Chapter 01 - Globalization

Globalization

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Learning objectives

Understand what is meant by the term globalization.

Be familiar with the main drivers of globalization.

Appreciate the changing nature of the global economy.

Understand the major arguments in the debate over the impact of globalization.

Appreciate how the process of globalization is creating opportunities and challenges for business managers.

This chapter introduces the emergence of the globally integrated business world. Globalization has reduced the traditional barriers to cross-border trade and investment (distance, time zones, language, differences in government regulations, culture, business systems).

To begin the discussion of contemporary issues in international business, macro-economic and political changes in the last 30 years are reviewed.

Information technology and other technological innovations have put global markets within the reach of even small firms in remote locations. Yet, in spite of all its benefits, globalization has an underside. Critics point out its adverse effects, including those on developing nations.

The opening case explores the globalization of the flat panel television industry. The closing case illustrates how one company, IKEA, has benefited from the globalization of markets and the globalization of production.

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OUTLINE OF CHAPTER 1: GLOBALIZATION

Opening Case: Flat Panel Televisions and the Global Economy

Introduction

What is Globalization?The Globalization of MarketsThe Globalization of Production

Country Focus: Outsourcing American Healthcare

The Emergence of Global Institutions

Drivers of GlobalizationDeclining Trade and Investment BarriersThe Role of Technological Change

The Changing Demographics of the Global EconomyThe Changing World Output and World Trade PictureThe Changing Foreign Direct Investment PictureThe Changing Nature of the Multinational EnterpriseThe Changing World OrderThe Global Economy of the Twenty-First Century

Country Focus: India’s Software Sector

Management Focus: China’s Hisense-An Emerging Multinational

The Globalization DebateAnti-globalization Protests, Globalization, Jobs, and IncomeGlobalization, Labor Policies, and the EnvironmentGlobalization and National SovereigntyGlobalization and the World’s Poor

Country Focus: Protesting Globalization in France

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Managing in the Global Marketplace

Chapter Summary

Critical Thinking and Discussion Questions

Closing Case: IKEA—The Global Retailer

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CLASSROOM DISCUSSION POINT

Ask students to describe how international business has affected them in their day so far. Ash them about who made the clothes they’re wearing, what type of food they ate for breakfast or lunch (muesli cereal, sushi, Italian-style coffee), what type of cell phone they have and where it was made, where their car was design and manufactured, where the components for their computer was manufactured, and so on. Many students will be surprised at just how often international business affects their daily lives. Some will recognize that companies like Nissan have design facilities and manufacturing operation in the United States, but will be surprised to learn that Sodexho, a cafeteria operator for many universities, is a French company; or that many supermarket chains have been acquired by foreign operators (Stop and Shop by the Dutch Ahold, Trader Joe’s by the German Albrechts). The point to drive home is that our consumption patterns are already very dependent on international business.

Next, ask students the why aspect of this issue: Why, for example, are so many of our clothes made outside North America?

Finally, encourage students to think about the integrated world economy versus distinct national economies by asking about the type of car they own. Drive the discussion towards a consideration of whether talking about the nationality of a car makes sense. Is SAAB a Swedish car? Saab is partially owned by General Motors of USA, uses many mechanical parts imported into Sweden from GM in Germany, and assembles its cars in Sweden for sale in USA. Is a Mercedes Benz assembled in Alabama an American car? Is a Pontiac assembled in South Korea a Korean car? Volvo, Jaguar and Rover SUVs are owned by Ford; Chrysler is a part of Daimler Chrysler; Volkswagen owns Rolls Royce.

OPENING CASE: Flat Panel Televisions and the Global Economy

Summary

The opening case describes the development of the flat panel television industry over recent decades. The case, which follows the production of flat panel televisions across the globe to low-cost locations, clearly demonstrates the impact of globalization, and in particular the globalization of production. Discussion of the case can begin with the following questions:

1. Reflect on the evolution of the flat panel television industry. Why has production shifted from country to country? What does your response suggest about the globalization of production?

2. RCA developed the underlying technology for the flat panel television in the 1960s, yet today, the company plays only a minor role in the industry. Why?

