International Business: Competing in

the Global Marketplace 13e

By Charles W.L. HILL

Instructor: Assistant Professor Rafiullah Noori

BBA Dept. Faculty of Economics, Kabul University
Chapter 1

Globalization
 Learning Objectives
1. Understand what is meant by the term globalization.
2. Recognize the main drivers of globalization.
3. Describe the changing nature of the global economy.
4. Explain the main arguments in the debate over the
impact of globalization.
5. Understanding how the process of globalization is
creating and challenges for management practice.

1-3
 International Business
 International Business refers to all commercial
activities—such as trade, investments, logistics, and
production—that take place across national borders.
 It involves transactions between businesses,
governments, and individuals from different
countries.
 The primary goal of international business is to expand
markets, access resources, and increase profitability by
operating in a global environment.
 Imports
 Exports

1-4
Key players in International
Business

 International companies
 Multinational companies
 Firms from emerging markets, such as (Brazil,
China, India, South Africa…
 Small and medium-sized companies

1-5
 Key Differences
Feature International Company Multinational Company (MNC)
Key Differences

Exports products/services Has physical presence

Operations abroad but remains based in (subsidiaries, factories, etc.) in
home country multiple countries

Centralized, managed from Decentralized, adapts to local

Market Strategy
home country markets

Limited to exports and Invests in foreign markets

Investment
partnerships through subsidiaries

A small software company

Example Apple, Toyota, Coca-Cola
selling its product globally

1-6
What is Globalization?

Introduction:
 Over the past five decades, a fundamental shifts has
been occurring in the world economy.
 The world is moving away from self-contained
national economies toward an interdependent,
integrated global economic system.
 The process by which this transformation is
occurring is commonly referred to as globalization.

Cont.…
1-7
 What is Globalization?...
 At the same time, recent political events have raised
some questions about the inevitability of the
globalization process. For instance;
 The exist of UK from the European Union;
 The renegotiation of the North American Free Trade
Agreement (NAFTA) by Trump Administration;
 Trade disputes between US and Many of its trading
partners, most notably China have all contributed to
uncertainty about the future of globalization.
 The opening case illustrates how one company, Apple
has taken advantage of globalization.
Cont.…
1-8
What is Globalization?...
 Globalization refers to the shift toward a more
integrated and interdependent world economy.
 Or the increasing interconnection of world economies,
cultures, and businesses through trade, investment,
and technology.
 Significance: Increasing integration of economies,
cultures, and societies due to trade, investment,
technology, and information exchange.
 Globalization has several facets; globalization of
markets and the globalization of production.

1-9
 Globalization of Markets
 Definition: It refers to the merging of distinct and
separate national markets into a single huge global
marketplace.
• Falling trade & investment barriers make it easier to sell
globally.
• Consumers’ tastes and preferences in different nations are
converging on some global norm, help to create a global
market.
• Firms promote the trend by offering the same basic
products worldwide.
 Example: Globalization of the automobile market—cars
produced in one country are sold worldwide.

1-10
Globalization of Markets…

 Benefits of Globalization of Markets

 Reduces marketing costs
 Creates new market opportunities
 Levels uneven income streams
 Local buyers’ needs
 Global sustainability

1-11
 Globalization of Production
 It refers to the sourcing from locations around the globe to
take advantage of national differences in the cost and
quality of factors of production like land, labor, energy, and
capital.
 Or the worldwide sourcing of goods and services.
 By doing this companies can;
• Lower their overall cost structure or

• Improve the quality or functionality of their product offering.

 Example: A smartphone designed in the U.S. but

assembled in China using components from multiple
countries.

1-12
 Globalization of Production…

 Benefits of Globalization of
Production
 Access lower-cost workers
 Access technical expertise
 Access production inputs

1-13
 What is Globalization?
An Example of Globalization
 Globalization influences daily life and business activities.
o Example: A medical doctor’s morning routine reflects global integration.

 Automobile Industry:
o SUV designed in Germany, assembled in Germany & Slovakia.
o Components sourced worldwide (e.g., Korean steel, Malaysian rubber).
 Energy Sector:
o Gasoline from a British-Dutch company, refined from African oil by a French company,
transported by a Greek shipping line.
 Technology Industry:
o Apple iPhone: Designed in California, assembled in China.
o Components from Japan, Europe, South Korea, and the U.S.
 Financial Markets:
o Lenovo, a Chinese multinational, operates in the U.S. and trades on the NYSE.
 Conclusion: Globalization connects industries and nations, shaping economies and everyday activities.

