International

Business
Fourth Edition

CHAPTER 1
Globalization

1-3

The Global Retail Market

What Drives Globalization
Top 25 Retailers

Decline in cross-border
investment barriers.
40

16
2000

2009

Market Share

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1-4

The Global Retail Market

What Drives Globalization
Top 25 Retailers

40

Decline in cross-border
investment barriers.
Saturation and slow growth in
local markets.

16
2000

2009

Market Share

McGraw-Hill/Irwin

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1-5

The Global Retail Market

What Drives Globalization
Top 25 Retailers

40
16
2000

Decline in cross-border
investment barriers.
Saturation and slow growth in
local markets.
Retailers believed they would
benefit from economies of scale
from global buying power.

2009

Market Share

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1-6

The Global Retail Market

What characterizes these
retailers is that they all held
strong domestic market positions.

Top 25 Retailers

40
16
2000

2009

Market Share

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1-7

The Global Retail Market

Globalization Strategies
Top 25 Retailers

40

Carrefour, WalMart, Ahold, and

Tesco have led the Globalization of
retail stores with different
strategies:

16
2000

2009

Market Share

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1-8

The Global Retail Market

Globalization Strategies
Top 25 Retailers

40

Carrefour, WalMart, Ahold, and

Tesco have led the globalization of
retail stores with different
strategies:
Ahold: going global with a local
face

16
2000

2009

Market Share

McGraw-Hill/Irwin

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1-9

The Global Retail Market

Globalization Strategies
Top 25 Retailers

40
16
2000

Carrefour, WalMart, Ahold, and

Tesco have led the globalization of
retail stores with different
strategies:
Ahold: going global with a local
face
WalMart: Global retail brand

2009

Market Share

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1-10

But, It Isnt Easy

National differences in
tastes and preferences

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1-11

But, It Isnt Easy

National differences in
tastes and preferences
Distribution channels

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1-12

But, It Isnt Easy

National differences in
tastes and preferences
Distribution channels
Culturally embedded value systems

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1-13

But, It Isnt Easy

National differences in
tastes and preferences
Distribution channels
Culturally embedded value systems
Difficulty in establishing common retail model such
as:
Ahold: going global with a local face

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1-14

But, It Isnt Easy

National differences in
tastes and preferences
Distribution channels
Culturally embedded value systems
Difficulty in establishing common retail model such
as:
Ahold: going global with a local face
WalMart: Global retail brand

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1-15

But, It Isnt Easy

National differences in
tastes and preferences
Distribution channels
Culturally embedded value systems
Difficulty in establishing common retail model such as:
Ahold: going global with a local face
WalMart: Global retail brand

As well as factors like Labor costs, Desirable

locations, Sophistication of local supply base.

Cause problems for globalization. Therefore, we

should not assume globalization is a done deal.

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1-16

Globalization
Trade and investment
barriers are disappearing.

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1-17

Globalization
Trade and investment barriers are
disappearing.

Perceived distances are

shrinking due to advances in
transportation and
telecommunications.

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1-18

Globalization
Trade and investment barriers are
disappearing.
Perceived distances are shrinking due to
advances in transportation and
telecommunications.

Material culture is beginning

to look similar.

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1-19

Globalization
Trade and investment barriers are
disappearing.
Perceived distances are shrinking due to
advances in transportation and
telecommunications.
Material culture is beginning to look
similar.

National economies merging

into an interdependent global
economic system.

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1-20

Globalization: Pros& Cons

Pros
Increased revenue
opportunity through global
sales.

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1-21

Globalization: Pros& Cons

Pros

Increased revenue opportunity

through global sales.

Reduced costs by
producing in low cost
countries.

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1-22

Globalization: Pros& Cons

Pros

Increased revenue opportunity

through global sales.
Reduced costs by producing in low
cost countries.

McGraw-Hill/Irwin

Cons
Different nations =
different problems.

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1-23

Globalization: Pros& Cons

Pros

Increased revenue opportunity

through global sales.
Reduced costs by producing in low
cost countries.

McGraw-Hill/Irwin

Cons

Different nations = different

problems.

Similarities between
nations may be superficial.

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1-24

Globalization: Pros& Cons

Pros

Increased revenue opportunity

through global sales.
Reduced costs by producing in low
cost countries.

Cons

Different nations = different

problems.
Similarities between nations may be
superficial.

Global planning may be

easy, but global execution
is not.

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1-25

What is Globalization?
Markets
The shift toward a
more integrated and
interdependent world
economy.

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Production

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1-26

Globalization of Markets
Globalization means Merging of historically distinct
and separate national markets into one huge global
marketplace.

