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Airbnb: Going for Gold – Tokyo 2020

 

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Task:

  1. Read the attached case file: AIRBNB: GOING FOR GOLD – TOKYO 2020
  2. Follow the attached outline and guidelines for the case write-up shown in the syllabus (Pg. 10/11) and write a case analysis. Please develop your paper based on those guidelines. Please use different section headings based on the guidelines (for e.g. application of key themes, recommendations, etc.).
  3. Read attached powerpoints of the Chapter 1-3 to find key themes

Submission Instructions:

  • Three page limit.
  • Follow current APA style, if using references
  • Complete and submit the assignment here by 9:00 PM ET Sunday.

ASSIGNMENT DESCRIPTIONS:

Case Analysis (max 3 pages):

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o The analysis write ups/summary should include the following components:

a) Overview of major issues,

b) Applications of key themes from the textbook into the case

c) Your analysis, including assumptions (if needed)

d) Recommendations and action plan

e) References (exclusive of the page limit)

f) appendix (if needed).

o Formatting each component as subheadings is recommended in your case written assignment.
o For (a) overview of major issues, describe the challenges/problems/issues outlined in the case.
This section should be clear and succinct. You can make use of bullet points to describe the issues.
o For (b) applications of key themes, elaborate what you have learned from the assigned case by
directly relating/connecting the case to concepts and themes described in the different chapters.
o For (c), your analysis should include your thoughts about the case in your own words. In this
section, you should put down your own thoughts and opinions about the issues/challenges
described in the case. However, your thoughts/opinions should be based on textbook concepts and
arguments. In this section, you can also bring in outside information (such as the latest news,
articles, references to any calculations, charts, diagrams or graphs*). Also, be sure to answer any
questions that are assigned at the end of each case. You can also use these questions as a guide to
develop the other sections of your case summary/write-up.
In the analysis section, you can also write about the company’s* internal strengths, weaknesses,
and external threat and opportunities (SWOT).
*the company which is the focus of the case.

o For (d) recommendations, you need to provide the course of action that you think can be taken to
address the issues/problems outlined in the case. Your recommendations need to be based on your
analysis (section c) of the case.
o For (e) references, properly cite all the sources of information you have used throughout the case.
o For (f) appendix, include any calculations, charts, diagrams or graphs. The appendix
should help to further support your analysis—not simply be “tacked on.” It should
serve a purpose. All calculations and figures must be clearly labeled and referred to in
the body text of the case.

o The summary paper should be no longer than 3 pages max. Please use MS word format ( ).

* All calculations, charts, diagrams, graphs or figures must be clearly labeled and
inserted in the appendix.

Chapter 1

Globalization

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.  No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

1

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

©McGraw-Hill Education.

2

What Is Globalization? 1 of 3
Learning Objective 1-1 Understand what is meant by the term globalization.
The Globalization of Markets
Falling barriers to cross-border trade and investment
Global tastes
Benefits small and large companies
Significant differences between national markets
Products that serve universal needs are global
Competitors may not change among nations

©McGraw-Hill Education.
3
Globalization refers to the shift toward a more integrated and interdependent world economy
The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace.

What Is Globalization? 2 of 3
The Globalization of Production
Sourcing goods to take advantage of differences in cost and quality of factors of production
Early outsourcing was confined to manufacturing
Technology now used for outsourcing

©McGraw-Hill Education.
4
The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital).

What Is Globalization? 3 of 3
The Globalization of Production continued
Robert Reich and “global products”
Impediments
Formal and informal barriers to trade
Transportation costs
Political and economic risk
Coordination

©McGraw-Hill Education.
5

The Emergence of Global Institutions 1 of 6
General Agreement on Tariffs and Trade (GATT)
World Trade Organization
International Monetary Fund
The World Bank
The United Nations

©McGraw-Hill Education.
General Agreement on Tariffs and Trade (GATT) International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.
6

The Emergence of Global Institutions 2 of 6
The World Trade Organization
Polices the world trading system
Ensures nation-states adhere to the rules
Facilitates multinational agreements among members
164 nations account for 98 percent of world trade

©McGraw-Hill Education.
World Trade Organization The organization that succeeded GATT as a result of the successful completion of the Uruguay Round of GATT negotiations.
7

The Emergence of Global Institutions 3 of 6
The International Monetary Fund
Established to maintain order in the international monetary system
Lender of last resort
Requires nation-states to adopt specific economic policies aimed at returning their economies to stability and growth

