International Business: Competing in the Global Marketplace (Charles W.L. Hill, G. Tomas M. Hult)
Chapter 1: Globalisation 2
Chapter 2: National Differences in Political, Economic, and Legal Systems 15
Chapter 4: Differences in Culture 24
,Chapter 1: Globalisation
Introduction
• International trade across country borders has become the norm, with an almost exponential increase in trade during
the last decade.
• We are moving toward a world in which
o barriers to cross-border trade and investment are declining;
o perceived distance is shrinking due to advances in transportation and telecommunications technology;
o material culture is starting to look similar the world over; and
o national economies are merging into an interdependent, integrated global economic system
• Recent political world events create tension and uncertainty regarding the future of global trade activities.
• The nationalistic argument rests in citizens wanting their country to be sovereign, self-sufficient as much as possible,
and in charge of their own economy and country environment.
• Globalization now does have an impact on almost everything we do.
o Interestingly, in many cases we simply do not know or perhaps even care to know where the product was
designed and where it was made: This is a change in attitude and interest.
o Just a couple of decades ago: “Made in the USA” referred to high-quality and “Made in Germany” referred to
sophisticated engineering.
o Now: “Made by BMW” the company is the quality assurance platform, not the country.
o In many cases, it goes even beyond the company to the relationships a customer has developed with a
representative of a company—CRM (customer relationship management).
• For businesses, the globalization process has produced many opportunities.
o Firms can expand their revenues by selling around the world and/or reduce their costs by producing in nations
where key inputs, including labor, are cheap.
o The global expansion of enterprises has been facilitated by generally favorable political and economic trends.
o Regulatory and administrative barriers to doing business in foreign nations have been reduced, while those
nations have often transformed their economies, privatizing state-owned enterprises, deregulating markets,
increasing competition, and welcoming investment by foreign businesses.
o This has allowed businesses large and small, from advanced and developing nations, to expand internationally.
• As globalization unfolds, it is transforming industries and creating anxiety among those who believed their jobs were
protected from foreign competition.
o Historically, while many workers in manufacturing industries worried about the impact foreign competition
might have on their jobs, workers in service industries felt more secure.
o Advances in technology, lower transportation costs, and the rise of skilled workers in developing countries
imply that many services no longer need to be performed where they are delivered.
• People living in developed nations no longer have the playing field tilted in their favor.
o Increasingly, enterprising individuals based in India, China, or Brazil have the same opportunities to better
themselves as those living in western Europe, the U.S., or Canada.
What is Globalisation?
• Globalization: the shift toward a more integrated and interdependent world economy.
• THE GLOBALIZATION OF MARKETS
o The globalization of markets refers to the merging of historically distinct and separate national markets into
one huge global marketplace.
Falling barriers to cross-border trade and investment have made it easier to sell internationally.
o It has been argued that the tastes and preferences of consumers in different nations are beginning to converge
on some global norm, thereby helping create a global market.
o A company does not have to be the size of these multinational giants to facilitate, and benefit from, the
globalization of markets.
U.S.A. (2017): more than 300,000 small and medium-size firms with fewer than 500 employees
exported, accounting for 98 % of the companies that exported that year.
• More generally, exports from small and medium-sized companies accounted for 33 % of the
value of U.S. exports of manufactured goods.
In Germany, a staggering 98 percent of small and midsize companies have exposure to international
markets, via either exports or international production.
Since 2009, China has been the world’s largest exporter, sending more than $2 trillion worth of
products and services last year to the rest of the world.
o Significant differences still exist among national markets along many relevant dimensions, including consumer
tastes and preferences, distribution channels, culturally embedded value systems, business systems, and legal
regulations.
These differences require companies to customize marketing strategies, product features, and
operating practices to best match conditions in a particular country.
, o The most global of markets are not typically markets for consumer products—where national differences in
preferences can still be important enough to act as a brake on globalization—but markets for industrial goods
and materials that serve universal needs the world over.
These include the markets for commodities such as aluminum, oil, and wheat; for industrial products
such as microprocessors, DRAMs and commercial jet aircraft; for computer software; and for financial
assets from U.S. Treasury bills to Eurobonds and futures on the Nikkei index or the euro.
o That being said, it is increasingly evident that many newer high-technology consumer products, such as Apple’s
iPhone, are being successfully sold the same way the world over.
o In many global markets, the same firms frequently confront each other as competitors in nation after nation.
Global rivalries: Coca-Cola’s and PepsiCo; Ford and Toyota; Boeing and Airbus; Caterpillar and
Komatsu in earthmoving equipment; General Electric and Rolls-Royce in aero engines; Sony,
Nintendo, and Microsoft in video-game consoles; and Samsung and Apple in smartphones.
• If a firm moves into a nation not currently served by its rivals, many of those rivals are sure
to follow to prevent their competitor from gaining an advantage.
o As firms follow each other around the world, they bring with them many of the assets that served them well in
other national markets— their products, operating strategies, marketing strategies, and brand names—
creating some homogeneity across markets. Thus, greater uniformity replaces diversity.
• THE GLOBALIZATION OF PRODUCTION
o 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 or improve the quality or
functionality of their product offering, thereby allowing them to compete more effectively.
o Part of Boeing’s rationale for outsourcing so much production to foreign suppliers is that these suppliers are
the best in the world at their particular activity.
A global web of suppliers yields a better final product, enhancing Boeing’s chances of winning a
greater share of total orders for aircraft than its global rival, Airbus.
Boeing also outsources some production to foreign countries to increase the chance that it will win
significant orders from airlines based in that country.
o Early outsourcing efforts were primarily confined to manufacturing activities.
o Increasingly, however, companies are taking advantage of modern communications technology, particularly
the Internet, to outsource service activities to low-cost producers in other nations.
