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Chapter 01 - Globalization
1
Globalization
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, business systems).
Learning objectives

Understand what is meant by the term
globalization.

Be familiar with the main drivers of
globalization.

Appreciate the changing nature of the
global economy.

Understand the major arguments in the
debate over the impact of globalization.

Appreciate how the process of
globalization is creating opportunities
and challenges for business managers.
To begin the discussion of contemporary
issues in international business, macroeconomic 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
globalization of the flat panel television
industry. The closing case illustrates how
one company, IKEA, has benefited from
the globalization of markets and the
globalization of production.
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OUTLINE OF CHAPTER 1: GLOBALIZATION
Opening Case: Flat Panel Televisions and the Global Economy
Introduction
What is Globalization?
The Globalization of Markets
The Globalization of Production
Country Focus: Outsourcing American Healthcare
The Emergence of Global Institutions
Drivers of Globalization
Declining Trade and Investment Barriers
The Role of Technological Change
The Changing Demographics of the Global Economy
The Changing World Output and World Trade Picture
The Changing Foreign Direct Investment Picture
The Changing Nature of the Multinational Enterprise
The Changing World Order
The Global Economy of the Twenty-First Century
Country Focus: India’s Software Sector
Management Focus: China’s Hisense-An Emerging Multinational
The Globalization Debate
Anti-globalization Protests,
Globalization, Jobs, and Income
Globalization, Labor Policies, and the Environment
Globalization and National Sovereignty
Globalization and the World’s Poor
Country Focus: Protesting Globalization in France
Managing in the Global Marketplace
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: IKEA—The Global Retailer
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CLASSROOM DISCUSSION POINT
Ask students to describe how international business has affected them in their day so far.
Ash them about who made the clothes they’re wearing, what type of food they ate for
breakfast or lunch (muesli cereal, sushi, Italian-style coffee), what type of cell phone they
have and where it was made, where their car was design and manufactured, where the
components for their computer was manufactured, and so on. Many students will be
surprised at just how often international business affects their daily lives. Some will
recognize that companies like Nissan have design facilities and manufacturing operation
in the United States, but will be surprised to learn that Sodexho, a cafeteria operator for
many universities, is a French company; or that many supermarket chains have been
acquired by foreign operators (Stop and Shop by the Dutch Ahold, Trader Joe’s by the
German Albrechts). The point to drive home is that our consumption patterns are already
very dependent on international business.
Next, ask students the why aspect of this issue: Why, for example, are so many of our
clothes made outside North America?
Finally, encourage students to think about the integrated world economy versus distinct
national economies by asking about the type of car they own. Drive the discussion
towards a consideration of whether talking about the nationality of a car makes sense. Is
SAAB a Swedish car? Saab is partially owned by General Motors of USA, uses many
mechanical parts imported into Sweden from GM in Germany, and assembles its cars in
Sweden for sale in USA. Is a Mercedes Benz assembled in Alabama an American car? Is
a Pontiac assembled in South Korea a Korean car? Volvo, Jaguar and Rover SUVs are
owned by Ford; Chrysler is a part of Daimler Chrysler; Volkswagen owns Rolls Royce.
OPENING CASE: Flat Panel Televisions and the Global Economy
Summary
The opening case describes the development of the flat panel television industry over
recent decades. The case, which follows the production of flat panel televisions across the
globe to low-cost locations, clearly demonstrates the impact of globalization, and in
particular the globalization of production. Discussion of the case can begin with the
following questions:
1. Reflect on the evolution of the flat panel television industry. Why has production
shifted from country to country? What does your response suggest about the
globalization of production?
2. RCA developed the underlying technology for the flat panel television in the 1960s, yet
today, the company plays only a minor role in the industry. Why?
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3. How has the globalization of the flat panel television industry benefited consumers?
Who are the losers in the industry?
Another Perspective: Students can learn more about Vizio at the company website at
{http://www.vizio.com/}, and also through information provided by the Hong Kong
Trade Development Council at {http://www.tdctrade.com/report/mkt/mkt_060905.htm}.
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. 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 along with teaching tips, and additional perspectives.
Slide 1-3 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 1-4 and 1-5 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; 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 1-7 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 1-10-1-14 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.
