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Chapter 1 Study Guide

by: Jayne Johnston

Chapter 1 Study Guide INTB3080

Jayne Johnston
GPA 3.33

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About this Document

This study guide covers what will be on Exam 1.
Global Environment of Business
Dr. Ratee Apana
Study Guide
global, Environment, business
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This 7 page Study Guide was uploaded by Jayne Johnston on Tuesday February 9, 2016. The Study Guide belongs to INTB3080 at University of Cincinnati taught by Dr. Ratee Apana in Spring 2016. Since its upload, it has received 206 views. For similar materials see Global Environment of Business in International Business at University of Cincinnati.

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Date Created: 02/09/16
Chapter 1 – Globalization Study Guide - Who makes the Apple iPhone? Semiconductors from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe, rare materials from Africa and Asia. Apple’s major subcontractor, the Taiwanese multinational firm, Foxconn, performs final assembly in China. - How has Apple capitalized on the globalization of production? What advantage does manufacturing in China offer the company? Labor costs are much lower in China, and Chinese subcontractors respond quickly to requests from Apple to scale production up/down. Also, it is much easier to hire engineers in China. In addition, the grouping together of factories by location is important and is possible in China. - Why do you think Apple continues to keep activities like product design, software engineering, and marketing in the United States? China is a Socialist one-party state and does not have similar laws and regulations on the USA. Apple keeps these activities within the US because of precautionary measures such as trade secrets and new innovative technology. …  What is Globalization? - Globalization – shift toward a more integrated and interdependent world economy. - 3 P’s of Globalization  First: Phenomenon, interconnectedness of people in the present – Cultural, political, economic, and natural environments  Second: Philosophy – Holding a global vision has become a prerequisite in boardrooms and situation rooms across the world. – Ex. Amazon is now in India, pumping 2 billion into economy, 44% of market share is owned by India companies, intense competition. – Two speed economy – people at very top and people at very bottom. Amazon in marketplace, who do you target, just one segment?  Third: Process – Two key engines of globalization are the technology revolution and politico-economic liberalization. – World wide web has created a virtual reality that has made time and distance irrelevant. – Concept of sovereignty is being replaced by institutional barriers through international bodies.  Globalization of Markets Chapter 1 – Globalization Study Guide  Falling barriers to cross-border trade have made it easier to sell internationally.  Today national markets that were historically distinct and separated are merged into one huge global marketplace – Global retailers have driven this trend with firms offering standardized products world wide creating a world market  In many markets today, the tastes and preferences of consumers in different nations are converging upon the global norm (blue jeans, Starbucks, Ikea furniture, etc.)  The most global markets are not consumer markets. They are the markets for industrial goods/materials that serve a universal need. – Commodities such as aluminum, oil, and wheat – Industrial products such as microprocessors and aircraft – Financial assets such as U.S. treasury bills and Eurobonds  Difficulties that arise from the globalization of markets  – Significant differences still exist among national markets – Country specific marketing strategies – Varied product mix  Globalization of Production – refers to the sourcing of goods/services from locations around the globe to take advantage of national differences in cost and quality of factors of production (such as labor, energy, land, and capital)  By doing this, companies hope to lower their overall cost structure or improve the quality or functionality of their product offering thereby allowing them to compete more effectively  Globalization, Jobs, and Income  A concern is that falling barriers to international trade destroy manufacturing jobs in wealthy advanced economies such as the U.S. and western Europe.  Those opposed argue that free trade will result in countries specializing in the production of those goods/services that they can produce most efficiently, while importing goods/services they cannot produce efficiently.  Firms can reduce cost structure as well as prices when outsourcing services to low-wage countries.  …  Globalization, Labor Policies, and The Environment  Concern that free trade encourages firms from advanced nations to move manufacturing facilities to less developed countries that lack adequate regulations to protect labor and the environment from abuse. Chapter 1 – Globalization Study Guide  Others believe that as a country gets richer, it enacts tougher environment and labor regulations.  