Page 1 of 342
, PART ONE
BACKGROUND FOR INTERNATIONAL BUSINESS
Chapter 1
Globalization and International Business
OBJECTIVES
1-1 Explain why and how the study of international business (IB) is important 1-2 Understand the
relationship between globalization and IB
1-3 Grasp the forces driving globalization and IB 1-4 Discuss the major criticisms of globalization
1-5 Assess the major reasons companies seek to create value by engaging in IB
1-6 Define and illustrate the different operating modes for companies to accomplish their
international objectives
1-7 Recognize why national differences in companies' external environments affect how they may
best improve their IB performance
CHAPTER OVERVIEW
Globalization has become a major socioeconomic force and topic of debate in the twenty-first century.
Chapter One examines the forces that are driving this phenomenon, as well as the often- passionate
criticisms of the process. The chapter reviews the objectives that firms pursue when they engage in
international business activities and describes the various modes of entry that may be used. It also notes
the terminology that has come into existence as new types of organizations have evolved. The chapter
concludes with a discussion of the conditions in a company's external environment that may affect its
international operations.
Page 2 of 342
, CHAPTER OUTLINE
OPENING CASE: THE GLOBALIZED BUSINESS OF SPORTS [see Map 1.1]
Although not everyone agrees that the unbridled globalization of professional sports is all for the good,
the process and possibilities are definitely far reaching. Today's satellite television broadcasts enable fans
to watch top players and teams in nearly any sport from almost anywhere on earth. Professional teams
scour the world to find and develop the most talented athletes, and players forsake home country
allegiances in their pursuit of the world's highest salaries. Further, the more people that tournaments can
attract through attendance and television, the more money that sponsors and advertisers are willing to
pay—and the greater the likelihood that those sponsors and advertisers will have business operations that
span the globe. In addition, sports and nonsports companies alike pay famous athletes and teams generous
sums to endorse their products. Successful teams have opened shops both domestically and
internationally to sell souvenirs bearing their logos and may make more money on merchandise than from
TV rights and sponsorships combined. Most recently, as teams and leagues have begun to seek income
opportunities outside their home countries, foreign investors have acquired a U.S. baseball team; another
group of foreign investors acquired controlling interest in a British soccer (football) team, and the
National Football League (NFL) of the United States underwrites flag football games in Chinese schools
and is playing some regular season NFL games in Europe. Map 1.1 outlines national sports in a variety of
countries and can be used to discuss how culture impacts globalization.
Questions
1-1 Professional athlete A is a star. Professional athlete B is an average player. How has the
globalization of professional sports affected each of these both positively and negatively?
Being a star, professional athlete A can become a target for endorsement deals from local and
international companies and organizations that would use such an athlete in advertising. They also get
substantial financial contracts (salaries and bonuses) from their clubs. The endorsements and salary deals
get more lucrative if professional athlete A reaches strong positive visibility in major sport events or if
he/she develops a global brand such as Cristiano Ronaldo. Advertisers will pay them considerably for
endorsing a product or service. However, the same athlete might be dropped if his/her performance
decline or if scandals damage his/her image.
For the average player such as professional athlete B, professional sports globalization has afforded them
higher salaries than before. Globalization has led to a rise in professional sports interest and viewership
and, consequently, robust growth in professional athletes' salaries. At the same time, the fierce
competition between athletes and the growing demands from clubs and fans have put intense pressure on
athletes to perform regularly. Today's athletes have little room for mistakes. (LO1-2: Understand the
relationship between globalization and IB, AACSB: Analytical Skills).
1-2 As you read the chapter, identify and show an example of each international mode of operations
that is illustrated in the globalization of professional sports.
Page 3 of 342
, Sport is a major source of service exports and imports. Countries compete to organize major global events
such as the world cup or the Olympics for many business and political reasons. Chief among them is
tourism. Let's say that some American fans fly on Qatar Airlines to watch the upcoming world cup in
Qatar in 2022. Their travel expenses in Qatar are service exports for Qatar and service imports for the
U.S. (LO1-2: Understand the relationship between globalization and IB, AACSB: Analytical Skills).
Teaching Tips: Carefully review the PowerPoint slides for Chapter One. A good Internet source of
information on globalization can be found at
http://www.globalization101.org/. Finally, review the atlas provided in the text, where you will find maps
of the world and its continents, as well as a country index.
I. THE WHY, WHAT, AND HOW OF STUDYING INTERNATIONAL BUSINESS (IB)
A. Why Study IB?
Nearly all organizations compete abroad, compete domestically against foreign or domestic companies
with international operations, and/or use inputs from foreign suppliers. Thus, most managers should
consider IB when setting their operating strategies and practices. Even if you don't anticipate direct IB
activities, understanding the subject matter will likely prove useful.
Studying IB is essential because:
• most organizations are either international or compete with international companies,
• modes of operations may differ from those used domestically,
• it helps managers to decide where to find resources and to sell,
• the best way of conducting business may differ by country,
• an understanding helps you make better career decisions, and
• an understanding helps you decide what governmental policies to support.
B. What to Study in IB
In general, an organization's international operations depend on making sense of operating environments
and developing the means to achieve its objectives:
1. Operating Environment: Physical, institutional, and competitive conditions differ among countries;
these differences inevitably affect the optimum ways to do business.
2. Operations of IB: Companies operating internationally engage different modes of business, such as
exporting and importing.