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3. How has the globalization of the flat panel television industry benefited consumers?Who are the losers in the industry?

Another Perspective: Students can learn more about Vizio at the company website at {http://www.vizio.com/}, and also through information provided by the Hong Kong Trade Development Council at {http://www.tdctrade.com/report/mkt/mkt_060905.htm}.

LECTURE OUTLINE

This lecture outline follows the Power Point Presentation (PPT) provided along with this instructor’s manual. The PPT slides include additional notes that can be viewed by clicking on “view”, then on “notes”. The following provides a brief overview of each Power Point slide along with teaching tips, and additional perspectives.

Slide 1-3 What is Globalization? Globalization is a shift toward a more integrated and interdependent world economy.Globalization has two components: the globalization of markets and the globalization of production.

Slides 1-4 and 1-5 Globalization of MarketsIn many markets the emergence of a global marketplace has begun to occur. There are three causes: falling barriers to cross-border trade have made it easier to sell internationally; tastes and preferences are converging on some global norm helping to create a global market; and firms are facilitating the trend by offering standardized products worldwide creating a global market.

Slide 1-7 Globalization of ProductionThe 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). By doing this, companies hope to lower their overall cost structure and/or improve the quality or functionality of their product offering, thereby allowing them to compete more effectively.

Slides 1-10-1-14 Emergence of Global InstitutionsGlobalization has created the need for institutions to help manage, regulate and police the global marketplace. Institutions that have been created to help perform these functions are the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), the International Monetary Fund (IMF), the World Bank, and the United Nations.

Another Perspective: A comprehensive overview of GATT is available at{http://www.ciesin.org/TG/PI/TRADE/gatt.html}.

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The World Trade Organization (WTO) is primarily responsible for policing the world trading system and making sure nation-states adhere to the rules laid down in trade treaties. The International Monetary Fund (IMF) was created to maintain order in the international monetary system and the World Bank was set up to promote economic development. The United Nations (UN) was created to preserve peace through international cooperation.

Another Perspective: The World Trade Organization maintains an excellent web site at {http://www.wto.org/}. This site provides information about recent trade disputes, "hot" areas of international trade, and the status current talks.

Slide 1-16 Drivers of GlobalizationThe two macro factors underlie the trend towards greater globalization: the decline in the barriers to free flow of goods, services, and capital; and technological change in communications, information processing, and transportation technologies.

Slides 1-17- 1-20 Declining Trade and Investment BarriersInternational trade occurs when a firm exports goods or services to consumers in another country.

Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.

Slides 1-22-1-24 The Role of TechnologyThe lowering of trade barriers made globalization of markets and production a theoretical possibility, technological change made it a tangible reality. Managers today operate in an environment that offers more opportunities, but is also more complex and competitive than that of a generation ago.

Slides 1-26-1-27 The Changing World Output and World Trade PictureIn the 1960s: the U.S. dominated the world economy and the world trade picture, U.S. multinationals dominated the international business scene, and about half the world-- the centrally planned economies of the communist world-- was off limits to Western international business.

Slides 1-28-1-30 The Changing Foreign Direct Investment PictureThe share of world output generated by developing countries has been steadily increasing since the 1960s. There has been a sustained growth in cross-border flows of foreign direct investment.

Slide 1-32 The Changing Nature of the MultinationalA multinational enterprise is any business that has productive activities in two or more countries.

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Slide 1-33 The Changing World OrderThe collapse of communism in Eastern Europe represents a host of export and investment opportunities for Western businesses. The economic development of China presents huge opportunities and risks, in spite of its continued Communist control. Mexico and Latin America also present tremendous new opportunities both as markets and sources of materials and production

Slide 1-34 The Global Economy of the Twenty-First CenturyFirms should be aware that while the more integrated global economy presents new opportunities, it also could result in political and economic disruptions that may throw plans into disarray

Slide 1-36 The Globalization DebateIs the shift toward a more integrated and interdependent global economy a good thing?

Slide 1-37 Anti-Globalization ProtestsAnti-globalization protesters now turn up at almost every major meeting of a global institution. Protesters fear that globalization is forever changing the world in a negative way.

