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AOF Business in a Global Economy

Lesson 2Globalization Overview

Student Resources

Resource Description

Student Resource 2.1 Note-Taking Activity: Globalization of Production and Markets

Student Resource 2.2 Reading: Globalization of Production and Markets

Student Resource 2.3 Anticipation Guide: Globalization Drivers

Student Resource 2.4 Reading: Globalization Drivers

Student Resource 2.5 Guide: Choosing Your Global Operator

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AOF Business in a Global EconomyLesson 2 Globalization Overview

Student Resource 2.1

Note-Taking Activity: Globalization of Production and Markets

Student Name:_______________________________________________________ Date:___________

Directions: Read the statements below. While you listen to the presentation Globalization of Production and Markets, answer the following real-life questions that professionals are facing.

1. Sony, Nintendo, and Microsoft are among the leading players in the video game market in the United States. If these companies compete globally, state which case applies and explain why:

___ Globalization of markets OR ___ Globalization of production

2. Describe what makes a computer or an airplane a global product.

3. A hospital sends your MRI scan to a medical worker in India for analysis. Is this an example of globalization of markets or globalization of production? Why?




Reading: Globalization of Production and Markets

When businesses expand their markets or production operations beyond their home country, they are globalizing.

Globalization causes political, economic, and cultural changes. It used to take years for many people to feel these effects. International travel was slow and costly, as was the shipping of goods. International communications (phone calls, for example) were limited and expensive. Tariffs (taxes on imports) and quotas (limits on the goods allowed to be imported) also restricted globalization. Changes caused by globalization were gradual and often went unnoticed.

With today’s technology, and with trade barriers reduced through international agreements, globalization is likely to continue to change the world with increasing speed.

These changes can be viewed as positive or negative, depending on your perspective. Either way, globalization has changed the world forever, and it continues to do so every day. In this course, we will look at globalization from the business perspective, learning about how and why companies choose to globalize and how doing so helps them stay competitive in the global marketplace, where more and more businesses compete every day.



What causes a business to decide to enter the global marketplace? There are many reasons. Businesses can reduce labor costs by producing goods in places where the wage is lower than in the United States. Businesses can grow by expanding their markets overseas, which also increases brand awareness. Profits go up when more people buy a product in more markets.

If a company from the United States hires workers in the Dominican Republic to make its products in a factory, the company saves on labor costs compared with wages it would have paid in the United States. The workers in the Dominican Republic are then able to afford products they previously could not. Thus, globalization creates new jobs and new consumers.

As more and more citizens of the world become consumers, more and more products are sold. Globalization creates demand by marketing goods to new customers in more places.



The average income in developing countries—which is usually extremely low—tends to rise when multinational corporations invest in those countries and bring in technology.

How do these goods get to the new consumers? Relatively inexpensive air and container freight transportation is a main way. Cheap, efficient telecommunications (inexpensive international phone calls, email, and the Internet), make it easy and quick for products to move all over the world. The Internet allows anybody to purchase goods and services across borders quickly and easily. It also contributes to businesses working together around the world.

Borders are made easier for goods to cross through trade laws and agreements.

Better education means better jobs, which in turn raises the standard of living above barely making ends meet. When a family has disposable income it can afford to buy more goods and services―which keeps globalization growing.



Companies compete in the international economy through globalization of markets, globalization of production, or both.

Let’s say an insurance company goes into business abroad. It offers insurance policies adapted to the requirements of the various new countries it enters. It’s responding to the globalization of markets by seeing a growing need for companies to have insurance. It is also contributing to the globalization of markets by providing this service to companies that are expanding.

A commercial bank, which provides business customers with banking services across many different countries, is also an example of a company competing in the international economy through the globalization of markets.

Globalization of production is when companies move and/or expand their manufacturing internationally to reduce labor costs or for other reasons. Production includes the machines, tools, and labor required to make things for sale. A small clothing designer who pays a factory abroad to sew its clothes and a car company that has its parts assembled in a factory in another country are examples of globalization of production. Similarly, a national insurance company that hires a call center abroad to perform all or some of its customer service functions is also an example of globalization of production.



Traditionally, markets were defined by geographical borders, so many industries had different markets for different countries. Today, national markets are merging into one global market because even small companies can reach customers worldwide and individual consumers can directly access foreign manufacturers. For instance, the representative of a US solar panel manufacturer can meet potential customers from all over the world at industry trade shows or even via the Internet. This process of national markets merging together is called globalization of markets.

