Chapter 1
The World Business Challenge
John S. Hill
Figure1-1: Chapter Outline
The World Business Challenge
The World
Business
Challenge
Globalization:
Historic
Perspectives
The Globalization
Movement since 1980
Responding to the
International Business
Challenge
International Business Topics and
the Organization of this Text
The World Business Challenge

The Diverse
International
Marketplace

The Changing
International
Marketplace
The Diverse International
Marketplace
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Political diversity: Autocracies-democracies
Economic diversity: $100 per capita to $40,000
Regional diversity:North America 5-6% world
population, 30% GDP; Asia 60% world population ¼
world GDP
Cultural/Linguistic diversity: 10,000 cultural
groups and 200 nations
Diversities in Country Size and Populations
Developmental diversities
The Changing World Marketplace
Political change: nations seek political stability
but elections, governmental and leadership
changes problematic
 Economic change: economic growth, inflation,
unemployment problems; governmental economic
mismanagement; currency fluctuations
 Cultural change: e.g. religious or ethnic conflict
creates uncertainties for political and economic
climates
 Financial changes: conduct transactions in a
world marketplace with over 180 currencies
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Responding to the International Business Challenge:
How Executives Cope with Global Diversity and Change

From Cultural
Ignorance to Cultural
Understanding

Analytic Tools: The
Multi-Disciplinary
Nature of
International Business
From Cultural Ignorance to Cultural
Understanding
Cultural ignorance: when individuals have no
knowledge of cultural differences
 Cultural awareness: when people know there are
cultural differences and are looking for them
 Cultural knowledge: know appropriate behaviors
but not why they occur
 Cultural understanding: when businesspeople not
only know what behaviors are appropriate but also
understand why those behaviors are occurring

Analytic Tools: The Multi-Disciplinary Nature of
International Business
Political science: the study of politicians, political
institutions and their effects on business and
society
 Anthropology: study of the evolution of mankind
in its various environments: traditional to modern
 Economic Development: changes in institutions
and values as countries progress economically
 Sociology: the study of group behaviors in
society—social class, gender behaviors

Analytic Tools: The Multi-Disciplinary Nature of
International Business
Religion: the primary determinant of behaviors
and lifestyles in non-Christian countries e.g.
Islam, Buddhism, Hinduism, Confucianism,
Taoism
 Geography: a known quantity in firms’ national
markets, unknown in foreign markets—climate,
topography, resources and their effects
 History: a key tool in understanding a country’s
current political, economic and cultural
circumstances
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Globalization: Historic
Background
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Globalization: Definition
and Components
The Exploration Era to
1500
1500-1900:The Colonial
Era
1900-today: The Era of
the Modern International
Corporation
Globalization: Historic
Background

Globalization: Definition

The globalization movement is the trend towards
increasing interdependencies among world markets, and
the diffusion of new ideas, technologies, products, services
and lifestyles through international markets
Globalization: Historic
Background

Globalization: Components
 Modernization: the upgrading of technologies and
living standards that occur as ideas, products, and
services diffuse through world markets
 Westernization: the emulation of lifestyles and
behaviors of Western societies, most notably those of
North America and Western Europe
Globalization: Historic
Background

The Exploration Era to 1500
Civilization of Latin America (Incas, Mayans, Aztecs),
Asia (India & China), Western Europe (Romans) and
Egypt (pharaohs and pyramids)
 Sixth century B.C.: Silk Road from Middle East to China
 Roman Empire established trade routes and common
currency
 12th & 13th centuries: Major navigational advances for sail
ships
 15th century: Major period of exploration to Americas,
Africa and Asia
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Globalization: Historic
Background
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1500-1900:The Colonial Era
The development of mega languages: early on
Latin & Chinese; later, English & European
languages
Advances in arms and military capabilities
Writing and printing technologies
Transportation innovations: the steam engine
The industrial revolution: machines & electricity
Communications Advances: telephone/telegraph
Retail establishments: access to products/services
Globalization: Historic
Background
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1900-today: The Era of the Modern
International Corporation
1900-1945: Company Internationalization
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“Companies began to replace countries as the major
catalysts of economic and cultural change” Aided by air
travel, automobiles, radio and television
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1945-1980: Era of Increasing International
Competition
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“Corporations began to reassert themselves in international
markets” European and Japanese companies challenge US
corporations in international markets
The Globalization Era Since 1980
The Major Catalysts of
Post 1980 Globalization
 Globalization and the
Developing World
 Reasons for
Developmental
Differences: The
Diffusion Process in
International Business
 Diffusion Effects on
Strategy Formulation and
Implementation

