Globalization and
International Linkages
Chapter 1
Course Outline
The Global
of Business
in Global
Behavior and
Global Human
The Global Environment of
• Chapter 1: Globalization and international
• Chapter 2: The political, legal, and technological
environment of business
• Chapter 3: Ethics and social responsibility
Questions on “Emerging Giants”
(pages 1 – 4) – we will discuss on Jan. 22
• What is the main point of this article?
• How do the emerging corporate giants differ from those
of earlier decades?
• How has each of the following firms responded to the
“emerging giants”?
Nortel Networks
Chapter 1 Outline
• International business and management
• Globalization
Outsourcing and offshoring
Advantages and disadvantages
The World Trade Organization
Regional trade blocs
The shifting balance of economic power
Chapter 1 Outline (2)
• Economic systems
• Regional economic issues
Other economies in East Asia
South America
International Management
• The process of
– applying management concepts and techniques in a
multinational environment and
– adapting management practices to different
economic, political, and cultural environments
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
International Business Activity
Exporting and Importing
• Exporting: selling products made in one’s own country
for use or resale in other countries
• Importing: buying products made in other countries for
use or resale in one’s own country
International Business Activity (2)
International Investments
• Foreign direct investment: the investor has control, or
shares control, in the management of the asset
– Home country: the country in which the parent company's
headquarters is located
– Host country: any other country in which the company does
• Portfolio investment: the purchase of financial assets,
such as stocks and bonds, issued by companies outside
your own country
Firms Involved in International Business
• Multinational corporations (MNC's)
– Operations in more than one country
– International sales
– Nationality mix of managers and owners
• Small and medium-sized enterprises (SME's)
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Globalization of Business
• Globalization of business functions
Manufacturing and service operations
Purchasing and supplier networks
Business process outsourcing: call centers,
technical service, financial research
• Global business environment with global
Outsourcing and Offshoring
• Outsourcing is contracting to buy goods or
services that your company produced in the
past. When the work is done outside your own
country, offshore outsourcing occurs.
• Offshoring means performing business activities
outside the country where the resulting goods or
services are sold.
Claims Made by Supporters of Globalization
in Developed Countries
• Increases corporate profits and shareholder
• Attracts foreign investment
• Opens foreign markets to exports and
– U. S. has a positive balance of trade in services
– U.S. farmers are efficient and can compete in
world markets
• Creates global markets for technology
Claims Made by Supporters of Globalization
in Developed Countries (2)
Provides access to raw materials
Reduces costs
Creates some high-wage jobs
Reduces prices for consumers
Gives consumers more product choices
As developing countries become more
prosperous, they will buy more goods and
services from developed countries
Claims Made by Opponents of Globalization
in Developed Countries
• In its present form, free trade is not fair
trade – "playing field" is not level.
• Eliminates low-wage jobs
• Some high-wage jobs are now being
outsourced to low-wage countries
• Reduces wages or slows wage growth
• Creates trade deficits
Claims Made by Supporters of
Globalization in Developing Countries
Attracts foreign investment
Provides access to prosperous markets
Creates jobs
Makes technology and "know how" available
Often increases wages
Provides access to new products
Claims Made by Opponents of Globalization
in Developing Countries
• Most benefits go to politicians, rich people,
and foreign corporations
• Loss of natural resources
• Foreign companies have too much power in
the local economy
• Local firms find it hard to compete
• Farmers cannot compete with foreign
agribusiness companies
Claims Made by Opponents of Globalization
in Developing Countries (2)
Environmental damage
Health and safety issues
Increased use of child labor
Loss of local culture, languages, and
traditional ways of life
Trade Definitions
• A tariff is a tax on an imported good.
• A subsidy is a government payment to producers
of certain products.
– Farm products are often subsidized.
World Trade Organization (WTO)
• 153 member countries
– Russia is not a member.
• Oversees regulations for
international trade in goods and services
international investment
protection of intellectual property
settling trade and investment disputes between
World Trade Organization (2)
• Developing countries can charge higher tariffs
and impose more restrictions on investment than
developed countries
• Developing countries want the WTO to change
its rules so that they will be more competitive in
the global economy.
– The biggest issue is subsidies that developed
countries pay to their own farmers to encourage crop
North American Free Trade
Agreement (NAFTA)
• Free trade agreement among Canada, United States,
and Mexico
– Free trade agreement means that there are no tariffs on
goods traded among member countries
– This provision applies only to goods that were produced in
one of the 3 countries
• Most restrictions on foreign investment among the 3
countries have been abolished.
• Firms in member countries can compete for
government contracts.
• Financial services firms can do business in all 3
• There is a dispute resolution procedure.
• Each country agreed to enforce its own laws
related to
Environmental protection
Child labor
Minimum wages
Workplace safety
Free Trade Agreements in Central
and South America and the Caribbean
Other Free Trade Areas
in the Americas
• Mercosur – includes Brazil, the largest economy
in South America
• The Andean Community
• The Caribbean Community (CARICOM)
• Central American Common Market
• Tariffs are imposed on U. S. goods exported to
Mercosur, the Andean Community, and
Other Free Trade Areas
in the Americas (2)
• ALADI is a free trade area among
– Mercosur
– The Andean Community
– Mexico, Chile, and Cuba
• CAFTA-DR is a free trade agreement among the
United States, the Central American Common
Market, and the Dominican Republic
• A proposed Free Trade Area of the Americas has
made little progress
European Union (EU) Before 2004 Enlargement
Countries that joined
the EU in 2007
• Bulgaria
• Romania
Candidates for
EU Membership
• Croatia
• Macedonia
• Turkey
EU after 2004 Enlargement
The European Union (EU)
• Almost 500 million people
• 27 member countries
• 2006 Gross Domestic Product (GDP) was
about 13.5 trillion dollars
– Slightly higher than U. S. GDP
• 16 EU members use the euro currency
– The European Central Bank manages the euro
currency (similar to the Federal Reserve Bank in the
United States)
The European Union
A Single Market
• Free trade in goods and services among
member countries
• Common tariffs on goods imported from
outside the EU
• Common (minimum) product standards CE mark is required to sell many goods
• Business is subject to many regulations
• The EU Commission settles trade disputes
among EU members.
