Critics of globalization say that global consumer-goods companies destroy

1 Globalization

 A LOOK AT THIS CHAPTER

This chapter defines the scope of international business and introduces us to some of its most important topics. We begin by presenting globalization—describing its influence on markets and production and the forces behind its growth. Each main argument in the debate over globalization is also analyzed in detail. We then identify the key players in international business today. This chapter closes with a model that depicts international business as occurring within an integrated global business environment.

 A LOOK AHEAD

Part 2, encompassing Chapters 2, 3, and 4, introduces us to different national business environments. Chapter 2 describes important cultural differences among nations. Chapter 3 examines different political and legal systems. Chapter 4 presents the world’s various economic systems and issues surrounding economic development.

YouTube’s Global Impact

San mateo, California — YouTube (www.youtube.com) is the world’s most popular service for sharing video clips through Web sites, mobile devices, blogs, and e-mail. YouTube officially launched in December 2005, and less than a year later was purchased by Google for $1.65 billion! YouTube’s spectacular success illustrates the opportunities that globalization creates for entrepreneurs.

Pictured at right in Paris, France, YouTube founders Chad Hurley and Steve Chen introduce national versions of their service. YouTube localizes its service for 19 nations to capitalize on exploding global demand for user-created video content. “This is just the beginning,” says Chen. “If we had the resources, we would be launching in 140 countries.”

Source: © Christoph Dernback/dpa/CORBIS. All Rights Reserved.

Most people visit YouTube’s Web site to catch up on current events and find videos about their hobbies and interests. Wannabe pop stars and filmmakers also share their creative efforts with the world by uploading them to YouTube. And by creating CitizenNews (www.youtube.com/citizennews), YouTube has given a voice to citizen journalists and Vloggers (video bloggers) who report firsthand accounts of events where they live—whether their home is in Indiana or India.

Freedom sparks the creativity of artists and journalists, but it also draws the attention of heavy-handed governments. Nations that have at times blocked access to YouTube include China, Iran, Pakistan, Tunisia, and Turkey. YouTube and local providers of similar services must then employ their entrepreneurial creativity to overcome this government censorship.

As you read this chapter, consider how globalization is reshaping our personal lives and altering the activities of international companies. Also please visit this book’s YouTube channel (www.youtube.com/myibvideos) to watch specially selected videos on international business topics.1

Globalization is reshaping our lives and leading us into uncharted territory. As new technologies drive down the cost of global communication and travel, we are increasingly exposed to the traits and practices of other cultures. As countries reduce barriers to trade and investment, globalization forces their industries to grow more competitive if they are to survive. And as multinationals from advanced countries and emerging markets seek out customers, competition intensifies on a global scale. These new realities of international business are altering our cultures and transforming the way companies do business.

International Business Involves Us All

The dynamic nature of international business affects each of us personally. In our daily communications we encounter terms such as outsourcing, innovation, emerging markets, competitive advantage, and social responsibility. And each of us experiences the result of dozens of international transactions every day.

The General Electric alarm clock/radio (www.ge.com) that woke you was likely made in China. The breaking news buzzing in your ears was produced by Britain’s BBC radio (www.bbc.co.uk). You slip on your Adidas sandals (www.adidas.com) made in Indonesia, Abercrombie & Fitch T-shirt (www.abercrombie.com) made in the Northern Mariana Islands, and American Eagle jeans (www.ae.com) made in Mexico. You pull the charger off your Nokia phone (www.nokia.com), which was designed in Finland and manufactured in the United States with parts from Taiwan, and head out the door. You hop into your Toyota (www.toyota.com) that was made in Kentucky, and pop in a CD performed by the English band Coldplay (www.coldplay.com). You swing by the local Starbucks (www.starbucks.com) to charge your own batteries with coffee brewed from a blend of beans harvested in Colombia and Ethiopia. Your day is just one hour old but in a way you’ve already taken a virtual round-the-world trip. A quick glance at the “Made in” tags on your jacket, backpack, watch, wallet, or other items with you right now will demonstrate the pervasiveness of international business transactions.

