1. InternationalBusiness 7eMcGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 1Globalization

3. 1-3What Is Globalization?The world is moving away from self-contained nationaleconomies toward an interdependent, integrated globaleconomic systemGlobalization refers to the shift toward a more integratedand interdependent world economyGlobalization has two facets:1) the globalization of markets2) the globalization of production

4. 1-4The Globalization Of MarketsThe globalization of markets refers to the merging ofhistorically distinct and separate national markets into onehuge global marketplaceIn many industries, it is no longer meaningful to talkabout the German market or the American marketInstead, there is only the global market

5. 1-5The Globalization Of MarketsFalling trade barriers make it easier to sell internationallyThe tastes and preferences of consumers are convergingon some global normFirms help create the global market by offering the samebasic products worldwide

6. 1-6Classroom Performance SystemThe shift toward a more integrated and interdependentworld economy is referred to asa) economic integrationb) economic interdependencyc) globalizationd) internationalization

7. 1-7The Globalization Of ProductionThe globalization of production refers to the sourcing ofgoods and services from locations around the globe to takeadvantage of national differences in the cost and quality offactors of production like land, labor, and capitalCompanies compete more effectively by lowering theiroverall cost structure or improving the quality orfunctionality of their product offering

8. 1-8Classroom Performance SystemThe merging of historically distinct and separatenational markets into one huge global marketplace isknown asa) global market facilitationb) cross-border tradec) supranational market integrationd) the globalization of markets

9. 1-9Classroom Performance SystemFirms that are involved in international business tend tobea) largeb) smallc) medium-sizedd) large, small, and medium-sized

10. 1-10The Emergence Of Global InstitutionsInstitutions are needed to:help manage, regulate, and police the global marketplacepromote the establishment of multinational treaties togovern the global business system

11. 1-11The Emergence Of Global InstitutionsInstitutions created over the past half century include:the General Agreement on Tariffs and Trade (GATT)the World Trade Organization (WTO)the International Monetary Fund (IMF)the World Bankthe United Nations (UN)

12. 1-12The Emergence Of Global InstitutionsThe World Trade Organization (like its predecessorGATT) is primarily responsible for policing the world tradingsystem and making sure that nation-states adhere to therules laid down in trade treaties signed by WTO membersIn 2007, the 150 nations that accounted for 97% of worldtrade were WTO membersThe WTO promotes lower barriers to trade andinvestment

13. 1-13The Emergence Of Global InstitutionsThe International Monetary Fund and the World Bankwere created in 1944The IMF was established to maintain order in theinternational monetary systemThe World Bank was established to promote economicdevelopment

14. 1-14The Emergence Of Global InstitutionsThe United Nations was established in 1945 to:maintain international peace and securitydevelop friendly relations among nationscooperate in solving international problems and inpromoting respect for human rightsbe a center for harmonizing the actions of nations

15. 1-15Classroom Performance SystemWhich is not a factor of production?a) tradeb) landc) capitald) energy

16. 1-16Drivers Of GlobalizationTwo macro factors underlie the trend toward greaterglobalization:the decline in barriers to the free flow of goods, services,and capital that has occurred since the end of World War IItechnological change

17. 1-17Declining Trade AndInvestment BarriersInternational trade occurs when a firm exports goods orservices to consumers in another countryForeign direct investment (FDI) occurs when a firminvests resources in business activities outside its homecountryAfter World War II, advanced countries made acommitment to lower barriers to trade and investmentSince 1950, average tariffs have fallen significantly andare now at about 4%Countries have also been opening markets to FDI

18. 1-18Classroom Performance SystemThe sourcing of good and services from around the worldto take advantage of national differences in the cost andquality of factors of production is calleda) economies of scaleb) the globalization of productionc) global integrationd) global sourcing

19. 1-19Declining Trade AndInvestment BarriersTable 1.1: Average Tariff Rates on Manufactured Productsas Percent of Value

20. 1-20Declining Trade AndInvestment BarriersLower barriers to trade and investment mean:that firms can view the world, rather than a singlecountry, as their marketthat firms can base production in the optimal location forthat activity

21. 1-21Classroom Performance SystemWhich organization is responsible for policing the worldtrading system?a) the International Monetary Fundb) the United Nationsc) the World Trade Organizationd) the World Bank

22. 1-22The Role Of Technological ChangeTechnological change has made the globalization ofmarkets a realityImportant advances have occurred in:microprocessors and telecommunicationsthe Internet and World Wide Webtransportation technology

23. 1-23The Role Of Technological ChangeImplications of technological change for the globalization ofproduction include:lower transportation costs that enable firms to disperseproduction to economical, geographically separatelocationslower information processing and communication coststhat enable firms to create and manage globally dispersedproduction systems

24. 1-24The Role Of Technological ChangeImplications of technological change for the globalization ofmarkets include:low cost global communications networks help createelectronic global marketplacelow-cost transportation help create global marketsglobal communication networks and global media arecreating a worldwide culture, and a global market forconsumer products

