International Business The New Realities 2e Cavusgil Knight Riesenberger solutions manual and test bank
CHAPTER 2
GLOBALIZATION OF MARKETS
AND THE INTERNATIONALIZATION OF THE FIRM
Instructor’s Manual by Marta Szabo White, Ph.D.
I. LECTURE STARTER/LAUNCHER
The Value Chain concept is central to this chapter. To ensure that students understand this concept, you might start the chapter with a basic example. Project the basic value chain model on the screen, and select a simple business. How about shoes, or laptop computers, or automobiles? Suppose you manufacture one of these products. Next, proceed step by step through the model from research & development; to procurement (sourcing raw materials); to manufacturing; to marketing; to distribution; to sales & service. Follow each activity and commensurate value that is added at each step along the way. Now consider locating each one of those activities in a different country, if it is more efficient to do so. If you don’t want to create an example, you can always use the examples in Exhibit 2.9.
Useful tools for introducing the chapter include the following:
Google:
Collaborative Tools: Building a Culture of Knowledge Sharing
Collaborative Tools - Opening Comments
II. LEARNING OBJECTIVES AND THE OPENING VIGNETTE
Learning Objectives
1. Why globalization is not new
2. Market globalization: An organizing framework
3. Dimensions of market globalization
4. Drivers of market globalization
5. Technological advances
5. Societal consequences of market globalization
6. Firm-level consequences of market globalization:
Internationalization of firm’s value chain
Key Themes
■ Globalization has been around for centuries- the early civilizations in the Mediterranean, Middle East, Asia, Africa, and Europe have all contributed to its growth.
■ Market Globalization means reconfiguration of the value chain so as to capitalize on low-cost locations.
■ The framework used to explain globalization consists of drivers (inputs), dimensions (processes) and consequences – both societal and firm-level (outputs).
■ Dimensions- growing global interconnectedness of buyers, producers, suppliers, and governments. Globalization has fostered the emergence of regional economic integration blocs, growth of global investment and financial flows, the convergence of buyer lifestyles and needs, and the globalization of production.
■ Drivers- falling trade and investment barriers; market liberalization and adoption of free market economics in formerly closed economies; industrialization and economic development (emerging markets); integration of world financial markets; and technological advances.
■ Globalization makes internationalization an imperative, technology provides the means.
■ Consequences- societal- globalization interferes with national sovereignty, is associated with offshoring, tends to decrease poverty, may widen the gap between the rich and the poor, may harm the natural environment and may promote the loss of national cultural values.
■ Consequences- firm- Firms are compelled to globally reconfigure key value-adding activities such that value-chain activities reduce the costs of R&D and production, or gain closer access to customers.
Teaching Tips
■ Input-Process-Output model: As this chapter is framed with a globalization model consisting of drivers (inputs), dimensions (processes) and consequences – both societal and firm-level (outputs), make it simple for your students and start with an explanation of a fundamental input-output model from Systems Theory. This model can be applied to any open system- from biology to business. Once you highlight the essence of the model, you can break your class into four groups, and assign one of the following to each group: (1) drivers (inputs- what drives it), (2) dimensions (processes- what is it) and – (3) societal consequences (outputs-results) and (4) firm-level consequences (outputs-results). You may want to help them a bit by sharing some of the points under Key Themes (above). Allocate 10 minutes for each group to understand what their component means and how it fits into the overall model. Then, a designated group member from each group must share their findings with the class.
Commentary on the Opening Vignette:
BANGALORE: IT’S GLOBAL DESTINATION
· Key message
■ The globalization of business and the integration of functions across the value chain and across countries is illustrated by companies such as Accenture, AOL, Intel, Cisco, Oracle, Philips, and Ernst & Young which have relocated their customer service centers, software development, chip design, computer systems maintenance, X-ray diagnosis, mortgage processing, tax form preparation, and lost luggage tracking to Bangalore, Delhi, Chennai, Hyderabad, and other emerging high-tech centers across India.
· Uniqueness of the situation described
■ The advantages of sourcing to India are unique:
(1) India is home to several million highly educated knowledge workers.
(2) English is widely spoken.
(3) Indians are paid one-quarter of what Westerners expect for similar work, and in many cases they do it better.
(4) India is located on the other side of the world from Europe and the U.S., allowing Indians to take advantage of time-sharing; knowledge economy is a 24-hour workday.
■ The advantages of IT globalization:
(1) Virtual meetings with global suppliers- U.S. designers can be on the screen speaking with their Indian software writers and their Asian manufacturers, simultaneously.
(2) Intellectual work (e.g. proprietary software) can be chopped up with parts going to Boston, Bangalore, and Beijing; disaggregated, delivered, distributed, produced and put back together again, making it easy for anyone to do remote development.
■ The implications of globalization:
(1) Consumer products/services no longer identify your global position.
(2) Knowledge work can be developed worldwide, and will locate where maximum factor advantages accrue to the firm.
(3) Free trade and global sourcing benefit consumers worldwide to receive maximum quality at minimum price.
(4) Both producer and consumer nations can increase their wealth and quality of life
(5) Commensurate with the increase in the standard of living and influx of workers, comes congestion, pollution, high rents, a raucous nightlife, and Western values.
· Classroom discussion
■ Almost everyone in the class will have a personal experience to share regarding sourcing to India, so capitalize on this and make it personal. Some will have a positive story, others less so. What these experiences will illustrate are the tradeoffs that Multinational Enterprises (MNEs) and Small and Medium-sized Enterprises (SMEs) must consider when reconfiguring their value chains globally. Cultural differences will be discussed in chapter 4, but for now, consider that firms many times do not even reflect upon cultural differences as an issue in deciding the sequencing and location of their value-adding activities. Some of their experiences will be grounded in cultural differences. This introduction serves to underscore the delicate balance of a host of complex variables to be considered when deciding where to configure a firm’s value chain.
III. DETAILED CHAPTER OUTLINE
■ Twin mega trends have altered the international business landscape by enabling both marketing and procurement activities on a global scale: the globalization of markets or economies and technological advances.
■ Globalization of Markets is a broad term referring to the interconnectedness of national economies and the growing interdependence of buyers, producers, suppliers, and governments in different countries, i.e. the gradual integration and growing interdependence of national economies.
■ Market globalization is manifested by the production/marketing of branded products/services worldwide.
■ Economic integration is accelerated by declining trade barriers and the Internet.
■ Globalization enables firms to view the world as one large marketplace for goods, services, capital, labor, and knowledge.
■ Technological developments in information, manufacturing, transportation, and the Internet, have facilitated rapid and early internationalization of countless firms.
■ Globalization Antecedents and Consequences:
◘ Global sourcing of products/services
◘ Transformation of national economies
◘ Growing world trade and foreign direct investment
◘ Spread of technology
◘ Broad product/service consumer options
◘ Price reductions - products/services
◘ Job creation - higher living standards
◘ Global convergence of some products- illustrated by universal demand, e.g. music, electronics, food
◘ Dissemination of economic, political and legal values, e.g. liberalized economies, free trade and intellectual property rights
WHY GLOBALIZATION IS NOT NEW
■ Early civilizations in the Mediterranean, Middle East, Asia, Africa, and Europe have all contributed to the growth of globalization.