Slide 1-38 Globalization, Jobs, and IncomeCritics of globalization worry that jobs are being lost to low-wage nations.

Supporters of globalization argue that free trade will result in countries specializing in the production of those goods and services that they can produce most efficiently, while importing goods and services that they cannot produce as efficiently.

Slide 1-39 Globalization, Labor Policies, and the EnvironmentCritics of globalization argue that that free trade encourages firms from advanced nations to move manufacturing facilities offshore to less developed countries with lax environmental and labor regulations.

Supporters of free trade point out that tougher environmental regulation and stricter labor standards go hand in hand with economic progress and that foreign investment often helps a country to raise its standards.

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Slide 1-40 Globalization and National SovereigntyCritics of globalization worry that economic power is shifting away from national governments and toward supranational organizations such as the World Trade Organization (WTO), the European Union (EU), and the United Nations.

However, supporters of globalization contend that the power of these organizations is limited to what nation-states agree to grant, and that the power of the organizations lies in their ability to get countries to agree to follow certain actions.

Another Perspective: To explore economic freedom and globalization, go to The Fraser Institute’s Economic Freedom of the World Report at {www.freetheworld.com}.

Slide 1-41 Globalization and the World’s PoorCritics of globalization argue that the gap between rich and poor has gotten wider and that the benefits of globalization have not been shared equally.

Supporters of free trade suggest that the actions of governments have made limited economic improvement in many countries.

Slides 1-43-1-44 Managing in the Global MarketplaceManaging an international business (any firm that engages in international trade or investment) is different from managing a domestic business because countries differ, managers face a greater and more complex range of problems, international companies must work within the limits imposed by governmental intervention and the global trading system, and international transactions require converting funds and being susceptible to exchange rate changes.

Another Perspective: An interesting site for companies interested in exporting their services is available at {http://www.ita.doc.gov/td/sif/exporting_services_overseas.htm}.

CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 1: Describe the shifts in the world economy over the last 30 years. What are the implications of these shifts for international businesses based in Britain, North America, and Hong Kong?

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ANSWER 1: Over the last 30 years, there has been a shift away from a world in which national economies are relatively self-contained entities, isolated by barriers to trade and investment, and differences in government regulation, culture, and business systems and toward a world where barriers to trade and investment are declining, cultures are converging, and national economies are merging into an integrated, interdependent global economic system. As companies from Japan and emerging markets like China play a more vital role in the world economy, the dominance of companies from the United States and Western Europe has diminished. Significant implications for British firms involve their need to look beyond Europe and America for investment and opportunities. Consumer spending power is growing the most quickly in developing countries. British firms also face the opportunity (and the threat) of attracting Asian firms interested in Britain as a launch pad for the European market. For North American firms, the same holds true, although the importance of the increasing prosperity in Latin America suggests a potentially huge market in “their backyard.” Hong Kong, while losing its “independence”, is perceived as the gateway to the immense market of mainland China. While the free market freedoms Hong Kong firms have enjoyed are now less taken for granted, access to China is improving along with the move towards a market economy within China. International businesses based in all three locations are facing new opportunities and threats.

QUESTION 2: "The study of international business is fine if you are going to work in a large multinational enterprise, but it has no relevance for individuals who are going to work in small firms." Evaluate this statement.

ANSWER 2: Globalization is changing the world economy. Firms, even small ones, can no longer ignore events going on outside their borders because what occurs in one country has implications for the rest of the world. Individuals who believe they can act in isolation by working for a small firm are not being realistic, but rather myopic and insular. Today, thanks to advances in technology, many small firms sell and source internationally very early in their evolution, those that fail to take advantage of international opportunities may not achieve their full potential, and ultimately may fail as competitors that do recognize the importance of international business dominate. In the United States, for example, almost 90 percent of firms that export employ fewer than 100 people. They also account for more than 20 percent of U.S. exports.

QUESTION 3: How have changes in technology contributed towards the globalization of markets and of production? Would the globalization of products and markets have been possible without these technological changes?