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1-27

Globalization of Markets
Globalization is

Facilitated by offering standardized products:

Citicorp
Coca-Cola
Sony PlayStation
McDonalds

Does not have to be a big company to participate:

Over 200,00 U.S. companies with less than 100
employees had foreign sales in 2000.

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1-28

Globalization

Where will
globalization most likely prosper better?
In consumer goods
Or
In industrial goods and materials

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1-29

The Largest Global Markets

Not
Consumer
Goods

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1-30

The Largest Global Markets

Not
Consumer
Goods

McGraw-Hill/Irwin

Industrial Goods and

Materials
Commodities such as
aluminum, oil and wheat.
Industrial products such as
microprocessors, aircraft.
Financial assets such as
U.S. Treasury bills and
Eurobonds.

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1-31

Globalization of Production

Why does
globalization of production take place?

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1-32

Why Globalization of Production?

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 (labor,energy,
land and capital).

McGraw-Hill/Irwin

Global Products

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1-33

Why Globalization of Production?

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 (labor,energy, land and

This also increases

the companys chance to
obtain those countries
market for their products
as well.

Global Products

capital).

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1-34

Why Globalization of Production?

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
(labor,energy, land and capital).

Global Products

Companies hope to lower

their overall cost structure
and/or improve the quality
or functionality of their
product offering increasing their
competitiveness.

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1-35

Macro Factors
Decline in Trade
Barriers

Globalization
Technological
Change

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1-36

International Trade: When a firm exports goods

or services to consumers in another country.
Foreign Direct Investment: When a firm invests
resources in business activities outside its home
country.

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1-37

General Agreement on Tariffs and Trade

Member states (140) in eight negotiating rounds
worked to lower barriers to the free flow of
goods and services.
In the most recent round, the Uruguay Round,
nations agreed to enhanced patent, copyright and
trademark protections and established the
World Trade Organization.

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1-38

Average Tariff Rates on Manufactured

Products as Percent of Value
France
Germany
Italy
Japan
Holland
Sweden
Britain
U.S.A.

1913
21%
20
18
30
5
20
44

1950
18%
26
25
11
9
23
14

1990
5.9%
5.9
5.9
5.3
5.9
4.4
5.9
4.8

2000
3.9%
3.9
3.9
3.9
3.9
3.9
3.9
3.9

Table 1.1

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1-39

Fewer FDI Restrictions

Between 1991 and 2000
of the 1,121 changes worldwide in laws
governing FDI, 95% created a more
favorable investment environment.
During 2000, 69 countries made 150
changes to FDI regulations, 147 or 98%
were more favorable to investment.

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1-40

The Growth of World Trade and

Output
2500
2000

Trade

1500

Trade

1000

Output
GDP

500
0
1950
McGraw-Hill/Irwin

1960

1970

1980

1990

2000 Figure 1.1

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1-41

The Role of Technological Change

Even though the lowering of
trade barriers made
globalization a
theoretical possibility,
the new technologies
made it a reality.

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1-42

The Role of Technological Change

Invention and innovations in
Microprocessors and
telecommunications

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1-43

The Role of Technological Change

Invention and innovations in
Microprocessors and
telecommunications
Container transportation

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1-44

1500-1840

The Shrinking Globe

Best average speed of

horse-drawn coaches and
sailing ships, 10mph.

1850-1930

Steam locomotives average 65mph.

Steamships average 36mph.

1950s

Propeller aircraft
300-400 mph.

Figure 1.2

McGraw-Hill/Irwin

1960s

Jet passenger aircraft

500-700mph.
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1-45

The Role of Technological Change

Invention and innovations in
Microprocessors and
telecommunications
Container transportation
The Internet and World
Wide Web

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1-46

Worldwide E-Commerce Growth

Forecast
8000
7000
6000

Rest of World

5000

Latin America

4000
3000

W.Europe
Asia Pacific

2000
1000

North America

0
2000
McGraw-Hill/Irwin

2001

2002

2003

2004

Figure 1.2

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1-47

Implications for Globalization of Production

Production dispersed to
economical locations
due to transportation and communication advances.
It has allowed firms to create and manage a globally
Dispersed production system, further facilitating
Globalization of production

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1-48

Implications for Globalization of Markets

New markets opened through WWW.

Jet aircrafts move people and goods.
Global media such as
(CNN, HBO, MTV) are creating a worldwide culture.

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1-49

The Changing Paradigm of the Global Economy

Old:
U.S. dominance of the world economy and world
trade.

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1-50

The Changing Paradigm of the Global Economy

Old:
U.S. dominance of the world economy and world trade.

