TABLE OF CONTENT
CHAPTER ONE – GLOBALIZING BUSINESS ....................................................................................................................................... 1
“THE TRADE-OFFS OF GLOBALIZATION,” BY RODRIK, D. .......................................................
CHAPTER ONE – GLOBALIZING BUSINESS ....................................................................................................................................... 1
“THE TRADE-OFFS OF GLOBALIZATION,” BY RODRIK, D. ................................................................................................................ 5
CHAPTER FOUR – FIRM RESOURCES: COMPETIVENESS AND GROWTH ........................................................................................ 6
CHAPTER TEN – SOCIALLY RESPONSIBLE BUSINESS ..................................................................................................................... 11
CHAPTER TWO – FORMAL INSTITUTIONS: POLITICAL, ECONOMIC, AND LEGAL SYSTEMS ......................................................... 15
CHAPTER THREE – INFORMAL INSTITUTIONS: CULTURE, RELIGION, AND LANGUAGES ............................................................. 19
“DOUGLAS NORTH ON FORMAL AND INFORMAL INSTITUTIONS” ............................................................................................... 23
“INSTITUTIONS, DEMOCRACY, AND ECONOMIC DEVELOPMENT” .............................................................................................. 23
“CROSS-CULTURAL MANAGEMENT” ............................................................................................................................................. 23
CHAPTER FIVE – TRADING INTERNATIONALLY .............................................................................................................................. 24
CHAPTER SEVEN – EXCHANGE RATES ........................................................................................................................................... 31
CHAPTER EIGHT – EUROPEAN INTEGRATION ............................................................................................................................... 35
CHAPTER NINE – GLOBAL INTEGRATION AND MULTILATERAL ORGANIZATIONS ....................................................................... 42
CHAPTER SIX – INVESTING ABROAD DIRECTLY ............................................................................................................................. 47
CHAPTER ELEVEN – STARTING INTERNATIONAL BUSINESS .......................................................................................................... 54
CHAPTER TWELVE – FOREIGN ENTRY STRATEGIES ....................................................................................................................... 59
CHAPTER THIRTEEN – COMPETITIVE DYNAMICS .......................................................................................................................... 65
CHAPTER FIFTEEN – ORGANIZING AND INNOVATING IN THE MNE ............................................................................................. 69
CHAPTER SIXTEEN – PEOPLE IN THE MNE .................................................................................................................................... 74
, CHAPTERONE – GLOBALIZINGBUSINESS
1. EUROPEAN AND GLOBAL BUSINESS
International business (IB) refers to (1) a business that engages in international (cross-border) economic activities
and/or (2) the action of doing business abroad. Such activities can take many forms and involve many actors. The
most important actors are multinational enterprises (MNEs), which are firms that engage in foreign direct
investment (FDI). Other international actors might not necessarily be MNEs but engage in FDIs and IB too.
Note that international business focuses on both the international and the business part. Hence, it doesn’t focus
on one function but on the overall picture of business. This book goes beyond traditional IB books as it focuses
on both European businesses and managers and to emerging economies, or emerging markets – economies that
only recently established institutional frameworks that facilitate international trade and investment, typically with
low- or middle-level income and above average economic growth. The most important emerging markets are the
BRICs (Brazil, Russia, India, and China). They represent 85% of the world’s population, but only 30% of the world’s
GDP. The figure below shows the contributions of emerging economies.
There is a variety of acronyms used to measure economic development, i.e. GDP, GNP, GNI, and PPP. The gross
domestic product (GDP) is measured as the sum of value added by resident firms, households, and government
operating in an economy. The gross national product (GNP) is measured as the GDP plus the earnings of non-
resident sources that are sent back to the country. Note that the gross national income (GNI) is the term used by
the World Bank and other international organizations to supersede the term GNP.
GDP, GNP, and GNI are often used as yardsticks of economic development, however, differences in cost of living
make such a direct comparison less meaningful. The purchasing power parity (PPP) is a conversion that
determines the equivalent amount of goods and services different currencies can purchase. This conversion is
usually used to capture the differences in cost of living in different countries.
2. A UNIFIED FRAMEWORK
To make the learning more manageable, the authors developed a unified framework. This framework
distinguishes two views, (1) the institution-based view, and (2) the resource-based view. By combining these two,
one can answer the fundamental question of what determines the success and failure of firms around the globe.
By Angie Marinelli Global Business 1
, (1) An institution-based view.
Businesses have to play by certain rules. These ‘rules of the game’ are commonly known as ‘institutions’, and they
come in many forms. However, they also vary considerably across countries, or even within countries. In a
nutshell, an institution-based view suggests that success and failure of firms are enabled and constrained by the
different rules of the game. Note that there is a difference between the formal rules – such as the requirements
to treat domestic and foreign firms as equals, and informal rules – such as culture, norms, and values.
(2) A resource-based view.
The main limitation of the institution-based view stands in the suggestion that the firms’ success and failure
around the globe are influenced by their environments. To counter this, the resource-based view primarily deals
with the external environment, it focuses on a firm’s internal resources and capabilities. It starts with a simple
observation: in harsh, unattractive environments, most firms either suffer or exit. However, against all odds, a
few superstars thrive in these environments.
Doing business outside one’s home country is challenging.
Foreign firms have to overcome a liability of outsidership –
the inherent disadvantage that outsiders experience in a new
environment because of their lack of familiarity with local
contexts and networks. Your ability to operate depends on
your familiarity with the local context. Thus, the liability of
outsidership increases the more a firm’s origins differ from
the host environment, the less the firm has experience in the
host country and the further away its nearest prior affiliate.
This is illustrated on the figure on the side.
3. UNDERSTANDING GLOBALIZATION
4.1. VIEWS ON GLOBALIZATION
Mauro Guillén defined globalization as a process leading to greater interdependence and mutual awareness
among economic, political and social units in the world and among actors in general. However, different people
can have different views on globalization:
- For young people, globalization is often first and foremost the internet and the information and
communication opportunities it creates. At the same time, mature businesses have to reassess their
manufacturing operations and supply chains in view of potential disruptions through digital technology,
a trend often discussed as Industry 4.0 – the disruptions of operations and supply chains through
advances in digital technologies.
- Globalization can be primarily associated with the rising power of MNEs and growing inequality around
the world.
- Unskilled workers appear to lose out, at least in relative terms. The relative income of the highest skilled
people is rising, while the share of income from capital is rising relative to income from labor.
Globalization has dramatically reduced inequality among nations, but it appears to also have contributed
to rising inequality within nations.
- Some interpret globalization as a force that makes us all more similar and that eliminates the
distinctiveness of our national cultures and identities. Some scholars, especially in marketing, argue that
the world is on a path of convergence where consumers become more alike and companies thus sell the
same products everywhere on the globe.
4.2. TRENDS OF GLOBALIZATION
Globalization is not new; people have been trading over long distances for more than five millennia. However,
globalization accelerated in the 19th century following major innovations in manufacturing, communication and
transport, as well as liberalization – the removal of regulatory restrictions on business. Over the past decades,
globalization has faced significant changes. Consequently, the economist Geoff Jones describes the world
economy through waves of globalization – the pattern of globalization arising from a combination of long-terms
trends and pendulum swings.
By Angie Marinelli Global Business 2
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