1. International Management
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

2. Globalization and International Linkages
Chapter One
Globalization and International Linkages

3. Learning Objectives
Assess the implications of globalization for countries, industries, firms, and communities
Review the major trends in global and regional integration
Examine the changing balance of global economic power and trade and investment flows among countries

4. Learning Objectives (continued)
Analyze the major economic systems and recent developments among countries that reflect those systems

5. Social Media Changed the way in which people connect
Changed global business strategy
Changed the way in which international business is conducted
Impacted international diplomacy

6. Communication Platforms
Can be accessed by individuals and groups from any location
Offer myriad opportunities for companies to identify and target discrete groups
Revolutionize nature of management by allowing direct interaction between producers and consumers
Accelerate the already rapid pace of globalization and integration

7. Management
Process of completing activities with and through other people
International management is the process of:
Applying management concepts and techniques in a multinational environment
Adapting management practices to different economic, political, and cultural contexts

8. Multinational Corporations (MNCs)
Firms that have:
Operations in more than one country
International sales
Mix of nationality among managers and owners
Managers are required to develop international management expertise
Increasingly coming from developing nations like China and India

9. Globalization and Internationalization
Process of social, political, economic, cultural, and technological integration among countries around the world
Evidence can be seen in increased levels of trade, capital flows, and migration
Internationalization
Process of a business crossing national and cultural borders

10. Factors That Facilitate Globalization
Technological advances in transnational communications, transport, and travel
Offshoring
Companies undertake some activities at offshore locations instead of in their home countries
Outsourcing
Subcontracting or contracting out of activities that had previously been performed by the firm to external organizations

11. Benefits of Globalization
Wealth
Better jobs
Access to technology
Lower prices
Availability of goods

12. Criticisms of Globalization
Offshoring of service jobs to lower-wage countries
Companies and countries place downward pressure on wages and working conditions
Growing trade deficits and slow wage growth could lead to economic collapse
Concerns over environmental and social impacts

13. Global Agreements General Agreement on Tariffs and Trade (GATT)
Helped in the dramatic reduction of tariff and nontariff barriers among nations
World Trade Organization (WTO)
Oversees rules and regulations for international trade and investment

14. Regional Agreements North American Free Trade Agreement (NAFTA)
U.S.–Singapore Free Trade Agreement
U.S.–Central American Free Trade Agreement (CAFTA and CAFTA-DR)
European Union (EU)
Transatlantic Trade and Investment Partnership (T-TIP)
Association of Southeast Asian Nations (ASEAN)
Trans-Pacific Partnership (TPP)

15. North American Free Trade Agreement (NAFTA)
Member nations include the United States, Canada, and Mexico
Helped eliminate tariffs and import and export quotas
Opened government procurement markets to companies in the other two nations
Increased opportunity to make investments in each other’s country

16. North American Free Trade Agreement (NAFTA) (continued)
Increased the ease of travel between countries
Removed restrictions on agricultural products, auto parts, and energy goods

17. Changing Global Demographics
Factors contributing to the increase in the median global population age
Increase in global life expectancy due to improvements in technology and healthcare
Increase in time spent in retirement due to increase in life expectancy
Decline in global fertility rate

18. Shifting Balance of Economic Power in the Global Economy
Result of economic integration and rapid growth of emerging markets
Emerging and developing nations might play a dominant role in the global economic system
BRIC countries - Brazil, Russia, India, and China
E7 - Seven major emerging economies (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey)

19. Shifting Balance of Economic Power in the Global Economy (continued)
N-11 - Next wave of emerging markets (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam)
African countries can benefit from the increase in price of commodities
Gas and oil, agricultural products, and mineral and mining products

20. Table 1.7 - Changing Global Demographics: Developing Countries on the Rise

21. Trends in Trade and International Investments
Since the global recession in 2009 , global trade and investment have continued to grow
Foreign direct investment (FDI)
Amount invested in property, plant, or equipment in another country
Growing at a slow but steady rate in the years since the global recession
May reach $1.7 trillion by 2017

22. Global Economic Systems
Market economy
Command economy
Mixed economy

23. Market Economy
Exists when private enterprises reserve the right to own property and monitor production and distribution of goods and services
Management is effective
Private ownership provides local evaluation and understanding
Least restrictive form of economy
Resource allocation is determined by the law of demand

24. Market Economy (continued 1)
General balance between supply and demand sustains prices
Imbalance creates price fluctuation
Competition is encouraged
Helps promote innovation, economic growth, high quality, and efficiency