■ The word ‘trade’ comes from the Anglo-Saxon term trada, which means to walk in the footsteps of others.
■ Ancient trade routes were the foundation for a high level of cross-cultural exchange of ideas that lead to the development of religion, science, economic activity, and government.
■ The phrase “all roads lead to Rome” is not so much a metaphorical reference to Rome’s dominance of the world 2,000 years ago, but to the fact that Rome’s territorial colonies were constructed as commercial resource centers to serve the needs of the Roman Empire and increase its wealth.
■ In an empire that stretched from England to Israel and from Germany to Africa, the Romans created more than 300,000 kilometers of roads. Roman roads were the life-blood of the state that allowed for trade to flourish.
■ In the middle ages, the Knights Templar acted as guardians for pilgrims making the hazardous journey to pay homage to the birth place of the Christian religion.
■ In addition to protecting tourists, this warrior order created the first international banking system with the use of rudimentary traveler’s checks, eliminating the need for travelers to carry valuables on their person, which could be easily robbed.
■ Genghis Khan in 1100 not only united the Mongols but created an empire beyond the Chinese border, including Korea and Japan in the East, Mesopotamia (modern day Iraq and Syria), Russia, Poland and Hungary.
■ Genghis Khan instituted common laws and regulations over his domain, most notably the preservation of private property to enhance and protect the trading imperative.
■ Arab merchants traded in spices across land routes reaching from northern Arabia across modern-day Turkey, through Asia Minor and finally reaching China.
■ By concealing the origins of cinnamon, pepper, cloves, and nutmeg such traders were able to gain a monopoly and control prices. Europeans came to believe that the spices came from Africa, when in fact, they had merely changed hands there.
■ Under the traditional trading system, spices, linen, silk, diamonds, pearls, and opium-based medicines reached Europe via indirect routes over land and sea.
■ Representing one of the earliest systems of international distribution, the products passed through many hands on their long voyage. At every juncture, prices increased several fold (i.e. value chain).
■ Globalization evolved out of an international, common heritage shared by worldwide civilizations to reach out and interact with one another.
■ Exchange with others gave societies the opportunity to expand and grow.
■ Trade through the ages fostered civilization; without it, we would be a world of warring tribes using combat to get what we want.
■ Cross-border trading opened the world to innovations and progress.
Phases of Globalization
■ Exhibit 2.1 summarizes the Phases of Globalization. Since the 1800s, the evolution of market globalization has witnessed four distinct phases, each triggered by global events and technological discoveries:
The First Phase of Globalization
1830 – 1880s
■ The first phase of globalization began about 1830 and peaked around 1880.
■ Cross-border commerce became widespread in this period due to the growth of railroads, efficient ocean transport, and the rise of large manufacturing and trading firms.
■ The inventions of the telegraph and telephone in the 1800s facilitated information flows between and within nations and greatly aided early efforts to manage companies’ supply chains.
The Second Phase of Globalization
1900 -1930
■ The second phase of globalization began around 1900 and was correlated with the rise of electricity and steel production.
■ This phase reached its height just before the Great Depression, a worldwide economic downturn that started in 1929.
■ At the turn-of-the-century, Western Europe was the most industrialized region and its colonization of countries worldwide led to the establishment of some of the earliest subsidiaries of multinational enterprises (MNEs).
■ European companies such as BASF, Nestlé, Shell, Siemens and British Petroleum had established foreign manufacturing plants by 1900.
■ The Italian manufacturer Fiat supplied vehicles to nations on both sides of the war.
The Third Phase of Globalization
1948 - 1970s
■ The third phase of globalization followed World War II.
■ At war’s end in 1945, substantial pent-up demand existed for consumer products, as well as for resources to rebuild Europe and Japan.
■ Among the leading economies, the U.S. was least harmed by the war and became the world’s dominant economy.
■ Substantial government aid helped stimulate economic activity in Europe.
■ Pre-war years had been characterized by high tariffs and strict controls on currency and capital movements.
■ Post-war, leading industrialized countries, including Australia, Britain and the U.S. sought to reduce international trade barriers.
■ The result of this effort was the General Agreement on Tariffs and Trade (GATT) – the precursor to the World Trade Organization (WTO).
■ GATT, emerging from the Bretton Woods Conference of 23 nations in 1947, served as a global negotiating forum for liberalizing trade barriers, and marked the beginning of a series of annual meetings aimed at reducing international trade and investment barriers.
■ Participating governments recognized that liberalized trade would stimulate industrialization, modernization, and better living standards.
■ Eventually, many more nations joined the GATT, and their efforts led to the formation of the WTO.
■ Some 149 nations are now members of the WTO.
■ Additional global cooperation led to the formation of key international organizations such as the International Monetary Fund, the World Bank, and the United Nations.
■ Early multinationals from this third phase of globalization originated from the U.S., Western Europe, and Japan.
■ Firms like Unilever, Philips, Royal Dutch-Shell, British Petroleum, and Bayer organized their businesses by establishing independent subsidiaries in each of the foreign countries where they did business.
Numerous companies developed strong brand names, including Nestlé, Kraft, John Deere, Kellogg, Lockheed, Caterpillar, Coca-Cola, Chrysler, Pepsi-Cola, Singer, and Levi’s.
■ U.S. multinationals such as IBM, Boeing, Texas Instruments, Xerox, and McDonnell Douglas spread out across the globe, leveraging technological competitive advantages.
■ Gradually, MNEs began seeking cost advantages by locating factories in developing countries with low labor costs.
■ 1960s- Growing MNE activities and early efforts at trade liberalization resulted in substantial increases in international trade and investment.
■ 1960s/1970s- Recovered from World War II, MNEs in Europe and Japan began to challenge the global dominance of U.S. multinationals.
■ With the easing of trade barriers and currency controls, capital began to flow freely across national borders, leading to integration of global financial markets.
The Fourth and Current Phase of Globalization 1980s - Present
■ The fourth and current phase of globalization began in the early 1980s.
■ This period witnessed enormous growth in cross-border trade and investment activity. The following innovations caused this phase:
●Commercialization of the personal computer
●Arrival of the Internet and Web browsers
●Advances in communication and manufacturing technologies
●Collapse of the Soviet Union and ensuing market liberalization in central
and Eastern Europe
●Substantial industrialization and modernization efforts of East Asian economies including China
■ Growing global prosperity began to reach emerging markets such as Brazil, India and Mexico.
■ 1980s - Huge increases in FDI, especially in capital- and technology- intensive sectors
■ Internationalization made feasible for small and medium-sized enterprises (SMEs) - geographically distant yet electronically interconnected- due to technological advances in information, communications, and transportation.
■ These technologies also facilitated the globalization of the service sector in areas such as banking, entertainment, tourism, insurance, and retailing.
■ Growing integration inspired mergers/acquisitions such as GM acquiring Saab in Sweden, Ford taking over Mazda in Japan, and Daimler Benz acquiring Chrysler in the U.S.
■ Globalization and technological advances resulted in the “death of distance”. That is, a shrinking world in terms of geographic and cultural distances that long separated nations.
■ Exhibit 2.2 illustrates the progression of the phases of globalization, shrinking the world into a manageable global marketplace.
