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1. Because learning changes everything.®
International
Management:
Culture, Strategy, and
Behavior
Part One: Environmental
Foundation
Chapter 1: Globalization and
International Linkages
© McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

2. © McGraw-Hill Education 2
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.
Globalization,
coupled with the
rise of emerging
market MNCs, has
brought prosperity
to many previously
underdeveloped
parts of the world.

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Globalization, Antiglobalization, and Pressures for Change
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.
Proponents believe that everyone
benefits from globalization.
• Critics disagree, noting that
offshoring of jobs does not
inherently create greater
opportunities at home.
Antiglobalization activists say the
poorest countries relax standards
for first-world investment.
• Proponents believe global firms
will employ modern, green
technology.

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Global and Regional Integration
World Trade Organization (WTO) is the global organization that
oversees rules and regulations for international trade and investment.
North American Free Trade Agreement (NAFTA) removed most trade
and investment barriers between the U.S., Canada, and Mexico.
• USMCA will replace NAFTA following ratification by each country.
Other bilateral agreements, including CAFTA-DR reduce trade barriers.
The European Union (EU) has made significant progress over the past
two decades in becoming a unified market – even with “Brexit.”
Japan has experienced economic problems since the early 1990s but
China continues its steady growth.
The Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP) negotiated an Asia-Pacific trade agreement.
Central and Eastern Europe and Russia are still trying to make stable
transitions to market economies.

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Figure 1-1: European Member States and Candidates, 2019
Access the text alternative for this image.
Source: Original graphic by Professor Jonathan Doh.

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Changing Global Demographics
The global
working-age
population
declined.
Global life
expectancy
increased.
Global fertility rate
decreased.
The most dramatic
impact will be seen
in the developed
nations.
Health care
spending
increases, demand
for goods declines.

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The Shifting Balance of Economic Power in the Global
Economy
“BRIC” economies are predicted to grow by 2025.
By 2050, the GDP of the E7 is predicted to be 50 percent higher than that
of the G7.
The N-11 may constitute the next wave of emerging markets growth.
• The MIST countries are particularly attractive.
African countries could be the next wave of dynamic emerging markets.
Global trade and investment continue to grow at a healthy rate, outpacing
domestic growth in most countries.
• Foreign direct investment (FDI) is the term used to indicate the
amount invested in property, plant, and equipment in another country.
As nations become more affluent, they begin looking for countries with
economic growth potential where they can invest.

8. © McGraw-Hill Education 8
Figure 1-2: G7 (Group of Seven) Economies
Source: Original graphic by Professor Jonathan Doh.

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Figure 1-3: E7 (Emerging Seven) Economies

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Global Economic Systems
In a market economy, private enterprise owns property and
monitors the production and distribution of goods and services
while the state supports competition and efficient practices.
In a command economy the government, has explicit
control over the price and supply of a good or service.
A mixed economy is a combination of a market and a
command economy.

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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 U.K. is scheduled to leave
the EU in 2020.
In the 70s and 80s, Japan’s economic
success was unprecedented.
• Due to Ministry of International
Trade and Industry (MITI).
• And the use of keiretsus – large,
vertically integrated corporations.

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Emerging/Developing Economies – Central/Eastern Europe
Russia’s economy continues to emerge as poverty declines and the
middle class expands.
• Pervasive challenges make investors feel the risk is still too high.
In Hungary, state-owned hotels were privatized, and Western firms are
entering joint ventures and MNCs are making direct investments.
Poland had a head start as they established the first noncommunist
government in 1989, followed by radical economic reforms.
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.
• Foreign investment must be forthcoming for these countries to join the
global economy.

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Emerging/Developing Economies – China
The growth of China’s GDP has been slowing considerably.
China also remains a major risk for investors.
• 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.
• China’s policy toward foreign investors continues to be fluid and
sometimes unpredictable.

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Emerging/Developing Economies - Other Asian Markets
Countries of the ASEAN bloc are fueling growth and development.
• 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.

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Emerging/Developing Economies – India
With a population of about 1.3 billion and growing, India has traditionally
had more than its share of political and economic problems.
For a number of reasons, India is attractive to
multinationals, especially to U.S. and British firms
as many Indian people speak English, are well
educated, and known for advanced IT expertise.
India’s GDP growth
rate is among the
highest in the
world.

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Developing Economies on the Verge – 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 most stable
performers in Latin America.
• Argentina has one of the strongest economies overall, but in 2018
their currency crashed resulting in the largest IMF loan in history.
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 U.S.
• Discussing with the EU to create free trade between the two blocs.
• Chile and Peru have joined the Asia-Pacific Economic Cooperation
group and the CPTPP.

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Developing Economies - 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.
• Students of international management should have a working
knowledge of these countries’ customs, culture, and management
practices.

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Developing Economies – 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.
Sub-Saharan Africa, has had a number of severe
problems – tribal wars, AIDS, malaria, and Ebola
– resulting in serious economic setbacks.
Africa’s economic
growth and
dynamism have
rapidly accelerated
in the past two
decades.

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© McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.