Another Perspective: A comprehensive overview of GATT is available at
{http://www.ciesin.org/TG/PI/TRADE/gatt.html}.
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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 1-16 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.
Slides 1-17- 1-20 Declining Trade and Investment Barriers
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 1-22-1-24 The Role of Technology
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 1-26-1-27 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 1-28-1-30 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 1-32 The Changing Nature of the Multinational
A multinational enterprise is any business that has productive activities in two or more
countries.
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Slide 1-33 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 1-34 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 1-36 The Globalization Debate
Is the shift toward a more integrated and interdependent global economy a good thing?
Slide 1-37 Anti-Globalization Protests
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 1-38 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.
Slide 1-39 Globalization, Labor Policies, and the Environment
Critics of globalization argue that that free trade encourages firms from advanced nations
to move manufacturing facilities offshore to less developed countries with lax
environmental and labor regulations.
Supporters of free trade point out that tougher environmental regulation and stricter labor
standards go hand in hand with economic progress and that foreign investment often
helps a country to raise its standards.
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Slide 1-40 Globalization and National Sovereignty
Critics of globalization worry that economic power is shifting away from national
governments and toward supranational organizations such as the World Trade
Organization (WTO), the European Union (EU), and the United Nations.
However, supporters of globalization contend that the power of these organizations is
limited to what nation-states agree to grant, and that the power of the organizations lies in
their ability to get countries to agree to follow certain actions.
Another Perspective: To explore economic freedom and globalization, go to The Fraser
Institute’s Economic Freedom of the World Report at {www.freetheworld.com}.
Slide 1-41 Globalization and the World’s Poor
Critics of globalization argue that the gap between rich and poor has gotten wider and that
the benefits of globalization have not been shared equally.
Supporters of free trade suggest that the actions of governments have made limited
economic improvement in many countries.
Slides 1-43-1-44 Managing in the Global Marketplace
Managing an international business (any firm that engages in international trade or
investment) is different from managing a domestic business because countries differ,
managers face a greater and more complex range of problems, international companies
must work within the limits imposed by governmental intervention and the global trading
system, and international transactions require converting funds and being susceptible to
exchange rate changes.
Another Perspective: An interesting site for companies interested in exporting their
services is available at {http://www.ita.doc.gov/td/sif/exporting_services_overseas.htm}.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Describe the shifts in the world economy over the last 30 years. What are
the implications of these shifts for international businesses based in Britain, North
America, and Hong Kong?
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ANSWER 1: Over the last 30 years, there has been a shift away from a world in which
national economies are relatively self-contained entities, isolated by barriers to trade and
investment, and differences in government regulation, culture, and business systems and
toward a world where barriers to trade and investment are declining, cultures are
converging, and national economies are merging into an integrated, interdependent global
economic system. As companies from Japan and emerging markets like China play a
more vital role in the world economy, the dominance of companies from the United
States and Western Europe has diminished. Significant implications for British firms
involve their need to look beyond Europe and America for investment and opportunities.
Consumer spending power is growing the most quickly in developing countries. British
firms also face the opportunity (and the threat) of attracting Asian firms interested in
Britain as a launch pad for the European market. For North American firms, the same
holds true, although the importance of the increasing prosperity in Latin America suggests
a potentially huge market in “their backyard.” Hong Kong, while losing its
“independence”, is perceived as the gateway to the immense market of mainland China.
While the free market freedoms Hong Kong firms have enjoyed are now less taken for
granted, access to China is improving along with the move towards a market economy
within China. International businesses based in all three locations are facing new
opportunities and threats.
QUESTION 2: "The study of international business is fine if you are going to work in a
large multinational enterprise, but it has no relevance for individuals who are going to
work in small firms." Evaluate this statement.
ANSWER 2: Globalization is changing the world economy. Firms, even small ones, can
no longer ignore events going on outside their borders because what occurs in one
country has implications for the rest of the world. Individuals who believe they can act in
isolation by working for a small firm are not being realistic, but rather myopic and
insular. Today, thanks to advances in technology, many small firms sell and source
internationally very early in their evolution, those that fail to take advantage of
international opportunities may not achieve their full potential, and ultimately may fail as
competitors that do recognize the importance of international business dominate. In the
United States, for example, almost 90 percent of firms that export employ fewer than 100
people. They also account for more than 20 percent of U.S. exports.
