This will be module one of this course, and which we will be exploring all types of aspects of the global business environment, by answering key questions about it.
This is a class that sometimes is called International Management or International Business.
Is often a required class in a undergraduate program in business administration or an MBA program.
This will be an eight week course in which we’ll discuss the global business environment and there will be a second course i.e. part two which will go into further details about managing in the global business environment.
This is an introductory course and we will cover materials assuming that you have some limited knowledge of economics and business, but you don’t have to have a specific pre-requisite in order to take this course.
When we talk about the global business environment, and of course, in international business or international management, and understanding that global business environment better.
You might ask yourself why is that we would study the global business environment separate from other issues, and topics, and disciplines in business.
Some people argue and believe that it’s better to integrate international business issues, global business environment related questions and problems, into individual courses like marketing and international marketing courses at a university or college.
Others argue that the global business environment is so complex and that business is so different when you cross borders and you involve new languages and new political systems, and new business regulations.
So it’s an ongoing debate but we will study the global business environment obviously separately and consider some of the key issues that a business might face when entering into the world beyond their own country.
When we talk about global business environment, the types of things that are different are language, culture, as we mentioned, sociopolitical issues.
We’re going to look at globalization and try to understand in this first module a little bit better what we mean by globalization when we talk about the global business environment.
You may have had another course somewhere else where the tendency was to see globalization and global business environment to be a negative thing.
We will talk later about whether or not this is new, whether or not globalization and trying to understand the global business of ours is a new idea.
There are different ways of doing things that are valuable for you to experience and so I think that you’ll find that we generally discuss the global business environment as a positive thing and as an opportunity in this class.
One of the hot words that you might hear in the news or in another class is outsourcing.
For some people, for example, in the United States of America, outsourcing has come to mean something negative.
From a company perspective outsourcing might be seen positively because of a savings, cost savings.
So outsourcing has become a word that has this multiple meanings to different people.
The problem I have with outsourcing is the confusion that individuals have about what it is.
So I wanted to start with this and say that, first of all, outsourcing is something that doesn’t just cross borders.
Outsourcing is simply hiring someone else to do something for us.
So if I go to a mechanic and ask them to fix my car, I am hiring someone, I’m outsourcing a task fixing my car.
So we all do that all the time,and lots of companies within many countries do the same thing.
At many universities across the world, there are restaurants on campus that are run or managed by outside companies, outsourced companies.
There are bookstores on many campuses that are also managed or run by outsourced companies.
So outsourcing is a very popular business strategy in general that probably shouldn’t have the negative meaning attached to it sometimes.
In an international context, it’s probably better to say international outsourcing when we’re referring to a company in one country sourcing or hiring another company to do something.
For example, if a high technology company like Microsoft in the United States hires a third party, another company, a separate entity, to provide some service, customer service.
Design accounting support, in another place such as India, for example, that would be an example of international outsourcing.
The reason that’s important is because that’s different outsourcing than offshoring.
A lot of people often mean offshoring when they say outsourcing.
Companies engage in another strategy across the globe in which they build operations of their own, and manage those operations, and use their own brand name to take advantage of some benefit in that foreign location.
If Samsung, which is a Korean company, builds a plant in Brazil and the building says Samsung on it and it’s managed and operated by Samsung.
Outsourcing is when you hire a separate company to do a task or a job for you.
When a company in Korea, for example, has a plant in Brazil the profits that are earned, where do they go? Are they kept locally, and reinvested in the local economy, or are they repatriated or sent back to the home country of that company? And so there are lots of controversial issues when we talk about global business environment and globalization, which is why we have a whole class on this.
Questions are asked such as, is it worth it for companies to go abroad and, and do business in a foreign place and attract workers at a lower cost, to relatively tedious jobs.
Draw your attention to a book that was a very popular called The World is Flat.
Another view is if you have had the chance to travel across borders is to realize that borders do matter.
If we were in a completely globalized world, we wouldn’t have any borders.
Even though it might be the case that popular movies across the world are now, more widespread. Or we may be more aware, across the world, of different foods, or different food companies.
So it isn’t those differences across borders that continue to, force us to have classes like this.
In this particular graph and this is from several years ago this particular graph shows with the green line the percentage of of some type of interaction across borders that a survey indicated they thought occurred.
What is the percentage of telephone calls across the globe which are international, which cross borders? Now I realize that Skype exists and there are lots of ways to communicate and cell phones.
So we’re talking about telephone calls using traditional technology, what percent of all telephone calls cross borders? And the data show that it’s less than 5%; in fact it’s like 2% or 3%. And what Dr. Gimawat points out is that people think in, in one survey, people thought that 30% of phone calls crossed borders.
Sometimes we might hear the idea that there are these global universities and that there are students coming across borders to study from China into Europe for example, or from India into Canada. Again in this survey, over 20% were estimated to be of university students worldwide. And among those who were estimated to be foreign students, those who had crossed borders to study were about 5%.
Direct investments: of all investments made across the world, which ones or what percentage involves some type of foreign investment and direct control of that investment across borders.