Globalization of markets occurs when goods, services, or information are traded across borders.

Although many of the most famous global companies, such as Starbucks, McDonald’s, and Apple, are large ones with prominent brands that hold strong appeal to people of different nations, technology enables companies of all sizes to conduct business internationally, exposing them to competition from all over the globe.



There are two kinds of markets: consumer and industrial. Industrial markets are truly global; in these markets, there is typically a limited number of suppliers but a universal need for their products. These markets include 1) markets for commodities such as oil, aluminum, copper, or sugar; 2) markets for industrial products such as commercial jet aircraft or earthmoving equipment; 3) foreign exchange markets where different currencies are exchanged; and 4) markets for financial assets, which include bonds, stocks, and currencies.



Making most products requires several stages of production. Raw materials are made into intermediate goods, passing through many stages of production before becoming a finished good. Each stage of production gives a company an opportunity to search for the best choice of producer. Can the producer do the best job? For the best price? These choices add value to the good or service it sells. This process of adding value is known as the value chain. In a global economy, the search for the best choice of producer is worldwide in scope. As a result, companies’ value chains often involve production activities in many countries, carried out by a variety of different suppliers of goods or services.

Searching for the best fit in terms of the labor, capital, and/or land that a firm buys is called sourcing. When companies engage in global sourcing, companies seek out the best combination of quality and cost for them, regardless of location. It is important to keep in mind that sourcing refers to searching the world not only for raw materials but also for final goods, employees, knowledge, innovation, and financing.

Labor costs vary widely throughout the world. Companies source labor globally in order to make their products cheaper, or to maintain or increase profits.



Outsourcing, or offshoring, are terms for transferring certain parts of the management and/or day-to-day operations of a business to an outside supplier abroad. For example, many US companies have outsourced their telephone-based customer service activities to locations in India. Bangalore, India, is a hub for information services and technology and is called the Silicon Valley of India. Many call centers for US companies, even for quite technical functions such as help desks supporting a software product, are located in Bangalore and other Indian cities. There are schools in India that teach workers how to converse with customers in an American manner and even to speak with American accents. Providing service over the phone from India became possible and profitable because of high-quality, inexpensive telephone communications and computer technology that usually puts the right information at the customer service agent’s fingertips. Without modern technology, this form of globalization would not be possible.

The most prevalent reason companies choose to outsource internationally is to cut costs. US companies originally outsourced manufacturing, but soon the advances of Internet/communication technology made it possible to extend outsourcing to services like call centers. In addition to cost savings, globalization allows work to go on 24 hours a day.

India is a frequent choice for offshoring because of the availability of highly skilled, highly educated, and low-cost labor by people who speak and write English well.



Globalization has changed the world forever. People all over the world enjoy benefits from globalization but also pay a price for it. What some people see as a benefit of globalization, others see as a downside. For instance, the recent emergence of a global economy has allowed China to become an increasingly important economic force. China is now the world’s second-largest economic power.

Some people see China’s booming economy and emergence as a world power as positive. These changes have certainly benefited a large percentage of China’s one and a half billion residents. But much of China’s growth has come at a high environmental cost. China is one of the biggest polluters in the world. This pollution is harming the health of Chinese citizens as well as damaging crops.

Many critics of globalization argue that relocating manufacturing and service activities from the United States to China and other countries with emerging economies harms workers in the United States. They say it depresses employment and incomes, at least for people with limited education and skills. Others disagree, arguing that everyone will eventually benefit from increased economic growth associated with globalization.




Anticipation Guide: Globalization DriversStudent Name:_______________________________________________________ Date:___________

Directions: For each of the statements below, underline “I agree” if you think the statement is accurate or “I disagree” if you disagree with it. Write one reason to explain your guess. You will complete the “I learned” section after you have read Student Resource 2.4, Reading: Globalization Drivers.

Only large companies benefit from globalization.

My guess: I agree I disagree

My reason:

I learned:

Globalization happens quickly because of advances in communications technology that make it easier and faster for companies to obtain necessary information and negotiate deals.


My reason:

I learned:

Freight (shipping) costs between countries have fallen for air and marine cargo, while delivery times for goods have shortened.


My reason:

I learned:

Taxes collected by customs for goods that cross international borders have been more or less the same in the past 50 years.


My reason:

I learned:




Reading: Globalization DriversYou may have heard people say that the world moves fast. One reason people feel this way is because of globalization—where goods, capital, and labor move more freely across international borders. Four important factors have made the world seem to move at such a fast pace. They are called drivers of globalization.

