Lesson 1.

The global business environment

 The global business environment

Lesson 1. The global business environment

1.1. What is globalization?

1.2. Globalization drivers
1.3. Globalization, ethics and regulation of MNCs

Basic references:

Daniels, J., Radebaugh, L.H., and Sullivan, D. (2012). International business:

Environments and operations. Pearson, 14th Edition. Chapter 1.

Pla, J. and León, F. (2016). Dirección Internacional de la Empresa. McGraw-Hill.

Chapter 1.
 1.1. What is globalization?

What is globalization? How would you define it?

Is globalization good or bad?

Globalization is a complex social and economic phenomenon

which implies a shift toward greater integration and
interdependence among economies of different countries.
Indicators of growing globalization are the intensification of
international flows of people, services, technology, knowledge,
capitals, information, etc.
Globalization can be analyzed… … at a global scale
… at a country scale
Different globalization levels … at an industry scale
… at a company scale
 1.1. What is globalization?

Globalization at a global scale…

… implies greater worldwide convergence of variables
and economic dimensions, such as consumer tastes,
standardization of products, economic policies and players,
institutional organisations, global centres, etc.
• More globalization  less importance of local issues
• The issue of size  there may be small although truly
global companies
 1.1 What is globalization?

Growth in world production and trade, 1950‐2002 Trade
x20

Production
X7
 1.1. What is globalization?

Globalization at a country scale…

… implies that specific countries have different degrees
of integration into the global economy

Measuring the degree of globalization of specific

countries
• Foreign trade flow: X + M as % of GDP (Global Domestic Product)
• Foreign Direct Investment (FDI): outflows or inflows
as % of GDP

However... Is it enough with these macroeconomic data?

 1.1 What is globalization?

Participation in world GDP%

30
EU
25

20
USA
15
Rest of Asia
10
China
5
Japan
0

1980 85 90 95 2000 06

Source: IMF (paridad del poder adquisitivo)

 1.1. What is globalization?

Globalization at an industry scale…

… implies that there is a great interdependence of
competitive positions of companies in a partcular industry
across countries.

Key role of industry concentration

• Global industries are dominated in all markets by the same
groups of companies, which compete on a worldwide basis
(e.g. Airbus + Boeing = 90% of global market share)

High levels of intra-industry and intra-company trade

 1.1. What is globalization?

Globalization at a company scale… (i)

… implies that the company has extended its presence to all

significant markets of the world, creates value in many
countries and co-ordinates constant knowledge, capital and product
flows among its inter-related subsidiaries.

• Global dispersion of assets (including employees), sales and

capital.

A company in a global industry... is always a global company?

A company in a non-global industry... is always local?

 1.1. What is globalization?

Globalization at a company scale (ii)

Trans-Nationality Index (TNI): average of foreign values over total

sales, assets and employees (%)

Is the size of a company related to its degree of globalization?

Size vs. Degree of globalization - examples:

• Wal-Mart (big local company in big country)  low TNI, but one of
the biggest companies in the world
• ‘International New Ventures’ or ‘Born Globals’ (small and young
global companies), or big companies from small, highly developed
countries  high TNI
 1.1 What is globalization?

Inditex: ¿ Global firm?
https://www.inditex.com/en/about‐us/inditex‐
around‐the‐world#continent/000 

11
 1.1 What is globalization?

Dispersion of purchases, Inditex (2017)

Source: https://static.inditex.com/annual_report_2017/assets/pdf/memoria_en.pdf
 1.1 What is globalization?

http://www.ghemawat.com/ 

http://www.worldshipping.org/about‐the‐
industry/history‐of‐containerization/industry‐
globalization 
http://www.worldshipping.org/about‐the‐
industry/global‐trade/top‐50‐world‐container‐
ports 

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 1.2. Globalization drivers

1.2. Globalization drivers

Economy liberalization

GLOBALIZATION

Technology Internationalization of
development firms
 1.2. Globalization drivers

1.2. Globalization drivers

a) Economy liberalization

• Trade liberalizations
- After WW2: General Agreement on Tariffs and Trade (GATT)
- GATT negotiation rounds  World Trade Organization (WTO)
- Other regional trade agreements (EU, NAFTA, ASEAN, Mercosur, etc.)
• Liberalization financial flows
- After WW2: Bretton Woods  International Monetyary Fund (IMF)
- 1970s: Bretton Woods system abandoned  USD and IMF key role
• Liberalization of FDI flows
- E.g. FDI legalized in China in 1971 and in India in 1991
(1990-2002 GDP growth: China 210%, India 60%)
 1.2. Globalization drivers
Members and observers of the WTO (Sep 2017)

Source: https://www.wto.org/english/thewto_e/countries_e/org6_map_e.htm
 1.2. Globalization drivers

Disagreements on the (dis)advantages of free trade

 1.2. Globalization drivers

Can we escape globalization? Do we really want to?