QUESTION 3: How have changes in technology contributed towards the globalization of
markets and of production? Would the globalization of products and markets have been
possible without these technological changes?
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ANSWER 3: Technological change has made globalization a reality. Major advances in
communication, information processing, and transportation have brought the world closer
together. The development of the microprocessor is perhaps the single, most important
innovation as it increased the amount of information that could be processed by
individuals and firms. The Internet has facilitated the creation of a 24/7/365 market place
where information is available in real time. Advances in transportation have enabled
firms to take advantage of the savings associated with dispersing production to low cost
production locations. Advances in communications have helped create a global culture of
sorts, and the emergence of a global market for consumer products. Thanks to
technological change, firms today can locate facilities wherever in the world it makes the
most sense, coordinate activities among facilities, and ship products to customers
worldwide more cost effectively than at any time in the past.
QUESTION 4: “Ultimately, the study of international business is no different from the
study of domestic business. Thus, there is no point in having a separate course on
international business.” Evaluate that statement.
ANSWER 4: There are at least four reasons why studying international business is
important. First, countries are different; and managers must understand the reasons for
the differences and their implications for business. Second, the range of problems
confronted by a manager in an international business is wider and the problems
themselves more complex than those confronted by a manager in a domestic business.
Third, international companies must find ways to work within the limits imposed by
government intervention in the international trade and investment system. Finally,
international transactions involve converting money into different currencies. Managers
who fail to appreciate these basic differences greatly increase their chance for failure.
QUESTION 5: How might the Internet and the associated World Wide Web affect
international business activity and the globalization of the world economy?
ANSWER 5: Internet usage has explored over the last two decades. In 1990, there were
fewer than 1 million people connected to the Internet. Today, that figure has risen to
more than 747 million! One of the biggest implications of the Internet and the World
Wide Web is its role as an equalizer. Firms are no longer constrained by size, location,
scale, and time zones. Instead, firms operate in a 24/7/365 world with real time access.
In the United States alone, more than $250 billion of goods and services are sold online.
For companies, location is no longer an issue because the Internet makes it possible to
reach customers anywhere in the world, operations can be linked via the Internet allowing
firms to produce in advantageous locations, and global communications are facilitating a
cultural convergence making it easier for companies to sell standardized products.
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QUESTION 6: If current trends continue, China may emerge as the world’s largest
economy by 2010. Discuss the possible implications for such a development for a. the
world trading system; b. the world monetary system; c. the business strategy of today’s
European and US-based global corporations; and d. global commodity prices.
ANSWER 6: China is continuing to move toward greater free market reforms, and if it
stays on its present track, could become an industrial superpower in the near future.
China, with its 1 billion people, is a largely untapped market for firms. By some
estimates, the Chinese economy could be larger than that of the United States on a
purchasing power parity basis. Already, annual foreign direct investment has jumped
from less than $2 billion in 1983 to $70 billion in 2006. China is also making waves in
international markets as its firms like Hisense (see Management Focus: China’s
Hisense—An Emerging Multinational) prove to be world class competitors.
QUESTION 7: Reread the Country Focus “Outsourcing American Healthcare,” then
answer the following questions:
a) A decade ago the idea that medical procedures might move offshore was unthinkable.
Today it is a reality. What trends have facilitated this process?
b) Is the globalization of health care good or bad for patients?
c) Is the globalization of health care good or bad for the American economy?
d) Who might benefit from the globalization of health care? Who might lose?
e) Do you think that the U.S. government should restrict the outsourcing of medical work
to developing nations? What if physicians in those countries are certified by U.S.
medical institutions?
ANSWER a): Advances in technology are a primary key to making the outsourcing of
medical work possible in recent years. In particular, the Internet makes it possible to
quickly transmit large amounts of data to countries such as India where the information
can be processed and returned. In addition, the high cost of medical care in countries like
the U.S. is prompting people to consider cheaper alternatives. The cost to repair a leaky
heart valve in India is about $10,000 including airfare, while in the U.S. the same surgery
could cost $60,000.
b): This is a difficult question. Some students might argue that the outsourcing of
medical procedures to nations where salaries of medical professional are lower clearly
benefits consumers. However, other students might suggest that the level of care in
countries such as India may not be up to the standards found in the United States, and that
the process takes some control out of the hands of the consumers. Certainly, health care
professionals in the United States see the outsourcing trend in a negative light, however,
medical insurance companies view any means of cutting costs as a positive move.
c): When considered from a strictly economic perspective, the globalization of health care
should result in a more efficient industry. Prices in the U.S. should fall as countries like
India offer their services as an alternative to higher-priced American ones. It would
follow then, that Americans should have more disposable income which could then be
spent in other part of the economy.
