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GLOBAL4_Peng_Ch01.pptxChapter 1 Globalizing
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Globalizing Business
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Learning Outcomes
Explain the concepts of international business and global business
Give three reasons why it is important to study global business
Articulate the fundamental question that the study of global business seeks to answer and the two perspectives from which to answer it
Identify three ways of understanding what globalization is
Appreciate the size of the global economy and the strengths of multinationals
Understand the organization of this book
LEARNING OUTCOMES
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Global Business Concepts
International business
Business that engages in international economic activities
The action of doing business abroad
Multinational enterprise (MNE): Firm engaging in foreign direct investment and operating in multiple countries
Foreign direct investment (FDI): Investment in, controlling, and managing value-added activities in other countries
LO 1
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Emerging Markets (Emerging Economies)
Contribute approximately half of the global gross domestic product (GDP)
Adjusted for purchasing power parity (PPP)
PPP: Conversion determining the equivalent amount of goods and services different currencies can purchase
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Emerging Markets (Emerging Economies) (continued)
The Great Transformation of the global economy
Embodied by the shift in economic weight and engines of growth toward emerging economies, such as BRICS
BRICS: Brazil, Russia, India, China, and South Africa
LO 1
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1.1 - The Global Economic Pyramid
LO 1
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Exhibit
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Source: C. K. Prahalad and S. Hart, “The fortune at the bottom of the pyramid,” Strategy+Business 26 (2002): 54-67 and S. Hart, Capitalism at the Crossroads (Philadelphia: Wharton School Publishing, 2005) 111.
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1.2 - Why Study Global Business?
LO 2
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Exhibit
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1.4 - A Unified Framework for Global Business
LO 3
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Exhibit
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According to the institution-based view, the success and failure of firms are enabled and constrained by institutions. Institutions refer to the formal and informal rules of the game. Doing business around the globe requires intimate knowledge about both formal rules and informal rules that govern competition in various countries as an institutional framework.
Formal institutions include laws, regulations, and rules. For example, Hong Kong's laws treat domestic firms and international firms equally. Informal institutions, such as cultures, ethics, and norms also play an important role in shaping the success and failure of firms around the globe. For example, individualistic societies, such as Australia, Britain, and the United States, tend to have a relatively higher level of entrepreneurship as reflected in the high number of business start-ups. This is because the act of founding a new firm is an accepted practice in individualistic societies.
The resource-based view answers this drawback by focusing on a firm’s internal resources and capabilities.
Foreign firms have to overcome a liability of foreignness.
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Institution-Based View
Firm performance is determined by institutional frameworks governing firm behavior worldwide
Institutional framework: Formal and informal institutions that govern individual and firm behavior
Deals with the external environment
LO 3
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Resource-Based View
Focuses on a firm's internal resources and capabilities
Liability of foreignness: Inherent disadvantage experienced by foreign firms in host countries because of their nonnative status
Firm’s resources and capabilities can offset the disadvantage
LO 3
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Resource-Based View (continued)
Firms must have valuable and unique resources that are not shared by competitors in the same environment
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Advantages of Globalization
Greater economic growth and higher standards of living
Increase in technology sharing
Extensive cultural integration
LO 4
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Disadvantages of Globalization
Undermines wages in rich countries
Exploits workers in poor countries
Gives too much power to MNEs
Destroys the environment
Undermines national sovereignty
LO 4
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Views on Globalization
New force sweeping through the world in recent times
Result of technological innovation and Western ideology
Focused on exploitation and domination through MNEs
Long-run historical evolution since the beginning of human history
LO 4
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Pendulum View of Globalization
Globalization rapidly accelerated as emerging economies, inspired by the Four Tigers, joined the world economy
Rapid growth in 1990s and 2000s drew backlash
Inaccurate historical view that globalization is new
Fear of loss of jobs in developed economies
Complaints alleging that MNEs are destroying local companies, cultures, and values in emerging economies
LO 4
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Pendulum View of Globalization (continued)
The Great Recession, Brexit, and Trump remind all firms the importance of risk management
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
LO 4
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A key lesson from the Great Recession, Brexit, and Trump has been the underscoring of the importance of risk management and scenario planning.
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Semiglobalization
Perspective that suggests barriers to market integration at borders are high
Not high enough for complete insulation among countries
LO 4
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Globalization is never complete. Most measures of market integration still fall short of pointing to a single, globally integrated market. In other words, what we have is semiglobalization, which is more complex than extremes of total isolation or total globalization. Semiglobalization calls for more than one way of strategizing around the globe, and there is no one right strategy, resulting in a wide variety of experimentations.
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Semiglobalization Strategies
Total isolation - Suggests localization
Strategy that treats each country as a unique market
Expensive
Total globalization - Leads to standardization
Strategy of treating the entire world as one market
LO 4
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1.7 - Recent Changes in the Fortune Global 500
LO 5
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Exhibit
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Organization of the Book
Divided into the following parts:
Foundations
Comprises chapters 2 to 4
Tools
Comprises chapters 5 to 8
Managing around the world
Comprises chapters 9 to 15
LO 4
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Key Terms
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)
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KEY TERMS
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Key Terms (Continued)
Expatriate manager (expat)
International premium
Institution-based view
Institution
Institutional framework
Resource-based view
Liability of foreignness
Globalization
Risk management
Scenario planning
Semiglobalization
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KEY TERMS (continued)
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Summary
International business refers to the action of doing business abroad
Understanding how global business decisions are made may facilitate one's own career in such firms
Perspectives in global business
Institution-based view
Resource-based view
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SUMMARY
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Summary (Continued 1)
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
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SUMMARY
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