©McGraw-Hill Education.
The International Monetary Fund International institution set up to maintain order in the international monetary system.
8

The Emergence of Global Institutions 4 of 6
The World Bank
Promotes economic development
Focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments

©McGraw-Hill Education.
World Bank International institution set up to promote general economic development in the world’s poorer nations.
9

The Emergence of Global Institutions 5 of 6
The United Nations
Peace through international cooperation and collective security
193 countries
UN Charter – four basic purposes
Maintain international peace and security
Develop friendly relations among nations
Cooperate in solving international problems and in promoting respect for human rights
Be a center for harmonizing the actions of nations

©McGraw-Hill Education.
United Nations (UN) An international organization made up of 193 countries headquartered in New York City, formed in 1945 to promote peace, security, and cooperation.
10

The Emergence of Global Institutions 6 of 6
Group of Twenty (G20)
Finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank
Represents 90 percent of global GDP and 80 percent of international global trade

©McGraw-Hill Education.
Group of Twenty (G20)
Established in 1999, the G20 comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank.
11

Drivers of Globalization 1 of 4
Learning Objective 1-2 Recognize the main drivers of globalization.
Declining Trade and Investment Barriers
1920s-30s: Barriers to international trade and foreign direct investment
High tariffs resulted in retaliatory trade policies
GATT lowered barriers
Uruguay Round
Established World Trade Organization (WTO)

©McGraw-Hill Education.
International trade occurs when a firm exports goods or services to consumers in another country.
Foreign direct investment occurs when a firm invests resources in business activities outside its home country.
12

Drivers of Globalization 2 of 4
Knowledge Society and Trade Agreements
The value of world trade in merchandised goods has grown consistently faster than the growth rate in the world economy since 1950.
Trade across country borders is 2.6 times higher than world production.
Knowledge society has produced more informed consumers, driving demand.
Removal of restrictions to FDI
More trade agreements

©McGraw-Hill Education.
Figure 1.1 Value of world trade, world production, number of regional trade agreements in force, and world population from 1960 to 2020 (index 1960 = 100).

Jump to long description in appendix
Sources: World Bank, 2017; World Trade Organization, 2017; United Nations, 2017.

©McGraw-Hill Education.
Figure 1.2 Comparisons of world trade and world population; world trade and number of regional trade agreements; world population and world production; and world population and world trade (index 1960 = 100).

Jump to long description in appendix
Sources: World Bank, 2017; World Trade Organization, 2017; United Nations, 2017.

©McGraw-Hill Education.
Drivers of Globalization 3 of 4
Role of Technological Change
Communications
Development of the microprocessor
Moore’s Law
Internet of things
Half the world’s population uses the Internet
Global e-commerce sales over $2 trillion
The Internet is an equalizer

©McGraw-Hill Education.
Moore’s law predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).
16

Drivers of Globalization 4 of 4
Role of Technological Change continued
Transportation technology
Commercial jet travel, superfreighters, and containerization
Implications for the globalization of production
Has become more economical
Worldwide communications network
Implications for the globalization of markets
Convergence of consumer tastes and preferences

©McGraw-Hill Education.

17

The Changing Demographics of the
Global Economy 1 of 6
Learning Objective 1-3 Describe the changing nature of the global economy.
The Changing World Output and World Trade Picture
U.S. has experienced a relative decline reflecting the faster economic growth of several other economies
China and BRIC countries growing more rapidly
Developing nations may account for more than 60 percent of world economic activity by 2025

©McGraw-Hill Education.
The Changing Demographics of the
Global Economy 2 of 6
The Changing Foreign Direct Investment Picture
Non-U.S. firms are increasingly investing across national borders
Desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets

©McGraw-Hill Education.
stock of foreign direct investment (FDI) refers to the total cumulative value of foreign investments as a percentage of the country’s GDP.
19

Figure 1.3 Share of FDI stock outward as a percentage of GDP.

Sources: OECD data 2017, FDI stocks.

©McGraw-Hill Education.
Figure 1.3 shows how the stock of foreign direct investment by the United States, China, Japan, United Kingdom, European Union countries, Developed Economies, and the World changed between 1995 and today.
20

Figure 1.4 FDI inflows (in millions of dollars)

Jump to long description in appendix
Source: United Nations Conference on Trade and Development, World Investment Report 2017. (Data for 2018–2020 are forecast.)

©McGraw-Hill Education.

