Because learning changes everything.

Part One: Environmental

Foundation

Chapter 1: Globalization
and International
Linkages
International Management:
Culture, Strategy, and Behavior
Twelfth Edition
Jonathan P. Doh, Fred Luthans,
Ajai S. Gaur

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
 Introduction

• Management is the process of completing activities with

and through other people.
• International management is the process of applying
management concepts and techniques in a multinational
environment and adapting management practices to
different economic, political, and cultural contexts.
• A multinational corporation (MNC) is a firm that has
operations in more than one country, international sales,
and a mix of nationalities among managers and owners.

© McGraw Hill, LLC 2

 Globalization, Antiglobalization, and Pressures for
Change 1

Globalization is the social, political, economic, cultural, and

technological integration among countries around the world.
• Offshoring is when some company activities take place at
offshore locations instead of in their countries of origin.
• Outsourcing is contracting out to external organizations
activities previously performed by the firm.

Internationalization is the process of a business crossing

national and cultural borders, while globalization is the vision
of creating one world unit, a single market entity.

© McGraw Hill, LLC 3

 Globalization, Antiglobalization, and Pressures for
Change 2

Proponents believe that everyone benefits from globalization,

as evidenced in lower prices, greater availability of goods,
better jobs, and access to technology.
• Critics disagree, noting that offshoring of jobs does not
inherently create greater opportunities at home.
According to antiglobalization activists, if corporations are
free to locate anywhere in the world, the world’s poorest
countries will relax or eliminate environmental standards and
social services in order to attract first-world investment and
the jobs and wealth that come with it.
• Proponents believe global firms will employ modern, green
technology.

© McGraw Hill, LLC 4

 Global and Regional Integration 1

• World Trade Organization (WTO) is the global organization

that oversees rules and regulations for international trade and
investment, including agriculture, intellectual property, services,
competition, and subsidies.
• North American Free Trade Agreement (NAFTA) is a free-
trade agreement between the United States, Canada, and
Mexico that removed most barriers to trade and investment. It
was renegotiated and replaced by the United States. It removed
most trade and investment barriers between the United States,
Canada, and Mexico.
• United States–Mexico–Canada Agreement (USMCA)
replaced NAFTA in 2020 following ratification by each country.
USMCA maintains the key provisions of the original trade
agreement while enacting minor changes.

© McGraw Hill, LLC 5

 Global and Regional Integration 2

• Other regional and bilateral trade agreements, including

the 2003 U.S.–Singapore Free Trade Agreement and the
2004 U.S.–Dominican Republic–Central American Free
Trade Agreement (CAFTA-DR), were negotiated in the
same spirit as NAFTA/USMCA.
• The European Union (EU) is a political and economic
community consisting of 27 member states. EU has made
significant progress over the past two decades in
becoming a unified market even with “Brexit.”
• The Comprehensive and Progressive Agreement for
Trans-Pacific Partnership (CPTPP) negotiated an Asia-
Pacific trade agreement.

© McGraw Hill, LLC 6

 Figure 1-1: European Member States and Candidates,
2019

Source: Original graphic by Professor Ajai Gaur.

Access the text alternative for these images

© McGraw Hill, LLC 7

 Changing Global Demographics

• In 2016, the global working-age population declined.

• Due to improvements in the technology and healthcare sectors,
people are now living longer in both developed and developing
countries.
• The most dramatic impact will be seen in the developed nations.
• The amount of spending on healthcare-related services will continue
to increase rapidly, while the demand for goods such as cars and
computers will decline.
• The global fertility rate was cut in half—from 5 children per woman in
1950 to 2.4 children per woman in 2019.

© McGraw Hill, LLC 8

 The Shifting Balance of Economic Power in the Global
Economy

• Brazil, Russia, India, and China (BRIC) economies are

predicted to grow by 2025.
• Goldman Sachs predicted that the BRIC’s total weight in
the world economy would rise from approximately 10
percent in 2004 to more than 20 percent by 2025.
• The N-11 may constitute the next wave of emerging
market growth.
• The MIST countries are particularly attractive.
• Foreign direct investment (FDI) is the term used to
indicate the amount invested in property, plant, and
equipment in another country.

© McGraw Hill, LLC 9

 Figure 1-2: G7 (Group of Seven) Economies

Source: Original graphic by Professor Jonathan Doh.

© McGraw Hill, LLC 10

 Figure 1-3: E7 (Emerging Seven) Economies

Source: Original graphic by Professor Jonathan Doh.

© McGraw Hill, LLC 11

 Global Economic Systems

• A market economy exists when A mixed economy is a

private enterprise reserves the combination of a market and a
right to own property and monitor command economy. While
the production and distribution of some sectors of this system
goods and services while the state reflect private ownership and
simply supports competition and the freedom and flexibility of
efficient practices. the law of demand, other
• A command economy is sectors are subject to
comparable to a monopoly in the government planning.
sense that the organization—in
this case, the government—has
explicit control over the price and
supply of a good or service.