25. 1-25The Changing DemographicsOf The Global EconomyThere has been a drastic change in the demographics ofthe world economy in the last 30 yearsFour trends are important:the Changing World Output and World Trade Picturethe Changing Foreign Direct Investment Picturethe Changing Nature of the Multinational Enterprisethe Changing World Order

26. 1-26The Changing World OutputAnd World Trade PictureIn 1960, the United States accounted for over 40% ofworld economic activityBy 2006, the United States accounted for less than 20%of world economic activityA similar trend occurred in other developed countriesThe share of world output accounted for by developingnations is rising and is expected to account for more than60% of world economic activity by 2020

27. 1-27The Changing World OutputAnd World Trade PictureTable 1.2: The Changing Demographics of World GDP andTrade

28. 1-28The Changing Foreign DirectInvestment PictureIn the 1960s, U.S. firms accounted for about two-thirds ofworldwide FDI flowsToday, the United States accounts for less than one-fifthof worldwide FDI flowsOther developed countries have followed a similarpatternIn contrast, the share of FDI accounted for by developingcountries has risen from less than 2% in 1980 to almost12% in 2005Developing countries, especially China, have alsobecome popular destinations for FDI

29. 1-29The Changing Foreign DirectInvestment PictureFigure 1.2: Percentage Share of Total FDI Stock 1980-2005

30. 1-30The Changing Foreign DirectInvestment PictureFigure 1.3: FDI Inflows 1988-2006

31. 1-31Classroom Performance SystemWhat is the single most important innovation to theglobalization of markets and production?a) advances in transportation technologyb) the development of the microprocessorc) advances in communicationd) the Internet

32. 1-32The Changing Nature OfThe Multinational EnterpriseA multinational enterprise (MNE) is any business that hasproductive activities in two or more countriesSince the 1960s, there has been a rise in non-U.S.multinationals, and a growth of mini-multinationals

33. 1-33The Changing World OrderMany former Communist nations in Europe and Asia arenow committed to democratic politics and free marketeconomies and so, create new opportunities forinternational businessesChina and Latin America are also moving toward greaterfree market reforms

34. 1-34The Global Economy OfThe Twenty-first CenturyThe world is moving toward a more global economicsystem, but globalization is not inevitableGlobalization also brings risks like the financial crisis thatswept through South East Asia in the late 1990s

35. 1-35Classroom Performance SystemWhich of the following trends is true?a) the United States is accounting for a greater percentageof world trade than ever beforeb) the United States is accounting for a greater percentageof foreign direct investment than ever beforec) the share of world trade accounted for by developingcountries is risingd) the share of foreign direct investment by developingcountries is declining

36. 1-36The Globalization DebateIs the shift toward a more integrated and interdependentglobal economy a good thing?Supporters believe that increased trade and cross-borderinvestment mean lower prices for goods and services,greater economic growth, higher consumer income, andmore jobsCritics worry that globalization will cause job losses,environmental degradation, and the cultural imperialism ofglobal media and MNEs

37. 1-37Anti-Globalization ProtestsMore than 40,000 anti-globalization protesters took to thestreet at the WTO meeting in Seattle in 1999Protesters now regularly show up at most majormeetings of global institutions

38. 1-38Globalization, Jobs, And IncomeGlobalization critics argue that falling barriers to trade aredestroying manufacturing jobs in advanced countriesSupporters of globalization contend that the benefits ofthis trend outweigh the coststhat countries will specializein what they do most efficiently and trade for other goodsand all countries will benefit

39. 1-39Globalization, Labor Policies,And The EnvironmentGlobalization critics argue that firms avoid costly effortsto adhere to labor and environmental regulations by movingproduction to countries where such regulations do not exist,or are not enforcedGlobalization supporters claim that tougherenvironmental and labor standards are associated witheconomic progress, so as countries get richer from freetrade, they get tougher environmental and labor regulations

40. 1-40Globalization AndNational SovereigntyCritics of globalization worry that todays interdependentglobal economy is shifting economic power away fromnational governments toward supranational organizationslike the WTO, the EU, and the UNSupporters of globalization contend that the power ofthese organizations is limited to what nation-states agree togrant, and that the power of the organizations lies in theirability to get countries to agree to follow certain actions

41. 1-41Globalization And The Worlds PoorCritics of globalization argue that the gap between richnations and poor nations is getting widerSupporters of globalization claim that the best way for thepoor nations to improve their situation is to reduce barriersto trade and investment and implement economic policiesbased on free market economies, and to receive debtforgiveness for debts incurred under totalitarian regimes

42. 1-42Classroom Performance SystemWhich of these is not a concern of anti-globalizationprotesters?a) globalization raises consumer incomeb) globalization contributes to environmental degradationc) globalization is causing a loss of manufacturing jobs indeveloping countriesd) globalization implies a loss of national sovereignty

43. 1-43Managing In The Global MarketplaceAn international business is any firm that engages ininternational trade or investment

44. 1-44Managing In The Global MarketplaceManaging an international business differs from managinga domestic business because:countries are differentthe range of problems confronted in an internationalbusiness is wider and the problems more complex thanthose in a domestic businessfirms have to find ways to work within the limits imposedby government intervention in the international trade andinvestment systeminternational transactions involve converting money intodifferent currencies