Solution Manual For International Business, Global Edition, 7E

CHAPTER 1
GLOBALIZATION
LEARNING OBJECTIVES:
1. Identify the types of companies that participate in international business.
2. Describe the process of globalization and how it affects markets and production.
3. Describe the two forces causing globalization to increase.
4. Summarize the evidence for each main argument in the globalization debate.
5. Describe the global business environment and identify its four main elements.
CHAPTER OUTLINE:
Introduction
International Business Involves Us All
Technology Makes It Possible
Global Talent Makes It Happen
Key Players in International Business
Multinational Corporations
Entrepreneurs and Small Businesses
Globalization
Globalization of Markets
Reduces Marketing Costs
Creates New Market Opportunities
Levels Uneven Income Streams
Local Buyers’ Needs
Global Sustainability
Globalization of Production
Access Lower-Cost Workers
Access Technical Expertise
Access Production Inputs
Forces Driving Globalization
Falling Barriers to Trade and Investment
The World Trade Organization
Regional Trade Agreements
Trade and National Output
Technological Innovation
E-mail and Videoconferencing
The Internet
Company Intranets and Extranets
Advancements in Transportation Technologies
Measuring Globalization
Untangling the Globalization Debate
Today’s Globalization in Context
Introduction to the Debate
Globalization’s Impact on Jobs and Wages
Against Globalization
Eliminates Jobs in Developed Nations
Lowers Wages in Developed Nations
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24 Ch 1: Globalization
Exploits Workers in Developing Nations

For Globalization
Increases Wealth and Efficiency in All Nations
Generates Labor Market Flexibility in Developed Nations
Advances the Economies of Developing Nations
Summary of the Jobs and Wages Debate
Globalization’s Impact on Labor, the Environment, and Markets
Labor Standards
Environmental Protection
Future Markets
Globalization and Income Inequality
Inequality within Nations
Inequality between Nations
Global Inequality
Summary of the Income Inequality Debate
Globalization’s Influence on Cultures
Globalization and National Sovereignty
Globalization: Menace to Democracy?
Globalization: Guardian of Democracy?
Why International Business Is Special
The Global Business Environment
The Road Ahead for International Business
Bottom Line for Business
A comprehensive set of specially designed PowerPoint slides is available for use with
Chapter 1. These slides and the lecture outline below form a completely integrated package that
simplifies the teaching of this chapter’s material.
Lecture Outline
1. INTRODUCTION
Globalization is reshaping our cultures, our political, legal, and economic systems, and
affecting our standards of living. It alters the global pattern of trade and investment by
expanding markets and multiplying production possibilities.
A. International Business Involves Us All
1. Each of us encounters the result of international business transactions
every day whether we realize it or not.
2. International business is any commercial transaction that crosses the
borders of two or more nations.
3. Imports are goods and services purchased abroad and brought into a
country. Exports are goods and services sold abroad and sent out of a
country.
B. Technology Makes It Possible
1. Technology is a remarkable facilitator of international business and
change.
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2. E-business (e-commerce) is the use of computer networks to purchase,
sell, or exchange products; service customers; and collaborate with
partners.
C. Global Talent Makes It Happen
1. Development and production now regularly occur on a global basis for
many goods and services.
2. Performing these globally increases firm efficiency and competitiveness.
2. KEY PLAYERS IN INTERNATIONAL BUSINESS

** This section now appears earlier than in previous editions. **
Large firms from developed nations once dominated, but firms from Brazil, China, and
India now play a bigger role. Technological advancements allow small and midsize
companies to better compete.
A. Multinational Corporations
A multinational corporation (MNC) has direct investments abroad in multiple
countries. They generate significant jobs, investment, and tax revenue for the
regions and nations they enter.
1. Profiling the Largest Multinationals
a. Some MNCs have more employees than small nations have citizens
(e.g., Walmart has 2.2 million employees globally).
b. If Walmart were a country, it would rank third behind Norway in
terms of economic power (Figure 1.1).
B. Entrepreneurs and Small Businesses

1. They are increasingly active in international business by exporting earlier
and growing faster with help from technology.
2. A born global firm is a company that adopts a global perspective and
engages in international business from or near its inception.
3. Some small Internet companies reach customers solely through the Web
(e.g., Vellus Products, Weekend in Italy).
3. GLOBALIZATION
Globalization is the trend toward greater economic, cultural, political, and technological
interdependence among national institutions and economies. It is marked by
“denationalization,” which is not “internationalization.”
A. Globalization of Markets
1. Convergence in buyer preferences in markets
around the world
a. Reduces marketing costs by standardizing activities
b. Creates market opportunities abroad if home is small or saturated
c. Levels uneven income streams for global seasonal products
d. Yet companies must not overlook buyers’ needs
e. Need for global sustainability—development that meets the needs of
the present without compromising the ability of future
generations to meet their own needs.
2. The world’s 7 billion people live in three types of markets, yet all require
companies to act in a sustainable manner:
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a. Developed markets are solidly middle class and people can

consume almost any product desired. A firm may use the latest
technologies to develop sustainable products in a sustainable
manner.
b. Emerging markets are racing to catch up to rich nations and are
overloading infrastructures. Resource constraints can force
companies to develop sustainable production methods.
c. Traditional markets have mostly rural populations for whom
poverty and corruption prevail. Here, sustainability means
teaching safe farming practices, environmental stewardship, and
disease awareness.
B. Globalization of Production
1. Dispersal of production activities to locations
that help a company to minimize costs or maximize quality
a. Access lower-cost workers to cut overall production costs
b. Access technical expertise
c. Access production inputs unavailable or more costly at home
4. FORCES DRIVING GLOBALIZATION