1-14
 The Impact of Global Production on
Cost and Efficiency

 Cost Benefits: Companies reduce production costs by

sourcing cheaper labor and raw materials from other
countries.
 Efficiency Gains: Streamlining supply chains and
leveraging economies of scale.
 Outsourcing vs. Offshoring
 Outsourcing: Contracting out certain business functions
(e.g., customer service, IT) to third-party providers.
 Offshoring: Moving business operations (e.g.,
manufacturing) to another country for cost advantages.

1-15
 Pros and Cons of Globalization

Pros of Globalization:
• Economic Growth: Increased trade & investment leads to higher global
GDP.
• Market Expansion: Companies access new, larger markets.
• Innovation: Greater collaboration leads to faster technological
advancements.
• Job Creation: New opportunities in emerging markets.
• Cultural Exchange: sharing of ideas and traditions.
Cons of Globalization:
• Job Losses: Outsourcing may result in job loss in higher-cost countries.
• Income Inequality: Benefits of globalization are often unevenly
distributed; widening gap between rich and poor.
• Cultural Erosion (Homogenization): Loss of local cultures and
traditions.
• Exploitation of labor: poor working conditions in developing countries.

1-16
 The Emergence of Global Institution

Why Do We Need Global Institutions?

 Global institutions are needed to
• Help manage, regulate, and oversee the global
marketplace, and to
• Promote the establishment of multinational treaties to
govern the global business system.
• Over the past 75 years, a number of important global
institutions have been created to help perform these
functions, including the:
 General Agreement on Tariffs and Trade (GATT)
 World Trade Organization (WTO)
 International Monetary Fund (IMF)
 World Bank
 United Nations (UN)
 G20, etc.

1-17
 The Emergence of Global Institution…

 General Agreement on Tariffs and Trade (GATT) is a

treaty designed to promote free trade by reducing tariffs and
nontariff barriers to international trade.
 WTO is the successor of GATT.
 World Trade Organization (WTO) is an international
organization that enforces the rules of international trade.
 The primary responsibilities of WTO:
 Overseeing the global trading system to ensure nation-
states adhere to established trade agreements and
regulations.
 Facilitating the establishment of additional
multinational agreements among WTO members state.

1-18
The Emergence of Global Institution…

 Three main goals of WTO are:

 Facilitating trade liberalization,
 promoting market access negotiations,
and
 resolving disputes among member states.
 The WTO-related topic will be discussed in more
detail in Chapter 7.

1-19
 The Emergence of Global Institution…
 The World Bank was set up to promote economic
development.
 It focuses on making low-interest loans to cash-strapped
governments in poor nations that wish to undertake significant
infrastructure investments (e.g. buildings dams and roads).
 The International Monetary Fund (IMF) was established to
maintain order in the international monetary system.
 The IMF is often seen as a lender of last resort to nation-states
whose economies are in turmoil and whose currencies are losing
value against those of other nations.
 Both institutions created in 1944 by 44 nations.
 The IMF-related topic will be discussed in more detail in Chapter 11.

1-20
 The Emergence of Global Institution…

 United Nations (UN): was established October 24, 1945, by 51

countries committed to preserving peace through international
cooperation and collective security.
 The UN has four purposes:
 to maintain international peace and security,
 to develop friendly relations among nations,
 to cooperate in solving international problems and in promoting
respect for human rights, and
 To be a center for harmonizing the actions of nations.
 European Union
 North American Free Trade Agreement (NAFTA)

1-21
The Emergence of Global Institution…

 Group of Twenty (G20)

 Established in 1999,
 It comprises the
o finance ministers and central bank governors of the 19 largest
economies in the world,
o plus representatives from the European Union and the European
Central Bank.
 Collectively, the G20 represents 90 percent of global GDP and 80
percent of international global trade.
 Originally established to formulate a coordinated policy response
to financial crises in developing nations, in 2008 and 2009.