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ANSWER 3: Technological change has made globalization a reality. Major advances in communication, information processing, and transportation have brought the world closer together. The development of the microprocessor is perhaps the single, most important innovation as it increased the amount of information that could be processed by individuals and firms. The Internet has facilitated the creation of a 24/7/365 market place where information is available in real time. Advances in transportation have enabled firms to take advantage of the savings associated with dispersing production to low cost production locations. Advances in communications have helped create a global culture of sorts, and the emergence of a global market for consumer products. Thanks to technological change, firms today can locate facilities wherever in the world it makes the most sense, coordinate activities among facilities, and ship products to customers worldwide more cost effectively than at any time in the past.

QUESTION 4: “Ultimately, the study of international business is no different from the study of domestic business. Thus, there is no point in having a separate course on international business.” Evaluate that statement.

ANSWER 4: There are at least four reasons why studying international business is important. First, countries are different; and managers must understand the reasons for the differences and their implications for business. Second, the range of problems confronted by a manager in an international business is wider and the problems themselves more complex than those confronted by a manager in a domestic business. Third, international companies must find ways to work within the limits imposed by government intervention in the international trade and investment system. Finally, international transactions involve converting money into different currencies. Managers who fail to appreciate these basic differences greatly increase their chance for failure.

QUESTION 5: How might the Internet and the associated World Wide Web affect international business activity and the globalization of the world economy?

ANSWER 5: Internet usage has explored over the last two decades. In 1990, there were fewer than 1 million people connected to the Internet. Today, that figure has risen to more than 747 million! One of the biggest implications of the Internet and the World Wide Web is its role as an equalizer. Firms are no longer constrained by size, location, scale, and time zones. Instead, firms operate in a 24/7/365 world with real time access. In the United States alone, more than $250 billion of goods and services are sold online. For companies, location is no longer an issue because the Internet makes it possible to reach customers anywhere in the world, operations can be linked via the Internet allowing firms to produce in advantageous locations, and global communications are facilitating a cultural convergence making it easier for companies to sell standardized products.

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QUESTION 6: If current trends continue, China may emerge as the world’s largest economy by 2010. Discuss the possible implications for such a development for a. the world trading system; b. the world monetary system; c. the business strategy of today’s European and US-based global corporations; and d. global commodity prices.

ANSWER 6: China is continuing to move toward greater free market reforms, and if it stays on its present track, could become an industrial superpower in the near future. China, with its 1 billion people, is a largely untapped market for firms. By some estimates, the Chinese economy could be larger than that of the United States on a purchasing power parity basis. Already, annual foreign direct investment has jumped from less than $2 billion in 1983 to $70 billion in 2006. China is also making waves in international markets as its firms like Hisense (see Management Focus: China’s Hisense—An Emerging Multinational) prove to be world class competitors. QUESTION 7: Reread the Country Focus “Outsourcing American Healthcare,” then answer the following questions:a) A decade ago the idea that medical procedures might move offshore was unthinkable. Today it is a reality. What trends have facilitated this process?b) Is the globalization of health care good or bad for patients?c) Is the globalization of health care good or bad for the American economy? d) Who might benefit from the globalization of health care? Who might lose?e) Do you think that the U.S. government should restrict the outsourcing of medical work to developing nations? What if physicians in those countries are certified by U.S. medical institutions?

ANSWER a): Advances in technology are a primary key to making the outsourcing of medical work possible in recent years. In particular, the Internet makes it possible to quickly transmit large amounts of data to countries such as India where the information can be processed and returned. In addition, the high cost of medical care in countries like the U.S. is prompting people to consider cheaper alternatives. The cost to repair a leaky heart valve in India is about $10,000 including airfare, while in the U.S. the same surgery could cost $60,000.b): This is a difficult question. Some students might argue that the outsourcing of medical procedures to nations where salaries of medical professional are lower clearly benefits consumers. However, other students might suggest that the level of care in countries such as India may not be up to the standards found in the United States, and that the process takes some control out of the hands of the consumers. Certainly, health care professionals in the United States see the outsourcing trend in a negative light, however, medical insurance companies view any means of cutting costs as a positive move.c): When considered from a strictly economic perspective, the globalization of health care should result in a more efficient industry. Prices in the U.S. should fall as countries like India offer their services as an alternative to higher-priced American ones. It would follow then, that Americans should have more disposable income which could then be spent in other part of the economy.