1. Reduction of Trade Barriers: In the past, governments have often protected businesses in their country against foreign competition by imposing trade barriers. Barriers made it difficult for a company from one country to sell its products in other countries. Common types of trade barriers are tariffs and duties, which are taxes on goods moved across national boundaries. Limits on the quantity of a particular product imported into a particular country (known as quotas) used to be common also.

After World War II, many industrialized countries began reducing or removing trade barriers through agreements with other countries. Most countries involved took part in the negotiations for the General Agreement on Tariffs and Trade (GATT), starting in 1947. In 1995, GATT merged with a newly created institution, the World Trade Organization (WTO). The GATT negotiations, now held through the WTO, are called Rounds. Each successive Round resulted in a big reduction in trade barriers, cutting or abolishing specific tariffs, quotas, and other barriers. Other agreements between pairs of countries (bilateral agreements), or among smaller groups of countries, also contributed. As a result, the barriers for many products are now gone or are insignificant in most countries. The latest Round, the Doha Round, started in Doha, Qatar, in 2001 and is still going on, with countries meeting periodically to discuss remaining trade barriers.

2. Transportation Technology: One of the most important innovations in global business was freight containerization, which became widespread in the 1970s. Shippers can load goods into containers using automated or semiautomated cranes and then place them onto ships, trains, or trucks without opening and reloading them; they can also track the containers electronically. This process has made shipping faster, cheaper, and more reliable.

Fast, low-cost, and reliable air travel and air freight has also had a big impact. Airplanes allow freshly cut flowers from Colombia to reach US retail stores in a single day or fresh California strawberries to make it to European consumers in the winter in a matter of hours. People can move about quickly and easily, and work and leisure travel has helped make global brands such as Gap, Levi, Nike, Coca-Cola, Apple, and Sony recognizable worldwide.

3. The Internet and Communications Technology: Technological change has intensified globalization. Instant access to information and the ability to communicate 24 hours a day allow firms to have fuller and more timely information on global markets in order to manage worldwide operations. Well-managed companies can use improved computer systems and applications to cut production costs and enhance productivity. As prices for communications decline, so do the costs of doing business internationally. The Internet, fiber optic cables (on land and under the sea), satellites, and wireless technology all help businesses make sales, negotiate pricing, and process orders quickly and easily, reducing costs and enhancing performance. Some buyers and sellers can find each other only with the help of electronic global marketplaces. Web-based applications allow American companies to send their tax preparation to the Philippines, MRI scans to India, and software updates to Eastern Europe, saving the American companies money and time. In the past, businesses had only phones or letters to contact businesses abroad. In the early 1990s, it cost $50 for a 10-minute call to much of Latin America. Today, with a competitive market for communications and with advanced technologies such as Skype available, this call costs little or nothing. Not only does technology allow people all over the world to do business together easily, but it also allows them to do it inexpensively.



4. Consumerization: This term is also known as IT consumerization. It means that technology and applications designed for individual users—consumers—are pushing big changes in the IT side of every business. Up until around 2005, you used a computer at work and a different one at home. IT departments in companies controlled the technology people used to do their jobs. New developments for businesses trickled down to new technology for people at home; this is how the desktop computer evolved. But now it’s the other way around: mobile devices and cloud-based technologies designed for individual users are forcing companies to remake the IT aspect of their business.

Company IT networks have to be compatible with the range of devices that employees use, from smartphones to tablets and laptops. Consumers expect a great user experience, with immediate access to applications and ease of use. Without these, employee productivity will suffer. And company technology has to work all over the world. The sales manager in China using his smartphone, the producer in France on her tablet, and the buyer in Canada using his laptop all need to be communicating easily with the same company.

Companies that grasp the key nature of this trend and change their IT practices to keep up with changes in consumer IT products will reap huge rewards. Their businesses will be competitive in the hyperconnected, mobile global marketplace.

These four drivers of globalization have given people and businesses more opportunities than ever before. They can now participate in a global, not just a domestic, economy. Being part of a larger market also means facing international competition for goods, services, and labor.




Guide: Choosing Your Global OperatorStudent Names:_________________________________________________ Date:__________

Directions: For homework, read the two scenarios that describe businesses that have decided to expand into the global market. Next, consider each scenario as you read the descriptions of the eight countries the businesses have to choose from. With your group members, choose the two countries that are the most appropriate for each scenario, and rank them by assigning one your first choice and the other your second choice. Then write down two reasons for your rankings and be ready to share your answers with your classmates. Finally, for one of the two scenarios write a guest post for a business blog explaining how you made your selection of the country you ranked as your top choice.