Forces increase competition among nations by leveling the global business playing field.
A. Falling Barriers to Trade and Investment

1947 General Agreement on Tariffs and Trade (GATT) was designed to promote
free trade by reducing tariffs and nontariff barriers. 1994 GATT revision (1)
reduced tariffs and lowered subsidies for agricultural products; (2) defined and
protected intellectual property rights; and (3) created the WTO.
1. World Trade Organization
a. World Trade Organization (WTO) is the international
organization that enforces the rules of international trade.
b. WTO goals: (1) to help the free flow of trade, (2) help negotiate
the further opening of markets, and (3) settle trade disputes.
c. WTO agreements are contracts committing members to fair and
open trade policies. WTO dispute settlement system is the spine
of the global trading system.
2. Regional Trade Agreements
a. Smaller groups of nations also are integrating their economies
(e.g., NAFTA, European Union).
3. Trade and National Output
a. Effect of the WTO and regional trade pacts is greater global
trade and cross-border investing (Map 1.1).
b. Trade growth has been faster than world output.
c. Gross Domestic Product (GDP) is the value of all goods and
services produced by a domestic economy over a one-year
period. Gross national product (GNP) adds income from
international activities.
B. Technological Innovation
Technology accelerates globalization by making it easier, faster, and less costly
to move data, goods, and equipment around the world.
1. E-mail and Videoconferencing

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a. Speed information flows and ease the tasks of coordination and
control, which are complicated by operating across borders.
b. Driving growth in videoconferencing are lower-cost bandwidth
and equipment, and decreased travel for cost or safety reasons.
2. The Internet
a. Helps firms sharpen forecasting, lower inventories, improve
communication with suppliers, and communicate quickly and
cheaply with distant managers
b. Reduces the cost of reaching an international customer base,
which is essential for the competitiveness of small firms
3. Company Intranets and Extranets
a. Intranets are private networks of company Web sites and other
information sources that allow employee access to information
from distant locations.
b. Extranets are computer networks that give distributors and
suppliers access to a company’s database so they can place
orders or restock inventories electronically and automatically.
4. Advancements in Transportation Technologies
a. Make global shipping more efficient and dependable (e.g., GPS)
C. Measuring Globalization
** This edition introduces a new Globalization Index not in prior editions. **
1. The KOF Swiss Economic Institute’s Globalization Index ranks nations
on their economic, social, and political engagement.
2. Richest nations are the most global, with many in Europe. The United
States ranked 35th (see Table 1.1).
3. The least global nations are found in Africa, East Asia, South Asia, Latin
America, and the Middle East. Low technological connectivity slows
global integration.
5. UNTANGLING THE GLOBALIZATION DEBATE

People can view globalization from vastly different perspectives.
A. Today’s Globalization in Context

1. First age of globalization extended from the mid-1800s to the 1920s.
Migration levels reached record highs, domestic workers faced
competition from cheaper labor abroad, and trade and capital flowed
more freely than ever before.
2. Drivers of that first age of globalization were the steamship, telegraph,
railroad, telephone, and airplane.
3. World War I, the Russian Revolution, and the Great Depression abruptly
ended that first age of globalization. A globalization backlash led to high
tariffs and other barriers.
4. Geographic divide between East and West became an ideological divide
between communism and capitalism. International capital flows regained
their prior pace but not until the 1990s.
5. Drivers of this second age of globalization are communication satellites,
fiber optics, microchips, and the Internet.

B. Introduction to the Debate

1. The World Bank is an agency created to provide financing for national
economic development efforts.
2. The International Monetary Fund (IMF) is an agency created to regulate
fixed exchange rates and enforce the rules of the international monetary
system.
C. Globalization’s Impact on Jobs and Wages

1. Against Globalization
a. Eliminates jobs in developed nations as good-paying
manufacturing jobs go abroad to developing countries. Low-
priced goods are not worth lost jobs.
b. Lowers wages in developed nations by causing worker
dislocation that gradually lowers wages. New jobs that replace
lost manufacturing jobs often pay less.
c. Exploits workers in developing nations who work cheaply
servicing western consumers.
d. Summary: Although globalization eliminates jobs in some
economic sectors, it creates jobs in other sectors.
2. For Globalization
a. Increases wealth and efficiency in all nations because trade
openness raises output. Firms grow more efficient and pass
savings on to consumers.
b. Generates labor market flexibility in developed nations that
allows an economy to rapidly deploy labor where demand is
relatively great.
c. Advances the economies of developing nations by injecting
capital that creates higher-paying jobs, which expands the
middle class and raises standards of living.
d. Summary: Gains to national economies are worth lost livelihoods
that individuals may suffer.
D. Globalization’s Impact on Labor, the Environment, and Markets

1. Labor Standards
a. Trade unions claim that firms continually move to nations with
low labor standards, which reduces labor’s bargaining power and
forces overall labor standards lower.
b. But studies of developing nations’ export processing zones
instead find evidence that contradicts such claims.
2. Environmental Protection
a. Globalization opponents say it creates a “race to the bottom” in
environmental conditions and regulations: countries compete in
reducing environmental protection laws.
b. But evidence shows pollution-intensive U.S. firms tend to invest
in countries with stricter environmental standards. Also, closed
economies historically are the worst polluters.
3. Future Markets
a. Protesters claim international firms pay locals the lowest
possible wage and export their goods back to the home country.
b. Today, firms want to build local markets in developing nations,
not simply exploit workers and foment local animosity.