Dispersing value-creation activities in this way can compress the time and lower the costs required to
develop new software programs.
o The economist Robert Reich has argued that as a consequence of the trend, in many cases it is becoming
irrelevant to talk about American products, Japanese products, German products, or Korean products.
Increasingly, the outsourcing of productive activities to different suppliers results in the creation of
products that are global in nature, that is, “global products.”
o Substantial impediments still make it difficult for firms to achieve the optimal dispersion of their productive
activities to locations around the globe.
These impediments include formal and informal barriers to trade between countries, barriers to
foreign direct investment, transportation costs, issues associated with economic and political risk, and
the sheer managerial challenge of coordinating a globally dispersed supply chain.
The Emergence of Global Institutions
• As markets globalize and an increasing proportion of business activity transcends national borders, institutions are
needed to help manage, regulate, and police the global marketplace and to promote the establishment of multinational
treaties to govern the global business system.
o E.g. the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization; the
International Monetary Fund and its sister institution, the World Bank; and the United Nations.
All these institutions were created by voluntary agreement between individual nation-states, and
their functions are enshrined in international treaties.
• The World Trade Organization (WTO) (like the GATT before it) is primarily responsible for policing the world trading
system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states.
o 2017: 164 nations that collectively accounted for 98% of world trade were WTO members, thereby giving the
organization enormous scope and influence.
o The WTO …
facilitates the establishment of additional multinational agreements among WTO member states.
promotes the lowering of barriers to cross-border trade and investment.
• is the instrument of its member states, which have sought to create a more open global
business system unencumbered by barriers to trade and investment between countries.
o However, critics charge that the organization is usurping the national sovereignty of individual nation-states.
, • The International Monetary Fund (IMF) and the World Bank were both created in 1944 by 44 nations that met at
Bretton Woods, New Hampshire.
o The IMF was established to maintain order in the international monetary system; the World Bank was set up
to promote economic development.
o The World Bank is the less controversial of the two sister institutions.
It has focused on making low-interest loans to cash-strapped governments in poor nations that wish
to undertake significant infrastructure investments (e.g. building dams or roads).
o The IMF is often seen as the lender of last resort to nation-states whose economies are in turmoil and whose
currencies are losing value against those of other nations.
IMF loans come with strings attached, however; in return for loans, the IMF requires nation-states to
adopt specific economic policies aimed at returning their troubled economies to stability and growth.
Some critics charge that the IMF’s policy recommendations are often inappropriate; others maintain
that by telling national governments what economic policies they must adopt, the IMF, like the WTO,
is usurping the sovereignty of nation-states.
• The United Nations (UN) was established October 24, 1945, by 51 countries committed to preserving peace through
international cooperation and collective security.
o Today, nearly every nation in the world belongs to the United Nations; membership now totals 193 countries.
o When states become members of the United Nations, they agree to accept the obligations of the UN Charter,
an international treaty that establishes basic principles of international relations.
According to the charter, the UN has four purposes:
• to maintain international peace and security,
• to develop friendly relations among nations,
• to cooperate in solving international problems and in promoting respect for human rights,
• and to be a center for harmonizing the actions of nations.
o Although the UN is perhaps best known for its peacekeeping role, one of the organization’s central mandates
is the promotion of higher standards of living, full employment, and conditions of economic and social
progress and development—all issues that are central to the creation of a vibrant global economy.
As much as 70 percent of the work of the UN system is devoted to accomplishing this mandate.
To do so, the UN works closely with other international institutions such as the World Bank.
o Guiding the work is the belief that eradicating poverty and improving the well-being of people everywhere are
necessary steps in creating conditions for lasting world peace.
• Another institution in the news is the Group of Twenty (G20).
o Established in 1999, the G20 comprises the finance ministers and central bank governors of the 19 largest
economies in the world, plus representatives from the EU and the European Central Bank.
o Collectively, the G20 represents 90% of global GDP and 80% of international global trade.
o Originally established to formulate a coordinated policy response to financial crises in developing nations, in
2008 and 2009 it became the forum through which major nations attempted to launch a coordinated policy
response to the global financial crisis that started in America and then rapidly spread around the world,
ushering in the first serious global economic recession since 1981.
Drivers of Globalisation
• Two macro factors underlie the trend toward greater globalization.
o 1. The decline in barriers to the free flow of goods, services, and capital that has occurred in recent decades.
o 2. technological change, particularly the dramatic developments in communication, information processing,
and transportation technologies.
• DECLINING TRADE AND INVESTMENT BARRIERS
o During the 1920s and 1930s, many of the world’s nation-states erected formidable barriers to international
trade and foreign direct investment (FDI).
International trade: a firm exports goods or services to consumers in another country.
FDI: when a firm invests resources in business activities outside its home country.
o Many of the barriers to international trade took the form of high tariffs on imports of manufactured goods.
The aim of such tariffs was to protect domestic industries from foreign competition.
o One consequence, however, was “beggar thy neighbor” retaliatory trade policies, with countries progressively
raising trade barriers against each other.
Ultimately, this depressed world demand and contributed to the Great Depression of the 1930s.
o Having learned from this experience, the advanced industrial nations of the West committed themselves after
World War II to progressively reducing barriers to the free flow of goods, services, and capital among nations.
Under the umbrella of GATT, eight rounds of negotiations among member states worked to lower
barriers to the free flow of goods and services.
The Uruguay Round (1993) further reduced trade barriers; extended GATT to cover services as well as
manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and
established the World Trade Organization (WTO) to police the international trading system.