The Major Catalysts of Post 1980
Globalization
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International Trade: GATT and WTO. Trade
increases to about $8 trillion in 2002
Trade Blocs: Trade blocs to facilitate commercial
interactions among members: EU, NAFTA
Foreign Direct Investments (FDI): International
companies make investments in factories, plant and
machinery in non-domestic markets. 10 fold increase
over 1980-2002 to over $7 trillion
Global Movements towards Capitalism: Demise of
communism in the 1980s and 1990s
Technology and Global Media: The advent of satellite,
computer and Internet technology
Globalization and the Developing World
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Up to 1985, the Triad nations of North America,
Western Europe, and Japan were dominant in world
commerce
As developing markets opened up to trade and
investments, so new ideas and technologies began to
contribute to economic and cultural change
The diffusion of technologies and consequent
modernization processes have barely impacted many
emerging markets
Reasons for Developmental Differences:
The Diffusion Process in International
Business
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The International Diffusion Process
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Figure 1-4: Diffusion Across Markets
1: Advancing countries
2: Industrializing countries
3: Less advanced countries
Global
market
diffusion
1
2
3
Time
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Figure 1-5: Diffusion Within Markets
a: Urban centers
b: Semi-urban centers
c: Rural-areas
National
market
diffusion
a
b
c
Reasons for Developmental Differences:
The Diffusion Process in International
Business

The Diffusion Process in National Markets:
Determined by:

Country Openness to External Influences
Education and Literacy levels: low levels retard diffusion
rates; high levels facilitate diffusion
The Importance of National Infrastructures: poor roads,
rails, energy grids slow down diffusion rates
Effects of National Ethnic and Linguistic Compositions:
multi-ethnic/lingual societies slow down diffusion rates
How disruptive innovations are on national lifestyles
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Diffusion Effects on Strategy Formulation
and Implementation
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The Arguments for Standardized Strategies
 While companies make some adaptations (voltage changes for electronic
goods; right/left hand drives and minor stylistic changes for autos;
labeling changes for consumer products), essentially products and
services are similar from market to market
 Take advantage of customer demand homogenized through trade, commercial
contacts, international media
 Often the industrialized nations and advanced sectors of LDCs

The Arguments for Localized Strategies
 This involves taking full account of national cultures, values and
behaviors
 Necessary in countries with strong national cultures and nations
relatively untouched by the forces of globalization. Companies must adapt to be
successful
 Most companies need to adapt to greater or lesser degrees
World Business Topics and the
Organization of this Text
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Chapter 1 introduces key world business concepts,
globalization, its history, background and general effects
Chapter 2 examines the forces contributing to the
globalization movement: the United Nations, private sector
contributions, trade blocs and privatization programs
Chapter 3 looks at globalization effects: how technology
transfers affect nations and the transitions from traditional
to modern societies
Chapter 4 tackles regional development issues
Chapter 5 shows how individual markets are analyzed
Chapter 6 looks at how firms analyze industries and
competitors on a worldwide scale
International Business Topics and
the Organization of this Text
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Chapter 7 brings industry and company analyses into the
corporate planning process
Chapter 8 describes companies’ globalization processes
Chapter 9 looks at the creation of global and multimarket strategies: global brands, competitive and financial
strategies
Chapter 10 shows how firms choose to enter and service
individual markets
Chapter 11: examines how companies manage multimarket supply chains
Chapter 12 looks at how cultural differences are managed
Chapter 13 discusses the management of local
stakeholders and supply chains
Key Points

World business is the performing of commercial activities to
promote the sale of goods and services across national
boundaries
 The world business challenge is to use tools from political
science, anthropology, economic development, sociology,
religious studies, geography and history to understand the
diversity and change inherent in world markets
 The globalization movement is the trend towards increasing
interdependencies among world markets and the diffusion of
new ideas, technologies, products, services, and lifestyles
through international markets
Key Points
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Modern corporations date from the 19th century, but
grew dramatically in the post-1945 era, with US,
European, and Japanese companies taking the lead
The diffusion process of new technologies and
products starts with developed countries and moves
over time into developing markets; within national
markets, diffusion starts with urban markets and
moves into semi-urban and then into rural areas
The diffusion process affects strategy formulation and
implementation, with standardized strategies more
likely in developed markets; and adaptation strategies
more likely in rural and developing markets
Thank You
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Chapter 13 Localization Strategies: Managing Stakeholders