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d): Most students will probably agree that the current trend to outsource medical procedures is just the beginning. The rising cost of health care is likely to continue to put pressure on the industry to find cheaper alternatives to handling not only direct patient care, but also the paperwork involved. Most students will probably agree that outsourcing to cut costs in the paperwork end of the process makes sense, but may draw the line at the outsourcing of medical procedures. Others however, might point out that the care being offered by some hospitals in countries like India is on par with American hospitals, indeed many of the doctors are American trained.e) The answer to this question may depend on the nationality of the student. Students from countries that have national heath care may already feel that since the government already controls the medical industry, issues related to the outsourcing of medical work is out of their hands. Students from countries with private health care such as the United States may believe that the government has a certain responsibility to protect its citizens, and that the issue of outsourcing of medical procedures may fall into this realm of protection. In either case, it would appear that restrictions to limit the practice would almost certainly raise costs further.

CLOSING CASE: Ikea—The Global Retailer

Summary

The closing case examines the operations and strategy of Ikea, the household goods and home furnishings retailer. Ikea was established in Sweden in 1943, and now operates 230 stores in 33 countries. Ikea’s strategy is the same everywhere—selling furniture and household items that reflect Swedish style at low prices to the global middle class. So far, the formula is a success. The company generated sales of $17.7 billion in 2005. Ikea relies on a network of 1,300 suppliers located in 53 countries, and while a similar product line is sold everywhere, the company does adapt to meet the needs of consumers in different markets. A discussion of the case can revolve around the following questions:

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QUESTION 1: How has the globalization of markets benefited ikea?ANSWER: The globalization of markets refers to the fact that in many industries historically distinct and separate national markets are merging into one huge global marketplace in which the tastes and preferences of consumers in different nations are beginning to converge upon some global norm. IKEA has been able to benefit from this trend by following a strategy that is largely standardized. Its basic strategy is to sell Swedish-inspired furnishings and households goods to middle class consumers across the globe at low prices. The company is able to use the same colors and designs in its warehouse style stores worldwide. Inside the stores are products that are essentially the same from market to market—inexpensive household items and furniture that are sold nearly the same way everywhere. In some cases, though, IKEA has had to adapt to local market needs. In the United States, for example, bedding products were changed to reflect American-style sizing, and in China, delivery services are offered, and stores are located close to public transportation since car ownership is low.

QUESTION 2: How has the globalization of production benefited IKEA?

ANSWER: The globalization of production refers to the tendency among many firms to source goods and services from different locations around the globe in an attempt to take advantage of national differences in the cost and quality of factors of production, thereby allowing them to compete more effectively against their rivals. The globalization of production has enabled IKEA to focus on efficiency. IKEA relies on some 1,300 suppliers located in 53 countries. Because Ikea aims to reduce its prices by 2-3 percent each year, finding the right supplier is critical to the success of the firm. Ikea tries to avoid high shipping costs by working with suppliers in each of its big markets. For example, the company uses ten different suppliers for its most popular sofa frame. IKEA believes that by having suppliers in Europe, China, and the United States, rather than sourcing from a single location, it can minimize shipping costs. In addition, the company gains efficiencies by concentrating production of certain items in markets like China.

QUESTION 3: What does the IKEA story teach you about the limits of treating the entire world as a single integrated global market place?

ANSWER: Many students will recognize that IKEA ha successfully managed to capture global efficiencies where possible, while still responding to local market needs. IKEA realizes that while there are gains to be made through standardization, standardization is not always the best strategy. Students will probably point out that IKEA learned this lesson in the early 1990s when it tried to sell bedding in the United States that was sized in centimeters rather than the king, queen, twin sizing that is common in the United States. IKEA also found out that Americans liked bigger sofas, deeper drawers, bigger glasses, and longer curtains. Now, as IKEA is expanding into China, it is once again identifying where its strategy can be standardized, and where it needs to be adapted to the local market. So, for example, while the same warehouse style stores are being used, a section for balconies has been added to reflect the layout of many Chinese apartments.