21

The Changing Demographics of the
Global Economy 3 of 6
The Changing Nature of the Multinational Enterprise
Non-U.S. multinationals
In 2003, 38.8 percent of the world’s 2000 largest multinationals were U.S. firms
By 2017, 27 percent of the top 2000 global firms are now U.S. multinationals, a drop of 236 firms

©McGraw-Hill Education.
A multinational enterprise (MNE) is any business that has productive activities in two or more countries.
22

The Changing Demographics of the
Global Economy 4 of 6
The Changing Nature of the Multinational Enterprise continued
The rise of mini-multinationals
Medium- and small-sized businesses
Internet is lowering barriers

©McGraw-Hill Education.

23

The Changing Demographics of the
Global Economy 5 of 6
The Changing World Order
Former communist countries present export and investment opportunities
Signs of growing unrest and totalitarianism
China moving to industrial superpower
Latin America debt and inflation are down, more private investors, expanding economies

©McGraw-Hill Education.

24

The Changing Demographics of the
Global Economy 6 of 6
Global Economy of the Twenty-First Century
Barriers to the free flow of goods, services, and capital have been coming down
Strengthened by the widespread adoption of liberal economic policies by countries that had firmly opposed them
Globalization is not inevitable
Countries may pull back
Risks are high

©McGraw-Hill Education.
A multinational enterprise (MNE) is any business that has productive activities in two or more countries.
25

The Globalization Debate 1 of 7
Learning Objective 1-4 Explain the main arguments in the debate over the impact of globalization.
Antiglobalization Protests
1999 protests at WTO meeting
Detrimental effects on living standards, wage rates, and the environment.

©McGraw-Hill Education.
The Globalization Debate 2 of 7
Globalization, Jobs, and Income
Critics of globalization argue:
Falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower
Destroy manufacturing jobs in wealthy advanced economies
Services also being outsourced
Contributing to higher unemployment and lower living standards in their home nations

©McGraw-Hill Education.
The Globalization Debate 3 of 7
Globalization, Jobs, and Income continued
Supporters argue:
Benefits outweigh the costs
Free trade will result in countries specializing in the production of goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently
As a result, the whole economy is better off
Companies can reduce their cost structure, and consumers benefit

©McGraw-Hill Education.
The Globalization Debate 4 of 7
Globalization, Jobs, and Income continued
Data suggests the share of labor in national income has declined
Share of national income by skilled labor has increased
Unskilled labor experienced a fall in income, but not necessarily standard of living due to economic growth
The weak growth rate in real wage rates for unskilled workers is likely due to a technology-induced shift within advanced economies
Technological change has a bigger impact than globalization on declining share of national income enjoyed by labor

©McGraw-Hill Education.
The Globalization Debate 5 of 7
Globalization, Labor Policies, and the Environment
Critics argue:
Labor and environmental regulations
Lack of regulation can lead to abuse
Adhering to regulations increases costs
As countries get richer, they enact tougher environmental and labor regulations
Supporters argue:
Tougher environmental regulations and stricter labor standards go hand in hand with economic progress

©McGraw-Hill Education.
Figure 1.6 Income levels and environmental pollution

Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).

©McGraw-Hill Education.
While the hump-shaped relationship depicted in Figure 1.6 seems to hold across a wide range of pollutants—from sulfur dioxide to lead concentrations and water quality—carbon dioxide emissions are an important exception, rising steadily with higher-income levels.
31

The Globalization Debate 6 of 7
Globalization and National Sovereignty
Critics argue:
Shift of power from national governments toward supranational organizations
WTO, EU, United Nations
Supporters argue:
The power of supranational organizations is limited to what nation-states collectively agree to grant
These organizations exist to serve the collective interests of member states

©McGraw-Hill Education.
The Globalization Debate 7 of 7
Globalization and the World’s Poor
Critics argue:
Gap between the rich and poor nations has gotten wider
Totalitarian governments
Poor economic policies
Corruption and lack of property rights
Expanding populations in developing countries
Debt burdens
Supporters argue:
The best way to change the situation is to lower barriers to trade and investment and promote free market policies

©McGraw-Hill Education.
Managing in the Global Marketplace
Learning Objective 1.5 Understand how the process of globalization is creating opportunities and challenges for business managers.
Managers
Managing an international business differs from managing a purely domestic business
Need to vary practices from country to country
More complex decisions required
Need to understand the international trading and investment system, currency exchange

©McGraw-Hill Education.
An international business is any firm that engages in international trade or investment.
34

