Topic outline
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Globalisation & International Business
Things you need to do for this topic:
- Topic Discussion notes: Read the Discussion notes for Topic 1.
TOPIC 1: Introduction & Overview to International Business & National Differences (Political, Economic & Legal)
Introduction to Topic Discussion Notes
The Topic Discussion Notes provide you with a brief summary of the essential concepts to master in each Topic and the major Learning Outcomes.
Specifically, each of the key concepts in the relevant chapters for each Topic are summarised briefly.
In addition, there are brief summaries of each slide related to the Course Slides for each chapter. You will find that the summaries for each slide provide you with an essential background of knowledge, ideally after you have read each chapter. In this way it enables you to test your knowledge, as well as laying a foundation to build on and deepen your knowledge of international business by reading many of the of the Course Journal Articles. While they are optional reading, reading the Course Journal Articles will assist you to have a much broader, more contemporary and practical knowledge base from which to apply your knowledge now and in the future.
Note that the Course Slides are located on the Learnonline site and the Journal Articles are available through the e-Library Resources for this Course.
Topics for this Course:
After an Introduction and Overview to International Business and exposing you to the concepts of globalisation, and National Differences (Political, Economic & Legal) in Topic 1, the Course will take you to Topic 2 to review further National Differences of international business, including Culture and CSR, ethics and governance.
Topic 3 will provide you with a comprehensive knowledge of Global Trade and Investment, with emphasise on theories that explain trade patterns and firm and managerial decision-making, as well as the alternatives in Government Policy that influence these processes. This base then extends the course into Foreign Investment and Regional Integration – the subject of Topic 4.
Topic 5 involves the key concepts underpinning the Global Monetary System, including the Foreign Exchange process and Capital Market structures and their movement. Topic 6 will bring us to consider setting Strategy and designing appropriate Organisational Structures for your international operations. The discussion across the various Entry Strategies options follows - in Topic 7.
Finally, Global Supply Chains and International Marketing issues, perceived as International Business Functions are dealt with in Topic 8, culminating in the management of Human Resources - the people - in your international firm or organisation.
Let us now begin with:
Topic 1: Introduction & Overview to International Business & National Differences (Political, Economic & Legal)
Chapter 1: Globalization (Introduction & Overview)
Learning objectives
- Understand what is meant by the term globalization.
- Recognize the main drivers of globalization.
- Describe the changing nature of the global economy.
- Explain the major arguments in the debate over the impact of globalization.
- Understand how the process of globalization is creating opportunities and challenges for business managers.
This chapter introduces the emergence of the globally integrated business world. Globalization has reduced the traditional barriers to cross-border trade and investment (distance, time zones, language, differences in government regulations, culture, and business systems).
To begin, the discussion of contemporary issues in international business, macro-economic and political changes in the last 30 years are reviewed.
Information technology and other technological innovations have put global markets within the reach of even small firms in remote locations. Yet, in spite of all its benefits, globalization has an underside. Critics point out its adverse effects, including those on developing nations.
The opening case explores the growth of medical tourism in the twenty-first century, spurred in part by rising health care costs, a shortage of medical specialists, and the emergence of a global health care marketplace. The closing case explores Boeing’s decision to outsource much of the production of its 787 Dreamliner and the impact that this decision has had on manufacturing.
LECTURE OUTLINE
The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide.
Slide 1-2 What Is Globalization?
Globalization is a shift toward a more integrated and interdependent world economy.
Globalization has two components: the globalization of markets and the globalization of production.
Slides 1-3 and 1-4 Globalization of Markets?
In many markets the emergence of a global marketplace has begun to occur. There are three causes: falling barriers to cross-border trade have made it easier to sell internationally; consumer tastes and preferences are converging on some global norm helping to create a global market; and firms are facilitating the trend by offering standardized products worldwide creating a global market.
Slide 1-5 Globalization of Production
The globalization of production refers to 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 (such as labor, energy, land, and capital). By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively.
Slides 1-6 through 1-10 Emergence of Global Institutions
Globalization has created the need for institutions to help manage, regulate and police the global marketplace. Institutions that have been created to help perform these functions are the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), the International Monetary Fund (IMF), the World Bank, and the United Nations (UN), and the G20.
Another Perspective: A comprehensive overview of GATT is available at
{http://www.ciesin.org/TG/PI/TRADE/gatt.html}.
The World Trade Organization (WTO) is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties. The International Monetary Fund (IMF) was created to maintain order in the international monetary system and the World Bank was set up to promote economic development. The United Nations (UN) was created to preserve peace through international cooperation.
Another Perspective: The World Trade Organization maintains an excellent web site at {http://www.wto.org/}. This site provides information about recent trade disputes, "hot" areas of international trade, and the status current talks.
Slide 1-11 Drivers of Globalization
The two macro factors underlie the trend towards greater globalization: the decline in the barriers to free flow of goods, services, and capital; and technological change in communications, information processing, and transportation technologies.
International trade occurs when a firm exports goods or services to consumers in another country.
Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.
Slides 1-12 through 1-14 Globalization and Firms
The lowering of trade barriers made globalization of markets and production a theoretical possibility, technological change made it a tangible reality. Managers today operate in an environment that offers more opportunities, but is also more complex and competitive than that of a generation ago.