MARKET GLOBALIZATION: AN ORGANIZING FRAMEWORK
■ Exhibit 2.3 presents the Drivers and Consequences of Market Globalization.
■ This model distinguishes between:
(1) the drivers or causes of globalization;
(2) the dimensions or manifestations of globalization;
(3a) societal consequences of globalization; and
(3b) firm-level consequences of globalization- factors compelling firms to proactively internationalize.
■ The double arrows illustrate the interactive relationship between market globalization and its consequences.
■ As market globalization intensifies, individual business enterprises are compelled to respond to challenges and exploit new advantages.
■ Generally, proactive internationalization tends to be more successful than reactive internationalization.
■ Example- Vodafone has internationalized mainly via foreign direct investment (Australia, Hong Kong, Scandinavia, Africa, Asia, Europe, India and the Americas), and implements a proactive global strategy by selling standardized products and services, and employing standardized marketing programs around the world.
■ Vodafone has annual sales of over $70 billion, with 200 million customers worldwide, equity interests in some 25 countries and a 45 percent ownership stake in U.S. Verizon Wireless.
■ As emerging markets develop economically, they leapfrog past older technologies, e.g. landline systems vs. cell phone technology instead. Vodafone capitalized upon the intersection of technology, globalization and emerging market trends, when it acquired Turkey’s second-biggest mobile phone operator, Telsim in 2008.
■ Universal demand is the pivotal underpinning for a global strategy as standardization and economies of scale are hallmarks for achieving the global efficiencies that this strategy is known for, and can translate to price competition.
DIMENSIONS OF MARKET GLOBALIZATION
■ In the context of international business, market globalization may be viewed simultaneously as:
(a) Consequences of economic, technological, and government policy trends;
(b) Drivers of economic, political, and social phenomena;
(c) Drivers and consequences of firm-level internationalization.
■ Globalization of markets is a multifaceted phenomenon. Market globalization has six dimensions or manifestations:
1. Integration and interdependence of national economies.
■ The multicounty aggregate activities of reconfiguring and integrating value-chain activities gives rise to economic integration
■ Governments contribute to this integration by:
(1) Gradually lowering trade and investment barriers;
(2) Harmonizing their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), e.g. EU
(3) Establishing supranational institutions that transcend national borders and involve cooperation among several countries that seek further reductions in trade and investment barriers, e.g. the World Bank, International Monetary Fund, World Trade Organization, etc.
2. Rise of regional economic integration blocs.
■ Since the 1950s, the emergence of regional economic integration blocs
■ Trade bloc: consist of groups of countries within which trade and investment flows are facilitated through reduced trade and investment barriers.
■ Examples- the North American Free Trade Agreement area (NAFTA), the Asia Pacific Economic Cooperation zone (APEC), and Mercosur in Latin America.
■ In more advanced stages, barriers are also removed to the cross-border flow of capital and labor.
■ Economic and Monetary Union: A single market with a common currency. This is characteristic of more advanced stages of economic integration, where barriers to the cross-border flow of factors of production (mostly labor and capital) are removed.
■ Example- Currently, the only example of an economic and monetary union is the European Union with its common currency of the euro.
■ In addition to adopting free trade among its members, it is harmonizing fiscal and monetary policies and adopting common business regulations
3. Growth of global investment and financial flows.
■ Foreign direct investment (FDI) has grown dramatically due to global sourcing.
■ Firms and governments undertake global currency trading to finance cross-border trade and investment.
■ The globalization of capital, i.e. the free movement of capital (denominated in dollars, euros, yen, and other world currencies) around the world is extending economic activities across the globe and fostering interconnectedness among world economies.
■ Commercial and investment banking has become a global industry.
■ The bond market has gained worldwide scope, with foreign bonds representing a major source of debt financing for governments and firms.
■ Negative effect of integration, Examples-
◘ 2008- When the U.S. experienced a banking crisis, the contagion quickly spread to Europe, Japan, and emerging markets, triggering a global recession.
◘ 1997- When Thailand and Malaysia experienced a monetary crisis, it quickly spread to South Korea, Indonesia, the Philippines and elsewhere, causing prolonged recession in most East Asian economies.
International Business: The New Realities, 2e (Cavusgil/Knight/Riesenberger)
Chapter 2 Globalization of Markets and the Internationalization of the Firm
1) The initial phase of globalization was triggered in part by the introduction of the railroad.
Answer: TRUE
Diff: 1 Page Ref: 31
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
2) The Great Depression marked the beginning of the second phase of globalization.
Answer: FALSE
Diff: 2 Page Ref: 32
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
3) A firm's decision to internationalize is generally made as a reaction to the phenomenon of market globalization.
Answer: FALSE
Diff: 1 Page Ref: 34
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
4) Firms that pursue internationalization as a strategic move tend to approach global competition more aggressively than do firms that internationalize for reactive reasons.
Answer: TRUE
Diff: 2 Page Ref: 34
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
5) In advanced regional economic integration blocs such as the "common market," barriers are removed to the cross-border flow of factors of production.
Answer: TRUE
Diff: 2 Page Ref: 35
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
6) Converging lifestyles and preferences worldwide help to promote traditional values in individual countries.
Answer: FALSE
Diff: 2 Page Ref: 36
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
7) One method used by global companies to drive down prices is product standardization.
Answer: TRUE
Diff: 1 Page Ref: 36
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
8) One contribution of the World Trade Organization is to help maintain reduced trade barriers throughout the world.
Answer: TRUE
Diff: 1 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
9) The end of the Cold War in 1989 hindered the forces of market liberalization in Eastern Europe.
Answer: FALSE
Diff: 2 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
10) Industrialization implies that emerging market countries are increasing their dependence on low-cost labor.
Answer: FALSE
Diff: 1 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
11) Technological advances have helped make internationalization affordable for all sizes of firms.
Answer: TRUE
Diff: 2 Page Ref: 40
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
12) China's consumer market is generally resistant to purchasing technologically advanced products.
Answer: FALSE
Diff: 2 Page Ref: 41
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
13) The rate of speed at which nations integrate into the global economy is relatively consistent, regardless of income level.
Answer: FALSE
Diff: 3 Page Ref: 44
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
14) Globalization has led buyers to become more demanding and to shop for the best value worldwide.
Answer: TRUE
Diff: 2 Page Ref: 52
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
15) The first phase of globalization was characterized by which of the following?
A) the rise of steel production
B) the growth of railroads
C) the spread of electricity
D) the rise of SMEs
Answer: B
Diff: 1 Page Ref: 31-32
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
16) The third phase of globalization was triggered by ________.
A) the end of World War II
B) the invention of electricity
C) the end of World War I
D) economic growth in emerging markets
Answer: A
Diff: 2 Page Ref: 32
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
17) Multinational firms first emerged in which phase of globalization?
A) first
B) second
C) third
D) fourth
Answer: B
Diff: 2 Page Ref: 32
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
18) Which of the following reflects the major contribution of GATT to globalization?
A) strict controls on international currencies
B) worldwide economic downturn
C) reduction of barriers to international trade
D) advent of new communications technology
Answer: C
Diff: 2 Page Ref: 32
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
19) The most recent phase of globalization is characterized by which of the following?