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E. Globalization and Income Inequality
1. Inequality within Nations
a. Globalization critics claim that income disparity in rich nations
is increasing as firms move factory jobs to poor nations.
b. Evidence is mixed, but poor people in developing nations seem
to benefit from an open economy.
2. Inequality between Nations
a. Globalization opponents say it is widening the gap in average
incomes between rich and poor nations.
b. Looking closely at the evidence, we see that open nations are
benefiting from trade whereas closed ones are not.
3. Global Inequality
a. Opponents of globalization say it is widening income inequality
among all people of the world.
b. Studies tend to agree that global inequality has fallen in recent
decades, though they disagree on the extent of the decline.
F. Globalization’s Influence on Cultures

** This section now appears earlier than in previous editions. **
1. Critics say globalization homogenizes our world and lets MNCs destroy
cultural diversity and wipe out small local businesses.
2. Yet globalization allows nations to: (1) specialize and trade for goods
they do not produce, (2) import other peoples’ cultural goods, and (3)
still protect deeper moral and cultural norms.
G. Globalization and National Sovereignty

1. Globalization: Menace to Democracy?
a. Supranational institutions with international goals and appointed
officials undermine national sovereignty and democracy.
b. Elected officials undercut democracy and local and regional
authority with “international” agreements on citizens’ behalf.
2. Globalization: Guardian of Democracy?
a. Globalization has helped spread democracy worldwide (e.g.,
more democratic nations than ever).
b. Some losses of sovereignty have had positive social impacts, as
in human rights, workers’ rights, and discrimination.
6. WHY INTERNATIONAL BUSINESS IS SPECIAL

What makes international business special is that it occurs within a dynamic, integrated
system that weaves together four distinct elements.
A. The Global Business Environment

1. Globalization is transforming our societies and commercial activities. It
also increases competition everywhere, forcing companies to be vigilant.
2. Each national business environment consists of unique cultural, political,
legal, and economic characteristics. Companies must be attentive to
nuances and adapt products and practices as needed.

3. The international business environment influences how business is

conducted so firms must closely monitor events.
4. Context of international business management is defined by the
characteristics of the national and international business environments.
Managers must abide by the prevailing rules in each market in which it
operates.
B. The Road Ahead for International Business

Part 1 (Chapter 1): Globalization
Part 2 (Chapters 2–4): National Business Environments
Parts 3 and 4 (Chapters 5–8 and 9–10): International Business Environment
Part 5 (Chapters 11–16): International Business Management
7. BOTTOM LINE FOR BUSINESS
A. Harnessing Globalization’s Benefits

1. The most global nations tend to have the greatest equality, robust
environmental protection, inclusive political systems, lowest levels of
corruption, healthiest lifestyles, and be where women have achieved the
most social, educational, and economic progress.
2. The debate has opened a dialogue on how globalization can be harnessed
to make its benefits exceed its costs.
B. Intensified Competition
1. Continued globalization is taking companies into previously isolated
markets and increasing competitive pressures worldwide.
2. As it gets easier and less costly to manage widely dispersed marketing
and production activities, new opportunities and threats emerge.
C. Wages and Jobs

1. Low wages are not all that draws investment by multinationals. A
location must offer low-cost, adequately skilled workers in an
environment with acceptable levels of social, political, and economic
stability.
2. Labor mobility is increasing with globalization—depressing wages in
some job categories but developing new job opportunities in others.
D. The Policy Agenda

1. Rich nations could open their markets, slash agricultural subsidies, and
increase development aid. Poor nations could improve their investment
climates and improve social protection for the poor.
2. Rich nations could offer workers their wage insurance, subsidized health
insurance if out of work, and improve education. Rich nations could help
enforce labor standards, help clarify environmental agreements, and
research the environmental implications of trade agreements.
Quick Study Questions
Quick Study 1

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1. Q: Define the term international business, and explain how it involves us all.
A: International business is any commercial transaction that crosses the borders of two or
more nations. International business involves each of us every day. We consume goods
that originate outside our borders or that contain components made abroad. We also
consume services, such as a news broadcast or music entertainment, that are sent to us
from abroad.
2. Q: Explain how e-business (e-commerce) affects international business.

A: E-business (e-commerce) is the use of computer networks to purchase, sell, or
exchange products; service customers; and collaborate with partners. E-business is
making it easier for companies to make their products abroad, not just import and export
finished goods. It also helps companies improve efficiency in international operations and
boost competitiveness.
3. Q: What types of companies are involved in international business?

A: Large, global firms and multinational corporations (MNCs) dominate international
business activity. These companies generate significant jobs, investment, and tax revenue
for the regions and nations they enter. It is common for the incomes and deals of these
large businesses to be valued in the billions. Also, small firms are increasingly active
internationally because traditional distribution channels are more accessible and
technology makes it easier to communicate and transport products. Born global firms
tend to be innovative and have knowledge-based organizational capabilities. They often
rise to the level of international competition in a very short period of time.
Quick Study 2
1. Q: Define globalization. How does denationalization differ from internationalization?

A: Globalization is the trend toward greater economic, cultural, political, and
technological interdependence among national institutions and economies. It is a trend
characterized by denationalization (in which national boundaries are becoming less
relevant), and is different from internationalization (which refers to cooperation among
national actors).
2. Q: List each benefit a company might obtain from the globalization of markets.
A: Globalization of markets refers to convergence in buyer preferences in markets around
the world. Potential benefits for companies include: (1) reduced marketing costs by
standardizing activities, (2) market opportunities abroad if home market is small or
saturated, and (3) levels an income stream by letting international sales offset domestic
sales for a company selling a global seasonal product.
3. Q: How might a company benefit from the globalization of production?

