Globalizing Business 1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OUTCOMES 2 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1Explain the concepts of international business and global business 2Give three reasons why it is important to study global business 3Articulate the fundamental question that the study of global business seeks to answer and two perspectives from which to answer it 4Identify three ways of understanding what globalization is 5Appreciate the size of the global economy and the strengths of multinationals

3 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Business Concepts Global business: Business around the globe International business Firms engaging in international economic activities The action of doing business abroad Multinational enterprise (MNE): Firms engaging in foreign direct investment and operating in multiple countriesMultinational enterprise

4 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Business Concepts (continued 1) Foreign direct investment (FDI): Investment in, controlling, and managing value-added activities in other countries Emerging economies: Developing countries Also known as emerging markets 48% of world trade 60% of FDI inflow 40% of FDI outflow 50% of the Global GDP

5 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Business Concepts (continued 2) Gross domestic product (GDP): Sum of value added by resident firms, households, and governments operating in an economy Purchasing power parity (PPP): Conversion determining the equivalent amount of goods and services different currencies can purchase

6 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Business Concepts (continued 3) BRIC: Acronym for the emerging economies of Brazil, Russia, India, and China BRICS: Addition of South Africa Triad: Developed economies of North America, Western Europe, and Japan Base of the pyramid (BoP): Vast majority of humanity who make less than $2000 a year

7 Exhibit GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1.1 The Global Economic Pyramid

8 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons to Study Global Business Prerequisite to join top ranks of large firms Expatriate manager: Manager who works outside his or her native country -International premium: Significant pay raise commanded when working overseas

9 Exhibit GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1.2 Why Study Global Business?

10 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Fundamental Question What determines the success and failure of firms around the globe? Unified framework Study of global business is interdisciplinary

11 Exhibit GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1.4 A Unified Framework for Global Business

12 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Institution-Based View Suggests that firm performance is determined by institutional frameworks governing firm behavior worldwide Institution: Formal and informal rules of the game Institutional framework: Formal and informal institutions that govern individual and firm behavior Deals with external environment

13 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Resource-Based View Suggests that firm performance is determined by its internal resources and capabilities Deals with firm’s internal resources Liability of foreignness: Inherent disadvantage that foreign firms experience in host countries because of nonnative status

14 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Resource-Based View (continued) Firm’s resources and capabilities can offset the disadvantage Firms must have valuable and unique firm- specific resources Not shared by competitors in the same environment

15 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Globalization Close integration of countries and peoples of the world Advantages Higher economic growth and standards of living Increase in technology sharing Extensive cultural integration

16 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Globalization (continued) Disadvantages Undermining of wages in rich countries Exploiting workers in poor countries Gives too much power to MNEs Destroys the environment Promotes inequality

17 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Views on Globalization Novel force spread across the world Result of technological innovation and Western ideology -Focuses on exploitation and domination through MNEs Existed since the beginning of human history Historical evolution

18 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Pendulum View of Globalization Integration of countries and people across the world Brought about by the: -Reduction of the costs of transportation and communication -Breaking down of barriers to the flows of goods, services, capital, knowledge, and people

19 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Pendulum View of Globalization (continued 1) Rapid growth of globalization led to: Inaccurate historical view that globalization is new Fear of loss of jobs in developed economies Report of MNEs destroying local companies, cultures, and values in emerging economies

20 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Pendulum View of Globalization (continued 2) Great Recession reminds all firms of the importance of: Risk management: Identification and assessment of risks -Preparation to minimize the impact of high- risk, unfortunate events Scenario planning: Technique to prepare and plan for multiple scenarios

21 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Semiglobalization Perspective that suggests that barriers to market integration at borders are high Not high enough for complete insulation between countries

22 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Semiglobalization (continued) Types of globalization Total isolation - Suggests localization -Strategy that treats each country as a unique market -Expensive Total globalization - Lead to standardization -Strategy of treating the entire world as one market

23 Exhibit GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1.5 Top Ten Largest Firms in the World (Measured by Sales)

24 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Debate: Ethical Dilemma Opponents of globalization Nongovernmental organizations (NGOs): Organizations not affiliated with governments Firms view NGOs as partners Current business school students exhibit values and beliefs that favor globalization

25 Exhibit GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1.6 Views on Globalization

KEY TERMS 26 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International business (IB) Multinational enterprise (MNE) Foreign direct investment (FDI) Global business Emerging economy (emerging market) Gross domestic product (GDP) Purchasing power parity (PPP) BRIC BRICS Triad Base of the pyramid (BoP) Expatriate manager International premium

KEY TERMS 27 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Institution-based view Institution Institutional framework Resource-based view Liability of foreignness Globalization Risk management Scenario planning Semiglobalization Nongovernmental organization (NGO)

SUMMARY 28 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. International business Business or firm that engages in international economic activities Action of doing business abroad Global business helps advance one’s employability and career in the global economy Helps prepare for possible expatriate assignments Offers stronger competence

SUMMARY 29 GLOBAL3 | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Perspectives in global business Institution-based view Resource-based view Globalization is the close integration of countries and peoples of the world There is an increase in the number of MNEs originating from developing countries

30 GLOBAL | CH1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.