International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
01-1
Module 1: The Challenging Context of International
Business
YOUR CONTENT
Summary
Learning Objectives
Key Terms and Definitions
Content Outline
ENGAGEMENT & APPLICATION
Boxed Text Discussion Questions with Suggested Answers
End of Module Exercises
Bonus Activities
Video Suggestions
Team Exercises
CONNECT TOOLS FOR ASSESSEMENT OF LEARNING
Connect Content Matrix
Connect Activities
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
YOUR CONTENT
SUMMARY
This module provides an overview of international business (IB) and some of the ways that IB
differs from domestic business, including the three environments of IB: domestic, foreign, and
international. Although the kinds of forces are the same in the domestic and foreign
environments, their values often differ and changes in the values of the foreign forces can be at
LEARNING OBJECTIVES
LO 1-2 Describe the history and future of international business
LO 1-4 Identify the kinds of drivers that are leading firms to internationalize their
operations.
LO 1-5 Compare the key arguments for and against the globalization of business.
KEY TERMS AND DEFINITIONS
controllable forces (p. 5)
Internal forces that management administers to adapt to
changes in the uncontrollable forces
domestic environment (p. 5)
All the uncontrollable forces originating in the home
country that surround and influence the life and
development of the firm
economic globalization (p. 16)
The tendency toward an international integration and
interdependency of goods, technology, information, labor
and capital, or the process of making this integration
happen
environment (p. 5)
All the forces influencing the life and development of the
firm
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
exporting (p. 12)
The transportation of any domestic good or service to a
destination outside a country or region
foreign business (p. 4)
The operations of a company outside its home or
domestic market
foreign direct investment (FDI)
(p. 12)
Direct investments in equipment, structures, and
organizations in a foreign country at a level sufficient to
obtain significant management control; does not include
mere foreign investment in stock markets
foreign environment (p. 6)
All the uncontrollable forces originating outside the home
country that surround and influence the firm
importing (p. 12)
The transportation of any good or service into a country
or region, from a foreign origination point
international business (p. 4)
Business that is carried out across national borders
international company (IC) (p.
4)
A company with operations in multiple nations
international environment (p.
7)
Interaction between domestic and foreign environmental
forces, as well as interactions between the foreign
environmental forces of two countries
self-reference criterion (p. 7)
Unconscious reference to your own cultural values when
judging behaviors of others in a new and different
environment
transnational corporation (p.
11)
An enterprise made up of entities in more than one
nation, operating under a decision-making system that
allows a common strategy and coherent policies
uncontrollable forces (p. 4)
The external forces that management has no direct
control over
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
CONTENT OUTLINE
The following section provides the flow of information using the LEARNING OBJECTIVES as a
guide, KEY TERMS learners will need to take away from the course, and LECTURE NOTES to
drive home teaching points.
LO 1-1
Show how international business differs from domestic
business
• Introduction
• What Is International Business and What Is Different
about It?
• The Influence of External and Internal
Environmental Forces
• The Domestic Environment
• The Foreign Environment
• The International Environment
Key Terms:
• international business
• foreign business
• international company
(IC)
• environment
• uncontrollable forces
• controllable forces
• domestic environment
• foreign environment
• international
environment
• self-reference criterion
I. Introduction
A. Our lives are fundamentally intertwined with international business (IB), and all managers need to
have a basic knowledge of IB in order to meet the growing challenges of global competition.
II. What Is International Business and What Is Different about It?
1. IB is business that is carried out across national borders, including international trade, foreign
manufacturing, and the growing service industries.
2. Foreign business refers to the operations of a company outside its home or domestic market.
3. An international company is a company with operations in multiple nations.
4. IB differs from domestic business because firms operating across borders must deal with forces
of three kinds of environments—domestic, foreign, and international.
5. Although firms that only operate within the domestic environment must essentially be
concerned with the domestic environment, no domestic firm is entirely free from foreign or
international forces due to the potential for competition from foreign imports or foreign
competitors setting up operations in the firm’s domestic market.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
2. External forces, commonly called uncontrollable forces, are those forces outside the firm that
management has no direct control over, including:
a. competitive
b. distributive
c. economic
d. socioeconomic
e. financial
f. legal
1. All the uncontrollable forces originating in the home country that surround and influence the
firm’s life and development.
strike disrupts the supply of parts to a company’s assembly operations in another nation.
C. The Foreign Environment
1. All the uncontrollable forces originating outside the home country that surround and influence
the firm.
home country.
a. Although forces in the domestic and foreign environment are identical, their values often
b. Foreign forces are frequently difficult to assess, especially for legal and political forces.
c. The forces are often interrelated. Although this can happen also for domestic settings, in
foreign situations the kinds of interaction that occur and the outcomes that result may
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
D. The International Environment
1. Consists of interactions between the domestic environmental forces and the foreign
environmental forces, as well as interactions between the foreign environmental forces of two
countries.