A) rise of multinational companies from Japan
B) reduction of barriers to trade by Western industrialized countries
C) trade of commodities by trading companies
D) enormous growth of cross-border trade and investment
Answer: D
Diff: 2 Page Ref: 33
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
20) Over time, the GATT evolved into which of the following?
A) World Bank
B) International Monetary Fund
C) World Trade Organization
D) NAFTA
Answer: C
Diff: 1 Page Ref: 33
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
21) In the third phase of globalization, multinational firms originated from all of the following except ________.
A) United States
B) Japan
C) Western Europe
D) Brazil
Answer: D
Diff: 1 Page Ref: 33
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
22) Firms that are more successful at global competition display each of the following qualities except ________.
A) identifying foreign market opportunities aggressively
B) approaching internationalization from a reactive standpoint
C) actively pursuing partnerships with foreign firms
D) focusing intensively on building organizational capacities
Answer: B
Diff: 3 Page Ref: 34
Skill: Concept
Objective: 2-2
AACSB: Dynamics of the global economy
23) Value-chain activities are defined as which of the following?
A) the methods through which governments promote economic integration
B) the aggregate activities of internationally active firms
C) the process of designing a product for a global market
D) the sequence of value-adding activities performed by a firm
Answer: D
Diff: 2 Page Ref: 35
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
24) A regional economic integration bloc is characterized by all of the following except ________.
A) the reduction of investment flows among members
B) the implementation of common business regulations
C) jointly harmonized fiscal and monetary policies
D) the reduction of trade barriers among members
Answer: A
Diff: 2 Page Ref: 36
Skill: Application
Objective: 2-3
AACSB: Dynamics of the global economy
25) All of the following represent examples of regional economic integration blocs except ________.
A) World Trade Organization
B) European Union
C) Mercosur
D) NAFTA
Answer: A
Diff: 2 Page Ref: 35
Skill: Application
Objective: 2-3
AACSB: Dynamics of the global economy
26) The free movement of capital around the world is known by which of the following terms?
A) bond-based debt financing
B) regional economic integration
C) the globalization of capital
D) common market arrangements
Answer: C
Diff: 1 Page Ref: 36
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
27) Global firms shift their manufacturing and procurement to foreign locations in order to ________.
A) avoid the pressures of global competition
B) benefit from low labor costs
C) reduce the impact of regional recessions
D) avoid oversight by international agencies
Answer: B
Diff: 2 Page Ref: 36
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
28) Which of the following is not a driver of market globalization?
A) market liberalization
B) technological advances
C) increased import tariffs
D) economic development
Answer: C
Diff: 2 Page Ref: 37
Skill: Application
Objective: 2-4
AACSB: Dynamics of the global economy
29) Reduction in trade barriers is associated with the emergence of which of the following?
A) Japan's transition to a command economy
B) regional economic integration blocs
C) member defection from the WTO
D) violation of GATT provisions
Answer: B
Diff: 2 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
30) The end of the Cold War was signaled by each of the following except ________.
A) the collapse of the Soviet Union's economy
B) the tearing down of the Berlin Wall
C) free market reforms in China
D) China's move to join the WTO
Answer: D
Diff: 2 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
31) At the time of the Berlin Wall collapse, which of the following countries had not already embarked on a program of market-based reforms?
A) India
B) Indonesia
C) South Korea
D) Malaysia
Answer: A
Diff: 1 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
32) Which of the following countries has the lowest gross national income (GNI) per person?
A) Norway
B) Germany
C) India
D) Canada
Answer: C
Diff: 1 Page Ref: 38-39
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
33) Which of the following drivers of market globalization enables firms to engage in foreign currency transactions?
A) economic development
B) integration of world financial markets
C) market liberalization
D) reduction of barriers to investment
Answer: B
Diff: 1 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
34) ________ is a financial network through which individuals can transfer money to individual recipients in other countries.
A) International Monetary Fund
B) GNI
C) SWIFT
D) Vodafone
Answer: C
Diff: 2 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
35) Technological leapfrogging is defined as which of the following?
A) combining analog and digital technologies in the same product
B) adopting new technology as soon as it is released
C) bypassing certain stages of technology when upgrading to new products
D) waiting to sell new technology until it has proven market success
Answer: C
Diff: 2 Page Ref: 40
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
36) Which of the following countries are considered to be the beachheads of technological advances?
A) Japan and China
B) Hungary and Poland
C) Brazil and Mexico
D) China and India
Answer: D
Diff: 1 Page Ref: 41
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
37) Technological advances have had their greatest impact in all of the following areas except ________.
A) manufacturing
B) financial services
C) transportation
D) communications
Answer: B
Diff: 2 Page Ref: 41
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
38) Which of the following is the most transformative technology for developing economies?
A) cell phone
B) Internet
C) extranet
D) e-mail
Answer: A
Diff: 1 Page Ref: 42
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
39) Which of the following has the fastest growth rate of cellular phone subscribers in the world?
A) Europe
B) North America
C) Africa
D) Asia
Answer: C
Diff: 1 Page Ref: 42
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
40) The ability of a nation to govern its own affairs is known as ________.
A) sovereignty
B) liberalization
C) interdependence
D) homogenization
Answer: A
Diff: 1 Page Ref: 45
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
41) Which of the following terms refers to the relocation of manufacturing and other value-chain activities to cost-effective locations abroad?
A) protectionism
B) cultural imperialism
C) labor migration
D) offshoring
Answer: D
Diff: 2 Page Ref: 46
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
42) Each of the following represents a firm-level consequence of market globalization except ________.
A) firms must proactively internationalize to reduce potential threats
B) firms must deal with new business risks
C) an international focus is viable only in certain industries
D) firms must manage intense rivalry from foreign competitors
Answer: C
Diff: 2 Page Ref: 52
Skill: Application
Objective: 2-7
AACSB: Dynamics of the global economy
43) Highly advanced internationalizing firms seek a simultaneous presence in which of the following trading regions?
A) North America, Europe, and Asia
B) North America, Africa, and Central America
C) Eastern Europe, Australia, and North America
D) Asia, Europe, and South America
Answer: A
Diff: 1 Page Ref: 52
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
44) The most direct firm-level consequence of market globalization affects which of the following?
A) the firm's global sourcing contracts
B) the offshoring potential of particular activities
C) research and development costs faced by the firm
D) the firm's entire value chain
Answer: D
Diff: 3 Page Ref: 52
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
45) Which stage comes before procurement in a firm's value chain?
A) research & development
B) marketing
C) manufacturing
D) distribution
Answer: A
Diff: 1 Page Ref: 53
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
46) Which of the following represents the final stage in a firm's value chain?
A) marketing
B) procurement (sourcing)
C) research & development
D) distribution & after-sales service
Answer: D
Diff: 1 Page Ref: 53
Skill: Concept
Objective: 2-7
AACSB: Dynamics of the global economy
Internationalization Conference (Scenario)
At a conference on business internationalization strategies, representatives of three different businesses meet to discuss a joint venture between their companies. Business A is located in a country that internationalized during the second phase of globalization. Business B is based in a country that internationalized during the third phase of globalization. Business C is located in an emerging market country.