Slides 1-15 through 1-17 The Changing World Output and World Trade Picture
In the 1960s: the U.S. dominated the world economy and the world trade picture, U.S. multinationals dominated the international business scene, and about half the world—the centrally planned economies of the communist world—was off limits to Western international business.
Slides 1-18 through 1-20 The Changing Foreign Direct Investment Picture
The share of world output generated by developing countries has been steadily increasing since the 1960s. There has been a sustained growth in cross-border flows of foreign direct investment.
Slide 1-21 What Is A Multinational Enterprise
A multinational enterprise is any business that has productive activities in two or more countries.
Slide 1-22 The Changing World Order
The collapse of communism in Eastern Europe represents a host of export and investment opportunities for Western businesses. The economic development of China presents huge opportunities and risks, in spite of its continued Communist control. Mexico and Latin America also present tremendous new opportunities both as markets and sources of materials and production
Slide 1-23 Think Like a Manager
Hisense CEO Zhou Houjian led his company to become one of China’s top-selling electronics manufacturers using a strategy of rapid innovation and low-cost manufacturing. If you were given the chance to run a leading electronics company, would you use a similar approach to grow your brand? Or would you devote more time to research and development and produce fewer products at a higher price point?
Slide 1-24 The Global Economy of the Twenty-First Century
Firms should be aware that while the more integrated global economy presents new opportunities, it also could result in political and economic disruptions that may throw plans into disarray
Slide 1-25 The Globalization Debate
Is the shift toward a more integrated and interdependent global economy a good thing? Anti-globalization protesters now turn up at almost every major meeting of a global institution. Protesters fear that globalization is forever changing the world in a negative way.
Slide 1-26 Globalization, Jobs, and Income
Critics of globalization worry that jobs are being lost to low-wage nations. Supporters of globalization argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently.
Chapter 2: National Differences in Political, Economic, and Legal Systems
Learning objectives
- Understand how the political systems of countries differ.
- Understand how the economic systems of countries differ.
- Understand how the legal systems of countries differ.
- Explain the implications for management practice of national differences in political economy.
This chapter discusses differences in national political, economic, and legal systems, highlighting the ways in which managers in global settings need to be sensitive to these differences.
Political differences are described along two dimensions: collectivist vs. individualist and democratic vs. totalitarian. Economic systems are explored in terms of market characteristics: market economies, command economies, and mixed economies. Legal systems are discussed in terms of the protections they offer for business: intellectual property, product safety, liability and contracts.
The opening case describes the effect of widespread political and economic corruption in Brazil. Once considered one of the world’s most promising developing economies, Brazil has been rocked by a number of bribery and corruption scandals that have led to political instability and recession. The closing case explores the political and economic climate in Russia under President Putin and how this climate has affected foreign investment.
LECTURE OUTLINE
The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide.
Slides 2-2 and 2-3 Political Economy
The political, economic, and legal infrastructure of a nation has a major influence on the way managers make decisions. Political systems have two dimensions: the degree of collectivism versus individualism, and the degree of democracy versus totalitarianism.
These dimensions are interrelated; systems that emphasize collectivism tend towards totalitarianism, while systems that place a high value on individualism tend to be democratic.
However, a large gray area exists in the middle. It is possible to have democratic societies that emphasize a mix of collectivism and individualism. Similarly, it is possible to have totalitarian societies that are not collectivist.
Slides 2-4 through 2-6 Collectivism and Individualism
Collectivism refers to a political system that stresses the primacy of collective goals over individual goals. Advocacy of collectivism can be traced to the ancient Greek philosopher Plato. In modern times the collectivist system is largely the domain of nations that have embraced socialism.
Individualism is the direct opposite of collectivism. Its central tenet is that individual economic and political freedoms are the ground rules on which society is based.
Slides 2-7- through 2-9 Democracy and Totalitarianism
Democracy, as originally practiced by several city-states in ancient Greece, is based on a belief that citizens should be directly involved in decision making. Most modern democratic states practice representative democracy in which citizens periodically elect individuals to represent them. Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited (Communist, theocratic, tribal, right wing).
Chapter 3: National Differences in Economic Development
Learning objectives
- Explain what determines the level of economic development of a nation.
- Identify the macropolitical and macroeconomic changes occurring worldwide.
- Describe how transition economies are moving toward market-based systems.
- Explain the implications for management practice of national difference in political economy.
This chapter discusses differences in national political, economic, and legal systems, highlighting the ways in which managers in global settings need to be sensitive to these differences.
The global trend toward democratization and economic liberalization over the past several decades is explored in detail. The effect of market-based reforms on economic development is discussed in terms of gross national income per capita and purchasing power parity. The importance of deregulation, privatization, and the development of adequate legal systems is discussed in terms of states transitioning toward a free market economy.
The opening case considers the trend toward political and economic reform in sub-Saharan Africa over the past 25 years. New democratic institutions and market deregulation have contributed to the region’s emergence as one of the world’s fastest-growing economies. The closing case describes the recent political and economic reform in the country of Myanmar (formerly known as Burma). Today the country is beginning to privatize industries, restructure the floating rate for its currency, stabilize elections, and welcome foreign investors.