1-22
 Drivers of Globalization

 Economic Drivers: Liberalization of trade,

reduction in tariffs and barriers, growth of
multinational corporations (MNCs).
 Political Drivers: International trade agreements,
stable political environments in emerging markets.
 Technological Drivers: Advancements in
transportation and communication technologies
(e.g., air travel, the internet)

1-23
 Drivers of Globalization…

 Declining barriers to the free flow of goods,

services, and capital;
• average tariffs are now at just 2-3%
• more favorable environment for FDI
 In 1990, FDI was 244 B$ and by 2018, 1.3 T$
• facilitates global production
 Technological change;
• telecommunications
• the Internet and World Wide Web
• transportation technology

1-25
 Drivers of Globalization…
Declining Trade And Investment Barriers
Average Tariff Rates on Manufactured Products as Percent of Value

Sources: The 1913–1990 data are from “Who Wants to Be a Giant?” The Economist: A Survey of the Multinationals, June 24, 1995, pp. 3–4. The 2018
data are from the World Development Indicators, World Bank.

1-26
 The Changing Demographics
of the Global Economy
 Globalization has driven significant demographic changes
in the global economy over past decades.
 Historical Perspective (50 years ago):
 U.S. Dominance – The U.S. led the world economy and global
trade.
 Foreign Direct Investment (FDI) – The U.S. dominated global
FDI.
 Multinational Corporations – Large U.S. firms dominated
international business.
 Communist Economies – Half of the world was inaccessible to
Western businesses.
 Current Scenario: All four of these facts have changed rapidly due to
globalization and economic shifts.

1-30
 THE CHANGING WORLD OUTPUT
AND WORLD TRADE PICTURE

 In 1960, the U.S. accounted for over 38.3% of world

output, but by 2018, the U.S. accounted for just 24%;
China now 15.2 % of the world output.
 A similar trend occurred in other developed countries.
 In contrast, the share of world output accounted for by
developing nations is rising;
 Expected to account for more than 60% of world
economic activity by 2020.

1-31
The Changing Demographics of
World GDP and Trade

1-32
 THE CHANGING FOREIGN
DIRECT INVESTMENT PICTURE

 In the 1960s, U.S. firms accounted for about 66.3 % of

worldwide FDI flows.
 British firms were second, accounting for 10.5 percent,
while Japanese firms were a distant eighth, with only 2
percent.
 Today, the United States accounts for less than one-fifth
of worldwide FDI flows;
 Other developed countries have followed a similar pattern.
 In contrast, the share of FDI accounted for by
developing countries has risen;
 Developing countries, especially China, have also become
popular destinations for FDI.

1-33
The Changing Nature of the
Multinational Enterprise?
 Multinational enterprise (MNE) - any business that has
productive activities in two or more countries.
 In the 1960s, global business activity was dominated by
large U.S. multinational corporations.
 U.S. firms accounting for about two-thirds of foreign direct
investment during the 1960s.
 In the last 50 years, two notable trends in the
demographics of the multinational enterprise have been
occurred; (1) the rise of non-U.S. multinationals and (2)
the growth of mini-multinationals.

1-36
 The Changing Nature of the
Multinational Enterprise?...
1. Rise of Non-U.S. Multinationals:
 In the past, U.S. firms dominated global business.
 U.S. firms accounting for about two-thirds of foreign direct
investment during the 1960s.
 Over the last 50 years, companies from Europe, Japan, South
Korea, China, and emerging markets have grown significantly.
 Examples: Toyota (Japan), Samsung (South Korea), Huawei
(China), Tata Group (India), and Volkswagen (Germany).
 Factors contributing to this trend:
 Economic development in emerging markets.
 Globalization and trade liberalization.
 Technological advancements enabling global reach.
1-37
The Changing Nature of the
Multinational Enterprise?...

1-38
 What Is A
Multinational Enterprise?...
2. Growth of Mini-Multinationals
 Small and medium-sized enterprises (SMEs) increasingly
operate internationally.
 Enabled by digitalization, e-commerce, and global supply
chains.
 Examples: Startups and niche businesses expanding into
global markets via the internet.
 Benefits:
 Lower operational costs due to outsourcing and digital platforms.
 Access to international markets without large-scale investments.
 Flexibility in adapting to market changes.

1-39
 The Changing World Order

 Many former Communist nations in Europe and

Asia are now committed to democratic politics and
free market economies;

 creates new opportunities for international businesses.

 but, there are signs of growing unrest and totalitarian

tendencies in some countries.