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d): Most students will probably agree that the current trend to outsource medical
procedures is just the beginning. The rising cost of health care is likely to continue to put
pressure on the industry to find cheaper alternatives to handling not only direct patient
care, but also the paperwork involved. Most students will probably agree that
outsourcing to cut costs in the paperwork end of the process makes sense, but may draw
the line at the outsourcing of medical procedures. Others however, might point out that
the care being offered by some hospitals in countries like India is on par with American
hospitals, indeed many of the doctors are American trained.
e) The answer to this question may depend on the nationality of the student. Students
from countries that have national heath care may already feel that since the government
already controls the medical industry, issues related to the outsourcing of medical work is
out of their hands. Students from countries with private health care such as the United
States may believe that the government has a certain responsibility to protect its citizens,
and that the issue of outsourcing of medical procedures may fall into this realm of
protection. In either case, it would appear that restrictions to limit the practice would
almost certainly raise costs further.
CLOSING CASE: Ikea—The Global Retailer
Summary
The closing case examines the operations and strategy of Ikea, the household goods and
home furnishings retailer. Ikea was established in Sweden in 1943, and now operates 230
stores in 33 countries. Ikea’s strategy is the same everywhere—selling furniture and
household items that reflect Swedish style at low prices to the global middle class. So
far, the formula is a success. The company generated sales of $17.7 billion in 2005. Ikea
relies on a network of 1,300 suppliers located in 53 countries, and while a similar product
line is sold everywhere, the company does adapt to meet the needs of consumers in
different markets. A discussion of the case can revolve around the following questions:
QUESTION 1: How has the globalization of markets benefited IKEA?
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ANSWER: The globalization of markets refers to the fact that in many industries
historically distinct and separate national markets are merging into one huge global
marketplace in which the tastes and preferences of consumers in different nations are
beginning to converge upon some global norm. IKEA has been able to benefit from this
trend by following a strategy that is largely standardized. Its basic strategy is to sell
Swedish-inspired furnishings and households goods to middle class consumers across the
globe at low prices. The company is able to use the same colors and designs in its
warehouse style stores worldwide. Inside the stores are products that are essentially the
same from market to market—inexpensive household items and furniture that are sold
nearly the same way everywhere. In some cases, though, IKEA has had to adapt to local
market needs. In the United States, for example, bedding products were changed to
reflect American-style sizing, and in China, delivery services are offered, and stores are
located close to public transportation since car ownership is low.
QUESTION 2: How has the globalization of production benefited IKEA?
ANSWER: The globalization of production refers to the tendency among many firms to
source goods and services from different locations around the globe in an attempt to take
advantage of national differences in the cost and quality of factors of production, thereby
allowing them to compete more effectively against their rivals. The globalization of
production has enabled IKEA to focus on efficiency. IKEA relies on some 1,300
suppliers located in 53 countries. Because Ikea aims to reduce its prices by 2-3 percent
each year, finding the right supplier is critical to the success of the firm. Ikea tries to
avoid high shipping costs by working with suppliers in each of its big markets. For
example, the company uses ten different suppliers for its most popular sofa frame. IKEA
believes that by having suppliers in Europe, China, and the United States, rather than
sourcing from a single location, it can minimize shipping costs. In addition, the company
gains efficiencies by concentrating production of certain items in markets like China.
QUESTION 3: What does the IKEA story teach you about the limits of treating the entire
world as a single integrated global market place?