LECTURE OUTLINE
The PPT slides include additional notes that can be viewed by clicking on “view,” then on “notes.” The following provides a brief overview of each Power Point slide.
Slides 3-2 through 3-9 Determinants of Economic Development
Differences in economic development across countries are often linked to differences in their political, economic, and legal systems.
Economic development can be measured by gross national income per head of population (GNI) (rather than GNP) and purchasing power parity (PPP) which is GNI per capita adjusted for cost of living.
The Nobel prize-winning economist Amartya Sen has argued in his theory of social development that development should be assessed less by material output measures such as GNI per capita/GDP per capita and more by the capabilities and opportunities that people enjoy.
Sen’s influential thesis has been picked up by the United Nations, which has developed the Human Development Index (HDI) to measure the quality of human life in different nations.
Slides 3-10 through 3-13 Political Economy and Economic Progress
A country’s economic development is a function of its economic and political systems.
Economic freedom associated with a market economy creates greater incentives for innovation and entrepreneurship than either a planned or a mixed economy.
Innovation and entrepreneurship require strong property rights. Without strong property rights protection, businesses and individuals run the risk that the profits from their innovative efforts will be expropriated, either by criminal elements or by the state.
There is debate on the kind of political system that best achieves a functioning market economy with strong protection for property rights. People in the West tend to associate a representative democracy with a market economic system, strong property rights protection, and economic progress. Building on this, we tend to argue that democracy is good for growth.
However, some totalitarian regimes have fostered a market economy and strong property rights protection and have experienced rapid economic growth. Four of the fastest-growing economies of the past 30 years—South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth: undemocratic governments!
While it is possible to argue that democracy is not a necessary precondition for a free market economy in which property rights are protected, subsequent economic growth often leads to establishment of a democratic regime.
Slides 3-14 and 3-15 Geography, Education, and Economic Development
In addition to political and economic systems, geography and education are also important determinants of economic development
Slides 3-16 through 3-20 States in Transition
Two trends are evident: first, during the late 1980s and early 1990s, a wave of democratic revolutions swept the world; second, totalitarian governments collapsed and were replaced by democratically elected governments that were typically more committed to free market capitalism than their predecessors had been.
These changes were most dramatic in Eastern Europe, where the collapse of communism brought an end to the Cold War and led to the breakup of the Soviet Union, but similar changes were occurring throughout the world during the same period. Across much of Asia, Latin America, and Africa there was a marked shift toward greater democracy.
Another Perspective: To explore the recent changes and ongoing economic and political challenges in the Middle East, consider {http://knowledge.insead.edu/world/middle-east/the-middle-east-challenge-in-2013-2370} and also iGLOBE What Political Models Might Shape The New Libya, Tunisia?
There are three reasons for the spread of democracy:
First, many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations.
Second, new information and communication technologies have broken down the ability of the state to control access to uncensored information.
Third, the economic advances of the past quarter century have led to the emergence of increasingly prosperous middle and working classes who have pushed for democratic reforms.
Another Perspective: The U.S. State Department produces a number of reports that are helpful to understanding the conditions in other markets, as well as information regarding visas and other relevant issues. The site is {http://www.state.gov/}.
Paralleling the spread of democracy since the 1980s has been the transformation from centrally planned command economies to market-based economies.
Slides 3-21 and 3-22 The Nature of Economic Transformation
These changes have involved:
Deregulation - removing legal restrictions to the free play of markets, and allowing the establishment and operations of private enterprises.
Privatization - transferring the ownership of state property into the hands of private individuals, frequently by the sale of state assets through an auction.
Creation of a legal system to safeguard property rights.
Markets that were formerly off-limits to Western businesses are now open, and some of these markets have huge potential: China, more than 1.3 billion people; India, more than 1.2 billion people; and Latin America, more than 600 million potential customers.
Slides 3-23 through 3-28 Implications of Changing Political Economy
Just as the potential gains are large, so, too, are the risks. Democracy may not thrive in some countries.
Managers need to focus on two broad areas:
First, the political, economic, and legal environment of a country influences the attractiveness of that country as a market and/or investment site. The benefits, costs, and risks associated with doing business in a country are a function of that country’s political, economic, and legal systems.
Second, the political, economic, and legal systems of a country can raise important ethical issues that have implications for the practice of international business.
The long-run benefits of doing business in a country are a function of the size of the market, the present wealth of consumers in that market, and the likely future wealth of consumers.
There are three types of costs involved in international business: political costs, economic costs, and legal costs.
There are three types of risk involved in international business: political risk, economic risk, and legal risk.
Slide 3-29 Overall Attractiveness
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.
Slide 3-30 How Attractive is your Home Town to Investors?
Copyright © 2017 McGraw-Hill Education.
Adapted for MBA BUSS 5251 International Business
for the purpose of individual study and course preparation.
- Topic readings:
Required readings: Complete the required readings.
Optional readings: Also browse through any of the optional readings that might be of interest.
- Topic Discussion notes: Read the Discussion notes for Topic 1.