U.S. dominance in world FDI.

McGraw-Hill/Irwin

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1-51

The Changing Paradigm of the Global Economy

Old:
U.S. dominance of the world economy and world trade.
U.S. dominance in world FDI.

U.S. firms dominance of international business.

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1-52

The Changing Paradigm of the Global Economy

Old:
U.S. dominance of the world economy and world trade.
U.S. dominance in world FDI.
U.S. firms dominance of international business.

of the world economies (Communist dominated)

were off-limits to western businesses.

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1-53

The Changing Pattern of World Output and

Trade
Output measured by GNP.
SHARE OF
WORLD OUTPUT
1963

SHARE OF
WORLD OUTPUT
2000

SHARE OF
WORLD EXPORTS
2000

40.3%

27%

12.3%

5.5

14.2

7.54

9.7 (W. Ger.)

7.3

8.7

France

6.3

5.2

4.7

United
Kingdom
Italy

6.5

4.1

3.7

3.4

4.1

3.7

Canada

3.0

2.0

4.4

China

NA

3.2

3.92

South Korea

NA

1.4

2.7

COUNTRY
United States
Japan
Germany

McGraw-Hill/Irwin

Table 1.2

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1-54

Percentage Share of Total FDI Stock, 1980-2000

45
40
35
30
25

1980

20

1990

15

2000

10

McGraw-Hill/Irwin

Japan

France

Netherlands

U.S.A.

Germany

U.K.

5
Dev.
Countries

Figure 1.4

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1-55

FDI Inflows, 1988-2000

($ Billions)

1000
800
600
400

Developed Countries
Developing Countries
United States
China

200
0

McGraw-Hill/Irwin

Figure 1.5

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1-56

The National Composition of the Largest Multinationals

1973

1990

1997

2000

U.S.A.

48.5%

31.5%

32.4%

26%

Japan

3.5

12

15.7

17

U.K.

18.8

6.8

6.6

France

7.3

10.4

9.8

13

Germany

8.1

.9

12.7

12
Table 1.3

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1-57

The Changing World Order

The fall of Communism in Eastern Europe and the
former Soviet Union.

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1-58

The Changing World Order

The fall of Communism in Eastern Europe and the
former Soviet Union.
Czechoslovakia has divided itself into two states.

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1-59

The Changing World Order

The fall of Communism in Eastern Europe and the
former Soviet Union.
Czechoslovakia has divided itself into two states.
Yugoslavia has divided into 5 (often warring) successor
states.

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1-60

The Changing World Order

The fall of Communism in Eastern Europe and the
former Soviet Union.
Czechoslovakia has divided itself into two states.
Yugoslavia has divided into 5 (often warring) successor
states.
Pro-democracy movement (suppressed) in China.

McGraw-Hill/Irwin

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1-61

The Changing World Order

The fall of Communism in Eastern Europe and the
former Soviet Union.
Czechoslovakia has divided itself into two states.
Yugoslavia has divided into 5 (often warring) successor
states.
Pro-democracy movement (suppressed) in China.
Latin America has seen both democracy and free
market reforms.

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1-62

Hopes and Fears of the 21st Century

1. Will economic and

political reforms hold?

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1-63

Hopes and Fears of the 21st Century

1. Will economic and

political reforms hold?

2. Economic problems are

no longer isolated and
can become global.

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1-64

Globalization

Twin engines of prosperity

Lower trade barrier

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1-65

Globalization
Twin engines of prosperity
Lower trade barriers

FDI

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1-66

Globalization
Jobs and Income
Firms move jobs to low cost
countries.

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1-67

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.

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1-68

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.
Increases income in less
developed countries.

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1-69

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.
Increases income in less
developed countries.
May lead to income
inequality.

McGraw-Hill/Irwin

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1-70

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.
Increases income in less
developed countries.
May lead to income
inequality.

McGraw-Hill/Irwin

Labor Policies and the

Environment
Firms move to countries
with weak laws.

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1-71

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.
Increases income in less
developed countries.
May lead to income
inequality.

McGraw-Hill/Irwin

Labor Policies and the

Environment
Firms move to countries
with weak laws.
Economic progress leads to
stronger laws.

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1-72

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.
Increases income in less
developed countries.
May lead to income
inequality.

McGraw-Hill/Irwin

Labor Policies and the

Environment
Firms move to countries
with weak laws.
Economic progress leads to
stronger laws.
By creating wealth and
incentives for technology
improvements, world will be
better.

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1-73

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.
Increases income in less
developed countries.
May lead to income
inequality.