ANSWER: Many students will recognize that IKEA ha successfully managed to capture
global efficiencies where possible, while still responding to local market needs. IKEA
realizes that while there are gains to be made through standardization, standardization is
not always the best strategy. Students will probably point out that IKEA learned this
lesson in the early 1990s when it tried to sell bedding in the United States that was sized
in centimeters rather than the king, queen, twin sizing that is common in the United
States. IKEA also found out that Americans liked bigger sofas, deeper drawers, bigger
glasses, and longer curtains. Now, as IKEA is expanding into China, it is once again
identifying where its strategy can be standardized, and where it needs to be adapted to the
local market. So, for example, while the same warehouse style stores are being used, a
section for balconies has been added to reflect the layout of many Chinese apartments.
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Another Perspective: Students can explore Ikea’s global operations at the company’s web
site as {http://www.ikea.com}.
INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: Graduate Students Recount Experiences with Globalization
Students Discuss Globalization
Run Time: 11:37
Abstract: This video explores globalization from the perspective of four graduate
students at Harvard’s Kennedy School of Government.
Key Concepts: globalization, international trade, economic development, protectionism,
free trade, competitive advantage, national trade policy, and agricultural subsidies
Notes: In an informal poll, four graduate students at Harvard indicated that their
countries, Thailand, Tanzania, Argentina, and China, have mixed feelings about
globalization. China was perhaps the biggest supporter of globalization. Mingyou Bao,
of the People’s Bank of China, argued that globalization is a win-win concept for China
and the rest of the world. Mingyou Bao feels that all countries can benefit from access to
cheaper labor and markets, and the inflow of capital and investment that is associated
with globalization. However, Frederick Sumaye, former Prime Minister of Tanzania,
believes that globalization will bring more pain than benefits. He is particularly
concerned that infant industries in developing countries will be crushed just as they are
taking off. Kriengsak Chareonwongsak, a member of Thailand’s parliament, feels that
the majority of Thailand would support globalization. Kriengsak Chareonwongsak notes
that Thailand has seen significant growth over the last thirty years, and that the growth is
a direct result of the government’s policy of opening borders to trade and investment.
Argentina’s representative, Yanina Budkin, a former communications officer with the
World Bank, cautions though, that Argentina has experienced both positive and negative
effects from globalization. Argentina opened its economy in the 1990s and was the
beneficiary of huge amounts of foreign direct investment. But, in 2001, the country fell
into distress, and companies pulled out. Yanina Budkin believes that regulations could
have prevented the economic destabilization that occurred.
Kriengsak Chareonwongsak notes that already globalization is changing the world.
Industries that rely on cheap labor like textiles and shoes, are no longer as dominant as
they once were in Thailand, for example. Instead, those industries are moving on to
China in search of cheaper labor. Cambodia and Vietnam are also becoming important
low cost manufacturing destinations. Mingyou Bao predicts that Africa will also
eventually become an attractive source of low cost labor.
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While it may seem that globalization is bringing many benefits to emerging economies
and lesser developed countries, the picture is not all rosy. Manufacturing improvements
threaten to replace manpower, which would jeopardize job creation, a key benefit of
globalization. According to Mingyou Bao, it will be important for countries to follow
China’s lead and manage the globalization process carefully. Countries that simply open
their borders run the risk of becoming vulnerable to stronger competitors. Kriengsak
Chareonwongsak suggests that countries approach globalization as a process that takes
time. People need to be prepared for change, retraining may need to take place, and
industries may need to be protected. Frederick Sumaye suggests that countries should
determine how to sell more valuable products by not just selling raw materials, but
incorporating additional steps in the value-added chain. Yanina Budkin points out that
Chile has been successful with its strategic focus on wine and salmon. Everyone agrees
that for globalization to be beneficial, it will be important to have institutions in place to
regulate markets, provide safety nets, and compensate losers.
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Discussion Questions:
1. Consider the basic arguments for globalization. Who are the winners, who are the
losers?
2. What does free trade and investment mean for emerging economies? What does it
mean for lesser developed countries? How can these countries learn from the experiences
of Chile?
3. Why are countries like Tanzania skeptical about the benefits of globalization? What
would you advise them to do? Why? What can countries like Cambodia learn from
China?
4. Should the United States lead the way in defining how globalization works? Why or
why not?
INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title 1: Three Billion New Capitalists
Summary: In his new book, "Three Billion New Capitalists: The Great Shift of Wealth
and Power to the East," author Clyde Prestowitz suggests that the world is currently in the
midst of two revolutions. According to Prestowitz, three billion new people from China,
India, and the former Soviet bloc have all suddenly, and simultaneously entered the global
economy. These new entrants are unique in that they have all of the skills of their
developed country counterparts, yet charge just ten cents (or maybe 25 or 30 cents) on the
dollar. Many of these individuals have been educated and/or worked in the developed
world, and are now returning to their countries to use their skills. Prestowitz’ second
revolution involves the Internet and FedEx. Prestowitz argues that the combination of
these two entities has erased the notion of time and distance.
Prestowitz suggests that the outsourcing of jobs that is currently so prevalent in the U.S.
is just the tip of the iceberg. That to respond to this challenge from the East, not only
does the U.S. need to work hard, retrain its workforce, and so on, but the U.S. also needs
a new international economic policy, a policy that emphasizes the need to win this
challenge. Prestowitz notes that the U.S. is in a better position than either China or India
to succeed, but that the U.S. needs to focus on competing and succeeding in this new
world.
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Discussion Questions:
1. The Industrial Revolution forever changed the way the world economy functioned.
Prestowitz suggests that the world is currently in the midst of a two- part revolution.
What parallels, if any, are there between Prestowitz’s revolutions and the Industrial
Revolution? What are the implications of these parallels for countries? For companies?
2. Many Americans have been directly affected by the outsourcing of jobs to India.
According to Prestowitz these jobs shifts are just the beginning. Where do you see the
world economy in three years? In five years? In ten years?
3. Prestowitz implies that the U.S. has allowed the global economy to shift toward India
and China simply by not taking a proactive stance. He maintains that the U.S. must
establish a new international economic policy, one that focuses on winning in the new
economy. Do you agree?
4. Consider the economies of India and China relative to that of the U.S. Which economy
is in the best position to succeed in the new global economy? What role does government
play?
globalEDGE™ Exercise Questions
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following
exercises:
Exercise 1
Your company has developed a new product that has universal appeal across countries
and cultures. In fact, it is expected to achieve high penetration rates in all the countries
where it is introduced, regardless of the average income of the local populace.
Considering the costs of the product launch, the management team has decided to initially
introduce the product only in countries that have a sizeable population base. You are
required to prepare a preliminary report with the top ten countries in terms of population
size. A member of management has indicated that a resource called the “World
Population Data Sheet” may be useful for the report. Since growth opportunities are
another major concern, the average population growth rates should be listed also for
management’s consideration.
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Chapter 01 - Globalization
Exercise 2
You are working for a company that is considering investing in a foreign country.
Investing in countries with different traditions is an important element of your company’s
long-term strategic goals. As such, management has requested a report regarding the
attractiveness of alternative countries based on the potential return of FDI. Accordingly,
the ranking of the top 25 countries in terms of FDI attractiveness is a crucial ingredient
for your report. A colleague mentioned a potentially useful tool called the “FDI
Confidence Index” which is updated periodically. Find this index, and provide additional
information regarding how the index is constructed.
Answers to Exercise Questions
Exercise 1
Numerous statistical databases and websites provide population information. The student
may use any of these (including the CIA World Factbook or the globalEDGE Country
Insights pages) to provide the answer. However, if the search term “World Population
Data Sheet” is entered into the search box, located at
{http://globaledge.msu.edu/ResourceDesk/}, the resource that comes up is the World
Population Data Sheet located at the Population Reference Bureau
{http://www.prb.org/}. This resource is found under the globalEDGE category “News &
Periodicals: Publications”. Be sure to check the “Resource Desk only” checkbox of the
search function on the globalEDGE website.
Search Phrase: “World Population Data Sheet”
Resource Name: World Population Data Sheet
Website: {http://www.prb.org/}
globalEDGE Category: “News & Periodicals: Publications”
Exercise 2
The report can be accessed by searching for the term “FDI Confidence Index” at
{http://globaledge.msu.edu/ResourceDesk/}. The FDI Confidence Index is the only
source in this search, and is published by A.T. Kearney. This resource is found under the
globalEDGE category “Research: Rankings”. Be sure to check the “Resource Desk only”
checkbox of the search function on the globalEDGE website.
Search Phrase: “FDI Confidence Index”
Resource Name: A.T. Kearney: FDI Confidence Index
Website: {http://www.atkearney.com/}
globalEDGE Category: “Research: Rankings”
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