1. 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.

2. 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. 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. 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 countriesForeign direct investment 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. 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 reflecting the cost of living

6. 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 40% of the world’s population 25% of the Global GDP Population (2016) GDP 2013-4 Brazil 200 M2.3 T Russia 144 M2 T India 1.02 B2 T2 T China 1.36 B9.2 T S Africa 53 M0.35 T

7. 7 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. BRICS

8. 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. BRICS

9. 9 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. Brazil Update

10. 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. Brazil Dilma Rousseff, who began her second term in January 2015, presides over an unprecedented roster of calamities. Two ratings agencies have demoted Brazilian debt to junk status. The longest recession in a century; the biggest bribery scandal in history; the most unpopular leader in living memory. By the end of 2016 Brazil’s economy may be 8% smaller than it was in the first quarter of 2014, when it last saw growth; GDP per person could be down by a fifth since its peak in 2010, which is not as bad as the situation in Greece, but not far off.

11. 11 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. Russia The Russian economy may be entering into a death spiral, driven by a combination of factors, including low energy prices, government mismanagement, a collapse in the Russian ruble’s value and Western sanctions. Russian leaders are compounding problems by ignoring the grim, existing economic realities. There are serious factors at work which will most probably drag the economy further down in a spiral effect — the destroyed domestic demand will force manufacturers to lay off people and reduce wages, causing further shocks to domestic demand http://www.eurasianet.org/node/76766

12. 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. Global Business Concepts (continued 3) 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

13. 13 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

14. 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. 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

15. 15 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?

16. 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. Fundamental Question What determines the success and failure of firms around the globe? Unified framework Study of global business is interdisciplinary

17. 17 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

18. 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. 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

19. 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. 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

20. 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. 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

21. 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. 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

22. 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. 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

23. 23 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 1.Novel force spread across the world Result of technological innovation and Western ideology -Focuses on exploitation and domination through MNEs 2.Existed since the beginning of human history Historical evolution

24. 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. Pendulum View of Globalization 3. 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

25. 25 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

26. 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. 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

27. 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. Semiglobalization Perspective that suggests that barriers to market integration at borders are high Not high enough for complete insulation between countries

28. 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. 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

29. 29 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)

30. 30 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

31. 31 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

32. KEY TERMS 32 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

33. KEY TERMS 33 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)

34. SUMMARY 34 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

35. SUMMARY 35 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

36. 36 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.