MGMT461:

Lesson 1: Course Introduction and Globalization

Globalization has become a popular buzzword with many definitions, many theories to explain its impact, and even many disagreements on what trends the world is seeing. In order to start our class journey diving into the world of international management, we must first start by establishing just what globalization is and just what impacts it has. In this lesson, you will begin to put together a working definition, examine common trends and theories, look at different impacts around the world, and determine if the world really is becoming “flat”—that is, developing a more even playing field across countries and cultures.

Learning Objectives

After completing this lesson, students will be able to do the following:

• Create a thorough working definition for the term globalization.
• Apply this working definition of globalization to a current issue in the news.
• Identify and describe the characteristics of a global firm through the use of academic research tools.
• Identify the impacts of globalization on firms (both multinational and domestic).

Lesson Readings and Activities

By the end of this lesson, make sure you have completed the readings and activities found in the course schedule.

Globalization: Different Views

Early Definitions

Globalization is not a new phenomenon, oddly enough, despite the current debates raging about its impacts and issues. We often associate technology like the Internet with globalization, but the story begins long before that. The oldest form of the phenomenon is the spread of culture and ideas. 

Trade and barter began with the need to exchange goods millenia ago, and ideas and information often came along with the transaction. Let’s take a look at one fictitious transaction to see this exchange in action. Country A sets out to explore a new land. Its pioneers establish a settlement after crossing part of the world, where they find local populations. The people of Country A have a hard time adapting to the terrain of Country B, and the locals assist them by providing them with tips and their knowledge of the land. Country A then provides them with some of their technology in return.

While this involved no Internet or technology beyond a blanket or gun, it is a very simple example of globalization. In fact, we now celebrate this simple exchange in the United States as Thanksgiving. (More specifically, Thanksgiving commemorates the celebration dinner after the exchange, but you get the idea.) Were there impacts of this exchange? Yes! The population of Country A (which we now know are the Pilgrim settlers from England) survived Country B, and more of them began to arrive. The settlers exposed the Native Americans to diseases that were not previously seen in their area, which impacted their population. History has told the story of many more impacts from this exchange, both good and bad. However, interactions like this took place all over the world over millennia before the Internet was even created. This is the oldest form of globalization. 

Then Why Do Some Economists Place Globalization After the Industrial Revolution? 

If you have taken an introductory economics class, you may have been introduced to the progression of U.S. economics. Occasionally, globalization is listed as an event in the succession of movements from feudalism to modern times. However, that event is often placed after the Industrial Revolution and capitalism—during modern times. While this placement is most likely due to the notion that globalization is the force that’s having the greatest impact on modern world economics, it has the drawback of giving the impression that globalization didn’t exist before the Industrial Revolution. In fact, this impression may be both right and wrong.

Globalization has existed for millennia in the form of simple cultural and ideas exchanges, but with the advent of new technology, a new wave of globalization has emerged that is redefining economies. The Cold War, as war often does, brought us many new technologies, the least of which was the idea of the Internet. Designed as a way to keep military officials in quick contact during the Cold War, the Internet has evolved to what we know it as today. This simple mechanism that allows the easy transmission of information, communication, and ideas has taken that transaction of centuries ago between the Native Americans and the Pilgrims and has multiplied it. Within seconds, you can now talk to someone in a foreign country—something  that used to take months. Ideas can be transmitted instantly through videos of speeches or even 140 characters that can quickly reach millions.

This seems like we are still talking about globalization as a spread of ideas and culture, so how exactly has the definition changed from its origins to this new wave? In our current era, globalization is no longer just an idea that can quickly be spread—it also spreads the workforce. A person sitting on their couch in Iowa can purchase something from a supplier in Taiwan as simply as a few clicks of the mouse. This evolution of the quick ease of international business and purchasing has expanded our ideas. A tech support call can now be answered by someone countries away, and a doctor in a foreign country can read an X-ray in the middle of the night for a hospital that can’t afford third-shift labor rates in its own country. 

Is the World Flat? 

The evolution and spread of globalization has led some to claim the world is “flat.” This doesn’t refer to the unfortunate increase of people in the United States who do once again believe the world is physically flat. Instead it means, as author Thomas Friedman argues, that globalization is leading to an evening of the playing field—or flattening—with regards to transferable comparative advantage between parts of the world. To a certain extent, Friedman also implies the economic idea of the law of one price: the idea that factor prices will level as out as countries trade and living standards rise. Friedman is not the only theorist with this idea, but he is a major author in the realm.

If you’re interested in learning more, you can find YouTube videos of Friedman speaking on the subject. Video 1.# is one such example.

Many theorists oppose this view of a flat world, a perspective you’ll explore further in the exploration activity this week. The world has been seeing pushback against the idea of globalization in many forms, from the Brexit vote to presidential elections in multiple countries (including the United States) voting in leaders with nationalist platforms. Modern theorists have called this trend anti-globalization.

Globalization Today: Current Trends

Today we do commonly associate technology with globalization for good reason. Technology has enabled the world to connect faster and on a grander scale than before. However, globalization is not just about connecting. As it has been for centuries, and as we discussed previously, globalization is about spreading culture and ideas. We now see globalization through the spread of businesses from one country to another (in various operation formats from exporting goods to branch operations), television and pop culture, social media, increased educational opportunities (both residential and online), the transfer and development of technological advancements, and infrastructure development, as well as the movement of labor, people, politics, and more.

International as a Sphere of Reference 

Since we will be studying the world as our management subject for the semester, we should have a frame of reference for what the workforce of the world looks like. To get a good introduction, Video 1.# provides an analysis of what the United States would look like if it were made up of only 100 people. Video 1.#, then, addresses the same idea with the population of the whole world.

Impacts of Globalization 

In the United States,  a lot of the discussion about the impacts of globalization is on topics like outsourcing issues and unequal gains from trade on the financial level, but there are other impacts we should consider. As labor and foreign direct investment (FDI) moves around the world, the increase in jobs can lead to an increase in the living standards as suggested by the theory of the law of one price. The spread of technology can lead to new innovative development ideas—consider how cell phones have changed the fight against poverty in Kenya with M-Pesa. On the other side, however, is the argument that if the local infrastructure is not ready for the technology, it can overload the system. Rwanda experienced frequent brownouts when more hotels and development rapidly arrived with advanced technology that overloaded the non-advanced power grids. There can be other impacts on employment, culture, and population that you will dive into during the exploration assignment in this lesson. 

What Is a “Global Firm”?

One common term in international business courses is multinational or corporation (MNC). While this term has multiple varying definitions that include operating conditions and asset allocations, this class will assume a standard definition of a firm that operates out of multiple countries. Note that this definition uses the term operates because firms can conduct business in foreign countries in various sales and production formats. Global firms, on the other hand, typically produce and sell in multiple countries. Throughout this course, we will examine various sizes and configurations of firms engaging in international business; therefore, for the most part, the term we use to describe the firm is not as important as the firm’s operation and strategic interests.

For an introduction of the diversity of businesses that engage in global business, read this profile of U.S. businesses that engage in trade from the U.S. Census Bureau.

Lesson 1 Summary

In this lesson, you began to explore globalization, creating a working definition of the term and exploring its global trends and impacts. The forces of both globalization and anti-globalization are active in today'’'s world and are causing major changes in the business environment. As you dive deeper into the issues and current events throughout this course, you may notice your definition of globalization or global business changing. That is a good thing! In the exploration assignment, you will start to put some faces to the impacts of globalization and see first-hand how globalization and anti-globalization are playing out in our world today.