Chapter 07 - The Challenges of Globalization

CHAPTER 7
THE CHALLENGES OF GLOBALIZATION

INTRODUCTION

The world economy is becoming increasingly integrated, and many businesses

have extended their reach beyond national borders. Yet, the process of globalization is
controversial, and the involvement of corporations in other nations is not always
welcome. Doing business in diverse political and economic systems poses difficult
challenges. When a transnational corporation buys resources, manufactures products, or
sells goods and services in multiple countries, it is inevitably drawn into a web of global
social and ethical issues. Understanding what these issues are and how to manage them
through collaborative action with governments and civil society organizations is a vital
skill for today’s managers.

PREVIEW CASE

Bechtel Corporation in Bolivia

Why did Bechtel fail to anticipate the controversy that resulted from the increase
in water rates? What steps could they have taken to prevent this outcome? Could they
still have retained their business investment? Who are their global stakeholders, and how
are these stakeholders affected – positively and negatively – by the company’s actions?
Teaching Tip: Preview Case
The preview case describes a dispute involving the U.S. based
corporation Bechtel, the World Bank and the government of Bolivia
over control of a very basic commodity – water – in the Bolivian city
of Cochabamba. This situation captures much of the turmoil and
controversy that surrounds the globalization of business and its far-
reaching social impacts. Students may wish to follow continuing
events in Bolivia by reading the blog published by Jim Shultz, a
journalist and activist living in Bolivia, at
www.democracyctr.org/blog.

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CHAPTER OUTLINE

I. THE PROCESS OF GLOBALIZATION

A. Major Transnational Corporations

Teaching Tip: Globalization of Business Video

Faisal Islam reports on Google’s decision to launch a search

engine in China. To do business there, the company had to

agree to comply with Chinese government rules mandating

censorship of political, religious, and cultural content the

authorities found offensive. Was Google’s decision to do so a

violation of its espoused commitment to making the world’s

information universally useful and accessible? After an

opening segment, Jeffrey Brown interviews Rebecca

MacKinnon, a fellow at the Berkman Center for Internet and

Society at Harvard and the former Beijing bureau chief for

CNN.

* The video segment is from the Public Broadcasting Services’s “News

Hour with Jim Lehrer” and is available on the Instructor’s Resource

Manual DVD that accompanies the textbook, available upon request from

the publisher.

B. The Acceleration of Globalization

C. International Financial and Trade Institutions

Teaching Tip: World Trade Policy Video

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Fred de Sam Lazaro reports on the debate at the meeting of the

World Trade Organization (WTO) in Cancun, Mexico, over U.S.

government subsidies to cotton growers. Critics charged that these

policies depressed the world price of cotton and disadvantaged

farmers in poor countries, like Mali in West Africa, whose

governments could not afford subsidies. The segment includes

interviews with a U.S. cotton farmer, the president of Mali, and the

U.S. ambassador to Mali. It may be used with the discussion of

world trade policy and economic globalization in Ch. 7.

* The video segment is from the Public Broadcasting Services’s “News Hour with

Jim Lehrer” and is available on the Instructor’s Resource Manual DVD that

accompanies the textbook, available upon request from the publisher.

II. THE BENEFITS AND COSTS OF GLOBALIZATION

A. Benefits of Globalization

B. Costs of Globalization

Teaching Tip: “Life: The Story So Far”

One way to frame the debate on the pros and cons of globalization is
to show a video that discusses globalization and its effects on
individuals and communities around the world that was produced for
the British television network BBC, “Life: The Story So Far” (25
minutes). More information is available online at:
http://www.bullfrogfilms.com/catalog/ls.html

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Teaching Tip: “Global Trade”

The video supplement includes the segment “Global Trade,” an
interview with Amy Chua, a professor at Yale Law School and author
of the book World On Fire. Chua points out that globalization tends to
increase ethic tensions in many regions of the world, especially in
nations where the economy is dominated by one or more ethnic
minorities. “Markets make this hatred kind of outsider minority richer
and richer, while the democracy empowers the poor, frustrated
majority who is easily manipulated, often by opportunistic
demagogues. And the result is typically a very explosive situation,”
she notes. The segment also includes commentary by William
Easterly former World Bank economist. It may be used with the
following questions: What perspective does Prof. Chua offer on this
issue? Why do you think she feels the way she does? On balance, do
you think she supports or opposes globalization?
III. DOING BUSINESS IN A DIVERSE WORLD

A. Comparative Political and Economic Systems

B. Meeting the Challenges of Global Diversity

IV. GLOBAL CODES OF CORPORATE CONDUCT

V. COLLABORATIVE PARTNERSHIPS FOR GLOBAL PROBLEM

SOLVING

A. A Three-Sector World

GETTING STARTED

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KEY LEARNING OBJECTIVES

1. Defining globalization and classifying the major ways in which companies enter
the global marketplace.

Globalization refers to the increasing movement of goods, services, and capital

across national borders. Firms can enter and compete in the global marketplace by
developing global market channels for their products, locating some or all of their global
operations in another country, or purchasing raw materials, components, or other supplies
from sellers in other countries. Many companies have all three elements of global
business – market channels, manufacturing operations, and supply chains.

2. Recognizing the major drivers of the globalization process and the international
financial and trade institutions have shaped this process in recent decades.

The major drivers of the globalization process are the advent of sophisticated
communications technology and transportation systems, the rise of major transnational
corporations, and social and political reforms. Global commerce is carried out in the
context of a set of important international financial and trade institutions (IFTIs). The
most important of these are the World Bank, the International Monetary Fund, and the
World Trade Organization.