International business is any commercial transaction that crosses the borders of two or more nations. You don’t have to set foot outside a small town to find evidence of international business. No matter where you live, you’ll be surrounded by imports—goods and services purchased abroad and brought into a country. Your counterparts around the world will undoubtedly spend some part of their day using your nation’s exports—goods and services sold abroad and sent out of a country. The total value of goods and services exported by all nations each year is a staggering $14,950,150,000,000 (nearly $15 trillion). That is nearly 40 times the annual revenue of the world’s largest company, Wal-Mart Stores (www.walmart.com).2

international business

Commercial transaction that crosses the borders of two or more nations.

imports

Goods and services purchased abroad and brought into a country.

exports

Goods and services sold abroad and sent out of a country.

Technology Makes It Possible

Technology is perhaps the most remarkable facilitator of societal and commercial changes today. Consumers use technology to reach out to the world on the Internet—gathering and sending information and purchasing all kinds of goods and services. Companies use technology to acquire materials and products from distant lands and to sell goods and services abroad.

When businesses or consumers use technology to conduct transactions, they engage in e-business (e-commerce)—the use of computer networks to purchase, sell, or exchange products, service customers, and collaborate with partners. E-business is making it easier for companies to make their products abroad, not simply import and export finished goods.

e-business (e-commerce)

Use of computer networks to purchase, sell, or exchange products, service customers, and collaborate with partners.

Consider how Hewlett-Packard (HP) (www.hp.com) designed and built a computer server for small businesses. Once HP identified the need for a new low-cost computer server, it seized the rewards of globalization. HP dispersed the design and production of its ProLiant ML150 server throughout a specialized manufacturing system across five Pacific Rim nations and India (see Figure 1.1). This helped the company minimize labor costs, taxes, and shipping delays yet maximize productivity when designing, building, and distributing its new product. Companies use such innovative production and distribution techniques to squeeze inefficiencies out of their international operations and boost their competitiveness.

FIGURE 1.1 Global Production of an HP Server

Source: Rebecca Buckman, “H-P Outsourcing: Beyond China,” Wall Street Journal, (www.wsj.com), February 23, 2004.

Global Talent Makes It Happen

Media companies today commonly engage in a practice best described as a global relay race. Fox and NBC Universal created Hulu (www.hulu.com) as a cool venue for fans to watch TV shows online. Hulu employs two technical teams—one in the United States and one in China—to manage its Web site. Members of the team in Santa Monica, California, work late into the night detailing code specifications that it sends to the team in Beijing, China. The Chinese team then writes the code and sends it back to Santa Monica before the U.S. team gets to work in the morning.3

Some innovative companies use online competitions to tap global talent. InnoCentive (www.innocentive.com) connects companies and institutions seeking solutions to difficult problems using a global network of more than 145,000 creative thinkers. These engineers, scientists, inventors, and businesspeople with expertise in life sciences, engineering, chemistry, math, computer science, and entrepreneurship compete to solve some of the world’s toughest problems in return for significant financial awards. InnoCentive is open to anyone, is available in seven languages, and pays cash awards that range from as little as $2,000 to as much as $1,000,000.4

This chapter begins by presenting globalization—we describe its powerful influence on markets and production and explain the forces behind its rapid expansion. Following coverage of each main point in the debate over globalization, we examine the key players in international business. We then explain why international business is special by presenting the dynamic, integrated global business environment. Finally, the appendix at the end of this chapter contains a world atlas to be used as a primer for this chapter’s discussion and as a reference throughout the remainder of the book.

Quick Study

1. Define the term international business and explain how it affects each of us.

2. What do we mean by the terms imports and exports?

3. Explain how e-business (e-commerce) is affecting international business.

Globalization

Although nations historically retained absolute control over the products, people, and capital crossing their borders, economies are becoming increasingly intertwined. Globalization is the trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies. Globalization is a trend characterized by denationalization (national boundaries becoming less relevant) and is different from internationalization (entities cooperating across national boundaries). The greater interdependence that globalization is causing means an increasingly freer flow of goods, services, money, people, and ideas across national borders.

globalization

Trend toward greater economic, cultural, political, and technological interdependence among national institutions and economies.

As its definition implies, globalization involves much more than the expansion of trade and investment among nations. Globalization embraces concepts and theories from political science, sociology, anthropology, and philosophy as well as economics. As such, it is not a term exclusively reserved for multinational corporations and international financial institutions. Nor is globalization the exclusive domain of those with only altruistic or moral intentions. In fact, globalization has been described as going “well beyond the links that bind corporations, traders, financiers, and central bankers. It provides a conduit not only for ideas but also for processes of coordination and cooperation used by terrorists, politicians, religious leaders, anti-globalization activists, and bureaucrats alike.”5

For our purposes, this discussion focuses on the business implications of globalization. Two areas of business in which globalization is having profound effects are the globalization of markets and production.