2. International organizations whose actions affect the international environment are also
properly part of the international environment, such as worldwide bodies (e.g., World Bank),
regional economic groupings of nations (e.g., European Union), and organizations bound by
industry agreements (e.g., OPEC).
3. Decision making is more complex in the international environment; managers in a home office
overseeing subsidiaries in 10 different nations must consider not only domestic forces but also
the influence of 10 foreign national environments, both individually and collectively since there
may be some interaction.
4. Self-reference criterion is another common cause of added complexity of foreign
environments.
a. Due to managers’ unfamiliarity with other cultures, some managers will ascribe to others
their own preferences and reactions.
b. Unconscious reference to a manager’s own cultural values is probably the biggest cause of
international business blunders.
c. In IB, the international manager has three choices in deciding what to do with a concept or
technique employed in domestic operations: (a) transfer it intact, (b) adapt it to local
conditions, or (c) not use it overseas.
d. Relationships among the different IB environments are shown in Figure 1.1.
• Is Internationalization of Business a New Trend,
and Will It Continue?
III. Is Internationalization of Business a New Trend and Will It Continue?
A. Although IB is a relatively new discipline, it is not a new business practice
an internationally integrated trading system, with China as the world’s leading
manufacturing country for about 1,800 years, until Britain replaced it around 1840.
3. Emergence of international trading extensively impacted other areas of human life, such
as politics, arts, agriculture, industry, and public health.
4. The Ottoman Empire’s emergence before 1300, ultimately spanning Europe, North Africa,
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
money, animals, and microorganisms, raised the cost of Asian trade for Europeans, and
drove a search for sea routes to Asia, including expeditions that discovered the Americas.
5. In 1600, Great Britain’s British East India Company began establishing foreign branches
throughout Asia, and other nations soon imitated in an effort to exploit trade
opportunities for national advantage.
6. In 1602, the Dutch East India Company was formed to engage in colonial activities in Asia
and open ocean trade routes to that region.
7. By the end of the 1600s, Ships commissioned by European trading companies traveled
regularly to Asian markets via government-protected trade routes linking the Atlantic,
Indian and Pacific oceans, bringing valuable cargoes back to Europe in the hope of gaining
significant profits.
8. The 17th and 18th centuries have frequently been termed the “age of mercantilism”
because the power of nations depended directly on the sponsorship and control of
merchant capital operating internationally, which expanded under the direct subsidization
and protection of national governments.
9. A number of multinational companies existed in the late 1800s, such as Singer Sewing
Machine, J&P Coats, Ford Motor Company, and Bayer.
10. The level of intracompany trade of multinationals in 1930, as a percentage of overall world
trade, may have exceeded the proportion at the end of the 20th century.
in the number arising in emerging economies.
• The Growth of International Firms and International
• Foreign Direct Investment and Exporting Are
Growing Rapidly
• transnational corporation
• exporting
IV. The Growth of International Firms and International Business
1. Expanding Number of International Companies
2. The number of international companies is expanding rapidly.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
3. Transnational corporations are enterprises made up of entities in more than one nation,
operating under a decision-making system that allows a common strategy and coherent
policies.
1. The United Nations Conference on Trade and Development (UNCTAD) estimates there are
82,000 transnational corporations, with 810,000 foreign affiliates and a collective level of
employment of 78 million people.
trade.
3. Sales of transnationals’ foreign affiliates have grown about 700 percent in the past 20
5. State-owned transnationals, from both developed and developing nations, number at
least 550, have over 15,000 foreign affiliates, have assets exceeding $2 trillion, and
account for over 11 percent of the world’s foreign direct investment.
economic life in many nations. Although these subsidiaries can be perceived as a threat to the
autonomy of governments, policies and attitudes toward foreign investment have markedly
liberalized in recent years in both developed and developing nations.
1. Although critics may compare transnational companies’ revenues with gross national
income, these comparisons inaccurately compare the relative value added of companies
a. Foreign direct investment (FDI) refers to the direct investments in equipment, structures
and organizations in a foreign country at a level sufficient to obtain significant
1. The world stock of outward FDI was $30.8 trillion in 2018, 14 times larger than in
1990.
country or region from a foreign origination point.
c. Merchandise exports grew from $2 trillion in 1980 to $3.5 trillion in 1990, $6.5 trillion in
2000, $15.3 trillion in 2010, and $17.7 trillion in 2017.
d. Service exports worldwide grew at a more rapid pace than merchandise exports, from
$396 billion in 1980 to $5.3 trillion in 2017.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
LO 1-4
Identify the kinds of drivers that are leading firms to
internationalize their operations.
• What Is Driving the Internationalization of Business?
o Political Drivers
o Technological Drivers
o Market Drivers
o Cost Drivers
o Competitive Drivers
Key Terms:
V. What Is Driving the internationalization of Business?
1. Five major kinds of drivers, all based on change, are leading international companies to
internationalize their operations: political, technological, market, cost and competitive drivers.