1-40
Post-Communist
Transformations

 ✅ Collapse of communist governments.

 ✅ Shift toward democracy & free-market
economics.
 ✅ New opportunities for international business.
 ⚠️ Risks: Unstable economies, authoritarian
tendencies (e.g., Russia).

1-41
 China’s Economic Evolution
 Suppressed pro-democracy movement (Tiananmen, 1989)
 Progressive free-market reforms
 GDP per capita could reach ~$23,000 by 2030
 High foreign direct investment (FDI) growth: $2B (1983) →
$250B (Today).
 On the other hand, China’s new firms are proving to be very
capable competitors, and they could take global market share
away from Western and Japanese enterprises.
 Opportunities: Large untapped market
 ⚠️ Threats: Competitive Chinese firms

1-42
Latin America's Economic
Shifts
 ✅ Historical dictatorship & economic
mismanagement
 ✅ Recent trends: Lower debt/inflation,
privatization, openness to FDI
 ✅ Brazil, Mexico, Chile leading reforms
 ⚠️ Risks: Reversal trends (Venezuela, Bolivia,
Ecuador) with state intervention

1-43
 GLOBAL ECONOMY OF THE
TWENTY-FIRST CENTURY
 The past quarter century has seen rapid changes in the global
economy.
 Not withstanding recent developments such as;
o the higher tariffs introduced by the Trump Administration in the
United States,
o barriers to the free flow of goods, services, and
o capital have been coming down.
There are signs of a retreat from liberal economic ideology
in Russia.
• Globalization brings risks;
 the financial crisis that swept through South East Asia in
the late 1990s.
 the recent financial crisis that started in the U.S. in 2007-
2008, and moved around the world.

1-44
The Globalization Debate
Is an Interdependent Global Economy A Good Thing?

 Supporters believe that increased trade and

cross-border investment will result;
 lower prices for goods and services,
 stimulate economic growth,
 higher consumer income, and create jobs.
 Critics worry that globalization will cause;
 Job losses in industries under attack from foreign
competitors,
 Downward pressure on the wage rates of unskilled
workers,
 Environmental degradation, and
 The cultural imperialism of global media and MNEs.

1-45
 Globalization, Jobs, and Income
📌 Key Concerns:
 - Globalization leads to job losses in wealthy nations due to
outsourcing.
 - Trade barriers falling enable firms to relocate to lower-wage
countries.
 - Example: U.S. textile jobs moved to Honduras, reducing
unskilled wages.
📌 Impact on Wages:
 - Global labor supply increase has pressured wages in advanced
economies.
 - Outsourcing of services (e.g., call centers, IT) has intensified
concerns.

1-46
 Globalization, Jobs, and Income…

Supporters' Perspective:
 Comparative advantage increases efficiency.
 Free trade will result in countries specializing in the production of
those goods and services that they can produce most efficiently.
 Lower consumer prices through imports from low-wage
countries.
 Job creation: Rising incomes in developing nations drive demand
for U.S. goods.
Services & Outsourcing:
 Outsourcing reduces costs, making products more affordable.
 Increased global demand for U.S. goods helps create domestic
jobs.

1-47
 Addressing the Wage Gap
📌 Key Findings:
 - Labor's share of income declined, especially for unskilled
workers.
 - Income inequality widened, but real wages have generally
increased.
 - Globalization critics blame job migration; supporters cite
technology’s role.
📌 Long-Term Outlook:
 - Investing in education can help unskilled workers transition to
better jobs.
 - Wage gaps between developed and developing nations are
expected to narrow.

1-48
 How Does The Global
Marketplace Affect Managers?
Managing an international business differs from
managing a domestic business because:
 countries are different,
 the range of problems confronted in an international
business is wider and the problems more complex than
those in a domestic business;
 firms have to find ways to work within the limits
imposed by government intervention in the
international trade and investment system;
 international transactions involve converting money
into different currencies.

1-49
Globalization, Labor Policies,
and the Environment

The Impact of Globalization on Labor and

Environmental Policies
 Concerns about Free Trade: Critics argue that
globalization incentivizes firms from advanced
nations to relocate manufacturing to less developed
countries with weaker labor and environmental
regulations.
 Cost Considerations: Stricter labor and
environmental standards increase production costs,
potentially placing firms in developed nations at a
competitive disadvantage.