Globalization of Markets

Globalization of markets refers to convergence in buyer preferences in markets around the world. This trend is occurring in many product categories, including consumer goods, industrial products, and business services. Clothing retailer L.L. Bean (www.llbean.com), shoe producer Nike (www.nike.com), and electronics maker Sony (www.sony.com) are just a few companies that sell global products—products marketed in all countries essentially without any changes. Global products and global competition characterize many industries and markets, including semiconductors (Intel, Philips), aircraft (Airbus, Boeing), construction equipment (Caterpillar, Mitsubishi), autos (Honda, Volkswagen), financial services (Citicorp, HSBC), air travel (Lufthansa, Singapore Airlines), accounting services (Ernst & Young, KPMG), consumer goods (Procter & Gamble, Unilever), and fast food (KFC, McDonald’s). The globalization of markets is important to international business because of the benefits it offers companies. Let’s now look briefly at each of these benefits.

Reduces Marketing Costs

Companies that sell global products can reduce costs by standardizing certain marketing activities. A company selling a global consumer good, such as shampoo, can make an identical product for the global market and then simply design different packaging to account for the language spoken in each market. Companies can achieve further cost savings by keeping an ad’s visual component the same for all markets, but dubbing TV ads and translating print ads into local languages.

Creates New Market Opportunities

A company that sells a global product can explore opportunities abroad if the home market is small or becomes saturated. For example, China holds enormous potential for e-business with more than 240 million Internet users, but this represents just 18 percent of China’s total population. By comparison, around 153 million people are online in the United States, about 70 percent of the population. So, the battle for market share in the Middle Kingdom is raging between the top two online search engines—Google (www.google.cn) and Yahoo! (www.cn.yahoo.com).6 Seeking sales growth abroad can be absolutely essential for an entrepreneur or small company that sells a global product but has a limited home market.

An employee demonstrates the latest iPhone at a T-Mobile phone store in Cologne, Germany. The iPhone by Apple (www.apple.com) is a hugely successful global product that excites style-lovers the world over. The iPhone combines a music and video player, cell phone, and Web browser into a single handset. Apple standardized the iPhone to reduce production and marketing costs and to support the creation of a powerful global brand.

Source: © Nvennenbernd/epa/CORBIS. All Rights Reserved.

Levels Uneven Income Streams

A company that sells a product with universal, but seasonal, appeal can use international sales to level its income stream. By supplementing domestic sales with international sales, the company can reduce or eliminate wide variations in sales between seasons and steady its cash flow. For example, a firm that produces suntan and sunblock lotions can match product distribution with the summer seasons in the northern and southern hemispheres in alternating fashion—thereby steadying its income from these global, yet highly seasonal, products.

Yet Local Needs Are Important

Despite the potential benefits of global markets, managers must constantly monitor the match between the firm’s products and markets to not overlook the needs of buyers. The benefit of serving customers with an adapted product may outweigh the benefit of a standardized one. For instance, soft drinks, fast food, and other consumer goods are global products that continue to penetrate markets around the world. But sometimes these products require small modifications to better suit local tastes. In southern Japan, Coca-Cola (www.cocacola.com) sweetens its traditional formula to compete with sweeter-tasting Pepsi (www.pepsi.com). In India, where cows are sacred and the consumption of beef is taboo, McDonald’s (www.mcdonalds.com) markets the “Maharaja Mac”—two all-mutton patties on a sesame-seed bun with all the usual toppings.

Globalization of Production

Many production activities are also becoming global. Globalization of production refers to the dispersal of production activities to locations that help a company achieve its cost-minimization or quality-maximization objectives for a good or service. This includes the sourcing of key production inputs (such as raw materials or products for assembly) as well as the international outsourcing of services. Let’s now explore the benefits companies obtain from the globalization of production.

Access Lower-Cost Workers

Global production activities allow companies to reduce overall production costs through access to low-cost labor. For decades, companies located their factories in low-wage nations to churn out all kinds of goods, including toys, small appliances, inexpensive electronics, and textiles. Yet whereas moving production to low-cost locales traditionally meant production of goods almost exclusively, it increasingly applies to the production of services such as accounting and research. Although most services must be produced where they are consumed, some services can be performed at remote locations where labor costs are lower. Many European and U.S. businesses have moved their customer service and other nonessential operations to places as far away as India to slash costs by as much as 60 percent.