Appendix of Image Long Descriptions

©McGraw-Hill Education.
Appendix 1 Figure 1.1 Value of world trade, world production, number of regional trade agreements in force, and world population from 1960 to 2020 (index 1960 = 100).
A line graph shows world trade, world population, world production, and regional trade agreements from 1960-2020. As regional trade agreements increase year-by-year, so does world trade across country borders at the same pace.
Return to original slide

©McGraw-Hill Education.
Appendix 2 Figure 1.2 Comparisons of world trade and world population; world trade and number of regional trade agreements; world population and world production; and world population and world trade (index 1960 = 100).
World trade and world population are both rising, but world trade has risen much faster since about 1972.
World trade and number of regional trade agreements have risen in tandem since about 1970.
World population and world production have risen on a mostly parallel path.
World population and world trade shows that as world population had steadily risen, world trade passed it in about 2004 and has since far exceeded it.
Return to original slide

©McGraw-Hill Education.
Appendix 3 Figure 1.4 FDI inflows (in millions of dollars)
Figure 1.4 illustrates two important trends—the sustained growth in cross-border flows of foreign direct investment that has occurred since 1990 and the increasing importance of developing nations as the destination of foreign direct investment.
FDI inflows in developing countries have exceeded those in developed countries in every year since 1990.
Return to original slide

©McGraw-Hill Education.

Chapter 2

National Differences in Political, Economic, and Legal Systems

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.  No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

1

Learning Objectives
LO 2-1 Understand how the political systems of countries differ.
LO 2-2 Understand how the economic systems of countries differ.
LO 2-3 Understand how the legal systems of countries differ.
LO 2-4 Explain the implications for management practice of national differences in political economy.

©McGraw-Hill Education.
Introduction
Political Economy
Political, economic, and legal systems of a country are interdependent
They influence each other

©Philimon Bulawayo/Reuters

©McGraw-Hill Education.
Political economy refers to the political, economic, and legal systems of a country.
3

Political Systems 1 of 6
Learning Objective 2-1 Understand how the political systems of countries differ.
Political systems:
Collectivism vs. individualism
Democratic vs. totalitarian

©McGraw-Hill Education.
Political system refers to the system of government in a nation.
4

Political Systems 2 of 6
Collectivism and Individualism
Collectivism
The needs of society as a whole are generally viewed as being more important than individual freedoms
Socialism
Karl Marx: The few benefit at the expense of the many in a capitalist society where individual freedoms are not restricted
Communists vs. social democrats
Privatization

©McGraw-Hill Education.
Collectivism refers to a political system that stresses the primacy of collective goals over individual goals.
Socialists believe in public ownership of the means of production for the common good of society.
In the early twentieth century, the socialist ideology split into two broad camps. The communists believed that socialism could be achieved only through violent revolution and totalitarian dictatorship, whereas the social democrats committed themselves to achieving socialism by democratic means, turning their backs on violent revolution and dictatorship. Both versions of socialism waxed and waned during the twentieth century. 
Privatization is the sale of state-owned enterprises to private investors.
5

Political Systems 3 of 6
Collectivism and Individualism continued
Individualism
An individual should have freedom in his or her economic and political pursuits
The interests of the individual should take precedence over the interests of the state
Two tenets
Guarantee of individual freedom and self-expression
Welfare of society best served by letting people pursue their own economic self-interest

©McGraw-Hill Education.
Individualism is an emphasis on the importance of guaranteeing individual freedom and self-expression.
6

Political Systems 4 of 6
Democracy and Totalitarianism
At different ends of a political dimension
Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism, with exceptions

©McGraw-Hill Education.
Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives.
Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties.
7

Political Systems 5 of 6
Democracy and Totalitarianism continued
Democracy
Representative democracy
Totalitarianism
Communist totalitarianism
Theocratic totalitarianism
Tribal totalitarianism
Right-wing totalitarianism

©McGraw-Hill Education.
Representative democracy is a political system in which citizens periodically elect individuals to represent them in government.
Communist totalitarianism is a version of collectivism advocating that socialism can be achieved only through a totalitarian dictatorship.
Theocratic totalitarianism is a political system in which political power is monopolized by a party, group, or individual that governs according to religious principles.
Tribal totalitarianism is a political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power.
Right-wing totalitarianism is a political system in which political power is monopolized by a party, group or individual that generally permits individual economic freedom but restricts individual political freedom, including free speech, often on the ground that it would lead to the rise of communism.
8

Political Systems 6 of 6
Democracy and Totalitarianism continued
Pseudo-democracies
Lie between pure democracies and complete totalitarianism systems
Authoritarian elements have captured some or much of the machinery of state and use this in an attempt to deny basic political and civil liberties

©McGraw-Hill Education.