Globalization and National Sovereignty  Concern is that today’s increasingly interdependent global economy shifts economic power away from national governments and toward supranational organizations such as the WTO, EU, and UN.C  In contrast, people argue that the UN and WTO exist to serve the collective interest of member-states, not to sabotage those interests.  Globalization and the World’s Poor  Critics of globalization state the gap between rich and poor nations of the world have gotten wider  Promoters of free trade argue that the best way for poor countries to improve is lower their barriers to free trade and investment as well as implement economic policies based on free market economics.  Management Focus: Vizio and the Market for Flat-Panel TVs  Why is the manufacturing of flat-panel TVs migrating to different locations around the world? Because certain locations for certain parts of a flat-panel TV are able to be produced at a low cost.  Who benefits from the globalization of the flat-panel industry? Who are the losers? Consumers in the U.S. benefit from the falling prices of flat-panel TVs. Efficient manufacturers use globally dispersed supply chains to make and sell low-cost, high-quality, flat-panel TVs. Unfortunately, some firms have had to lay off employees in high- cost locations.  What would happen if the U.S. government required that flat panel displays sold in the U.S. had to also be made in the U.S.? On balance, would this be a good thing or a bad thing? Prices for flat-panel TVs would rise; new jobs would be created, but consumers would be buying a lesser amount of TVs, thus putting employees’ jobs in jeopardy. Also, since resources would be put in to the manufacturing of TVs, other areas of the U.S. economy would suffer.  What does the example of Vizio tell you about the future of production in an increasingly integrated global economy? What does it tell you about the strategies that enterprises must adopt in order to thrive in highly competitive global markets? Vizio can be looked at as a model of how to conduct business in a highly competitive global market. Production takes place wherever it makes the most sense; it outsources most of its engineering work, manufacturing, and nearly all of its logistics. Chapter 1 – Globalization Study Guide Vizio demonstrates flexibility, speed, and innovativeness; it continually looks for better ways to produce its product.  Emergence of Global Institutions  As markets globalize and business activity transcends national borders, institutions are needed to help manage, regulate, and police the global marketplace and promote the establishment of multinational treaties to govern the global business system.  World Trade Organization (WTO) – primarily responsible for policing the world trade system and making sure nation-states adhere to the rules laid down in trade treaties signed by WTO member states.  International Monetary Fund (IMF) – established to maintain order in the international monetary system. It is often seen as lender of last resort to nation-states whose economies are in turmoil and whose currencies are losing value against those of other nations.  World Bank – set up to promote economic development. It has focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake infrastructure investments (such as building dams/roads).  G20 – comprises of the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank. Originally established to invent coordinated policy response to financial crises in developing nations. In 2008/2009, it became forum where major nations attempted to launch coordinated policy response to the global financial crisis that started in America and spread throughout the world.  Drivers of Globalization (2 Factors)  Decline in barriers to [trade and investment] the free flow of goods, services, and capital since end of WW2.  The creation of the General Agreement on Tariffs and Trade (GATT), with most recent negotiations, the Uruguay Round, which further: – Reduced trade barriers – Extended GATT to cover services and manufactured goods – Provide enhanced protection for patents, trademarks, and copyrights – Established the WTO to police international trading system  Lowering of barriers – Enables firms to view the world, rather than a single country, as their market – Allows firms to base production at the optimal location for that activity Chapter 1 – Globalization Study Guide  Foreign direct investment is playing increasing role in global economy as firms increase their cross-border investments.  Technological change, esp. the developments in recent decades of communication, information processing, and transportation technologies.  Microprocessors – has enabled growth of high-power, low- computing, vastly increasing the amount of info that can be processed by individuals/firms. – Satellites, optic fiber, wireless technologies, and the Internet rely on the microprocessor to encode, transmit, and decode large amounts of info along these electronic highways.  Internet – has developed into the info backbone of the global economy. – Makes it easier for buyers and sellers to locate each other – Allows businesses to expand their global presence – Enables enterprises to coordinate and control a globally dispersed production system  Transportation Technology – Development of commercial jet aircraft and super- freighters – Containerization which simplifies transshipment from one mode of transport to another  Changing Demographics of The Global Economy  Changing World Output and World Trade Picture  In 1960, the U.S. accounted for 38.3% of world output, measure by GDP. By 2010, the U.S. accounted for 23.1% of world output, still the world’s largest industrial power but down significantly.  