Access Technical Expertise

Companies also produce goods and services abroad to benefit from technical know-how. Film Roman (www.filmroman.com) produces the TV series, The Simpsons, but it provides key poses and step-by-step frame directions to AKOM Production Company (www.akomkorea.com) in Seoul, South Korea. AKOM then fills in the remaining poses and links them into an animated whole. But there are bumps along the way, says animation director Mark Kirkland. In one middle-of-the-night phone call, Kirkland was explaining to the Koreans how to draw a shooting gun. “They don’t allow guns in Korea; it’s against the law,” says Kirkland. “So they were calling me [asking]: ‘How does a gun work?’” Kirkland and others put up with such cultural differences and phone calls at odd hours to tap a highly qualified pool of South Korean animators.7

Access Production Inputs

Globalization of production allows companies to access resources that are unavailable or more costly at home. The quest for natural resources draws many companies into international markets. Japan, for example, is a small, densely populated island nation with very few natural resources of its own—especially forests. But Japan’s largest paper company, Nippon Seishi, does more than simply import wood pulp. The company owns huge forests and corresponding processing facilities in Australia, Canada, and the United States. This gives the firm not only access to an essential resource, but control over earlier stages in the papermaking process. As a result, the company is guaranteed a steady flow of its key ingredient (wood pulp) that is less subject to swings in prices and supply associated with buying pulp on the open market. Likewise, to access cheaper energy resources used in manufacturing, a variety of Japanese firms are relocating production to China, Mexico, and Vietnam where energy costs are lower.

Despite its benefits, globalization also creates new risks and accentuates old ones for companies. To read about several key risks that globalization heightens and how companies can better manage them, see this chapter’s Global Challenges feature titled, “Investing in Security Pays Dividends.”

Quick Study

1. Define globalization. How does denationalization differ from internationalization?

2. List each benefit a company might obtain from the globalization of markets.

3. How might a company benefit from the globalization of production?

Forces Driving Globalization

Two main forces underlie the globalization of markets and production: falling barriers to trade and investment and technological innovation. These two features, more than anything else, are increasing competition among nations by leveling the global business playing field; what author Thomas Friedman refers to in his book titled, The World Is Flat.8 Greater competition is simultaneously driving companies worldwide into more direct confrontation and cooperation. Local industries once isolated by time and distance are increasingly accessible to large international companies based many thousands of miles away. Some small and medium sized local firms are compelled to cooperate with one another or with larger international firms to remain competitive. Other local businesses revitalize themselves in a bold attempt to survive the competitive onslaught. And on a global scale, consolidation is occurring in many industries as former competitors link-up to challenge others on a worldwide basis. Let’s now explore in greater detail the pivotal roles of the two forces driving globalization.

GLOBAL CHALLENGES: Investing in Security Pays Dividends

The globalization of markets and production creates new challenges for companies around the world. As well as the need to secure lengthier supply lines and distribution channels, companies must pay increased attention to their facilities, information systems, and reputations.

■ A Simple Plan. Careful planning and a vulnerability assessment of facilities (around $12,000 for a midsized company; $1 million for a large firm) can be well worth the cost. For example, Wall Street firms with well-executed disaster plans had their employees working from hotel rooms, rented offices, and their homes the day after terrorists attacked New York City on September 11, 2001.

■ Digital Deterrence. Computer viruses, software worms, malicious code, and cyber criminals cost the United States $55 billion a year in lost productivity. The usual suspects include disgruntled employees, dishonest competitors, and hackers. Upon quitting their jobs, some employees simply walk away with digital devices containing confidential memos, competitive data, and private e-mails.

■ Perception Is Reality. News regarding the actions of today’s largest corporations spreads worldwide quickly. Reputational risk is anything that can harm a firm’s image, including accounting irregularities, product recalls, and workers’ rights violations. Reputational risk is extremely important because a company’s reputation can be its most valuable asset and be impossible to recover once tarnished.

■ The Challenge. Like the risks themselves, the challenges are also varied. First, companies should identify all potential risks to their facilities and plan for business evacuation, continuity, and relocation. Second, employees should change passwords often, use software patches to guard computers and mobile devices, and return all company-owned digital devices when leaving the firm. Third, as they come under ever-increasing scrutiny, companies should act ethically and within the law to protect their reputations.