25. Market Economy (continued 2)
Optimal growth is facilitated by focusing on how to best serve the customer
Monopolies or restrictive business practices may be prohibited to maintain the integrity of the economy

26. Command Economy
Government holds explicit control over the price and supply of a good or service
Businesses are owned by the state
Ensures that investments and other business practices are done in the best interest of the nation
Management ignores demographic information
Creates an environment where little motivation exists

27. Mixed Economy Combination of market and command economy
Helps raise the standard of living
Aided by regulations concerning minimum wage standards, social security, environmental protection, and the advancement of civil rights
Ownership of organizations that are critical to the nation may be transferred to the state
Subsidizes costs and allows the firms to flourish

28. Evaluation of the World’s Economies
Established economies
North America
European Union
Japan
Emerging economies
Central and Eastern Europe
China
Other emerging markets of Asia (South Korea, Hong Kong, Singapore, and Taiwan)
India
Developing economies
South America
Middle East and Central Asia
Africa

29. North America One of the four largest trading blocs in the world
Combined purchasing power of the United States, Canada, and Mexico is more than $19 trillion
Free-market-based economy provides considerable freedom in decision-making processes
International firms receive the benefit of greater flexibility and lower barriers

30. North America (continued 1)
The United States
Firms maintain dominant global positions in technology-intensive industries
Considered to be a lucrative market for expansion by foreign MNCs
Canada is the largest trading partner
Most of the largest foreign-owned companies in Canada are totally or heavily U.S.-owned
Legal and business environments are similar to that in the U.S.

31. North America (continued 2)
Mexico
Strongest Latin American economy
Has free-trade agreements with over 46 countries
Competes with Asia for the U.S. market and has the benefit of proximity and lower-cost labor
Facilitated by the maquiladora system
Increased trade with both Europe and Asia

32. European Union (EU) Objectives and goals Firms have the benefit of:
Eliminate all trade barriers among member nations
Follow a single currency (euro) and a regional central bank
Firms have the benefit of:
Manufacturing high-quality, low-cost goods
Shipping manufactured goods across the EU without paying duties or being subject to quotas

33. European Union (EU) (continued)
Challenges
Absorbing its eastern neighbors that could result in a giant, single European market
Large deficits faced by several European governments
Resulted from structural conditions and shorter-term economic pressures
Placed pressure on the euro
Maintaining a unified EU in the coming decades

34. Japan Unprecedented economic success in the 1970s and 1980s
Huge positive trade balance
Strong yen
Gained recognition as the world leader in manufacturing and consumer goods
Remains a formidable international competitor and is well poised in all major economic regions

35. Japan (continued) Early success can be attributed to:
The Ministry of International Trade and Industry (MITI)
Governmental agency that identifies and ranks national commercial pursuits and guides the distribution of national resources to meet these goals
Keiretsus
Large, vertically integrated corporations whose holdings supply much of the assistance needed in providing goods and services to end users

36. Emerging and Developing Economies
Face relatively low GDP per capita
Have an unskilled or semiskilled workforce
Involve considerable government intervention in economic affairs
Can be viewed as developing economies that exhibit sustained economic reform and growth

37. Russia Dismantled price controls
Privatized businesses previously owned by the government
Direct investment and membership in International Monetary Fund (IMF) helped to raise GDP and decrease inflation

38. Russian Economy
Early economy was boosted by abundant oil and high global energy prices
Recent decreases in demand have pushed Russia into a recession
Likely to undergo many years of economic instability and recurrent political problems
Challenges - Persistent crime, corruption, and lack of public security

39. Central and Eastern Europe
Hungary
Privatization of state-owned businesses
Joint ventures between local and western firms
Receives direct investments from MNCs
Poland
Only economy in the EU to continue to grow during the global recession of 2008–2009

40. Central and Eastern Europe (continued)
Key for Albania and other Eastern European countries is to make themselves less risky and more attractive for international business
Maintain social order
Establish rule of law
Rebuild collapsed infrastructure
Get factories and other value-added, job-producing firms up and running

41. China Considerable decline in GDP Current challenges
Massive savings glut in corporate sector
Globalization of manufacturing networks
Vast developmental needs
Unemployment (15–20 million new jobs required annually)
Social unrest

42. China: Major Risk for Investors
Caused due to:
Delicate nature of the one country, two systems balance (communism and capitalism)
Concerns about undervaluation of China’s currency
Unpredictable and fluid nature of policies toward foreign firms
Trade relations with developed nations remain tense