 1.2. Globalization drivers

1.2. Globalization drivers

b) Technology development
• Information and Communication Technologies (ICT)
- Internet, mobile phones, GPS systems, globalization process feedback…
(e.g. Spanish company Barrabes: http://www.barrabes.world)
• Evolution of transport systems
- E.g. cheaper and more efficient air travel (price drop, hubs), high speed
trains, standardized shipping containers…

c) Firms’ internationalization
- Around 65,000 MNCs worldwide, with 700,000+ subsidiaries
- Offshoring (call centres, factories, R&D labs, headquarters…) due to different
locations’ comparative advantages (cost, talent, taxation…)
 1.3. Globalization, ethics and regulation of MNCs

1.3. Globalization, ethics and CSR in MNCs

• Corporate ethical behaviour: Respecting - and especially going beyond -

all legal requirements.
• Corporate Social Responsibility (CSR): Balancing the needs of different
stakeholders, thus fulfilling economic, social and environmental obligations
(the ‘triple bottom line’).
• Effects of globalization on economic and social development: Need for
incorporating ethical behaviour in MNCs’ strategies (e.g. ethical codes, codes
of conduct, CSR policies).
• Ethical dilemmas: global reach of firms vs. local regulation, ethical vs.
market requirements.
• Ethically questionable practices of some MNCs.
1.3. Globalization, ethics and regulation of MNCs
 1.3. Globalization, ethics and regulation of MNCs

http://www.youtube.com/watch?v=DX1iplQQJTo
 1.3. Globalization, ethics and regulation of MNCs

Important CSR (voluntary) initiatives

The United Nations Global Compact

Global Reporting Initiative

 1.3. Globalization, ethics and regulation of MNCs

10 PRINCIPLES GROUPED AROUND FOUR ACTION AREAS

Can you identify each action area?

The United Nations Global Compact is a voluntary initiative based
on CEO commitments to implement universal sustainability
principles and to take steps to support UN goals.
https://www.unglobalcompact.org/
 1.3. Globalization, ethics and regulation of MNCs

Human rights

1. Business should support and respect the

protection of internationally proclaimed
human rights.

2. Make sure that the copmpany is not

involved in human right abuses.
 1.3. Globalization, ethics and regulation of MNCs

Labour
3. Businesses should uphold the freedom of
association collective recognition of the
right to collective bargaining.
4. Elimination of all forms of forced and
compulsory labour.
5. Effective abolition of child labour.
6. Elimination of discrimination in respect of
employment and occupation.
 1.3. Globalization, ethics and regulation of MNCs

Environment
7. Business should support a precautionary
approach to environmental challenges.

8. Undertake initiatives to promote greater

environmental responsibility.

9. Encourage the development and diffusion

of environmentally friendly technologies.
 1.3. Globalization, ethics and regulation of MNCs

Anti-corruption
10. Businesses should work against all forms
of corruption, including extortion and bribery.

Corruption is defined as the misuse of

entrusted power for private gain
Bribe Payers Index (BPI): Propensity of firms from
exporting countries to pay bribes when they go
abroad.
Corruption Perceptions Index (CPI): Perception of the
level of corruption in a given country.
 1.3. Globalization, ethics and regulation of MNCs

What country do you think is the most corrupt?

And the least one?

CPI 2016 interactive map

 1.3. Globalization, ethics and regulation of MNCs

The Corruption Perceptions Index (CPI) is an index published annually by Transparency

International since 1995 which ranks countries "by their perceived levels of public sector
corruption, as determined by expert assessments and opinion surveys."
 1.3. Globalization, ethics and regulation of MNCs

CORRUPTION PERCEPTIONS INDEX 2018

https://www.transparency.org/cpi2018

The Corruption Perceptions Index (CPI) is an index published annually by Transparency

International since 1995 which ranks countries "by their perceived levels of public sector
corruption, as determined by expert assessments and opinion surveys."
 1.3. Globalization, ethics and regulation of MNCs

What are the costs of corruption?

• Political costs: corruption poses a major obstacle to democracy and
the rule of law. Institutions lose their legitimacy when they are misused
for private advantage.
• Economic costs: corruption leads to the depletion of national
wealth (wasteful high-profile projects, reduction of taxes income,
decrease of FDI, loss of talent due to brain-drain).
• Social costs: corruption undermines people’s trust in the political
system, in its institutions and its leadership. Frustration and general
apathy among a disillusioned public result in a weak civil society.
• Environmental costs: The lack (or non-enforcement) of environmental
regulations has historically allowed the richer countries export polluting
industries to poorer ones. Environmentally devastating projects are
often easy targets for siphoning off public money into private
pockets.
 1.3. Globalization, ethics and regulation of MNCs

Some advantages for ethical MNCs

• A platform to share and exchange
best and emerging practices
• The opportunity to link business
units and subsidiaries across the
value chain with Global Compact
local networks around the world
• Access to the UN's extensive
knowledge of and experience with
sustainability and development
issues
• Improve the firm’s reputation
• Improve employees’ motivation and
productivity
 Assessment #1

The true cost: questions

1. How much do you agree the video?

2. If you were the CEO of a company textile purchasing products

form a country as Cambodia, what will you do to reduce the
impact of low competition on this country?

3. Which of the 10 Principles of the Global Compact is the most

affected by these managerial practises?
 Assessment #1

The next day (20.09.2019), in the practice session, we will

analyze the costs of globalization from the video: The true cost:

https://www.area-documental.com/player.php?titulo=The%20True%20Cost

Due to the duration of this video, it is recommended the first

viewing at home.