■ Want to Know More? Visit leading risk consultancy Kroll (www.krollworldwide.com), leading Internet security firm Check Point Software Technologies (www.checkpoint.com), and Internet security agency CERT Coordination Center (www.cert.org).

Source: The Economist, (www.economist.com), January 22, 2004; “Living Dangerously,” The Economist, (www.economist.com), January 22, 2004; “Your Jitters Are Their Lifeblood,” Business Week, (www.businessweek.com), April 14, 2003.

Falling Barriers to Trade and Investment

In 1947, political leaders of 23 nations (12 developed and 11 developing economies) made history when they created the General Agreement on Tariffs and Trade (GATT)—a treaty designed to promote free trade by reducing both tariffs and nontariff barriers to international trade. Tariffs are essentially taxes levied on traded goods, and nontariff barriers are limits on the quantity of an imported product. The treaty was successful in its early years. After four decades, world merchandise trade had grown 20 times larger and average tariffs had fallen from 40 percent to 5 percent.

General Agreement on Tariffs and Trade (GATT)

Treaty designed to promote free trade by reducing both tariffs and nontariff barriers to international trade.

Significant progress occurred again with a 1994 revision of the GATT treaty. Nations that had signed on to the treaty further reduced average tariffs on merchandise trade and lowered subsidies (government financial support) for agricultural products. The treaty’s revision also clearly defined intellectual property rights—giving protection to copyrights (including computer programs, databases, sound recordings, and films), trademarks and service marks, and patents (including trade secrets and know-how). A major flaw of the original GATT was that it lacked the power to enforce world trade rules. Likely the greatest accomplishment of the 1994 revision was the creation of the World Trade Organization.

World Trade Organization

The World Trade Organization (WTO) is the international organization that enforces the rules of international trade. The three main goals of the WTO (www.wto.org) are to help the free flow of trade, help negotiate the further opening of markets, and settle trade disputes between its members. It is the power of the WTO to settle trade disputes that really sets it apart from its predecessor, the GATT. The various WTO agreements are essentially contracts between member nations that commit them to maintaining fair and open trade policies. Offenders must realign their trade policies according to WTO guidelines or face fines and, perhaps, trade sanctions (penalties). Because of its ability to penalize offending nations, the WTO’s dispute settlement system truly is the spine of the global trading system. The WTO replaced the institution of GATT but absorbed all of the former GATT agreements. Thus the GATT institution no longer officially exists. The WTO recognizes 153 members and 30 “observer” members.

World Trade Organization (WTO)

International organization that enforces the rules of international trade.

The WTO launched a new round of negotiations in Doha, Qatar, in late 2001. The renewed negotiations were designed to lower trade barriers further and help poor nations in particular. Agricultural subsidies that rich countries pay to their own farmers are worth $1 billion per day—more than six times the value of their combined aid budgets to poor nations. Because 70 percent of poor nations’ exports are agricultural products and textiles, wealthy nations had intended to further open these and other labor-intensive industries. Poor nations were encouraged to reduce tariffs among themselves and were to receive help in integrating themselves into the global trading system. Although the Doha round was to conclude by the end of 2004, negotiations are proceeding more slowly than was anticipated.9

Regional Trade Agreements

In addition to the WTO, smaller groups of nations are integrating their economies as never before by fostering trade and boosting cross-border investment. For example, the North American Free Trade Agreement (NAFTA) gathers three nations (Canada, Mexico, and the United States) into a free-trade bloc. The more ambitious European Union (EU) combines 27 countries. The Asia Pacific Economic Cooperation (APEC) consists of 21 member economies committed to creating a free-trade zone around the Pacific. The aims of each of these smaller trade pacts are similar to those of the WTO, but are regional in nature. Moreover, some nations are placing greater emphasis on regional pacts because of resistance to worldwide trade agreements.

Trade and National Output

Together, the WTO agreements and regional pacts have boosted world trade and cross-border investment significantly. Trade theory tells us that openness to trade helps a nation to produce a greater amount of output. Map 1.1 illustrates that growth in national output over a recent 10-year period is significantly positive. Economic growth is greater in nations that have recently become more open to trade, such as China, India, and Russia, than it is in many other countries. Much of South America is also growing rapidly, while Africa’s experience is mixed.