A: Globalization of production refers to the dispersal of production activities to locations
that help a company minimize costs or maximize quality of a good or service. Potential
benefits for companies include: (1) access lower-cost labor to cut production costs, (2)
access technical expertise, and (3) access production inputs unavailable or costly at home.
Quick Study 3

1. Q: How have global and regional efforts to promote trade and investment advanced
globalization?
A: Global Efforts: The 1947 GATT lowered trade barriers and made it cheaper and easier
to ship goods across borders. In 1988 world merchandise trade was 20 times larger than
in 1947; average tariffs dropped from 40 percent to 5 percent. A 1994 GATT revision
created the WTO, which has the power to enforce international trade rules. Goals of the
WTO are: (1) to help the free flow of trade, (2) help negotiate further opening of markets,
and (3) settle trade disputes. WTO agreements are contracts committing members to fair
and open trade policies. The WTO dispute settlement system is the spine of the global
trading system. Regional Efforts: Smaller groups of nations are banding together in
regional trade agreements with similar objectives. Examples are NAFTA and the EU. The
combined effect of global and regional efforts: international trade and investment is
growing faster than world output.
2. Q: How does technological innovation propel globalization?

A: E-mail and videoconferencing speed information flows and ease the tasks of
coordination and control. Firms use the Web to sharpen forecasting, lower inventories,
and improve communication with suppliers, and to communicate with distant managers
quickly, cheaply, and efficiently. The Web also reduces the cost of reaching international
customers—important for the competitiveness of small firms. Company intranets allow
employees to access information from distant locations to share best practices. Extranets
give distributors and suppliers access to a company’s database so they can place orders or
restock inventories electronically and automatically. Transportation advancements are
facilitating globalization by making shipping more efficient and dependable.
3. Q: What factors make some countries more globalized than others?

A: Factors that make a country more global are high levels of economic globalization
(high trade and investment volumes, low trade and capital restrictions), social
globalization (dissemination of information and ideas), and political globalization
(political cooperation with other countries).
Quick Study 4
1. Q: How does this current period of globalization compare with the first age of
globalization?
A: Whereas the first age of globalization (mid-1800s to 1920s) encompassed mostly rich
nations, this second age reaches into developing and emerging economies. Like today,
migration levels were very high, domestic workers faced competition from cheaper labor
abroad, and trade and capital flowed freely. Drivers of that first age of globalization were
the steamship, telegraph, railroad, telephone, and airplane. Drivers of this second age
include communication satellites, fiber optics, microchips, and the Internet.
2. Q: Explain the original purpose of the World Bank and its mandate today.
A: The World Bank is an agency created to provide financing for national economic
development efforts. Its initial purpose was to finance European reconstruction following
the Second World War. It later shifted its focus to the general financial needs of
developing countries. Today it finances many economic development projects in Africa,
South America, and Southeast Asia.
3. Q: What are the main purposes of the International Monetary Fund?

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A: The International Monetary Fund is an agency created to regulate fixed exchange
rates and enforce the rules of the international monetary system. Some of the purposes of
the IMF include: promoting international monetary cooperation; facilitating expansion
and balanced growth of international trade; avoiding competitive exchange devaluation;
and making financial resources temporarily available to members.
Quick Study 5
1. Q: What are the claims of those who say globalization eliminates jobs, lowers wages, and
exploits workers?
A: (1) Globalization eliminates manufacturing jobs in developed nations as jobs are sent
to nations with lower wages. Also, the new jobs that globalization creates pay less than
manufacturing jobs lost. And reduced prices for imported goods are little consolation for
workers who have lost their jobs. (2) Globalization lowers wages in developed nations as
jobs move abroad and competition increases for the remaining jobs, gradually depressing
wages. (3) Globalization exploits workers in developing nations because multinationals
operate where labor standards are low by comparison. People in developing nations have
few employment options and no power to counter manipulative employment practices.
2. Q: Identify the arguments of those who say globalization creates jobs and boosts wages.
A: (1) Globalization raises overall wealth in developed and developing nations because
trade openness raises the output of a nation. It also allows firms to become more efficient
and pass savings on to consumers. (2) Globalization generates labor market flexibility
that allows an economy to rapidly deploy labor where demand is relatively great, which
lets workers leave jobs and find new work fairly quickly. (3) Globalization advances
developing nations’ economies by injecting capital that creates higher-paying jobs than
would otherwise be available, which expands the middle class and raises standards of
living.
3. Q: Why do critics say globalization adversely affects labor standards, environmental

regulations, and future markets?
A: The major complaint of those opposed to globalization is that multinational firms
contribute to slack labor and environmental protection laws. They say that because
multinationals are in constant pursuit of lower costs, they seek out locales with less strict
labor and environmental regulation to reduce the cost of operating in those environments.
They argue that multinationals thus put downward pressure on labor and environmental
standards worldwide.
4. Q: How do supporters of globalization argue that it does not harm labor standards,
environmental regulations, and future markets?
A: First, research shows that pollution-intensive U.S. firms tend to invest in countries
having stricter environmental standards. In fact, many developing nations liberalized their
foreign investment environment while enacting stricter environmental legislation. If
multinationals were eager to seek out nations with the worst environmental protection
laws, they would have avoided that group of nations instead of pouring enormous sums
of investment into them over decades.
Second, when analyzing a country prior to investing, multinationals today often
search for a future market for its goods as well as a production base. In such a scenario,
any rational management team would not enter a market with draconian labor and