2. Political Drivers
1. Trends toward the unification and socialization of the global community, such as
preferential trading arrangements that group several nations into a single market,
combined with the progressive reduction of barriers to trade and foreign investment by
most governments and the privatization of much of the industry in former communist
nations have encouraged firms to internationalize activities to gain access to these new,
larger markets.
2. Potential protectionism by host country markets, including import barriers, may
1. Advances in computers and communications technology permit an increased flow of ideas
and information across borders, enabling customers to learn about foreign goods and
enhancing potential for international business.
2. Smaller companies may find barriers reduced for being able to communicate and serve
customers abroad.
3. Computer-based communication may enhance virtual integration, allowing firms move
4. Market Drivers
1. As firms internationalize, they also become global customers.
do not replace them with customers.
3. Mature home country markets may encourage companies to consider nations with rising
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
5. Cost Drivers
1. Improved economies of scale, shared costs of research and development, investment
incentives and so forth.
6. Competitive Drivers
1. New competitors from developing nations, entry of foreign firms into a company’s home
market, access to supplies, and entry into downstream activities to preserve markets for
product.
LO 1-5
Compare the key arguments for and against the globalization
of business.
• What Is Globalization and What Are the Arguments
for and Against the Globalization of Business?
• Concerns with Globalization
• Arguments Supporting Globalization
Key Terms:
• economic globalization
I. What Is Globalization and What Are the Arguments for and Against the Globalization of Business?
1. Globalization has implications across broad ranges of activity, such as political, social,
environmental, historical, geographic, cultural, technological, and political.
2. Most common definition of globalization is economic globalization—the tendency toward an
international integration and interdependency of goods, technology, information, labor and
capital, or the process of making this integration happen.
3. There are many strong feelings about globalization, and it is important to understand the key
4. Concerns with Globalization
1. While many critics concede that globalization increases the size of the pie, they also claim
Globalization has produced uneven results across nations and people.
2. Globalization has produced uneven results across nations and people.
a. Export-led growth has failed to materialize in several places; Latin America, for
example, has not replicated Asia’s success despite efforts to liberalize, privatize and
deregulate its economies and sub-Saharan Africa has received only limited benefits.
is neither easy to do nor universal in its outcomes.
c. The gap between rich and poor in the world has increased due to globalization,
according to critics, though the evidence is not clear in this regard.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
a. Companies can more readily move to other nations with lower standards and costs,
in a “race to the bottom.”
d. Multinationals investing in developing nations may contribute to higher wages,
improved standards, faster job creation, and enhanced R&D.
e. Some host countries may feel that lower standards are necessary in order to
enhance competitiveness and improve prospects for investment and economic
development.
Mexican trucks to haul freight on U.S. highways.
c. Businesses may have an incentive to move their highest polluting activities to
nations with the least rigorous environmental regulations or lower risk of liability.
a. One of the few propositions on which almost all economists agree is that free trade
is the best strategy for advancing the world’s economic development.
growth, across a broad range of measures such as poverty, education, health, and
life expectancy.
c. Countries that have rejected globalization are among the most impoverished
countries in the world.
ones.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
01-12
c. The key is not to block change but to manage the costs of trade adjustment and to
support the transition of workers to more competitive employment.
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
01-13
ENGAGEMENT & APPLICATION
BOXED TEXT DISCUSSION QUESTIONS WITH SUGGESTED ANSWERS
IB IN PRACTICE: Adapting Listerine to Meet the Different Requirements of International
Markets
Listerine, a 135-year-old brand of mouthwash, is the dominant competitor in the U.S., but that
market has matured. As a result, company managers sought new growth opportunities abroad,
1. What challenges might arise as the managers of consumer products such as Listerine
attempt to respond to the many differences of consumers from a variety of nations and
regions of the world?
2. How might these various challenges affect the different activities of a company, such as
manufacturing, marketing, sales, and logistics?
Different countries may have differences in the required packaging types (e.g., glass versus
plastic, recyclable versus non-recyclable), package sizes (e.g., what is affordable to a customer),
International Business, 2e
Geringer, McNett, Ball
Instructor Guide to Module 1
01-14
GLOBAL DEBATE: Is the “Bottom of the Pyramid” a Market Worth Serving?
Professor C.K. Prahalad popularized the term “Bottom of the Pyramid” to refer to the
approximately 3 billion people who survive on less than $2 per day, where basic survival needs
are just barely met. Prahalad suggested that this large mass of humanity should be viewed as
1. Do you think the base of the pyramid represents an attractive and appropriate market for
multinational corporations? Why or why not? For which products or services might this
market be most appropriate?
The answer to this question will vary, and it is intended to help people think through the issue.
Certainly, students are likely to focus on products that are basic needs, such as those related to
2. If customers at the base of the pyramid could be convinced to allocate some of their
meager income to products such as cigarettes, alcoholic beverages, or cosmetics, would it be
socially responsible for multinationals to pursue such opportunities? Why or why not?