9

Economic Systems 1 of 3
Learning Objective 2-2 Understand how the economic systems of countries differ.
Market Economy
All productive activities are privately owned
Production is determined by supply and demand
Government encourages vigorous free and fair competition

©McGraw-Hill Education.
In the archetypal pure market economy, all productive activities are privately owned, as opposed to being owned by the state. Production is determined by the interaction of supply and demand and signaled to producers through the price system.
10

Economic Systems 2 of 3
Command Economy
Government plans the good and services, quantity and price, then allocates them for “the good of society”
All businesses are state owned
Historically found in communist economies
No incentive for individuals to look for better ways to serve needs

©McGraw-Hill Education.
In a pure command economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold. Consistent with the collectivist ideology, the objective of a command economy is for government to allocate resources for “the good of society.” In addition, in a pure command economy, all businesses are state owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals.
11

Economic Systems 3 of 3
Mixed Economy
Some sectors are privately owned, some are government owned
Once common in developed world, less so now
Government may aid troubled firms
U.S. helped Citigroup, General Motors

©McGraw-Hill Education.

12

Legal Systems 1 of 9
Learning Objective 2-3 Understand how the legal systems of countries differ.
Legal Systems
Rules or laws that regulate behavior
Process through which laws are enforced
Redress for grievances
Influenced by the prevailing political system

©McGraw-Hill Education.
The legal system of a country refers to the rules, or laws, that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained.
13

Legal Systems 2 of 9
Legal Systems continued
Different Legal Systems
Common Law
Tradition, precedent, custom
More flexible than other systems
Civil Law
Laws organized into codes
Less adversarial
Theocratic Law
Based on religious teachings
Most common is Islamic law

©McGraw-Hill Education.
Common law is based on tradition, precedent, and custom.
A civil law system is based on a detailed set of laws organized into codes.
A theocratic law system is one in which the law is based on religious teachings.
14

Legal Systems 3 of 9
Differences in Contract Law
Governs the enforcement of contracts
Common law
Contracts are very detailed with all contingencies spelled out
More expensive and can be adversarial.
Civil law
Contracts tend to be much shorter and less specific

©McGraw-Hill Education.
A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved. Some form of contract regulates many business transactions. Contract law is the body of law that governs contract enforcement.
15

Legal Systems 4 of 9
Differences in Contract Law continued
United Nations Convention on Contracts for the International Sale of Goods (CISG)
Establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations
Applies automatically to all contracts for the sale of goods between different firms based in countries that have ratified the convention, unless the parties opt out

©McGraw-Hill Education.
United Nations Convention on Contracts for the International Sale of Goods (CISG) is a set of rules governing aspects of the making and performance of commercial contracts between sellers and buyers who have their places of business in different nations.
16

Legal Systems 5 of 9
Property Rights and Corruption
Property is a resource that an individual or business owns
Land, buildings, equipment, capital, mineral rights, businesses, intellectual property
Most countries protect property rights

©McGraw-Hill Education.
Property rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource.
17

Legal Systems 6 of 9
Property Rights and Corruption continued
Private action
Theft, piracy, blackmail
Public action and corruption
Public officials extort income, resources, or property
Levying excessive taxation, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensating the owners, redistributing assets without compensating the prior owners
Corruption, demanding bribes

©McGraw-Hill Education.
In terms of violating property rights, private action refers to theft, piracy, blackmail, and the like by private individuals or groups.
Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders.
18

Figure 2.1 Rankings of corruption by country, 2016

Jump to long description in appendix
Constructed by the author from raw data from Transparency International, Corruption Perceptions Index 2016.

©McGraw-Hill Education.
Legal Systems 7 of 9
Property Rights and Corruption continued
Foreign Corrupt Practices Act (FCPA)
Illegal to bribe a foreign government official to obtain or maintain business over which that foreign official has authority
Requires all publicly traded companies to keep detailed records that would reveal whether a violation of the act has occurred
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997)
Allows for facilitating or expediting payments

©McGraw-Hill Education.
Foreign Corrupt Practices Act is U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.
20

Legal Systems 8 of 9
The Protection of Intellectual Property
Patent
Copyrights
Trademarks
World Intellectual Property Organization
Paris Convention for the Protection of Industrial Property

©McGraw-Hill Education.
Intellectual property refers to property that is the product of intellectual activity, such as computer software, a screenplay, a music score, or the chemical formula for a new drug.
A patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention.
Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.
Trademarks are designs and names, officially registered, by which merchants or manufacturers designate and differentiate their products.
World Intellectual Property Organization is an international organization whose members sign treaties to agree to protect intellectual property.
Paris Convention for the Protection of Industrial Policy is an international agreement to protect intellectual property.