environmental regulations, depressed local wages, and an awful environment, where the
locals cannot hope to one day afford to purchase the very items they produce.
Quick Study 6
1. Q: What does the evidence suggest for each aspect of the debate over globalization and
income inequality?
A: First, regarding the debate over inequality within nations, studies suggest that
developing nations can boost incomes of their poorest members of society by integrating
them into the global economy. Second, in the debate over inequality among nations, it
appears that more nations open to trade and investment grow faster than wealthy nations,
whereas sheltered economies are worse off. Thus, countries advance their economies by
being open, not closed, to global business. Third, the global inequality debate has
generally concluded that global poverty has fallen in recent decades, though there is
disagreement on the extent of the drop. Standardized sources and methods are needed.
2. Q: Summarize the claims of each side in the debate over globalization’s influence on
cultures.
A: (1) Globalization critics fear it is homogenizing the world and destroying its rich
diversity of cultures. In some drab, new world we all will wear the same clothes bought at
the same brand-name shops, eat the same foods at the same brand-name restaurants, and
watch the same movies made by the same production companies. (2) It is also feared that
cultural diversity will be reduced through universal products, as local businesses cannot
compete with large MNCs.
(1) Globalization supporters counter that it allows each nation to profit from
differing circumstances and skills. Trade allows a country to specialize in producing
those goods and services in which it is most efficient. It can then trade those products to
other nations in exchange for goods and services it desires but does not produce. (2)
Focusing only on consumer goods examines only the most superficial aspects of culture.
(3) Throughout the past century, the music, art, and literature of developing countries has
thrived and gained international attention through globalization.
3. Q: What are the arguments of each side in the debate over globalization’s impact on
national sovereignty?
A: Those opposed to globalization claim that supranational institutions, including the
WTO, IMF, and UN, consist of appointed, not democratically elected, representatives
who impose their will upon citizens of nations. They argue that ceding political authority
to such organizations undercuts the legal authority of national, regional, and even local
governments, and undercuts democracy itself.
Those favoring globalization argue that an amazing consequence of globalization
has been the spread of democracy worldwide. People in democracies are better educated,
better informed, more assertive, and are challenging elites and the old ways of doing
things. Supporters of globalization also argue that national sovereignty must be viewed in
the long run, and that consideration must be made of the positive outcomes of
international cooperation. UN accords made significant progress in important areas such
as women’s rights and racial discrimination.
Quick Study 7
1. Q: Identify the four main components of the global business environment.

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A: It is helpful to view international business as occurring within an integrated global
business environment consisting of four main elements: (1) Globalization is a potent
force transforming our societies and commercial activities. (2) Separate national business
environments, including culture and systems of politics, law, and economics. (3) The
international business environment, which is where the actions of consumers, workers,
companies, financial institutions, and governments from different nations converge. (4)
International business management which involves all the duties of management in a
domestic setting, but which are complicated by a multitude of differences.
2. Q: How does globalization influence other elements in the global business environment?
A: Globalization is a potent force transforming our societies and commercial activities.
Globalization increases competition and produces significant changes in how societies
operate. The effects of globalization are felt in the cultures and systems of politics, law,
and economics of nations. Companies riding on the back of globalization must
acknowledge differences in business environments and adapt products and processes as
needed. As globalization continues, flows of trade, investment, and capital are becoming
more entwined. This often causes firms to look simultaneously for production bases and
markets. Globalization causes the management of an international firm different from the
management of a domestic firm in nearly all respects.
Talk It Over
1. Q: Today, international businesspeople must think globally about production and sales
opportunities. Many global managers will eventually find themselves living and working
in cultures altogether different from their own. Many entrepreneurs will find themselves
booking flights to places they had never heard of. What do you think companies can do
now to prepare their managers for these new markets? What can entrepreneurs and
small businesses with limited resources do?
A: Large companies can keep a watchful eye on such markets by conducting preliminary
studies periodically on each potential market it is considering. Companies can conduct
such studies in-house or commission them from independent organizations. They can also
send key managers that would oversee such new investments to the market to familiarize
themselves with the local culture and begin making contacts.
However, entrepreneurs and small companies often do not have the money for
expensive studies. But they can afford to follow events in potential markets through the
international media—especially the international business press. They can also purchase
existing surveys of potential markets from international research agencies—usually
available for a reasonable fee. They can also seek out the advice and counsel of local
retired businesspeople with international experience and contact their local Small
Business Administration office (or similar agency outside the United States). The Web is
a valuable tool for obtaining a great deal of free information.
2. Q: In the past, national governments greatly affected the pace of globalization through
agreements to lower barriers to international trade and investment. Is the pace of change
now outpacing the capability of governments to manage the global economy? Will
national governments become more or less important to international business in the
future? Explain your answer.

A: The first part of the question addresses the fact that the GATT was initially very
successful but lost much of its relevance in the mid-1980s with regard to services and
erupting trade disputes. Governments then tried to update institutions to suit the changed
business environment. In answering, students should identify the Internet as an evolving
international business tool which governments are finding difficult to regulate and
establish jurisdiction over. Students may also mention the inability of supranational
agencies to forecast and contain recent economic crises worldwide.
The second part of this question gets students to consider the power of large
multinational and global companies relative to national governments. Students might
identify political lobbying that companies undertake to get favorable legislation passed.
On the other hand, students might identify the power of governments to control their own
national business environment—albeit perhaps with an attached cost.
3. Q: Information technologies are developing at a faster rate than ever before. How have
these technologies influenced globalization? Give specific examples. Do you think
globalization will continue until we all live in one “global village”? Why or why not?
A: Information and communication technologies are facilitating the process of
globalization in many ways. Through e-mail and videoconferencing, companies are better
able than ever before to keep in touch with far-flung subsidiaries, suppliers, and
customers. Intranets and extranets are facilitating the timely restocking of inventories by
suppliers and the ordering of merchandise by buyers. The effect of these technologies has
been to remove some of the pain associated with conducting day-to-day operations for
international companies—causing them to look more favorably on new international
ventures.
Students should first question what a “global village” is, and give answers
depending upon their definition. Are we talking about an “economic village” or a “true
village” that entails cultural homogenization? We are witnessing an era of increasing
interaction among nations (despite the recent global recession), but it is not certain this
will continue. Such times have occurred at other points in history only to result in war
and division. Students’ experiences of contact with the people and cultural products (such
as movies and music) of other nations (and perhaps living abroad) will affect their
answers.
4. This item can be assigned as a Discussion Question in MyManagementLab. Student