© McGraw Hill, LLC 12

 Established Economies

North America constitutes one of the world’s four largest trading blocs.
• The combined purchasing power is more than $24 trillion.
• Maquiladora is a factory, that imports materials and equipment on a
duty- and tariff-free basis for assembly or manufacturing and re-export.
The ultimate objective of the EU is to eliminate all trade barriers among
member countries.
• The future challenge is to absorb the former communist-bloc
countries.
• The United Kingdom is scheduled to leave the EU in 2020.
In the 70s and 80s, Japan’s economic success was unprecedented.
• Due to the Ministry of International Trade and Industry (MITI).
• The use of keiretsus – large, vertically integrated corporations.

© McGraw Hill, LLC 13

 Emerging and Developing Economies 1

Central and Eastern Europe

• Russia’s economy, based on the strength of oil and gas resources,
has continued to emerge as poverty declined and the middle class
expanded in years since 1991.
• Russia on the global economic stage, the Group of Seven (G7,
including the United States, Germany, France, England, Canada,
Japan, and Italy) formally expanded to include Russia between 1997
and 2014.
• Although Russia, the Czech Republic, Hungary, and Poland receive
the most media coverage, others are struggling.
• The key is to maintain the social order, establish law, rebuild
infrastructure, and get factories and other firms up and running.

© McGraw Hill, LLC 14

 Emerging and Developing Economies 2

China
• The growth of China’s GDP has been slowing considerably.
• Many MNCs find it very difficult to do business in and with
China.
• Intellectual property concerns and national policies favoring
domestic companies make China a complicated and high-risk
venture.
• Trade relations between China and developed countries and
regions, such as the United States and the EU, remain tense.
• Trump implemented tariffs on certain Chinese imports and
China retaliated by enacting tariffs on a variety of U.S. goods.
• Another contentious issue is the value of its currency, which
some argue is kept artificially low, giving China an unfair
advantage.
© McGraw Hill, LLC 15
 Emerging and Developing Economies 3

Other Emerging Markets of Asia

• The countries of the ASEAN bloc are also fueling growth and
development in the region.
• In South Korea, the major conglomerates, called chaebols, include
Samsung, Hyundai, and the LG Group.
• Hong Kong has been the headquarters for some of the most
successful multinational operations is Asia.
• Singapore has emerged as an urban planner’s ideal model and the
leader and financial center of Southeast Asia.
• Taiwan’s economy, boosted by increasing foreign trade, continues to
grow steadily.
• Thailand, Malaysia, Indonesia, and now Vietnam have developed
economically with a relatively large population base and inexpensive
labor despite the lack of considerable natural resources.

© McGraw Hill, LLC 16

 Emerging and Developing Economies 4

India
• With a population of about 1.3 billion and growing, India
has traditionally had more than its share of political and
economic problems.
• The trend of locating software and other higher-value-
added services in India has helped bolster a large middle-
and upper-class market for goods and services.
• India’s GDP growth rate is among the highest in the world.
• Successive Indian governments have made concerted
efforts to accelerate economic growth, which has resulted
in the growth of the middle class with an appetite for
technologically advanced foreign goods.

© McGraw Hill, LLC 17

 Developing Economies on the Verge 1

South America
• Countries in South America have had difficult economic problems,
accumulating heavy foreign debt and experiencing severe inflation.

• Brazil has attracted considerable FDI but has faced setbacks though
longer-term prospects are still positive.
• Chile’s market-based economy is one of the best and stablest
performers in Latin America.
• A major development in South America is the growth of intercountry
trade, spurred on by the progress toward free-market policies.
• South American countries are looking to do business with the United
States.
• Discussing with the EU to create free trade between the two blocs.

© McGraw Hill, LLC 18

 Developing Economies on the Verge 2

Middle East and Central Asia

• Israel, the Arab countries, Iran, Turkey, and the Central
Asian countries of the former Soviet Union are a special
group of emerging countries.
• Because of their oil, some of these countries are
considered to be economically rich.
• Recently, this region has been in the world news because
of the wars and terrorism concerns.
• The price of oil greatly fluctuates, and the Organization of
Petroleum Exporting Countries (OPEC) has trouble
holding together its cartel.

© McGraw Hill, LLC 19

 Developing Economies on the Verge 3

Africa
• Even with considerable natural resources, many African nations
remain very poor and underdeveloped.
• International trade is only beginning as a major source of
income.
• One major problem is the overwhelming diversity of 3,000 tribes
speaking 1,000 languages and dialects.
• Political instability is pervasive, and generates substantial risks
for foreign investors.
• It is important to emphasize that sub-Saharan Africa’s recent
growth, which has been dependent on foreign direct investment
and the high level of global demand for commodities, is
particularly sensitive to changes in the global economy.

© McGraw Hill, LLC 20

 Summary

• Globalization
• Internationalization
• Management
• Economic integration
• Central and Eastern European countries
• Growth rates and shifting demographics
• The COVID-19 crisis
• Different economic systems

© McGraw Hill, LLC 21

 Because learning changes everything. ®

[Link]

© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.