21

Legal Systems 9 of 9
Product Safety and Product Liability
Product safety
Product liability
Greater if a product does not conform to safety standards
Criminal and civil laws apply

©McGraw-Hill Education.
Product safety laws set certain safety standards to which a product must adhere.
Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage.
22

Focus on Managerial Implications
Learning Objective 2-4 Explain the implications for management practice of national differences in political economy.
Two broad implications
Political, economic, and legal systems of a country raise important ethical issues that have implications for international business.
Political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market or investment site.
A country with democratic political institutions, market-based economic system, and strong legal system clearly more attractive to do business in.

©McGraw-Hill Education.
Appendix of Image Long Descriptions

©McGraw-Hill Education.
Appendix 1 Figure 2.1 Rankings of corruption by country, 2016
Corruption Index 100=clean; 0 = totally corrupt
Somalia 8
Venezuela 18
Vietnam 21
Nigeria 26
Russia 29
China 37
Columbia 37
India 48
Brazil 48
Turkey 42
Italy 44
South Africa 44
South Korea 56
Poland 62
France 70
United States 75
United Kingdom 81
Germany 81
Canada 83
Sweden 89
Denmark 91
Return to original slide

©McGraw-Hill Education.

Chapter 1

Globalization

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.  No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

1

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

©McGraw-Hill Education.

2

What Is Globalization? 1 of 3
Learning Objective 1-1 Understand what is meant by the term globalization.
The Globalization of Markets
Falling barriers to cross-border trade and investment
Global tastes
Benefits small and large companies
Significant differences between national markets
Products that serve universal needs are global
Competitors may not change among nations

©McGraw-Hill Education.
3
Globalization refers to the shift toward a more integrated and interdependent world economy
The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace.

What Is Globalization? 2 of 3
The Globalization of Production
Sourcing goods to take advantage of differences in cost and quality of factors of production
Early outsourcing was confined to manufacturing
Technology now used for outsourcing

©McGraw-Hill Education.
4
The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital).

What Is Globalization? 3 of 3
The Globalization of Production continued
Robert Reich and “global products”
Impediments
Formal and informal barriers to trade
Transportation costs
Political and economic risk
Coordination

©McGraw-Hill Education.
5

The Emergence of Global Institutions 1 of 6
General Agreement on Tariffs and Trade (GATT)
World Trade Organization
International Monetary Fund
The World Bank
The United Nations

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General Agreement on Tariffs and Trade (GATT) International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.
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The Emergence of Global Institutions 2 of 6
The World Trade Organization
Polices the world trading system
Ensures nation-states adhere to the rules
Facilitates multinational agreements among members
164 nations account for 98 percent of world trade

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World Trade Organization The organization that succeeded GATT as a result of the successful completion of the Uruguay Round of GATT negotiations.
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The Emergence of Global Institutions 3 of 6
The International Monetary Fund
Established to maintain order in the international monetary system
Lender of last resort
Requires nation-states to adopt specific economic policies aimed at returning their economies to stability and growth

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The International Monetary Fund International institution set up to maintain order in the international monetary system.
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The Emergence of Global Institutions 4 of 6
The World Bank
Promotes economic development
Focused on making low-interest loans to cash-strapped governments in poor nations that wish to undertake significant infrastructure investments

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World Bank International institution set up to promote general economic development in the world’s poorer nations.
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The Emergence of Global Institutions 5 of 6
The United Nations
Peace through international cooperation and collective security
193 countries
UN Charter – four basic purposes
Maintain international peace and security
Develop friendly relations among nations
Cooperate in solving international problems and in promoting respect for human rights
Be a center for harmonizing the actions of nations

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United Nations (UN) An international organization made up of 193 countries headquartered in New York City, formed in 1945 to promote peace, security, and cooperation.
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The Emergence of Global Institutions 6 of 6
Group of Twenty (G20)
Finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank
Represents 90 percent of global GDP and 80 percent of international global trade