Rights of EU Citizens
• EU citizens have a right to live and work in any
EU country
• These rights take effect 7 years after a country
joins the EU
– 2011 for countries that joined in 2004
– 2014 for Bulgaria and Romania
• Individual countries can choose to grant
residency and work rights sooner.
The Shifting Balance
of World Economic Power
• For about 20 years, 55 – 60% of global imports and
exports have come from four areas: the United States,
the EU, Japan, and China
• The BRIC countries – Brazil, Russia, India, and China –
are expected to be among the fastest growing
economies for the next 20 – 40 years
• China, India, Brazil, and several Arab countries are
increasing their foreign direct investment.
Economic Systems
• Market economy
• Command economy
• Mixed economy
The Asian Economic Model
• Originated in Japan, copied by others
– Government targeted industries for growth
– Industry restructuring, led by government.
• Loans and subsidies
• Tax breaks
– Cooperative research and development.
– Protect the home market, and export aggressively
• Also called export-led development
Japan Today
127 million people
Second largest economy in the world
Parliamentary democracy
Major investor in the U.S., Europe, and Asia
Japan Today (2)
• Keiretsus – networks of companies under common
– Usually includes a bank and a trading company.
– Long-term supplier relationships
• South Korean chaebols have a similar structure.
• Japanese consumers have high quality standards and
often prefer Japanese products.
Ruled by the Chinese Communist party.
Mixed economy: 65% private, 35% government-owned.
GDP growth of 11.4% in 2007.
Average growth rate of 10% for the last ten years.
Fastest growing economy in the world.
China (2)
• Most growth has come from exports.
– Global economic crisis has drastically reduced
• China is attempting to diversify into other areas, such as
software development.
• Wages are now higher than in Malaysia and Indonesia
Political Environment in China
• Growing conflict between the government and
the people
– Protests against local officials for corruption,
endangering people, neglecting people's health
needs, and poor management
• Central government is determined to remain in
– Internet portals are required to enforce government
censorship of Web sites.
The Chinese Market
• 1.3 billion people, ethnically diverse – largest population
in the world
• A middle class is developing in the cities and new
economic zones, where private businesses are
• Most rural people are still poor.
• Good market research is essential. Chinese customers
do not always want the same products as Americans or
Other Economies in East Asia
• The "Four Tigers"
South Korea
Hong Kong
• Emerging economies
Hong Kong
• A special autonomous region of China
– The head of Hong Kong's government is appointed by
– Members of the legislature are elected.
– Hong Kong makes most decisions about its internal
• Market economy with many business links to China
• Most manufacturing has been transferred to China
• 1.15 billion people.
• Average GDP growth rate of 7% per year for the past 10
• High tariffs and government regulations limit foreign
access to India's markets.
• Growing manufacturing sector.
• Software development and business process
outsourcing are also growing rapidly.
• One national language (Hindi), 22 regional languages
• About half of India's people are still too poor to buy most
consumer goods.
• 141 million people, many ethnic minorities
• Russia has large oil reserves and the world's
largest reserve of natural gas.
• Average economic growth of 7% per year for
nine years.
• Growing demand for consumer goods and
• Falling oil and gas prices are hurting Russia's
Russia (2)
• Corruption and organized crime are serious
– A 2007 survey of international business executives
ranked Russia among the top 20% in terms of
• The government is re-taking control of energy
companies. It has also taken control of some
heavy industry and agriculture.
• The law and the court system do not protect
private property or the individual rights.
Recent Political Events
in South America
• Privatization occurs when government-owned
businesses are sold to private owners.
• Most government-owned businesses in South America
were privatized in the 1980's.
• In the 1990’s, nearly all South American countries had
democratically elected governments and market
– In several South American countries, poor and
indigenous people did not believe that they had
benefited from this system.
Recent Political Events
in South America (2)
• In recent years, Socialist governments have
been elected in Venezuela, Bolivia, Ecuador,
Paraguay, and Brazil.
• Most have focused on increased government
ownership of business.
• Seizing land from wealthy land owners and
giving it to poor people has been proposed in
• Brazil has taken a different path.
• 192 million people, ethnically diverse
• Ninth largest economy in the world
• For the past 5 years, inflation and government
spending have been tightly controlled.
• Government programs to reduce poverty
– Small monthly welfare payments to meet
basic needs
– A micro-finance program makes loans to help
poor people start their own businesses
• Economic growth has averaged 5% per year.
Diverse countries
South Africa is the largest economy and is a democracy
Many authoritarian governments
Ethnic strife
Considerable natural resources in some countries
Most exports are agricultural products and natural
• Poverty, starvation, illiteracy, corruption, disease,
overcrowding are among many social problems that
reduce economic growth.

Globalization and International Linkages