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Another Perspective: Students can explore Ikea’s global operations at the company’s web site as {http://www.ikea.com}.

INTEGRATING iGLOBES

There are several iGLOBE video clips that can be integrated with the material presented in this chapter. In particular, you might consider the following:

Title: Graduate Students Recount Experiences with GlobalizationStudents Discuss GlobalizationRun Time: 11:37

Abstract: This video explores globalization from the perspective of four graduate students at Harvard’s Kennedy School of Government.

Key Concepts: globalization, international trade, economic development, protectionism, free trade, competitive advantage, national trade policy, and agricultural subsidies

Notes: In an informal poll, four graduate students at Harvard indicated that their countries, Thailand, Tanzania, Argentina, and China, have mixed feelings about globalization. China was perhaps the biggest supporter of globalization. Mingyou Bao, of the People’s Bank of China, argued that globalization is a win-win concept for China and the rest of the world. Mingyou Bao feels that all countries can benefit from access to cheaper labor and markets, and the inflow of capital and investment that is associated with globalization. However, Frederick Sumaye, former Prime Minister of Tanzania, believes that globalization will bring more pain than benefits. He is particularly concerned that infant industries in developing countries will be crushed just as they are taking off. Kriengsak Chareonwongsak, a member of Thailand’s parliament, feels that the majority of Thailand would support globalization. Kriengsak Chareonwongsak notes that Thailand has seen significant growth over the last thirty years, and that the growth is a direct result of the government’s policy of opening borders to trade and investment. Argentina’s representative, Yanina Budkin, a former communications officer with the World Bank, cautions though, that Argentina has experienced both positive and negative effects from globalization. Argentina opened its economy in the 1990s and was the beneficiary of huge amounts of foreign direct investment. But, in 2001, the country fell into distress, and companies pulled out. Yanina Budkin believes that regulations could have prevented the economic destabilization that occurred.

Kriengsak Chareonwongsak notes that already globalization is changing the world. Industries that rely on cheap labor like textiles and shoes, are no longer as dominant as they once were in Thailand, for example. Instead, those industries are moving on to China in search of cheaper labor. Cambodia and Vietnam are also becoming important low cost manufacturing destinations. Mingyou Bao predicts that Africa will also eventually become an attractive source of low cost labor.

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While it may seem that globalization is bringing many benefits to emerging economies and lesser developed countries, the picture is not all rosy. Manufacturing improvements threaten to replace manpower, which would jeopardize job creation, a key benefit of globalization. According to Mingyou Bao, it will be important for countries to follow China’s lead and manage the globalization process carefully. Countries that simply open their borders run the risk of becoming vulnerable to stronger competitors. Kriengsak Chareonwongsak suggests that countries approach globalization as a process that takes time. People need to be prepared for change, retraining may need to take place, and industries may need to be protected. Frederick Sumaye suggests that countries should determine how to sell more valuable products by not just selling raw materials, but incorporating additional steps in the value-added chain. Yanina Budkin points out that Chile has been successful with its strategic focus on wine and salmon. Everyone agrees that for globalization to be beneficial, it will be important to have institutions in place to regulate markets, provide safety nets, and compensate losers.

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Discussion Questions:

1. Consider the basic arguments for globalization. Who are the winners, who are the losers?

2. What does free trade and investment mean for emerging economies? What does it mean for lesser developed countries? How can these countries learn from the experiences of Chile?

3. Why are countries like Tanzania skeptical about the benefits of globalization? What would you advise them to do? Why? What can countries like Cambodia learn from China?