3. Analyzing the benefits and costs of the globalization of business.

Globalization is highly controversial. Some argue that globalization increases economic

productivity, reduces prices for consumers, gives developing countries access to foreign

investment funds to support economic development, transfers technology, spreads

democracy and freedom, and reduces military conflict. Others argue that it causes job

insecurity, weakens environmental and labor standards, prevents individual nations from

adopting policies promoting environmental or social objectives, erodes regional and

national cultures and diversity, and is compatible with despotism. Globalization has both

costs and benefits.

4. Identifying the major types of political and economic systems in which

companies operate across the world, and the special challenges posed by doing
business in diverse settings.

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The nations of the world differ greatly in their degree of democracy, their support for
human rights, and their degree of economic freedom, their levels of economic and social
development. The wide range of political, social, and economic environments in which
business operates poses complex and challenging questions for managers.

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5. Examining the major codes of conduct governing the social and ethical behavior
of transnational corporations.

Recent years have seen a proliferation of global codes of conduct that seek to define
acceptable and unacceptable behavior for today’s transnational corporations. These
include codes developed by groups of nations, by businesses themselves, or by groups or
individuals that advise business. Although they differ in emphasis, all emphasize the
responsibility of transnational corporations to protect human rights, respect the rights and
dignity of their employees and other stakeholders, and act as stewards for the natural
environment.

6. How can businesses work collaboratively with governments and the civil sector
to address global social issues?

An emerging trend is the development of collaborative, multi-sector partnerships focused

on particular social issues or problems in the global economy. Recent research has
shown that each of the three major sectors – business, government, and civil society –
have distinctive resources and competencies, as well as weaknesses. Collaborative
partnerships among the three sectors are therefore effective in addressing many complex
social issues.

KEY TERMS AND CONCEPTS USED IN THE CHAPTER

anti-Americanism, 148

central state control, 151

civil society, 155

collaborative partnership, 156

constructive engagement, 152

debt relief, 143

democracy, 149

free enterprise system, 151

globalization, 139

global codes of conduct, 153

international finance and trade institution (IFTI), 142

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International Monetary Fund (IMF), 143

military dictatorship, 150

non-governmental organizations (NGOs), 155

transnational corporation (TNC), 140

World Bank, 142

World Trade Organization (WTO), 143

INTERNET RESOURCES

www.wto.org World Trade Organization

www.imf.org International Monetary Fund
www.worldbank.org World Bank
www.ifg.org International Forum on Globalization
www.globalpolicy.org Global Policy Forum

DISCUSSION CASE

CONFLICT DIAMONDS

1. What are conflict diamonds? What groups benefited from the trade in conflict
diamonds? What groups were hurt by it?

Conflict diamonds are rough (uncut) diamonds that are illegally mined or stolen by
rebels fighting internationally recognized governments, to finance their operations.
Estimates vary, but conflict diamonds may account for up to 15% of the world supply.
The main sources of conflict diamonds are in Africa, especially Sierra Leone, Angola,
and the Congo. Rebel groups and their supporters and business partners benefited from
the trade in conflict diamonds. Many civilians suffered brutal human rights abuses,
especially in Sierra Leone, where rebel RUF terrorized civilians to seize control of
diamond mines. The legitimate diamond industry was also hurt, because diamonds’
association with human rights violations damaged the industry’s reputation.

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2.
3. What three sectors were concerned with the problem of conflict diamonds?
What was the interest of each, and in what ways did their interests converge?

As explained on p. 141, the term sector refers to major parts or spheres of society,
such as business (the private sector), government (the public sector), and civil society
(nonprofit, educational, religious, community, family, and interest-group organizations).
In this case, the legitimate diamond industry (represented by its trade association, the
World Diamond Congress) was interested in preventing damage to its reputation from
association with human rights violations. Governments of countries with legitimate
diamond industries, such as Botswana, South Africa, Namibia, Canada, and Australia,
shared this concern, since the earned significant foreign exchange from the diamond
trade. Governments of countries with large retail operations, such as the United
Kingdom, were worried about lost sales (and tax revenue). Finally, NGOs, such as
Global Witness, Oxfam International, and Amnesty International, had an interest in
preventing human rights abuses in connection with trade in conflict diamonds.

4. Do you believe that any of these three sectors could have addressed the problem
of conflict diamonds unilaterally? Why or why not?

No, none of them could have addressed the problem effectively unilaterally. As
explained on pages 142-143, research has shown that each of the three major sectors has
distinctive resources and competencies, as well as weaknesses. In this instance, the
diamond industry had access to capital, specialized technical knowledge, networks of
commercial relationships, and management skills, but lacked the credibility to certify its
own diamonds as “conflict-free.” Governments had knowledge of public policy and an
ability to enforce rules, but needed cooperation from both other sectors to address this
issue. For their part, NGOs had credibility, volunteer assets, and inspirational leaders,
but lacked the resources to implement a certification system.

5. Do you believe the Kimberley Process will be successful in achieving its

objective? Why or why not?

A solution to the problem of conflict diamonds required a collaborative partnership

among diamond companies, government representatives, and interested civil society
organizations. The World Diamond Council, initiated by the industry association,
brought together these three sectors to develop an effective tracking system for diamonds
all the way from the mine to the jewelry shop, so that consumers could be assured that
their gem was “conflict-free.” This collaborative partnership had a good chance of
success, because it was structured to draw on the unique capabilities of each sector, as
well as to overcome particular weaknesses.
Teaching Tip
Have students investigate and assess the latest efforts of the World Diamond Council to
curb the global trade in conflict diamonds.

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