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Group of Twenty (G20)
Established in 1999, the G20 comprises the finance ministers and central bank governors of the 19 largest economies in the world, plus representatives from the European Union and the European Central Bank.
11

Drivers of Globalization 1 of 4
Learning Objective 1-2 Recognize the main drivers of globalization.
Declining Trade and Investment Barriers
1920s-30s: Barriers to international trade and foreign direct investment
High tariffs resulted in retaliatory trade policies
GATT lowered barriers
Uruguay Round
Established World Trade Organization (WTO)

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International trade occurs when a firm exports goods or services to consumers in another country.
Foreign direct investment occurs when a firm invests resources in business activities outside its home country.
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Drivers of Globalization 2 of 4
Knowledge Society and Trade Agreements
The value of world trade in merchandised goods has grown consistently faster than the growth rate in the world economy since 1950.
Trade across country borders is 2.6 times higher than world production.
Knowledge society has produced more informed consumers, driving demand.
Removal of restrictions to FDI
More trade agreements

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Figure 1.1 Value of world trade, world production, number of regional trade agreements in force, and world population from 1960 to 2020 (index 1960 = 100).

Jump to long description in appendix
Sources: World Bank, 2017; World Trade Organization, 2017; United Nations, 2017.

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Figure 1.2 Comparisons of world trade and world population; world trade and number of regional trade agreements; world population and world production; and world population and world trade (index 1960 = 100).

Jump to long description in appendix
Sources: World Bank, 2017; World Trade Organization, 2017; United Nations, 2017.

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Drivers of Globalization 3 of 4
Role of Technological Change
Communications
Development of the microprocessor
Moore’s Law
Internet of things
Half the world’s population uses the Internet
Global e-commerce sales over $2 trillion
The Internet is an equalizer

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Moore’s law predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).
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Drivers of Globalization 4 of 4
Role of Technological Change continued
Transportation technology
Commercial jet travel, superfreighters, and containerization
Implications for the globalization of production
Has become more economical
Worldwide communications network
Implications for the globalization of markets
Convergence of consumer tastes and preferences

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17

The Changing Demographics of the
Global Economy 1 of 6
Learning Objective 1-3 Describe the changing nature of the global economy.
The Changing World Output and World Trade Picture
U.S. has experienced a relative decline reflecting the faster economic growth of several other economies
China and BRIC countries growing more rapidly
Developing nations may account for more than 60 percent of world economic activity by 2025

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The Changing Demographics of the
Global Economy 2 of 6
The Changing Foreign Direct Investment Picture
Non-U.S. firms are increasingly investing across national borders
Desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets

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stock of foreign direct investment (FDI) refers to the total cumulative value of foreign investments as a percentage of the country’s GDP.
19

Figure 1.3 Share of FDI stock outward as a percentage of GDP.

Sources: OECD data 2017, FDI stocks.

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Figure 1.3 shows how the stock of foreign direct investment by the United States, China, Japan, United Kingdom, European Union countries, Developed Economies, and the World changed between 1995 and today.
20

Figure 1.4 FDI inflows (in millions of dollars)

Jump to long description in appendix
Source: United Nations Conference on Trade and Development, World Investment Report 2017. (Data for 2018–2020 are forecast.)

©McGraw-Hill Education.

21

The Changing Demographics of the
Global Economy 3 of 6
The Changing Nature of the Multinational Enterprise
Non-U.S. multinationals
In 2003, 38.8 percent of the world’s 2000 largest multinationals were U.S. firms
By 2017, 27 percent of the top 2000 global firms are now U.S. multinationals, a drop of 236 firms

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A multinational enterprise (MNE) is any business that has productive activities in two or more countries.
22

The Changing Demographics of the
Global Economy 4 of 6
The Changing Nature of the Multinational Enterprise continued
The rise of mini-multinationals
Medium- and small-sized businesses
Internet is lowering barriers

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23

The Changing Demographics of the
Global Economy 5 of 6
The Changing World Order
Former communist countries present export and investment opportunities
Signs of growing unrest and totalitarianism
China moving to industrial superpower
Latin America debt and inflation are down, more private investors, expanding economies

©McGraw-Hill Education.

24

The Changing Demographics of the
Global Economy 6 of 6
Global Economy of the Twenty-First Century
Barriers to the free flow of goods, services, and capital have been coming down
Strengthened by the widespread adoption of liberal economic policies by countries that had firmly opposed them
Globalization is not inevitable
Countries may pull back
Risks are high

©McGraw-Hill Education.
A multinational enterprise (MNE) is any business that has productive activities in two or more countries.
25

The Globalization Debate 1 of 7
Learning Objective 1-4 Explain the main arguments in the debate over the impact of globalization.
Antiglobalization Protests
1999 protests at WTO meeting
Detrimental effects on living standards, wage rates, and the environment.