McGraw-Hill/Irwin

Labor Policies and the

Environment
Firms move to countries
with weak laws.
Economic progress leads to
stronger laws.
By creating wealth and
incentives for technology
improvements, world will be
better.
Tie strong laws to
international agreements.

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1-74

Globalization
Jobs and Income
Firms move jobs to low cost
countries.
Countries specialize in
efficiently produced goods
and import those they can
not efficiently produce.
Increases income in less
developed countries.
May lead to income
inequality.

McGraw-Hill/Irwin

Labor Policies and the

Environment

Firms move to countries

with weak laws.
Economic progress leads to
stronger laws.
By creating wealth and
incentives for technology
improvements, world will be
better.
Tie strong laws to
international agreements.
Firms are not amoral.

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1-75

Environmental Performance Index

Environmental Performance and Income

7.0
6.5

6.0
5.5
5.0

Germany

Finland

Netherlands
Bulgaria

Ireland
Jamaica
Korea
China
S.Africa
India
Tunisia Trinidad
Kenya Nigeria
Egypt
Malawi
Thailand
Tanzania
Bangladesh
Bhutan
Ethiopia
6

10

Income Index
McGraw-Hill/Irwin

11

Figure 1.6

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1-76

Globalization and National Sovereignty

Under the new system, many decisions that affect billions of
people are no longer made by local and national governments
but instead, if challenged by any WTO member nation, would
be deferred to a group of unelected bureaucrats sitting
behind closed doors in Geneva. The bureaucrats can decide
whether or not people in California can prevent the destruction
of the last virgin forests or determine if carcinogenic pesticides
can be banned from their foods; or whether European countries
have the right to ban dangerous biotech hormones in meat
At risk is the very basis of democracy and accountable decision
making.
Ralph Nader.

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1-77

Globalization and National Sovereignty

WTO
EU

WTO

Founded 1994
140 members
Police GATT trading system

UN

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Supranational organizations
are limited to powers granted
by member countries and serve
the collective interests of its
members.
Power is derived from
the organizations ability to sway
members to action.
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1-78

Globalization and the Worlds Poor

Critics argue that globalization has not helped poor.

1870: per capita income of 17 richest nations was

2.4x that of all other countries.

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1-79

Globalization and the Worlds Poor

Critics argue that globalization has not helped poor.

1870: per capita income of 17 richest nations was

2.4x that of all other countries.
1990: it was 4.5x larger.

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1-80

Globalization and the Worlds Poor

Other factors may have influenced the gap.

Totalitarian governments.

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1-81

Globalization and the Worlds Poor

Other factors may have influenced the gap.

Totalitarian governments.
Economic policies that destroyed wealth creation.

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1-82

Globalization and the Worlds Poor

Other factors may have influenced the gap.

Totalitarian governments.
Economic policies that destroyed wealth creation.
Little protection of property rights.

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1-83

Globalization and the Worlds Poor

Other factors may have influenced the gap.

Totalitarian governments.
Economic policies that destroyed wealth creation.
Little protection of property rights.
Expanding populations.

McGraw-Hill/Irwin

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1-84

Globalization and the Worlds Poor

Other factors may have influenced the gap.

Totalitarian governments.
Economic policies that destroyed wealth creation.
Little protection of property rights.
Expanding populations.
War.

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1-85

Managing in the Global Marketplace

An International Business is any firm that engages in
international trade or investment.

Managing an international business is different

than managing a domestic business:
1. Countries are different.

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1-86

Managing in the Global Marketplace

An International Business is any firm that engages in
international trade or investment.

Managing an international business is different

than managing a domestic business:
1. Countries are different.
2. Problems are more complex.

McGraw-Hill/Irwin

2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-87

Managing in the Global Marketplace

An International Business is any firm that engages in
international trade or investment.

Managing an international business is different

than managing a domestic business:
1. Countries are different.
2. Problems are more complex.
3. Must work within government regulations.

McGraw-Hill/Irwin

2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-88

Managing in the Global Marketplace

An International Business is any firm that engages in
international trade or investment.

Managing an international business is different

than managing a domestic business:
1. Countries are different.
2. Problems are more complex.
3. Must work within government regulations.
4. Currency conversion presents unique problems.

McGraw-Hill/Irwin

2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-89

Managing in the Global Marketplace

An International Business is any firm that engages in
international trade or investment.

Managing an international business is different

than managing a domestic business:
1. Countries are different.
2. Problems are more complex.
3. Must work within government
regulations.
4. Currency conversion presents
unique problems.

McGraw-Hill/Irwin

2003 The McGraw-Hill Companies, Inc., All Rights Reserved.