In the survey, over 30% was estimated to involve cross border investment when it’s still less than 10%. So, most investment across the world is within individual countries.
In a completely globalized world, you would have this very high percentage of of commerce that would be across borders.
Estimates in the survey came in about 40%. This one came the closest to being accurate about 30% of of all commerce across the world is across borders.
Anytime you’re buying a product that’s made in another country – sales abroad. And so this is probably the best indicator that we are creeping towards a more globalized world.
There’s one index called the KOF Index, that tries to capture the degree to which individual countries are involved in things like trade across borders, investment across borders.
Cultural proximity, and these, perhaps, aren’t the most perfect measures, but the number of McDonald’s restaurants, the number of IKEA stores and other political measures such as the number of embassies in the country.
So this is not a perfect measure but I think it’s interesting to look at the degree to which some countries are involved in the world and the, the according to this index, and the degree to which others aren’t.
Not all countries are participating to the same degree.
So citizens of these countries, if you’re watching this class, might disagree with the idea that globalization is this movement that’s at its maximum peak or point.
Perhaps some surprising countries or perhaps not, are at the top of the list.
Some of the most globalized countries of the world are in Europe such s Belgium.
The Netherlands, Scandinavian countries such as Denmark and Sweden.
A country like Singapore, which has very open borders and very free trade promoting policies and is really a nation of immigrants.
We see lots of other countries in Europe, where they have a European Union.
Here’s the United Arab Emirates, which is a country an area of the world it’s actually a set of Emirates, you might say that has a very high level of expatriates or immigrants living in it.
Do we see some of the countries that we might consider more isolated? They might be isolated geographically perhaps.
So there are countries in the world that really haven’t seen the benefits from globalization or even had the opportunity to taste to some degree what it is.
Now, this is important too because sometimes we see arguments that emerging or developing countries have become completely dominated by outside forces, by outside investment, or outside remittances from immigrants
Let’s just look at this example to try to understand how inter-related the world is today and, and where everything we use might come from.
An individual named Michael decides to donate some of his clothing to a charity.
Where does it go next? Well, it goes to a recycling factory where the clothing is bundled together and organized and will go to different places across the world, including Asia and Latin America, to Africa different parts of Africa.
It is headed for second hand clothing an importer of second hand clothing and a warehouse there in Kenya.
Now you might ask, well, why is charity clothing being sold? But the money from the sale supports the charity is how that works.
Then in the fourth step of this simple example an individual from a country in Africa called Zambia buys a portion of this used clothing and pays a particular price.
He gets on a bus and takes the clothing on that bus to his own city in Mongu and Zambia and he sells it at an individual market.
The individuals probably have no idea that the clothing came from a some of the clothing might have come from a young man in Manhattan, New York City in the United States, a donation.
Very simple example but it helps us identify how complex the world is when we think about other products.
You can see that the parts and the design and the manufacturing and assembly of this product come from all across the world.
Next time, we’ll look at the specific benefits that may or may not accrue or arrive to certain places in the world and how the developing economies, in particular, have benefited and also struggled with certain aspects of globalization.
Different countries have different levels of wealth, different levels of economic success.
One of the arguments is that if you have large levels of interactions across borders, if you have higher levels of integration across borders, do the benefits go to individual countries to the same level or degree? Or are the rules set up so that wealthier countries benefit more than less developed countries?
And we’ve seen, this relative inequality in practice.
So is it fair for these countries to trade for example, if one place has better information about prices or trade practices, and others have more difficult access? This inequality is also seen in this map of the world. Which is a measure of, of income inequality within a country.
The GINI coefficient ranges from zero to one, and in a country that is one has a, if, if there were a country that had a score of one on this GINI coefficient, that would mean that one person had all of the wealth.
There are some parts of the world for example, in Southern Africa, that have very high levels of inequality, you might argue.
So is it fair to set up these global rules? Do they benefit certain parts of certain countries differentially? Are the individuals in society with lower levels of income being heard? Others would say, well the fact that these levels are relatively low of or, high inequality, that suggest that there’s relatively low wages for, citizens who, perhaps, are involved in entry level jobs.
So one question we might ask, and is often involved in this debate, is to what degree countries have benefited over time from globalization.
We have a very interesting example in the history of the world in the recent past with what we often call the Four Asian Tigers.
These countries, or regions, or places however you might describe them benefited from embracing globalization around the same time and have seen explosive growth in their gross domestic product per capita.
As they’ve embraced increasing levels of trade they have embraced policies which have brought political openness, have brought protect, protection for property rights.
For example all four of the Asian Tigers are members of The World Trade Organization.
You might argue that to some degree, this at least tells us that globalization hasn’t hurt all countries because, or all places, or all regions of the world.
Because these Four Asian Tigers emerged, in part, by embracing a more open global relationship with the rest of the world.
The increased interaction and integration of countries, economies, companies, and peoples across the globe, we have seen increases in various measures that lead us to believe that globalization is a very important force in today’s world.