43. Economic Performance in Emerging Markets of Asia
South Korea
Chaebols: Large, family-held conglomerates that have considerable economic and political power
Has a solid economy with moderate growth and inflation, low unemployment, an export surplus, and fairly equal distribution of income
Hong Kong
Headquarters for some of the most successful multinational operations in Asia

44. Economic Performance in Emerging Markets of Asia (continued 1)
Singapore
Emerged as an urban planner’s model and the leader and financial center for Southeast Asia
Taiwan
Progressed from a labor-intensive economy to one dominated by technologically sophisticated industries

45. Economic Performance in Emerging Markets of Asia (continued 2)
Thailand, Malaysia, Indonesia, and Vietnam
Have a large population base with inexpensive labor despite lack of natural resources
Known to have social stability but have suffered from turmoil in the aftermath of recent economic crisis

46. India
Recent trend of locating software and higher value-added services has bolstered middle- and upper-class market for goods and services
Attractive to U.S. and British investors
Presence of English-speaking, well-educated, and technologically sophisticated workers
Availability of government funds for economic development

47. South America Faced many economic problems
Accumulated heavy foreign debt obligations
Experienced severe inflation
Implemented economic reforms to reduce debt
Periodic economic instability and the emergence of populist leaders have had an impact on the attractiveness of countries in this region

48. South America: Brazil Attracted considerable foreign investment
Through privatization of power, telecommunications, and other infrastructure sectors
Benefited from one of the most stable governments throughout Latin America
Undisputed economic leader of South America

49. South America: Brazil (continued)
Long-term prospects are still potentially positive due to:
Presence of a large and relatively well-educated population
Availability of ample natural resources
Existing industrial base
Strategic geographic position

50. Chile
Economic growth has fluctuated between three and six percent since the 2000s
Attracts FDI, mainly dealing with gas, water, electricity, and mining
Continues to participate in globalization
Engages in trade agreements with Mercosur, China, India, the EU, South Korea, and Mexico

51. Argentina Has an overall strong economy
Due to abundance of natural resources, highly literate population, export-oriented agriculture, and diversified industrial base
Has suffered recurring economic problems
Inflation, external debt, capital flight, and budget deficits
Economic growth has slowed since the global recession

52. Middle East and Central Asia
Possess large oil reserves
Have highly unstable geopolitical and religious forces
Try to balance these forces with economic viability and activity in the international business arena
Rely almost exclusively on oil production
Have made large investments in U.S. property and businesses

53. Africa
Has considerable natural resources but remains very poor and undeveloped
International trade is only beginning to serve as a major source of income
Risk for foreign investors arises from:
Overwhelming diversity of the population
Major political instability

54. Africa (continued 1) Economic setbacks are caused due to:
Tragic tribal wars
Spread of diseases such as AIDS, malaria, and Ebola
Lack of institutions, infrastructure, and economic capacity to take full advantage of globalization
Poverty, malnutrition, illiteracy, corruption, social breakdown, vanishing resources, overcrowded cities, drought, and homeless refugees

55. Africa (continued 2)
Economic growth and dynamism have accelerated in recent years
Rise in GDP
Growth in telecommunications, banking, and retailing
Rate of return on foreign investment in Africa is higher than for any other region

56. Be the International Business Consultant: Walmart in India
In light of this situation, what would your recommendation be to Walmart?
Should it stick with the wholesale focus, or should it pursue another joint venture with an Indian partner?
Alternatively, should it maintain a “wait and see” approach in hopes that the Indian government will finally reform its restrictions on foreign investment?

57. Review and Discuss
How has globalization affected different world regions?
What are some of the benefits and costs of globalization for different sectors of society (companies, workers, communities)?

58. Review and Discuss (continued 1)
How has NAFTA affected the economies of North America and how has the EU affected Europe?
What importance do these economic pacts have for international managers in North America, Europe, and Asia?

59. Review and Discuss (continued 2)
Why are Russia and Eastern Europe of interest to international managers?
Identify and describe some reasons for such interest and also risks associated with doing business in these regions

60. Review and Discuss (continued 3)
Many MNCs have secured a foothold in Asia, and many more are looking to develop business relations there
Why does this region of the world hold such interest for international management?
Identify and describe some reasons for such interest

61. Review and Discuss (continued 4)
Why would MNCs be interested in South America, India, the Middle East and Central Asia, and Africa, the less developed and emerging countries of the world?
Would MNCs be better off focusing their efforts on more industrialized regions? Explain

62. Review and Discuss (continued 5)
MNCs from emerging markets (India, China, Brazil) are beginning to challenge the dominance of developed country MNCs
How might MNCs from North America, Europe, and Japan respond to these challenges?