responses will vary. Q: Consider the following statement: “Globalization and the
resulting increase in competition harm people, as international companies play one
government against another to get the best deal possible. Meanwhile, governments
continually ask for greater concessions from their citizens, demanding that they work
harder and longer for less pay.” Do you agree? Why or why not?
A: This question gets students thinking about the interrelationships among consumers,
workers, international companies, and governments. Consumers tend to win from a
purchasing standpoint as companies’ cost structures tend to be lower and retail prices
should fall along with increasing competition. However, these consumers are also
employees in the economy. The power of corporations to get concessions from
governments and workers affects wages. On the other hand, if citizens are not satisfied
with their government’s stance on trade and investment issues, they can change the
government at the ballot box. However, not every nation gives its citizens such powers.
This question may cause debate as students take the side of international
companies or workers, and delve into the validity of such statements. This question might

-
even be assigned as a debate. Students could be divided into groups, assigned a position,
and given until the next class period to develop their arguments.
Teaming Up
1. Q: Research Project. Imagine that you and a group of your fellow classmates own a
company that manufactures cheap sunglasses. To lower production costs, you want to
move your factory from your developed country to a more cost-effective nation. Choose a
prospective country to which you will move production. What elements of the national
business environment might affect your move? Are there obstacles to overcome in the
international business environment? How will managing your company be different when
you undertake international activities? What challenges will you face in managing your
new employees?
A: This project gets students to begin pondering the types of elements that must be
considered when selecting a country for investment. At a minimum, students’ responses
should consider: (1) the presence of investment barriers in the country; (2) resources
needed to carry out production, as well as their availability and cost; (3) availability of
modern telecommunications to facilitate communication with the home office; and (4)
how the expansion might be financed.
2. Q: Market Entry Strategy Project. This exercise corresponds to the MESP online
simulation. With a group of classmates, select a country that interests you. Describe its
national flag: what do its colors and any symbols represent? Identify neighbors with
which it shares borders. Give some important facts about the country, including its
population, population density, land area, topography, climate, natural resources, and
the locations of main industries. What does the nation produce? Do any aspects of the
natural environment help explain why it produces what it does? Integrate your findings
into your completed MESP report.
A: This may be a good time to get students working on their Market Entry Strategy
Project. This exercise gets students to learn more about a country, and to generate interest
in countries other than their own. The project focuses on important aspects of each
country and the process can begin to develop teamwork in the course.
Take It to the Web
We invite you to visit MyManagementLab.com, an innovative set of course-management

tools for delivering all or part of your course online. MyManagementLab makes it easier
for you to add meaningful assessment to your course. Whether you’re interested in testing
your students’ recall of concepts and theories or in asking them to apply their new
knowledge to real-world scenarios, MyManagementLab offers a variety of assessment
questions to fit your needs.
Ethical Challenges

1. Q: You recently started a new job in a foreign country as manager of distribution for a
busy seaport. On your first day of work, you are asked to sign for a shipment at the dock.
Normally, there would be an official shipping fee of $1,000 for the delivery. The captain
of the ship says that he is willing to forget about the official shipping paperwork and split
the cost with you in exchange for a “tip.” This situation makes you feel uncomfortable,
as you know that bribery is illegal and could easily cost you your job. What do you tell
the ship captain? Do you take your half of the money and keep quiet, tell the captain that
you cannot participate in such a deal and leave it at that, or do you report the captain to
higher authorities?
A. Students should consider that the worker in question is in a foreign country and that
the laws punishing bribery and fraud could be extreme. Another consideration is that the
captain is taking advantage of the worker because he or she is clearly foreign to that
country. Some students might worry that if they didn’t take the money and give the ship
captain his money that the captain would defame them. The higher authorities also might
be in on the deal and don’t want to hear about it from a dockworker.
2. Q: You are the president of a Japanese textile manufacturer. Your company has recently
decided to outsource production to a developing country to save on labor costs.
Complaints have been arising from workers in the foreign plant that supervisors are
verbally and sometimes even physically abusive. You have yet to visit the plant, but have
been hearing rumors that working conditions are poor and that plant safety is not up to
the company standard. When you confront the managers in charge of this plant, they
claim that labor conditions are acceptable and that the workers are only complaining in
hopes of receiving greater compensation for their work. A local labor-advocacy group
has made claims that your managers at the plant have threatened workers with
incarceration and bodily harm if they reveal the conditions of the plant. How do you
handle this situation? Do you take steps to improve working conditions, or do you simply
shut down the plant? How might your actions affect your relations with officials in this
country, and your future ability to do business there?
A: Some students’ first response will be to move the plant to a different country
altogether. It is important to consider whether the workers are actually being abused or if
they are just seeking greater compensation. Is getting involved with the negative claims
made by the labor-advocacy group worthwhile, or should you just pull out altogether? If
the company does nothing, lawsuits could arise, and the international reputation could be
damaged. Have students discuss the implications of either decision on relations with the
host country’s government as a whole.
3. Q: You are the newly elected president of a developing country. In the past, your
economic foreign policy did not favor importing goods from the global market. However,
you feel that encouraging trade with foreign nations will benefit your country. What steps
do you take to convince the public that this is the best policy? If you encounter public
resistance to your plan, will you go ahead with it anyway? Why or why not?
A: Students should first consider the benefits of opening up a country to new avenues of
trade. Invite students to consider the reasons that might convince the general public that
this is a good idea. Students should discuss strategies of dealing with public resistance to
the plan, as well as ways to attempt to change the public sentiment.