1-50
 Globalization, Labor Policies,
and the Environment…
Potential Negative Effects:
 Increased pollution due to lax environmental laws.
 Exploitation of labor, including poor working conditions and
lower wages.
 Examples: NAFTA critics feared U.S. firms would relocate to
Mexico for looser regulations.
Counterarguments by Free Trade Supporters:
 Economic growth leads to stronger labor and environmental laws
over time.
 Higher income levels correlate with demands for stricter
regulations.
 Developed nations have seen pollution levels decline despite
economic expansion.
1-51
 Globalization, Labor Policies,
and the Environment…
 International Agreements on Climate Change:
 1992 Earth Summit (Rio de Janeiro)
 1997 Kyoto Protocol
 2009 Copenhagen Agreement
 2015 Paris Agreement (U.S. withdrew in 2017 under
Trump administration)
 The Role of Trade Agreements:
 NAFTA included environmental and labor side
agreements.
 Some firms prioritize ethical labor and environmental
practices despite cost concerns.

1-53
 Globalization and National
Sovereignty
 Globalization has led to increased economic
interdependence.
 Critics argue that globalization shifts economic power
from national governments to supranational organizations
(e.g., WTO, EU, UN).
 Perceived threat to national sovereignty as unelected
bureaucrats influence policymaking.
Criticism of Supranational Organizations:
 WTO is often criticized for undermining national
decision-making.
 WTO decisions override local and national policies,
impacting democracy.
Cont.…
1-54
Globalization and National
Sovereignty…

Support for Supranational Organizations:

 Economists and politicians argue that these
organizations serve collective interests.
 Power of organizations like the WTO is granted by
member states.
 Their effectiveness depends on member state
cooperation.
 If they fail to serve national interests, countries can
withdraw support.

1-55
 GLOBALIZATION AND THE
WORLD’S POOR
 Growing Gap Between Rich and Poor Nations
o In 1870, the average income in the world’s 17 richest
nations was 2.4 times higher than in other countries.
o By 1990, this gap had expanded to 4.5 times.
o In 2019, the OECD countries (34 rich nations) had an
average GNI per capita of over $40,000, while the 40
poorest countries had a GNI under $1,000—40 times
lower.
o Critics argue that globalization has worsened the
income inequality.

1-56
 GLOBALIZATION AND THE
WORLD’S POOR…
Challenges Faced by the Poorest Nations
 Stagnation and Underdevelopment
 Some poor countries suffer from factors unrelated to free
trade, including:
o Totalitarian governments
o Corruption
o Weak property rights
o Civil wars
 Nations like Afghanistan, Cuba, Sudan and Zimbabwe
have faced prolonged economic stagnation.
 Rapid population growth further exacerbates their
economic challenges.

1-57
 GLOBALIZATION AND THE
WORLD’S POOR…
 Pathways to Poverty Reduction
 Debt Relief and Trade Expansion
 Over 40 "highly indebted poorer countries" (HIPCs) have
unsustainable debt, preventing investment in essential
services like healthcare and education.
 Debt relief, backed by global movements and institutions, is
critical for sustainable growth.
 Easing trade barriers (such as agricultural tariffs) could
boost economic welfare by $128 billion, with $30 billion
benefiting poor nations.
 Despite progress, 3.4 billion people still live on less than
$5.50 a day, showing the need for continued efforts.

1-58
 Managing in the Global
Marketplace
 Globalization is creating both opportunities and challenges for
management practice.
 An international business is any firm involved in international
trade or investment, including exporting and importing.
 As the world becomes more integrated, firms of all sizes are
becoming international businesses.
 Managers in international business must recognize that managing
across borders differs significantly from managing in a purely
domestic setting due to:
o Cultural differences,
o Political, economic, and legal system differences,
o Levels of economic development

1-59
 Managing in the Global
Marketplace…
Challenges in Managing International Business
 Key differences between international and domestic business:
o Country-specific practices: Marketing, management, and strategies
must vary by country.
o Increased complexity: Additional issues such as production location,
ethics, and global coordination.
o Government interventions: Navigating trade and investment
restrictions.
o Currency exchange rates: Managing risks related to currency
fluctuations.
 Managers must develop strategies for dealing with these
challenges, including selecting the best entry modes and
developing policies to manage government regulations and
currency issues.

1-60