47) The representative from Business A is most likely from which of the following countries?
A) China
B) United Kingdom
C) Mexico
D) Brazil
Answer: B
Diff: 2 Page Ref: 32
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy
48) The representative from Business B is most likely from which of the following countries?
A) Panama
B) Hungary
C) Singapore
D) Japan
Answer: D
Diff: 2 Page Ref: 32
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy
49) The representative from Business C is most likely from which of the following countries?
A) Italy
B) Brazil
C) United States
D) France
Answer: B
Diff: 2 Page Ref: 33
Skill: Application
Objective: 2-1
AACSB: Dynamics of the global economy
Global Operations Report (Scenario)
As Vice President of Global Expansion for Pax Telecom, Deva Mikiri is tasked with preparing a comprehensive report on the company's global operations over the past twenty years. Deva assigns three strategists to collaborate on the History portion of the report, which details the rationale behind Pax's decisions to expand operations in particular areas. Rashid Ahl focuses on early expansion to China, which occurred after China began to make its market more accessible to foreign companies. Markus Teller focuses on Pax's expansion to Eastern Europe, which was motivated by increased industry privatization in key countries. Lavonne Jackson focuses on expansion to Japan, which happened when the company's commercial bank expanded its service network to Asia.
50) Which of the following drivers of market globalization does Markus most likely cite as responsible for the company's expansion to Eastern Europe?
A) advances in technology
B) integration of world financial markets
C) market liberalization
D) industrialization
Answer: C
Diff: 2 Page Ref: 34
Skill: Application
Objective: 2-2
AACSB: Analytic skills
51) In describing the main driver behind Pax's expansion to China, Rashid most likely emphasizes ________.
A) economic development
B) advances in technology
C) reduction of barriers to trade
D) integration of world financial markets
Answer: C
Diff: 2 Page Ref: 37
Skill: Application
Objective: 2-4
AACSB: Analytic skills
52) Lavonne's research most likely recognizes which of the following drivers of market globalization as responsible for the company's expansion to Japan?
A) integration of world financial markets
B) modernization
C) adoption of free markets
D) reduction of barriers to investment
Answer: A
Diff: 2 Page Ref: 37
Skill: Application
Objective: 2-4
AACSB: Analytic skills
Globalization Debate (Scenario)
In his international business class, Professor Jang organizes a debate on the societal effects of market globalization. Juan Prince takes a position that highlights the negative effects of market globalization. He emphasizes how multinational enterprises can wield so much influence that they threaten national sovereignty. He also notes the prevalence of low wages and sweatshop conditions as firms utilize low-cost labor abroad. Juan then describes the detrimental effects of corporate pollution on the environment, and he ends his argument by explaining how market globalization helps homogenize national cultures. Rina Taylor is assigned to counter Juan's position.
53) Which of the following does Rina most likely cite as a counter example to Juan's argument regarding the influence of MNEs on national sovereignty?
A) passage of the Sarbanes-Oxley Act of 2002
B) technological advances in computer-aided design of products
C) the political influence of large firms such as Walmart
D) the actual GDPs of Israel, Greece, and Poland
Answer: A
Diff: 3 Page Ref: 46
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
54) Which of the following most likely supports Rina's argument over Juan's concerning wages and working conditions in developing countries?
A) Most African countries today still suffer from low or negative GDP growth.
B) Vietnam has experienced a five-fold increase in wages as a result of the growth of the footwear industry there.
C) The move of Electrolux to Mexico cost Michigan 2,700 jobs.
D) Minimum wages should be established at set levels, regardless of the impact on the number of jobs.
Answer: B
Diff: 3 Page Ref: 47
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
55) Rina most likely counters Juan's claim regarding environmental effects by pointing out which of the following?
A) Land preservation is more important than pollution reduction for preserving the environment.
B) China's landscape was permanently altered by the construction of the Three Gorges Dam.
C) Environmental destruction tends to diminish in the long run, as economies develop.
D) Attempts at foreign cultural imperialism are often blocked by national governments.
Answer: C
Diff: 3 Page Ref: 50
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
56) Which of the following most likely supports Rina's argument over Juan's concerning the homogenization of national cultures?
A) The standardizing forces of globalization are often resisted through increasing nationalism.
B) Foreign values tend to shift not just superficial aspects of culture, but deeply held beliefs as well.
C) Material goods such as cell phones and computers are found in most homes throughout the world.
D) In most industries, domestic operation alone cannot sustain competitive business growth.
Answer: A
Diff: 3 Page Ref: 51
Skill: Critical Thinking
Objective: 2-6
AACSB: Dynamics of the global economy; Reflective thinking skills
Acme Software (Scenario)
Acme Software is a U.S.-based maker of software products for the health care industry. Recently Acme has been investigating whether it would be beneficial to internationalize some of its value-chain activities. Acme hires a consulting group to help determine which, if any, value-chain activities could be conducted abroad to promote business growth. The consulting group identifies two health care software development companies in India that could provide programming services at a lower cost than Acme's current expenditures for programming. In addition, the consultants conduct international market research which shows that German health care companies have a strong demand for the type of software that Acme offers.
57) Which of the following activities in Acme's value chain would be internationalized if Acme decides to establish a development contract with one of the Indian software firms?
A) sales
B) distribution
C) marketing
D) procurement
Answer: D
Diff: 2 Page Ref: 53
Skill: Application
Objective: 2-7
AACSB: Dynamics of the global economy
58) Which of the following would be most important for the consulting group to consider when deciding whether to recommend that Acme internationalize its sales efforts to Germany?
A) Will Acme save money by on advertising by targeting small rather than large companies?
B) How intense is the competition from German companies offering similar products?
C) What type of training is received by programmers in software firms abroad?
D) How successful have German companies been at marketing to U.S. customers?
Answer: B
Diff: 3 Page Ref: 52
Skill: Critical Thinking
Objective: 2-7
AACSB: Dynamics of the global economy; Reflective thinking skills
59) Which of the following questions would be most important to for Acme to evaluate when making the decision regarding whether to hire one of the Indian companies for software development?
A) What benefits have Indian companies gained historically from internationalizing their value-chain activities?
B) Do the Indian businesses have an established history of developing software products for multiple industries?
C) Would the lower cost of outsourcing allow Acme to sustain a competitive advantage in its business operations?
D) Is either of the Indian businesses interested in moving its operations to a foreign country?
Answer: C
Diff: 3 Page Ref: 52
Skill: Critical Thinking
Objective: 2-7
AACSB: Dynamics of the global economy; Reflective thinking skills
60) In a short essay, describe the four phases of globalization. Explain the major triggers for each phase.
Answer: The first phase of globalization began about 1830 and peaked around 1880. International business became widespread in this period due to the growth of railroads, efficient ocean transport, and the rise of large manufacturing and trading companies. Inventions of the telegraph and telephone in the late 1800s facilitated information flows between and within nations and greatly aided early efforts to manage companies' supply chains.
The second phase of globalization began around 1900 and was associated with the rise of electricity and steel production. The phase reached its height just before the Great Depression, a worldwide economic downturn that began in 1929. In 1900, Western Europe was the most industrialized region. Europe's colonization of countries in Asia, Africa, the Middle East, and beyond led to the establishment of some of the earliest subsidiaries of multinational firms.