In the 1960s, the U.S. accounted for 20% of world exports of manufactured goods. By 2011, the U.S. slipped to 8.1% of world exports.  Changing Foreign Direct Investment Picture  In the 1960s, U.S. firms accounted for 66.3% of worldwide foreign direct investment flows, British firms 10.5%, and Japanese firms were a distant 8 at 2%.  As barriers to the free flow of goods, services, and capital fell, and other countries increased their shares of world output, non-U.S. firms increasingly began to invest across national borders.  Changing Nature of the Multinational Enterprise  Since 1960s, two trends in demographics of the multinational enterprise have been the: – Rise of non-U.S. multinationals Chapter 1 – Globalization Study Guide (a)In 1960s, global business activity was dominated by large U.S. multinational corporations, with the U.S. firms accounting for 2/3 of foreign direct investment. By 2010, 21 of world’s 100 largest nonfinancial multinationals were now U.S. enterprises, 15 French, 11 German, 15 British, and 9 Japanese. – Growth of mini-multinationals (a)Growth of medium-size and small multinationals because the rise of the Internet is lowering the barriers that small firms face in building international sales.  Management Focus: China’s Hisense – An Emerging Multinational  What makes Hisense different from other manufacturers of consumer electronics? What factors have contributed to its success? Hisense believes the only way to gain leadership in a highly competitive markets is to continuously launch advanced, high- quality, and competitively priced products. The company has established many overseas manufacturing subsidiaries.  Why has Hisense established multiple R&D centers? How do these R&D centers fit into the firm’s global strategy? They want to create rapid product innovation. By launching R&D centers across the globe, Hisense can collect a variety of research data in new technology production.  Changing World Orders  Many former Communist nations of Europe and Asia share a commitment to democratic politics and free market economies.  China continues to move toward greater free market reforms. The changes in China are creating both opportunites and threats for established international businesses.  Across most of Latin America, debt/inflation are down, governments have sold state-owned enterprise to private investors, foreign investment is welcomed, and the region’s economies have expanded.  Global Economy of the Twenty-First Century  Over the past quarter century, country after country has seen state-owned businesses privatized, widespread deregulation adopted, markets open to more competition, and commitment increased to removing barriers to cross-border trade and investment.  Currently, the world is moving toward an economic system that is favorable for international business.  Unfortunately in an interconnected world, a crisis in one region can affect the entire globe. (U.S. Recession 2008-2009)  Globalization Debate Chapter 1 – Globalization Study Guide  Anti-globalization Protests  Both theory and evidence suggest that many of these fears are exaggerated  People feel a general sense of loss at the passing of a world in which – Barriers of time and distance – Vast differences in economic institutions – Political institutions – Level of development of different nations … produced a world rich in diversity of human culture  Country Focus: Protesting Globalization in France  …  Closing Case: Legal Outsourcing  What are the benefits to a law firm of outsourcing legal services to a foreign country? What are the potential costs and risks? The legal fees are in certain places are much cheaper outside of the United States.  What kind of legal services are most amenable to outsourcing? Reviewing documents, drafting contracts, etc.  Which groups gain from outsourcing of legal services? Which groups lose? Companies and law firms that outsource their routine legal work causes improvement in efficiency and minimization in business and legal risks. However, U.S. lawyers are being replaced by lawyers in India who will do grunt work for less money.  On balance, do you think that this kind of outsourcing is a good thing or a bad thing? Why? I believe that it is unfair for American lawyers to be replaced by lawyers in India for work that is relative and transpire in the U.S. I don’t believe lawyers in India fully comprehend the structure of the U.S. because they do not live there.  Why were the services in this case outsourced to India, as opposed to another country such as China? What does this tell you about the kinds of factors that are important when a firm is considering whether to outsource a value creation activity, and where to outsource it? India produces a decent amount of lawyers trained in common law. Many can speak good English, and the time difference allows work to be done in a quick manner.


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