4. Should the United States lead the way in defining how globalization works? Why or why not?

INTEGRATING VIDEOS

There are also several longer video clips that can be integrated with the material presented in this chapter. In particular, you might consider the following:

Title 1: Three Billion New Capitalists

Summary: In his new book, "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East," author Clyde Prestowitz suggests that the world is currently in the midst of two revolutions. According to Prestowitz, three billion new people from China, India, and the former Soviet bloc have all suddenly, and simultaneously entered the global economy. These new entrants are unique in that they have all of the skills of their developed country counterparts, yet charge just ten cents (or maybe 25 or 30 cents) on the dollar. Many of these individuals have been educated and/or worked in the developed world, and are now returning to their countries to use their skills. Prestowitz’ second revolution involves the Internet and FedEx. Prestowitz argues that the combination of these two entities has erased the notion of time and distance.

Prestowitz suggests that the outsourcing of jobs that is currently so prevalent in the U.S. is just the tip of the iceberg. That to respond to this challenge from the East, not only does the U.S. need to work hard, retrain its workforce, and so on, but the U.S. also needs a new international economic policy, a policy that emphasizes the need to win this challenge. Prestowitz notes that the U.S. is in a better position than either China or India to succeed, but that the U.S. needs to focus on competing and succeeding in this new world.

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Discussion Questions:

1. The Industrial Revolution forever changed the way the world economy functioned. Prestowitz suggests that the world is currently in the midst of a two- part revolution. What parallels, if any, are there between Prestowitz’s revolutions and the Industrial Revolution? What are the implications of these parallels for countries? For companies?

2. Many Americans have been directly affected by the outsourcing of jobs to India. According to Prestowitz these jobs shifts are just the beginning. Where do you see the world economy in three years? In five years? In ten years?

3. Prestowitz implies that the U.S. has allowed the global economy to shift toward India and China simply by not taking a proactive stance. He maintains that the U.S. must establish a new international economic policy, one that focuses on winning in the new economy. Do you agree?

4. Consider the economies of India and China relative to that of the U.S. Which economy is in the best position to succeed in the new global economy? What role does government play?

globalEDGE™ Exercise Questions

Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following exercises:

Exercise 1Your company has developed a new product that has universal appeal across countries and cultures. In fact, it is expected to achieve high penetration rates in all the countries where it is introduced, regardless of the average income of the local populace. Considering the costs of the product launch, the management team has decided to initially introduce the product only in countries that have a sizeable population base. You are required to prepare a preliminary report with the top ten countries in terms of population size. A member of management has indicated that a resource called the “World Population Data Sheet” may be useful for the report. Since growth opportunities are another major concern, the average population growth rates should be listed also for management’s consideration.

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Exercise 2You are working for a company that is considering investing in a foreign country. Investing in countries with different traditions is an important element of your company’s long-term strategic goals. As such, management has requested a report regarding the attractiveness of alternative countries based on the potential return of FDI. Accordingly, the ranking of the top 25 countries in terms of FDI attractiveness is a crucial ingredient for your report. A colleague mentioned a potentially useful tool called the “FDI Confidence Index” which is updated periodically. Find this index, and provide additional information regarding how the index is constructed.

Answers to Exercise Questions

Exercise 1Numerous statistical databases and websites provide population information. The student may use any of these (including the CIA World Factbook or the globalEDGE Country Insights pages) to provide the answer. However, if the search term “World Population Data Sheet” is entered into the search box, located at {http://globaledge.msu.edu/ResourceDesk/}, the resource that comes up is the World Population Data Sheet located at the Population Reference Bureau {http://www.prb.org/}. This resource is found under the globalEDGE category “News & Periodicals: Publications”. Be sure to check the “Resource Desk only” checkbox of the search function on the globalEDGE website.

Search Phrase: “World Population Data Sheet”Resource Name: World Population Data SheetWebsite: {http://www.prb.org/}globalEDGE Category: “News & Periodicals: Publications”

Exercise 2The report can be accessed by searching for the term “FDI Confidence Index” at {http://globaledge.msu.edu/ResourceDesk/}. The FDI Confidence Index is the only source in this search, and is published by A.T. Kearney. This resource is found under the globalEDGE category “Research: Rankings”. Be sure to check the “Resource Desk only” checkbox of the search function on the globalEDGE website.

Search Phrase: “FDI Confidence Index”Resource Name: A.T. Kearney: FDI Confidence IndexWebsite: {http://www.atkearney.com/}globalEDGE Category: “Research: Rankings”

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