Page 4 of 342
, PART ONE
BACKGROUND FOR INTERNATIONAL BUSINESS
Chapter 1
Globalization and International Business
OBJECTIVES
1-1 Explain why and how the study of international business (IB) is important 1-2 Understand the
relationship between globalization and IB
1-3 Grasp the forces driving globalization and IB 1-4 Discuss the major criticisms of globalization
1-5 Assess the major reasons companies seek to create value by engaging in IB
1-6 Define and illustrate the different operating modes for companies to accomplish their
international objectives
1-7 Recognize why national differences in companies' external environments affect how they may
best improve their IB performance
CHAPTER OVERVIEW
Globalization has become a major socioeconomic force and topic of debate in the twenty-first century.
Chapter One examines the forces that are driving this phenomenon, as well as the often- passionate
criticisms of the process. The chapter reviews the objectives that firms pursue when they engage in
international business activities and describes the various modes of entry that may be used. It also notes
the terminology that has come into existence as new types of organizations have evolved. The chapter
concludes with a discussion of the conditions in a company's external environment that may affect its
international operations.
Page 2 of 342
, CHAPTER OUTLINE
OPENING CASE: THE GLOBALIZED BUSINESS OF SPORTS [see Map 1.1]
Although not everyone agrees that the unbridled globalization of professional sports is all for the good,
the process and possibilities are definitely far reaching. Today's satellite television broadcasts enable fans
to watch top players and teams in nearly any sport from almost anywhere on earth. Professional teams
scour the world to find and develop the most talented athletes, and players forsake home country
allegiances in their pursuit of the world's highest salaries. Further, the more people that tournaments can
attract through attendance and television, the more money that sponsors and advertisers are willing to
pay—and the greater the likelihood that those sponsors and advertisers will have business operations that
span the globe. In addition, sports and nonsports companies alike pay famous athletes and teams generous
sums to endorse their products. Successful teams have opened shops both domestically and
internationally to sell souvenirs bearing their logos and may make more money on merchandise than from
TV rights and sponsorships combined. Most recently, as teams and leagues have begun to seek income
opportunities outside their home countries, foreign investors have acquired a U.S. baseball team; another
group of foreign investors acquired controlling interest in a British soccer (football) team, and the
National Football League (NFL) of the United States underwrites flag football games in Chinese schools
and is playing some regular season NFL games in Europe. Map 1.1 outlines national sports in a variety of
countries and can be used to discuss how culture impacts globalization.
Questions
1-1 Professional athlete A is a star. Professional athlete B is an average player. How has the
globalization of professional sports affected each of these both positively and negatively?
Being a star, professional athlete A can become a target for endorsement deals from local and
international companies and organizations that would use such an athlete in advertising. They also get
substantial financial contracts (salaries and bonuses) from their clubs. The endorsements and salary deals
get more lucrative if professional athlete A reaches strong positive visibility in major sport events or if
he/she develops a global brand such as Cristiano Ronaldo. Advertisers will pay them considerably for
endorsing a product or service. However, the same athlete might be dropped if his/her performance
decline or if scandals damage his/her image.
For the average player such as professional athlete B, professional sports globalization has afforded them
higher salaries than before. Globalization has led to a rise in professional sports interest and viewership
and, consequently, robust growth in professional athletes' salaries. At the same time, the fierce
competition between athletes and the growing demands from clubs and fans have put intense pressure on
athletes to perform regularly. Today's athletes have little room for mistakes. (LO1-2: Understand the
relationship between globalization and IB, AACSB: Analytical Skills).
1-2 As you read the chapter, identify and show an example of each international mode of operations
that is illustrated in the globalization of professional sports.
Page 3 of 342
, Sport is a major source of service exports and imports. Countries compete to organize major global events
such as the world cup or the Olympics for many business and political reasons. Chief among them is
tourism. Let's say that some American fans fly on Qatar Airlines to watch the upcoming world cup in
Qatar in 2022. Their travel expenses in Qatar are service exports for Qatar and service imports for the
U.S. (LO1-2: Understand the relationship between globalization and IB, AACSB: Analytical Skills).
Teaching Tips: Carefully review the PowerPoint slides for Chapter One. A good Internet source of
information on globalization can be found at
http://www.globalization101.org/. Finally, review the atlas provided in the text, where you will find maps
of the world and its continents, as well as a country index.
I. THE WHY, WHAT, AND HOW OF STUDYING INTERNATIONAL BUSINESS (IB)
A. Why Study IB?
Nearly all organizations compete abroad, compete domestically against foreign or domestic companies
with international operations, and/or use inputs from foreign suppliers. Thus, most managers should
consider IB when setting their operating strategies and practices. Even if you don't anticipate direct IB
activities, understanding the subject matter will likely prove useful.
Studying IB is essential because:
• most organizations are either international or compete with international companies,
• modes of operations may differ from those used domestically,
• it helps managers to decide where to find resources and to sell,
• the best way of conducting business may differ by country,
• an understanding helps you make better career decisions, and
• an understanding helps you decide what governmental policies to support.
B. What to Study in IB
In general, an organization's international operations depend on making sense of operating environments
and developing the means to achieve its objectives:
1. Operating Environment: Physical, institutional, and competitive conditions differ among countries;
these differences inevitably affect the optimum ways to do business.
2. Operations of IB: Companies operating internationally engage different modes of business, such as
exporting and importing.
Page 4 of 342
