by plastics ban in India
https://money.cnn.com/2018/06/25/news/companies/india-plastic-ban-mcdonalds-starbucks-
maharashtra/index.html
China Creates New Economy Gauges of Innovation, Entrepreneurship
http://www.bloomberg.com/news/articles/2016-08-17/china-creates-new-economy-gauges-of-
innovation-entrepreneurship