-
1. Q: You are a U.S. citizen recently assigned as the manager of distribution in a European
country where bribery is relatively acceptable. Your job description includes
responsibility for accepting shipments as they enter the local port authority. On your first
trip down to the docks to sign for a shipment, the customs agent in charge asks for a
“tip” to clear the goods for pickup. The value of the incoming shipment is around
$150,000. Knowing that the government has recently launched an initiative to reduce
corruption, how do you react? If additional information would be helpful to you, what
would it be?
A: This question forces an examination of both personal ethical principles as well as
company ethical guidelines. The situation also has a legal issue that must be addressed.
U.S. citizens are covered by the Foreign Corrupt Practices Act, which prohibits paying
bribes to foreign officials. The “tip” may be legal under the FCPA if it is a small amount
and paid to the official to do what he or she would already be doing. The fact that the
local government began a campaign to reduce corruption must also be considered.
Additional information that would be helpful includes the amount of the “tip,” company
policy on such matters, and the potential of the local government in helping to reduce
corruption.
2. Q: You are the CEO of a major U.S. apparel company that contracts work to garment
manufacturers abroad. Employees of the contractors report 20-hour workdays, pay
lower than the minimum wage, overcrowded living conditions, physically abusive
supervisors, and confiscation of their passports. Contractors and government officials
say local labor laws are adhered to and enforced, though abuses appear widespread.
You send inspectors to the factories abroad but they uncover no labor violations. A
labor-advocacy group claims that supervisors coached workers to lie to your inspectors
about conditions and threatened workers with time in makeshift jails without food if they
talked. How do you handle this situation? Do you help the factories improve conditions,
withdraw your business, or do nothing? How might your actions affect your relations
with the factory owners and your ability to do business in the country?
A: It’s extremely important that your company be thorough and transparent throughout
the monitoring process. The monitoring process could seem more impartial by
contracting an independent organization to conduct the investigation, rather than employ
someone with whom the company might be suspected as having social or political
connections. You could also have the report made public to all parties simultaneously to
eliminate the perception of the report being adjusted. To implement and maintain rapid,
sustainable improvements: monitor and verify codes of conduct regarding labor practices,
disseminate information to workers explaining their rights, appeal to government
agencies on effective ways to raise labor standards, explain how their reputation as being
“good guys” in the labor standards arena can create a useful marketing tool and
opportunities for firms and countries by differentiating themselves when competing in the
apparel export market.
3. Q: You are the mayor of a midsize U.S. town on the Colorado River between Mexico and
Arizona. Pollution from factories on both sides of the U.S.–Mexico border has
contaminated your community and the Colorado River. The North American Free Trade
Agreement (NAFTA) requires the U.S. government to pay for environmental cleanup in
the United States. Yet critics accuse both the U.S. and Mexican governments of not doing
enough to safeguard the environment along the border. As mayor, what can you do to
persuade business leaders and governmental officials to adhere to environmental

standards? Which body do you think presents your biggest challenge: the Arizona state
legislature, the U.S. government, or the Mexican government? What can business leaders
do if governments ignore their environmental responsibilities?
A: As mayor, you must fight for your local community. Dealing with the Arizona and
U.S. governments should be easier than negotiating with Mexican officials. Another
strategy would be to get the media involved in order to put pressure on business. Because
this dilemma involves ethical and social responsibilities regarding the environment, this
question might quickly polarize the discussion. Students should delineate between legal
and ethical responsibilities in their answers, and consider the environment’s impact on
the living standards of a company’s workforce. They should also explore briefly the
impact of regulation on business performance and the issue of having the right amount of
regulation versus over-regulation.

-
Practicing International Management Case
MTV Goes Global with a Local Beat
1. Chapter 1 - IO Interactive
1. Some say globalization is homogenizing the attitudes and spending habits of

young consumers worldwide. As one journalist puts it, “It may still be
conventional wisdom to ‘think globally and act locally,’ but in the youth market,
it is increasingly a case of one size fits all.” Do you agree or disagree? Why or
why not?
A: Although attitudes and spending habits may be converging, there are still some
aspects of video games to which viewers cannot relate for cultural reasons. For
example, gamers may be presented with a scenario where young people are
‘selected’ and then given the difficult task of putting their characters through
basic training exercises for the military. While this will not raise eyebrows in
some countries such as the United States, it might not fit so well with gamers in
Japan. For historical reasons, Japan has a very small military force of its own.
Japanese viewers would perhaps rather play a game where young people are
asked to learn what it is like to be a sumo wrestler. In Spain, viewers might want
to experiment with turning their characters into a bullfighter, and so on. These
types of differences are the key to responding to the needs of local audiences.
However, global consumer products are likely easier to market on a global basis
with a global theme.
2. Some critics say that although video games are designed to have a broad appeal,
they do reflect a “Westernized” version of life. Is there a danger that teens
exposed to large doses of video games will identify less with the cultures of their
own societies and that teens in developing countries will want a Western lifestyle
and goods they cannot afford?
A: The debate over the impact of so-called Westernized versions of various media
which are exported to both developed and developing cultures will likely never
cease. Although global video games often depict the darker aspects of the
developed world, they also have a humorous and entertaining value. There is also
an argument that the availability, low price and mass distribution of global video
games made by well-funded international groups can mean local made versions
can lose out to their better funded rivals.
With regards to desires among young people for more “Western” goods, this is a
sensitive issue involving elements of economic development and materialism. It
could be argued that it is not ethical to show video games that depict wealthy
lifestyles in developing countries because they promote discontent in those
markets and promote materialism. However, there are wealthy and poor people in
every nation and, following this line of reasoning, one could argue that such