The third phase of globalization began after the end of World War II. It was triggered by the formation of GATT, the conclusion of the war, and the reconstruction of Europe through the Marshall plan. In this phase, the U.S. became the world's dominant economy. Several industrialized countries, including Australia, Britain, and the United States, systematically sought to reduce barriers to international trade. Growing MNE activities and early efforts at trade liberalization resulted in substantial increases in international trade and investment beginning in the 1960s.
The fourth and current phase of globalization began in the early 1980s. This period witnessed enormous growth in cross-border trade and investment. The current phase was triggered by key trends, including the commercialization of the personal computer, the Internet and the web browser; advances in communication and manufacturing technologies; the collapse of the Soviet Union and ensuing market liberalization in central and Eastern Europe; and industrialization and modernization efforts of East Asian economies, including China. During this phase, growing international prosperity began to reach emerging markets such as Brazil, India and Mexico. The 1980s also witnessed huge increases in FDI, especially in capital- and technology-intensive sectors.
Diff: 2 Page Ref: 32-34
Skill: Concept
Objective: 2-1
AACSB: Dynamics of the global economy
61) Describe the role of GATT and the WTO in reducing barriers to trade and investment worldwide, and explain how this reduction has led to the integration and interdependence of national economies.
Answer: In 1947 several nations enacted the General Agreement on Tariffs and Trade (GATT) and a series of negotiations that, over time, reduced barriers to international trade and investment. Participating governments recognized that liberalized trade would stimulate industrialization, modernization, and better living standards. The GATT eventually transformed into the World Trade Organization, a multilateral governing body that grew to include 149 member nations. The WTO aims to regulate and ensure fairness and efficiency in global trade and investment. Global cooperation in the post-war era gave birth to other international organizations such as the International Monetary Fund and the World Bank.
Internationally active firms devise multicountry operations through trade, investment, geographic dispersal of company resources, and integration and coordination of value-chain activities. Governments have facilitated this integration by lowering barriers to international trade and investment, harmonizing their monetary and fiscal policies within regional economic integration blocs (also known as trade blocs), and developing supranational institutions —the World Bank, International Monetary Fund, World Trade Organization, and others —that seek further reductions in trade and investment barriers.
Diff: 3 Page Ref: 33, 35
Skill: Synthesis
Objective: 2-1, 2-3
AACSB: Dynamics of the global economy
62) How do governments help promote international economic interdependence? In a short essay, describe three ways that government activities increase economic integration and provide an example that illustrates one approach.
Answer: Governments contribute to economic interdependence by three means. First, they gradually lower barriers to international trade and investment (for example, by negotiating trade agreements). Second, they increasingly harmonize their monetary and fiscal policies within trade blocs, such as the European Union. Third, they devise and supervise supranational institutionssuch as the World Bank, International Monetary Fund, and the World Trade Organizationthat seek further reductions in trade and investment barriers.
Diff: 2 Page Ref: 35
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
63) In a short essay, explain how market globalization both responds to and promotes the convergence of consumer lifestyles around the world. Provide examples to illustrate your answer.
Answer: Around the world, many consumers are increasingly similar in how they spend their money and time. Lifestyles and preferences are converging. Market globalization responds to this phenomenon by providing consumers with standardized products that meet their converging demands. For example, consumers in Tokyo, New York, and Paris demand similar household goods, clothing, automobiles, and electronics. Teenagers everywhere are attracted to iPods, Nokia cell phones, and Levi jeans. Convergence of preferences is also occurring in industrial markets, where professional buyers source raw materials, parts and components that are increasingly standardized, that is, very similar in design and structure. The companies that produce these desired products are responding to converging demands by ensuring that markets are developed throughout the world.
Market globalization itself also promotes the convergence of lifestyles and preferences. International travel, movies, global media, and the Internet all expose people to products, services, and living patterns from around the world. The fact that desired commodities are available internationally helps to encourage and reinforce consumers' demands for them.
Diff: 3 Page Ref: 36
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
64) In a short essay, describe the methods through which prices are driven down by firms that operate internationally. Provide examples to illustrate these methods in both the products and services sectors.
Answer: Globalization of production. Intense global competition is forcing firms to reduce their costs of production and marketing. Companies strive to drive down prices through economies of scale, by standardizing what they sell, and by shifting manufacturing and procurement to foreign locations with inexpensive labor. For example, companies in the auto and textile industries have relocated their manufacturing to low labor-cost locations such as China, Mexico, and Eastern Europe. The services sector is undergoing widespread internationalization. First, banking, hospitality, retailing, and other service industries are rapidly expanding abroad. The real estate firm REMAX has established more than 5,000 offices in over 50 countries. Firms increasingly outsource business processes and other services-based value-chain activities to vendors located abroad. Finally, in a relatively new trend, people are increasingly going abroad to take advantage of low-cost services. For example, millions of U.S. consumers regularly travel to India, Latin America, and other international destinations to undergo such medical procedures as hysterectomies and cataract and knee surgeries.
Diff: 1 Page Ref: 36
Skill: Concept
Objective: 2-3
AACSB: Dynamics of the global economy
65) How has the adoption of free markets worldwide served as a driver of market globalization? Provide three examples to support your answer.
Answer: The adoption of free markets worldwide has helped to drive market globalization by helping to integrate former command economies into the global economy. Examples include market liberalization in the Soviet Union, China, Eastern Europe, India, and many countries of East Asia.
The collapse of the Soviet Union's economy in 1989, the tearing down of the Berlin Wall that same year, and China's free-market reforms, all signaled the end of the 50-year Cold War between autocratic communist regimes and democracy and smoothed the integration of former command economies into the global economy. Numerous East Asian economies, stretching from South Korea to Malaysia and Indonesia, had already embarked on ambitious market-based reforms. India joined the trend in 1991. These events opened roughly one-third of the world to freer international trade and investment.
China, India, and Eastern Europe have become some of the most cost-effective locations for producing goods and services worldwide. Privatization of previously state-owned industries in these countries has encouraged economic efficiency and attracted massive foreign capital into their national economies.
Diff: 2 Page Ref: 37
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
66) In a short essay, explain how industrialization affects emerging market economies. Provide three examples to support your explanation.
Answer: Industrialization implies that emerging marketsrapidly developing economies in Asia, Latin America, and Eastern Europeare moving from being low value-adding commodity producers, dependent on low-cost labor, to sophisticated competitive producers and exporters of premium products such as electronics, computers, and aircraft. For example, Brazil has become a leading producer of private aircraft, and the Czech Republic now excels in the production of automobiles. India is now also a leading supplier of computer software.
The economic development that accompanies industrialization further helps to increase standards of living and discretionary income in emerging markets.
Diff: 2 Page Ref: 41-43
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
67) How does the integration of world financial markets help to increasing market globalization? In your answer, provide an example of this driver at work.
Answer: The integration of world financial markets drives market globalization by enabling internationally active firms to raise capital, borrow funds, and engage in foreign currency transactions. Financial services firms now follow their customers to foreign markets. Cross-border transactions are made easier partly as a result of the ease with which funds can be transferred between buyers and sellers through a network of international commercial banks.