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The Globalization Debate 2 of 7
Globalization, Jobs, and Income
Critics of globalization argue:
Falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower
Destroy manufacturing jobs in wealthy advanced economies
Services also being outsourced
Contributing to higher unemployment and lower living standards in their home nations

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The Globalization Debate 3 of 7
Globalization, Jobs, and Income continued
Supporters argue:
Benefits outweigh the costs
Free trade will result in countries specializing in the production of goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently
As a result, the whole economy is better off
Companies can reduce their cost structure, and consumers benefit

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The Globalization Debate 4 of 7
Globalization, Jobs, and Income continued
Data suggests the share of labor in national income has declined
Share of national income by skilled labor has increased
Unskilled labor experienced a fall in income, but not necessarily standard of living due to economic growth
The weak growth rate in real wage rates for unskilled workers is likely due to a technology-induced shift within advanced economies
Technological change has a bigger impact than globalization on declining share of national income enjoyed by labor

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The Globalization Debate 5 of 7
Globalization, Labor Policies, and the Environment
Critics argue:
Labor and environmental regulations
Lack of regulation can lead to abuse
Adhering to regulations increases costs
As countries get richer, they enact tougher environmental and labor regulations
Supporters argue:
Tougher environmental regulations and stricter labor standards go hand in hand with economic progress

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Figure 1.6 Income levels and environmental pollution

Source: C. W. L. Hill and G. T. M. Hult, Global Business Today (New York: McGraw-Hill Education, 2018).

©McGraw-Hill Education.
While the hump-shaped relationship depicted in Figure 1.6 seems to hold across a wide range of pollutants—from sulfur dioxide to lead concentrations and water quality—carbon dioxide emissions are an important exception, rising steadily with higher-income levels.
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The Globalization Debate 6 of 7
Globalization and National Sovereignty
Critics argue:
Shift of power from national governments toward supranational organizations
WTO, EU, United Nations
Supporters argue:
The power of supranational organizations is limited to what nation-states collectively agree to grant
These organizations exist to serve the collective interests of member states

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The Globalization Debate 7 of 7
Globalization and the World’s Poor
Critics argue:
Gap between the rich and poor nations has gotten wider
Totalitarian governments
Poor economic policies
Corruption and lack of property rights
Expanding populations in developing countries
Debt burdens
Supporters argue:
The best way to change the situation is to lower barriers to trade and investment and promote free market policies

©McGraw-Hill Education.
Managing in the Global Marketplace
Learning Objective 1.5 Understand how the process of globalization is creating opportunities and challenges for business managers.
Managers
Managing an international business differs from managing a purely domestic business
Need to vary practices from country to country
More complex decisions required
Need to understand the international trading and investment system, currency exchange

©McGraw-Hill Education.
An international business is any firm that engages in international trade or investment.
34

Appendix of Image Long Descriptions

©McGraw-Hill Education.
Appendix 1 Figure 1.1 Value of world trade, world production, number of regional trade agreements in force, and world population from 1960 to 2020 (index 1960 = 100).
A line graph shows world trade, world population, world production, and regional trade agreements from 1960-2020. As regional trade agreements increase year-by-year, so does world trade across country borders at the same pace.
Return to original slide

©McGraw-Hill Education.
Appendix 2 Figure 1.2 Comparisons of world trade and world population; world trade and number of regional trade agreements; world population and world production; and world population and world trade (index 1960 = 100).
World trade and world population are both rising, but world trade has risen much faster since about 1972.
World trade and number of regional trade agreements have risen in tandem since about 1970.
World population and world production have risen on a mostly parallel path.
World population and world trade shows that as world population had steadily risen, world trade passed it in about 2004 and has since far exceeded it.
Return to original slide

©McGraw-Hill Education.
Appendix 3 Figure 1.4 FDI inflows (in millions of dollars)
Figure 1.4 illustrates two important trends—the sustained growth in cross-border flows of foreign direct investment that has occurred since 1990 and the increasing importance of developing nations as the destination of foreign direct investment.
FDI inflows in developing countries have exceeded those in developed countries in every year since 1990.
Return to original slide

©McGraw-Hill Education.

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