Let’s take a moment in our discussion to define a few terms that we will encounter time and again throughout this book. Gross domestic product (GDP) is the value of all goods and services produced by a domestic economy over a one-year period. GDP excludes a nation’s income generated from exports, imports, and the international operations of its companies. We can speak in terms of world GDP when we sum all individual nations’ GDP figures. GDP is a somewhat narrower figure than gross national product (GNP)—the value of all goods and services produced by a country’s domestic and international activities over a one-year period. A country’s GDP or GNP per capita is simply its GDP or GNP divided by its population.

gross domestic product (GDP)

Value of all goods and services produced by a domestic economy over a one-year period.

gross national product (GNP)

Value of all goods and services produced by a country’s domestic and international activities over a one-year period.

GDP or GNP per capita

Nation’s GDP or GNP divided by its population.

Technological Innovation

Although falling barriers to trade and investment encourage globalization, technological innovation is accelerating the process. Significant advancements in information technology and transportation methods are making it easier, faster, and less costly to move data, goods, and equipment around the world. Let’s examine several innovations that have had a considerable impact on globalization.

E-mail and Videoconferencing

Operating across borders and time zones complicates the job of coordinating and controlling business activities. But technology can speed the flow of information and ease the tasks of coordination and control. Electronic mail (e-mail) is an indispensable tool that managers use to stay in contact with international operations and to respond quickly to important matters. Videoconferencing allows managers in different locations to meet in virtual face-to-face meetings. Primary reasons for 25 to 30 percent annual growth in videoconferencing include lower-cost bandwidth (communication channels) used to transmit information, lower-cost equipment, and the rising cost of travel for businesses. Videoconferencing equipment can cost as little as $5,000 and as much as $340,000. A company that does not require ongoing videoconferencing can pay even less by renting the facilities and equipment of a local conference center.10

Internet and World Wide Web

Companies use the Internet to quickly and cheaply contact managers in distant locations to, for example, inquire about production runs, revise sales strategies, and check on distribution bottlenecks. They also use the Internet to achieve longer term goals, such as sharpen their forecasting, lower their inventories, and improve communication with suppliers. The lower cost of reaching an international customer base especially benefits small firms, which were among the first to use the Web as a global marketing tool. Further gains arise from the ability of the Internet to cut postproduction costs by decreasing the number of intermediaries a product passes through on its way to the customer. Eliminating intermediaries greatly benefits online sellers of books, music, and travel services, among others.

Company Intranets and Extranets

Internal company Web sites and information networks (intranets) give employees access to company data using personal computers. A particularly effective marketing tool on Volvo Car Corporation’s (www.volvocars.com) intranet is a quarter-by-quarter database of marketing and sales information. The cycle begins when headquarters submits its corporate-wide marketing plan to Volvo’s intranet. Marketing managers at each subsidiary worldwide then select those activities that apply to their own market, develop their marketing plan, and submit it to the database. This allows managers in every market to view every other subsidiary’s marketing plan and to adapt relevant aspects to their own plan. In essence, the entire system acts as a tool for the sharing of best practices across all of Volvo’s markets.

Extranets give distributors and suppliers access to a company’s database to place orders or restock inventories electronically and automatically. These networks permit international companies (along with their suppliers and buyers) to respond to internal and external conditions more quickly and more appropriately.

Advancements in Transportation Technologies

Retailers worldwide rely on imports to stock their storerooms with finished goods and to supply factories with raw materials and intermediate products. Innovation in the shipping industry is helping globalize markets and production by making shipping more efficient and dependable. In the past, a cargo ship would sit in port up to 10 days while it was unloaded one pallet at a time. But because cargo today is loaded onto a ship in 20- and 40-foot containers that are quickly unloaded onto railcars or truck chassis at the final destination, a 700-foot cargo ship is routinely unloaded in just 15 hours.

MAP 1.1 Growth in National Output

Operation of cargo ships is now simpler and safer due to computerized charts that pinpoint a ship’s movements on the high seas using Global Positioning System (GPS) satellites. Combining GPS with radio frequency identification (RFID) technology allows continuous monitoring of individual containers from port of departure to destination. RFID can tell whether a container’s doors are opened and closed on its journey and can monitor the temperature inside refrigerated containers.11

Measuring Globalization

Although we intuitively feel that our world is becoming smaller, researchers have created ways to measure the extent of globalization. One of the most comprehensive indices of globalization is that created by A.T. Kearney (www.atkearney.com), a management consultancy, and Foreign Policy magazine (www.foreignpolicy.com).12 The index ranks 72 nations, which altogether account for 97 percent of the world’s GDP and 88 percent of its population. Each nation’s ranking in the index comprises a compilation of over a dozen variables within four categories:

1. Economic integration —trade, foreign direct investment, portfolio capital flows, and investment income.

2. Personal contact —international travel and tourism, international telephone traffic, remittances, and personal transfers (including compensation to employees).

