Explain global wealth and power inequalities. What are the special challenges of serving the “bottom of the pyramid” sector? 
Discuss the benefits and costs of globalization. Provide examples of how globalization has helped or harmed individual nations and the world economy.
Chapter 4
Business in a Globalized World
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Ch. 4: Key Learning Objectives
4-1 Defining globalization and classifying the major ways in which
companies enter the global marketplace.
4-2 Identifying the international financial and trade institutions
that have shaped the globalization process in recent decades.
4-3 Analyzing the benefits and costs of the globalization of
business.
4-4 Identifying the major types of political and economic systems
in which companies operate across the world.
4-5 Understanding global inequalities of wealth and income and
analyzing the special challenges of serving those at the
“bottom of the pyramid.”
4-6 Assessing how businesses can work collaboratively with
governments and the civil sector to address global social
issues.
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4-2
The Process of Globalization
Globalization: the increasing movement
of goods, services, and capital across
national borders.
A process – an ongoing series of
interrelated events:
• International trade and financial flows integrate
the world economy, leading to the spread of
technology, culture, and politics.
• Globalization is not simply a trend or a fad but,
rather, an international system.
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4-3
Entering and Competing in the
Global Marketplace
1
Develop global market channels:
• First build a successful business in their
home country, then export products or
services to buyers in other countries.
? Example: Nestlé, PayPal.
Establish global operations:
• Locate manufacturing plants or service
operations in other countries as a way to
cut costs.
? Example: BMW.
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4-4
Entering and Competing in the
Global Marketplace
2
Develop global supply chains:
• Purchase raw materials, components, or
other supplies from sellers in other
countries; work may also be
subcontracted.
? Example: Nike, Gap.
Summarized in 3 words:
• Sell.
• Make.
• Source.
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4-5
Major Multinational Enterprises (MNEs)
Defined by the United Nations as
firms that control assets abroad.
Most global commerce is carried
out by a small number of
powerful firms.
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4-6
The World’s Top 10
Nonfinancial Multinational Enterprises
Figure 4.1
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4-7
Foreign Direct Investment (FDI)
Another important aspect of
globalization is the worldwide flow of
capital.
FDI occurs when a company,
individual, or fund invests money in
another country, for example, by
buying shares of stock in or loaning
money to a foreign firm.
In 2016, FDI was $1.75 trillion.
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4-8
Inversion
Companies avoid taxes in their
home countries:
•
by merging with companies located
in other countries and shifting their
headquarters there.
A strategy of acquiring or
merging with a foreign firm in
order to reduce corporate tax
obligations at home.
? Example: Burger King.
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4-9
International Financial
and Trade Institutions
Three institutions that set the rules by which
international commerce is transacted:
• World Bank (WB).
• International Monetary Fund (IMF).
• World Trade Organization (WTO).
No business can operate across national boundaries
without complying with rules set by the WTO.
Many businesses in developing countries are
dependent on WB and IMF loans to survive.
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4-10
The World Bank
Established in 1944.
Provides economic development loans
to its member nations.
Funds used mainly for roads, dams,
power plants, and other infrastructure
projects, as well as for education,
health and social services.
Funding provided by member
countries and international capital
markets.
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4-11
International Monetary Fund
1
“Sister” organization to World Bank, created at same
time.
Purpose: to stabilize the system of currency exchange
rates and international payments to enable member
countries to participate in global trade.
Lends foreign exchange to member countries.
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4-12
International Monetary Fund
2
Imposes conditions on governments that receive
its loans.
These conditions often lead to hardship:
• Demands that governments cut spending.
• Devalue their currencies.
• Increase exports.
• Liberalize financial markets and reduce wages.
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4-13
World Trade Organization
Founded in 1995, successor to General Agreement on
Tariffs and Trade (GATT).
International body that establishes the ground rules for
trade among nations.
Its major objective is to promote free trade; attempts to
eliminate barriers to trade (e.g. quotas, duties and tariffs).
Conducts “rounds” of negotiations on various topics.
“Most favored nation” rule means members countries
cannot discriminate against foreign products for any
reason.
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4-14
The Benefits and Costs of Globalization
1
Globalization is highly controversial.
Clearly, some benefit from
globalization, while others do not.
• What are some of the major arguments
advanced by both sides in the debate over
this important issue?
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4-15
The Benefits and Costs of Globalization
2
Figure 4.2
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4-16
Comparative Political Systems
1
Democracy – The presence of political freedom.
Four defining features of democracy (according to the U.N.):
Fair elections
Independent
media
Separation of
powers
An open society
among the executive,
legislative, and judicial
branches of government
where citizens have the
right to form their own
independent organization
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4-17
Comparative Political Systems
2
Democracy has declined in the 21st
century.
According to Freedom House estimates:
• 25 percent of countries are “not free.“
• another 30 percent are only “partly
free“.
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4-18
Comparative Political Systems
3
Degree to which human rights are protected differs
greatly among nations.
Several international codes of human rights exist.
• United Nations Universal Declaration of Human Rights of 1948.
• Over half world’s nations have adopted these human rights
covenants.
Still, many violations of human rights continue to occur:
• More than 5 million children die each year before their fifth birthday
due to pneumonia, diarrhea, malaria, and other.
• Systems where minority groups and indigenous peoples lack basic
human rights, e.g., the status of “untouchables” in Nepal.
• In 2017 25 million people worldwide were victims of forced labor,
trafficking, and human slavery.
• Genocide, the mass murder of innocent civilians, e.g., in Syria, Rwanda.
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4-19
Comparative Economic Systems
Free enterprise systems
• Based on the principle of voluntary association and
exchange.
• Members of society satisfy most of their economic
needs through voluntary market transactions.
Central state control
• Economic power is concentrated in the hands of
government officials and political authorities.
• The central government owns the property that is
used to produce goods and services.
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4-20
The Heritage Foundation
Has scored the nations of the world according to an
Index of Economic Freedom: the fundamental
rights of every human being to control his or her
own labor and property.
• Among the freest nations in 2018: Hong Kong, Singapore, and
Canada.
• Among the most repressed were Iran, Venezuela, and—the
least free in the world—North Korea. The United States
ranked 48th out of 183 countries.
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4-21
Global Inequality and the Bottom of the Pyramid
1
Inequality may be measured in two ways: by wealth
and income.
Wealth refers to assets that a person accumulates
and he or she owns at a point in time.
Income represents how much a person earns in a
day or a year.
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4-22
Global Inequality and the Bottom of the Pyramid
Global Wealth Pyramid
2
Figure 4.3
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4-23
Global Inequality and the Bottom of the Pyramid
3
Bottom of the pyramid refers to individuals earning
below $3000 a year in local purchasing power.
Focusing on the bottom of the pyramid can foster:
• Social development.
• Provide employment in underserved communities.
• Reap profits.
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4-24
Microfinance
Microfinance: This occurs when financial organizations
provide loans to low-income clients or solidarity lending
groups (a community of borrowers) who traditionally
lack access to banking or related services.
?Examples:
• Grameen Bank in Bangladesh.
• Indonesia, a midsized bank called BTPN.
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4-25
Collaborative Partnerships for
Global Problem Solving
Emerging trend for development of collaborative, multisector partnerships focused on particular social issues or
problems in the global economy.
These partnerships have been termed global action
networks, or GANs.
Involves 3 sectors:
Business
Government
Civil Society
Civil society comprises nonprofit, educational, religious, community,
family, and interest-group organizations.
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4-26
Distinctive Attributes of the Three Major Sectors
Figure 4.4
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4-27
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