For example, as an individual you can transfer funds to a friend in another country using the SWIFT (the Society for Worldwide Interbank Financial Telecommunication) network. Connecting over 7,800 financial institutions in some 200 countries, SWIFT facilitates the exchange of financial transactions.
The globalization of finance also contributes to firms' ability to develop and operate world-scale production and marketing operations. It enables companies to pay suppliers and collect payments from customers worldwide.
Diff: 1 Page Ref: 40
Skill: Concept
Objective: 2-4
AACSB: Dynamics of the global economy
68) In a short essay, explain three main benefits of e-business. Provide an example that illustrates the benefits of e-business.
Answer: E-business provides at least three types of benefits. First, it increases productivity and reduces costs in worldwide value-chain activities through online integration and coordination of production, distribution, and after-sale services. Second, it creates value for existing customers and uncovers new sales opportunities by increasing customer focus, enhancing marketing capabilities, and launching entrepreneurial initiatives. A key benefit is the ability to implement marketing strategy on an international scale and integrate customer-focused operations worldwide. Virtual interconnectedness facilitates the sharing of new ideas and best practices for serving new and existing international markets. Third, it improves the flow of information and knowledge throughout the firm's worldwide operations. The Internet allows information to move quickly throughout the firm's operations worldwide, and to interact more effectively with customers, suppliers, and partners. Managers can make instantaneous changes to strategies and tactics in the firm's value-chain activities. The firm can accommodate real-time changes in market conditions almost as quickly as they occur.
For example, Cisco uses e-business solutions to minimize costs and maximize operational effectiveness in its international supply chain. The firm uses the Internet to remain constantly linked to suppliers and distributors. This helps Cisco manage inventory, product specifications, and purchase orders, as well as product life cycles. E-procurement systems help Cisco save money on transaction processing, reduce cycle times, and leverage supplier relations.
Diff: 2 Page Ref: 43
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
69) In a short essay, identify the four areas in which technological advances had their greatest impact on business. Describe the impact of each area on business today.
Answer: Technological advances have had their greatest impact in several key areas: information technology, communications, manufacturing, and transportation.
a. Information TechnologyThe effect of Information Technology (IT) on business has been nothing short of revolutionary. IT reflects the science and processes of creating and using information resources. IT alters industry structure and, in so doing, changes the rules of competition. By giving companies new ways to outperform rivals, IT creates competitive advantage. For example, geographically distant country subsidiaries of a multinational company can be interconnected via intranets, facilitating the instant sharing of data, information, and experience across the firm's operations worldwide.
b. CommunicationsThe most profound technological advances have occurred in communications, especially telecommunications, satellites, optical fiber, wireless technology, and the Internet. The Internet, and Internet-dependent communications systems such as intranets, extranets, and e-mail, now connect millions of people across the globe. Widespread availability of the Internet and e-mail makes company internationalization cost-effective. For instance, Amdahl, a manufacturer of large-scale computers, uses the Internet to order circuit boards from factories in Asia and to arrange international shipments of parts and components from firms like DHL and Federal Express.
c. ManufacturingComputer-aided-design (CAD) of products, robotics, and production lines managed and monitored by microprocessor-based controls are transforming manufacturing, mainly by reducing the costs of production. Revolutionary developments now permit low-scale and low-cost manufacturing. Firms can produce products in short production runs cost-effectively. These developments benefit international business by allowing firms to more efficiently adapt products to individual foreign markets, profitably target small national markets, and compete more effectively with foreign competitors who already have cost advantages.
d. TransportationBeginning in the 1960s, technological advances led to the development of fuel-efficient jumbo jets, giant ocean-going freighters, and containerized shipping, often through the use of high-tech composites and smaller components that are less bulky and lightweight. As a result, the cost of transportation as a proportion of the value of products shipped internationally has declined substantially. Lower freight costs have spurred rapid growth in cross-border trade. Technological advances have also reduced the costs of international travel. Until 1960, it was common to travel by ship. With the development of air travel, managers quickly travel the world.
Diff: 2 Page Ref: 42-44
Skill: Concept
Objective: 2-5
AACSB: Dynamics of the global economy; Use of information technology
70) In a short essay, describe three societal consequences of market globalization. Provide an example to illustrate each consequence.
Answer:
a. Loss of National SovereigntyGlobalization can threaten national sovereignty in various ways. MNE activities can interfere with the sovereign ability of governments to control their own economies, social structures, and political systems. Some corporations are bigger than the economies of many nations. For instance, Walmart's internal economyits total revenuesis larger than the GDP of most of the world's nations, including Israel, Greece, and Poland. Large multinationals can exert considerable influence on governments through lobbying or campaign contributions.
b. Off-shoring and the Flight of JobsGlobalization has created countless new jobs and opportunities around the world, but it has also cost many people their jobs. For example, Ford, General Motors, and Volkswagen all have transferred thousands of jobs from their factories in Germany to countries in Eastern Europe. This occurred partially because mandated shorter working hours (often just 35 hours per week) and generous benefits made Germany less competitive, while Eastern Europe offers abundant low-wage workers. GM and Ford have also laid off thousands of workers in the United States, partly the result of competitive pressures posed by carmakers from Europe, Japan, and South Korea.
c. Multinational firms are often criticized for paying low wages, exploiting workers, and employing child labor. For instance, Nike has been criticized for paying low wages to shoe factory workers in Asia, some of whom work in sweatshop conditions. Critics complain that while founder Phil Knight is a billionaire and Nike sells shoes for $100 or more, Nike's suppliers pay their workers only a few dollars per day. Labor exploitation and sweatshop conditions are genuine concerns in many developing economies.
d. Effect on the Natural EnvironmentGlobalization can harm the environment by promoting increased manufacturing and economic activity that result in pollution, habitat destruction, and deterioration of the ozone layer. For instance, economic development in China is attracting much inward FDI and stimulating the growth of numerous industries. The construction of factories, infrastructure, and modern housing can spoil previously pristine environments. As an example, growing industrial demand for electricity led to construction of the Three Gorges Dam, which flooded agricultural lands and permanently altered the natural landscape in Eastern China.
e. Effect on National CultureGlobalization exerts strong pressures on national culture. Market liberalization leaves the door open to foreign companies, global brands, unfamiliar products, and new values. Consumers increasingly wear similar clothing, drive similar cars, and listen to the same recording stars. Appetites grow for "Western" products and services, which are seen to signal higher living standards. For example, despite low per-capita income, many Chinese buy consumer electronics such as cell phones and TV sets. Global media have a pervasive effect on local culture, gradually shifting it toward a universal norm.
Diff: 2 Page Ref: 43-52
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
71) Describe the fourth phase of globalization, and explain why "contagion" raised questions about the merits of globalization.
Answer: The fourth phase of globalization began in the early 1980s, which saw enormous growth in cross-border trade and investment. The phase was triggered by the development of personal computers, the Internet, and Web browsers; the collapse of the Soviet Union and ensuing market liberalization in central and Eastern Europe; and industrialization and modernization in East Asian economies, including China. Growing international prosperity began to reach emerging markets such as Brazil, India, and Mexico. The 1980s witnessed huge increases in FDI, especially in capital- and technology-intensive sectors. Technological advances in information, communications, and transportation made it feasible for the rise of internationally active small and medium-sized enterprises (SMEs) and for managers to organize far-flung operations around the world, geographically distant yet electronically interconnected. These technologies also facilitated the globalization of the service sector in such areas as banking, entertainment, tourism, insurance, and retailing. The merger of major firms once viewed as strongholds of national corporate power exemplified the growing integration of the world economy.