programs should not be aired in the Western market either—incidentally, some

groups do make this argument.
3. It is now the norm for game developers to relocate to work anywhere in the
world. Can you think of other social trends and technological innovations that
have helped companies to think more globally?
A: Internet retailers such as Amazon make online books in English available
globally. However, Amazon also has online services to accommodate those in
French- and Spanish-speaking countries. This is a localized approach. The French
version of Amazon can further localize its selections by offering books tailored to
specific Francophone regions such as Africa and Canada, not just France. Clearly,
Amazon can continue to localize by selecting other languages where significant
numbers of readers are.
Technology is also driving down the cost of travel and communication, while in
turn the reductions in trade barriers and regulations are making it easier to export
skills as well as products around the world.
4. Advances in technology often spur evolution in the entertainment industry. How

might new products and services, such as the iPhone and YouTube, affect
entertainment in years to come?
A: There will be innovations to these technologies and future technologies, as one
innovation leads to another. The entertainment industries will no doubt continue
along with further miniaturization in medium and mobility in delivery.Q: Some
people outside the United States say teens exposed to large doses of U.S. youth culture on
MTV will identify less with their own societies and teens in developing countries will
want Western goods they cannot afford. MTV’s response: “It’s just fun, it’s only TV,”
says one executive. What do you think? Are there dangers in broadcasting U.S.-style
programs and ads to developing countries?
A: The debate over the impact of U.S. programming beamed to other developed and
developing cultures will likely never cease. The U.S. television program The Simpsons,
which depicts a rather unflattering U.S. family, is seen in more than 90 countries. Such a
program is unlikely to want young people outside the United States to grow up to be like
Homer Simpson. Generally, this program and others, such as Married with Children, the
Jerry Springer Show, and Baywatch, are watched around the world for a glimpse into the
humorous or darker aspects of U.S. culture. On the other hand, local programming can
lose out to the U.S. programming if it is not as entertaining.
As regards desires among young people for more “Western” goods, this is a sensitive
issue involving elements of economic development and materialism. It could be argued
that it is not ethical to show U.S. programs that depict wealthy lifestyles in developing
countries because they promote discontent in those markets and promote materialism.
However, there are wealthy and poor people in every nation and, following this line of
reasoning, one could argue that such programs should not be aired in the U.S. market
either—incidentally, some groups do make this argument.
2. Q: Digital compression technology made it possible for MTV to program over a

global network. Can you think of other technological innovations that have helped
companies to think globally and act locally?

-
A: Internet retailers such as Amazon make online books in English available globally.
However, Amazon also has online service to accommodate those in French- and Spanish-
speaking countries. This is a localized approach. The French version of Amazon can
further localize its selections by offering books tailored to specific Francophone regions
such as Africa and Canada, not just France. Clearly, Amazon can continue to localize by
selecting other languages where significant numbers of readers are.

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CHAPTER 1

Copyright © 2014 Pearson Education, Inc.

Exploits Workers in Developing Nations

- Copyright © 2014 Pearson Education, Inc.

2. KEY PLAYERS IN INTERNATIONAL BUSINESS

B. Entrepreneurs and Small Businesses

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a. Developed markets are solidly middle class and people can

4. FORCES DRIVING GLOBALIZATION

A. Falling Barriers to Trade and Investment

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5. UNTANGLING THE GLOBALIZATION DEBATE

A. Today’s Globalization in Context

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B. Introduction to the Debate

C. Globalization’s Impact on Jobs and Wages

D. Globalization’s Impact on Labor, the Environment, and Markets

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F. Globalization’s Influence on Cultures

G. Globalization and National Sovereignty

6. WHY INTERNATIONAL BUSINESS IS SPECIAL

A. The Global Business Environment

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3. The international business environment influences how business is

B. The Road Ahead for International Business

7. BOTTOM LINE FOR BUSINESS

A. Harnessing Globalization’s Benefits

C. Wages and Jobs

D. The Policy Agenda

Quick Study Questions

- Copyright © 2014 Pearson Education, Inc.

2. Q: Explain how e-business (e-commerce) affects international business.

3. Q: What types of companies are involved in international business?

1. Q: Define globalization. How does denationalization differ from internationalization?

3. Q: How might a company benefit from the globalization of production?

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2. Q: How does technological innovation propel globalization?

3. Q: What factors make some countries more globalized than others?

3. Q: What are the main purposes of the International Monetary Fund?

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3. Q: Why do critics say globalization adversely affects labor standards, environmental

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1. Q: Identify the four main components of the global business environment.

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Copyright © 2014 Pearson Education, Inc.download full file at http://testbankinstant.com

4. This item can be assigned as a Discussion Question in MyManagementLab. Student

- Copyright © 2014 Pearson Education, Inc.

Take It to the Web

We invite you to visit MyManagementLab.com, an innovative set of course-management

Copyright © 2014 Pearson Education, Inc.download full file at http://testbankinstant.com

- Copyright © 2014 Pearson Education, Inc.

Copyright © 2014 Pearson Education, Inc.download full file at http://testbankinstant.com

- Copyright © 2014 Pearson Education, Inc.

MTV Goes Global with a Local Beat

1. Some say globalization is homogenizing the attitudes and spending habits of

Copyright © 2014 Pearson Education, Inc.download full file at http://testbankinstant.com

programs should not be aired in the Western market either—incidentally, some

4. Advances in technology often spur evolution in the entertainment industry. How

2. Q: Digital compression technology made it possible for MTV to program over a

- Copyright © 2014 Pearson Education, Inc.

Copyright © 2014 Pearson Education, Inc.download full file at http://testbankinstant.com

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