Scenario 1: General TechnologiesGeneral Technologies is one of the top manufacturers of espresso machines in the United States. Over the past few months, General Technologies has seen an increase in sales for its Personal Mocha Model, which is an inexpensive machine for home kitchens. General Technologies’ executives are expecting consumer demand for low-cost espresso machines to increase. To meet this demand, General Technologies wants to open a factory somewhere in the developing world where manufacturing costs will be as low as possible. The company needs to build the factory in a location where it will be easy to ship the espresso machines, which are large and fairly heavy, to the United States. Company executives think that it will be relatively easy to train new factory workers.

Scenario 2: MyFashionFriendsMyFashionFriends was featured on Good Morning America a couple months ago, and since then it has been growing faster and faster. The social networking site, which two friends created in their spare time, lets users connect and discuss fashion and shopping with their friends through text messages, cell phone pictures, and other mobile communication. Although MyFashionFriends is thrilled by the rapid growth, it is also having trouble accommodating all of the new users, particularly during shopping hours on the weekends. Its system is having trouble processing and resending mobile messages, causing delays and system outages. If users get frustrated with the system, they may stop using it. Because MyFashionFriends is a young company, it does not have much money to hire employees. It needs low-cost programmers who can also be trusted to do an excellent job resolving problems involving the weekend shopping rush.



Country ChoicesBrazil: One of the fastest-growing countries in Latin America, Brazil is a large exporter of machines and other factory products. Located approximately 4,000 miles from the United States, it has an experienced, highly regarded factory workforce. Laborers in Brazil earn more money than the average factory worker in the developing world, though much less than their US counterparts. After years of political turmoil, Brazil became a democracy in 1985. In the years since, the government has stabilized and Brazil has become a major power in Latin America with a large economy. This shift has been accompanied by growth in technological capabilities as computer makers and other high-tech companies have established research facilities as well as production in Brazil. Several of Brazil’s domestic initiatives in high-tech industries (e.g., the aircraft company Embraer) have also prospered. Poverty, however, remains harsh among a significant portion of the population, and a large gap exists between the incomes of rich, middle-income, and poor people. In 2016, political corruption has caused a number of troubling problems, including the currency losing half its value since 2011, when the current president of Brazil, Dilma Rousseff, came to power.

Cambodia: Cambodia has emerged in recent years as an option for outsourced factories. Currently known for manufacturing clothing, Cambodia offers tax breaks to companies that locate factories making consumer products in their country. Workers there have little manufacturing experience but also work for less money than workers in most countries. Cambodia holds elections and has some aspects of democratic institutions, but it is not a full democracy. Violence and protests can often accompany elections, and dissent is often suppressed. Literacy rates are low, and few Cambodians have experience working with computers or other high-tech equipment.

India: Technology companies have looked to India for years for computer programmers who understand American technology. Companies can quickly and easily locate talented computer programmers in India who have track records of producing superior work. However, these employees, though much less expensive than their US counterparts, are more expensive than many other employees in the developing world. High-level technical and scientific education in India is often of very high quality, and there are large numbers of well-qualified graduates. India functions on a different schedule from the United States, and it may not always be possible to find workers available during American business hours. Despite India’s reputation as a technology hub, two-thirds of Indians work as farmers. This number is decreasing as Indians move from farm work to manufacturing and high-tech work. The largest democracy in the world, India has a stable government and legal system and a rapidly growing economy. Despite this growth, inequality remains high and India is subject to social unrest; in several regions there are significant armed insurgencies. Additionally, there is tension between India and Pakistan over the disputed Kashmir region, which has occasionally flared into localized armed incidents.

Costa Rica: A recent entrant in the global technology market, Costa Rica employs a growing but relatively inexperienced corps of high-tech workers. Because of this, locating high-skilled labor in Costa Rica, while possible, can be somewhat expensive and time consuming. Costa Rican computer programmers work at somewhat lower pay rates than other programmers in the developing world. Because Costa Rica shares a time zone with the United States, employees can work during American business hours. The most stable democracy in Latin America, Costa Rica has not had any major social unrest since 1948. Because of this stability, plus high literacy and favorable tax credits, many manufacturers have begun to locate factories there. Wages for basic factory work can be somewhat high compared to other developing countries, although not compared to wages in the United States. Costa Rica’s government imposes strict environmental regulations on manufacturing, which may sometimes increase manufacturing costs. However, this is not necessarily so where modern manufacturing is used, since the most productive new technology and practices are also often the cleanest environmentally.