Today, countless firms configure and coordinate trade and investment activities in a giant global marketplace. In their own way, globalization and technological advances have triggered the “death of distance”— shrinkage of the geographic and cultural distances that long separated nations. Globalization is gradually shrinking the world into a manageable marketplace.
A serious financial crisis began in 2008 in the United States and, like a contagious disease, spread around the world. In international economics, contagion refers to the tendency for a financial or monetary crisis in one country to spread rapidly to other countries, due to the ongoing integration of national economies. The financial crisis raised questions about the merits of globalization. Modern technology facilitated the integration of national economies and banking systems. As a result, although the crisis began in the United States, it quickly spread to other countries.
Diff: 3 Page Ref: 33, 44
Skill: Synthesis
Objective: 2-1, 2-6
AACSB: Dynamics of the global economy
72) In a short essay, explain how a government's open and liberal economic policies can help to minimize the threats that MNEs pose to the country's national sovereignty.
Answer: Open and liberal economic policies help reduce the threat posed by MNEs to national sovereignty by increasing the constraining role of market forces. Liberal economic policies allow firms to enter and compete freely in markets. In countries with many competing companies, one company cannot force customers to buy its products or force suppliers to supply it with raw materials and inputs. The resources that customers and suppliers control are the result of free choices made in the marketplace. Company performance therefore depends on the firm's skill in winning customers, working with suppliers, and dealing with competitors.
In liberalized economies, corporate dominance of individual markets is rare. In reality, market forces dominate companies. Indeed, gradual integration of the global economy and increased global competition combined with privatization of industries in various nations are making some companies less powerful within their national markets. For instance Ford, Chrysler, and General Motors once completely dominated the U.S. auto market. Today many more firms compete in the United States, including Toyota, Honda, Hyundai, Kia, Nissan, and BMW. Indeed, in annual sales, Toyota now rivals General Motors in GM's home market.
Therefore, to minimize globalization's harm and reap its benefits, governments should strive for an open and liberalized economic regime. Such regimes will help to ensure that even the largest firms are constrained by market forces.
Diff: 3 Page Ref: 46
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
73) Is market globalization causing nations to become more culturally similar? In a short essay, explain the arguments both for and against the idea that national cultures are becoming "homogenized."
Answer:
a. ForGlobalization can be seen as exerting strong pressures on national culture. Consumers increasingly wear similar clothing, drive similar cars, and listen to the same recording stars. Advertising also leads to the emergence of societal values modeled on Western countries, especially the United States. In this way, globalization can alter people's norms, values and behaviors, which tend to homogenize over time.
b. AgainstAlthough some tangibles are becoming more universal, people's behaviors and mindsets remain stable over time. Religious differences are as strong as ever. Language differences are steadfast across national borders. While a degree of cultural imperialism may be at work, it is offset by the countertrend of nationalism. As globalization standardizes superficial aspects of life across national cultures, people resist these forces by insisting on their national identity and taking steps to protect it. This is evident, for example, in Belgium, Canada, and France, where laws were passed to protect national language and culture.
Diff: 2 Page Ref: 50-52
Skill: Concept
Objective: 2-6
AACSB: Dynamics of the global economy
74) Explain how one of the dimensions of market globalization — the convergence of consumer lifestyles and preferences — has had an effect of national cultures around the world.
Answer: Around the world, consumers spend their money and time in increasingly similar ways. Lifestyles and preferences are converging. Shoppers in Tokyo, New York, and Paris demand similar household goods, clothing, automobiles, and electronics. Teenagers everywhere are attracted to iPods, Levi's jeans, and BlackBerry cell phones. Major brands have gained a global following, encouraged by greater international travel, movies, global media, and the Internet, which expose people to products, services, and living patterns from around the world. Convergence of preferences is also occurring in industrial markets, where professional buyers source raw materials, parts, and components that are increasingly standardized—that is, very similar in design and structure. Yet, even as converging tastes facilitate the marketing of highly standardized products and services to buyers worldwide, they also promote the loss of traditional lifestyles and values in individual countries.
Globalization exerts strong pressures on national culture. Market liberalization leaves the door open to foreign companies, global brands, unfamiliar products, and new values. Consumers increasingly wear similar clothing, drive similar cars, watch the same movies, and listen to the same recording stars. Advertising leads to the emergence of societal values modeled on Western countries, especially the United States. In this way, globalization can alter people's norms, values, and behaviors, which may tend to homogenize over time. To combat such trends, governments try to block cultural imperialism and prevent the erosion of local traditions. In Canada, France, and Germany, the public sector attempts to prevent U.S. ideals from diluting local traditions. Hollywood, McDonald's, and Disneyland are seen as Trojan horses that permanently alter food preferences, lifestyles, and other aspects of traditional life. For better or worse, however, such trends are probably inevitable in a globalizing world.
Diff: 3 Page Ref: 36, 51-52
Skill: Synthesis
Objective: 2-3, 2-6
AACSB: Dynamics of the global economy
75) What is meant by the internationalization of a firm's value chain? How do advances in technology contribute to internationalization of firms' value chains?
Answer: The most direct implication of market globalization is on the firm's value chain. Market globalization compels firms to organize their sourcing, manufacturing, marketing, and other value-adding activities on a global scale. In a typical value chain, the firm conducts research and product development (R&D), purchases production inputs, and assembles or manufactures a product or service. Next, the firm performs marketing activities such as pricing, promotion, and selling, followed by distribution of the product in targeted markets and after-sales service.
The value-chain concept is useful in international business because it helps clarify what activities are performed where in the world. For instance, exporting firms perform most “upstream” value-chain activities (R&D and production) in the home market and most “downstream” activities (marketing and after-sales service) abroad. Each value-adding activity in the firm's value chain is subject to internationalization; that is, it can be performed abroad instead of at home. Companies have considerable latitude regarding where in the world they locate or configure key value-adding activities. The most typical reasons for locating value-chain activities in particular countries are to reduce the costs of R&D and production or to gain closer access to customers. Through offshoring, the firm relocates a major value-chain activity by establishing a factory or other subsidiary abroad. A related trend is global outsourcing, in which the firm delegates performance of a value-adding activity to an external supplier or contractor located abroad. Globalization allows firms to relocate key value-adding activities to the most advantageous locations around the world.
While globalization makes internationalization imperative, technological advances provide the means for it to happen. Firms interact more efficiently with foreign partners and value-chain members than ever before. They transmit all kinds of data, information, and vital communications that help ensure the smooth running of their operations worldwide. They use information technology to improve the productivity of their operations, which provides substantial competitive advantages. For example, information technology allows firms to more efficiently adapt products for international markets or produce goods in smaller lots to target international niche markets.
Diff: 3 Page Ref: 40, 52
Skill: Synthesis
Objective: 2-5, 2-7
AACSB: Dynamics of the global economy
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