3. Technological connectivity —Internet users, Internet hosts, and secure servers.

4. Political engagement —memberships in international organizations, personnel and financial contributions to U.N. Security Council missions, international treaties ratified, and governmental transfers.

By incorporating a wide variety of variables, the index is apt to cut through cycles occurring in any one of the four areas listed above. And by encompassing social factors in addition to economic influences, it tends to capture the broad nature of globalization. Table 1.1 shows the 10 highest-ranking nations in the latest Globalization Index. It shows each nation’s overall rank and its rank on each dimension described earlier: (1) economic integration, (2) personal contact, (3) technological connectivity, and (4) political engagement. Europe accounts for five of the top 10 spots and the United States appears in seventh place on the list. The United States is the first large nation to make it into the top ranks—due largely to its technological superiority. Large nations often do not make it into the higher ranks because they tend to depend less on external trade and investment.

TABLE 1.1 Globalization’s Top 10

Rank

Country

Overall

Economic

Personal

Technological

Political

Singapore

 1

 2

 3

15

40

Hong Kong

 2

 1

 1

17

71

Netherlands

 3

 4

16

 6

 8

Switzerland

 4

11

 2

 7

28

Ireland

 5

 6

 4

13

 5

Denmark

 6

 5

13

 5

 7

United States

 7

71

40

 1

51

Canada

 8

34

11

 2

13

Jordan

 9

10

 5

50

 1

Estonia

10

 3

10

21

25

Source: “The Globalization Index,” Foreign Policy, November/December 2007, pp. 68–76.

The world’s least-global nations also deserve mention. The least-global nations account for around half the world’s population and are found in Africa, East Asia, South Asia, Latin America, and the Middle East. One remarkable commonality among these nations is their low levels of technological connectivity. These nations will likely have a difficult struggle ahead if they are to overcome their lack of global integration.

Some of the least-global nations are characterized by never-ending political unrest and corruption (Bangladesh, Indonesia, and Venezuela). Other nations with large agricultural sectors face trade barriers in developed countries and are subject to highly volatile prices on commodity markets (Brazil, China, and India). Still others are heavily dependent on oil exports but are plagued by erratic prices in energy markets (Iran and Venezuela). Kenya has suffered from recurring droughts, terrorism, and burdensome visa regulations that hurt tourism. Finally, Turkey and Egypt, along with the entire Middle East, suffer from continued concerns over terrorism, high barriers to trade and investment, and heavy government involvement in the economy. To deepen their global links, each of these nations will need to make great strides in their economic, social, technological, and political environments.

Quick Study

1. What two main forces underlie the expansion of globalization?

2. How have global and regional efforts to promote trade and investment advanced globalization?

3. How does technological innovation propel globalization?

4. What factors make some countries more global than others?

Untangling the Globalization Debate

Globalization means different things to different people. A businessperson may see globalization as an opportunity to source goods and services from lower-cost locations and to pry open new markets. An economist may see it as an opportunity to examine the impact of globalization on jobs and standards of living. An environmentalist may be concerned with how globalization affects our ecology. An anthropologist may want to examine the influence of globalization on the culture of a group of people. A political scientist may be concerned with the impact of globalization on the power of governments relative to that of multinational companies. And an employee may view globalization either as an opportunity for new work or as a threat to his or her current job.

It is because of the different lenses through which we view events around us that the globalization debate is so complex. Entrepreneurs, small business owners, and globetrotting managers need to understand globalization and the arguments of those who oppose it. In the pages that follow, we explain the main arguments of those opposed to globalization and the responses of those in favor of it. But before we address the intricacies of the debate, it is helpful to put today’s globalization into its proper context.

Today’s Globalization in Context

Many people forget that there was a first age of globalization that extended from the mid-1800s to the 1920s.13 In those days, labor was highly mobile, with 300,000 people leaving Europe each year in the 1800s and one million people leaving each year after 1900.14 Other than in wartime, nations did not even require passports for international travel before 1914. And like today, workers in wealthy nations back then feared competition for jobs from high- and low-wage countries.