China: The most populated country in the world, China has enjoyed one of the fastest rates of economic growth in the world for more than two decades. China’s boom stems mainly from phenomenal growth in manufacturing and factory work. Gains in manufacturing are linked to improvements in education and the development of high-tech industrial capabilities. Wages for factory and high-tech workers have increased



dramatically as well. While China has grown considerably wealthy during this time, many rural Chinese citizens still live in extreme poverty. In fact, many citizens still live on less than $2 per day. Run by a single-party government, China’s political system is not democratic. Many observers worry that China could experience significant civil unrest if growth slows. Its manufacturing practices have caused such extreme environmental degradation that people have to wear masks to protect themselves from the smog, and crops are failing to thrive due to the high levels of pollution.

Vietnam: The site of a 15-year war with the United States in the 1960s and 1970s. Vietnam has since resolved its differences with the United States, and the two countries have become major trading partners in recent years. According to the CIA World Factbook, Vietnam’s exports to the United States grew a remarkable 900% between 2001 and 2007. This, coupled with internal political reforms, has helped Vietnam become one of the fastest-growing economies in the world in the past decade. Still, Vietnam remains poorer than many countries and wages are low by world standards. In the past few years, Vietnam has made an effort to develop a high-tech industry. Although its workers are cheap, Vietnam suffers from power outages and other technical issues that impair high-tech industries. Its single-party government tries to control political expression, which occasionally leads to protests and other social unrest.

Mexico: Located just south of the United States, Mexico has a rapidly growing economy. Thanks, in part, to its participation in numerous free-trade agreements such as NAFTA, manufacturing in the country has boomed for more than a decade. Despite a stable, democratically elected government and a relatively strong economy, Mexico suffers from a large amount of economic and social inequality. Laborers in rural areas have low literacy rates, short life expectancies, and other markers of poverty while some urban residents have fairly affluent lifestyles. Similarly, there is a wide gulf between the north and south. While many US manufacturers have located factories in the northern states, Mexico’s southern states have little industry. Tensions have boiled over in the south in recent years and Mexico has been the site of at least three massive protests in the last 20 years. Though computer and Internet usage has grown in recent years, Mexico’s economy still remains driven, in large part, by manufacturing, agriculture, and extractive industries, especially oil and gas production.

Nigeria: Located along Africa’s Atlantic coast, Nigeria is one of the fastest growing countries in the world and Africa’s largest economic power. Its growth stems from oil exports, which dominated the economy for most of the late 20th century. Manufacturing has begun to play an increasingly important role in Nigeria’s economy, though it still pales in comparison to oil exports. A high-tech sector remains virtually nonexistent. Although some Nigerian workers have higher incomes than comparable workers in most African countries, Nigerian workers earn less than employees in many other developing countries in Latin America and Asia. Its young democracy is fragile. Though Nigeria experiences significant unrest and protestsseveral governments have been overthrown by force, and there is continuing armed conflict in some regionsthere are informed observers who nevertheless believe that Nigeria will become increasingly stable in the coming years.

Country Choices: Group WorkRank your choices for General Technologies:

Choice 1:

Choice 2:

In the space below, provide at least two reasons for your group’s decision:



Rank your choices for MyFashionFriends:

Choice 1:

Choice 2:

In the space below, provide at least two reasons for your group’s decision:

Tips: Writing Blog PostsChoose one of the two countries that your group ranked Choice 1 for each scenario. Your boss has asked you to write her a blog post explaining the selection process you and your group used to rank this country Choice 1. She will post it in the company blog as a response to some queries a recent post received on the topic of choosing a global operator.

Blogs are short and meant to be read easily and quickly. Your post only needs to be a couple of paragraphs long. Blog posts can sound conversational, even about a serious topic such as the one you are writing about.

The first sentence should say what you are going to blog about.

Your viewpoint should be clear.

Your opinion should be backed up with facts.

Your blog should flow logically.

Your blog should be enjoyable to read as well as informative!

Write a rough draft and read it to a partner. Take suggestions for how to make it easier to understand or less confusing. Then write your final draft.

Make sure your assignment meets or exceeds the following assessment criteria: The country selection process is clearly and concisely explained.

The most important and least important factors considered are explicit.

The blog post displays understanding of the pros and cons of choosing a global operator.

The blog post is neat and legible, and uses proper spelling and grammar.


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