iPod's Global impact.

CUPERTINO, California—Selling'songs from its huge oriline library at 99 cents apiece, Apple
(www.apple.com) is the.,digital-music industry's undisputed leader. Its share of both the U.S.
digital-player market and global digital music industry is around 70 per-cent. And Apple is
rolling past the competition, boasting its one-billionth download in early 2006. Pictured above,
LJ2 band members Bono (left) and The Edge (right) introduce the ¡Pod U2 Special Edition with
Apple CEO Steve Jobs.
The trend toward greater interdependence among nations and economies (called
globalization) benefits Apple enormousiy. The company sells the same iPod models worldwide,
with little or no modification. The iPod plays songs encoded in the popular WAV, MP3, and AAC
formats, and is the only player capable of playing songs purchased from Apple's ¡Tunes
Music Store.
More recently, Apple launched ¡Tunes U—a free, hcsted service for colleges and universities
to provide 24/7 access to educational materials. The service lets studenís download lectures,
interviews, and other contení to their ¡Pods and waích or listen on the go. "It's like having your
professor in your ear right when you need ¡t," says Dan Schmit of the University of Nebraska at
Lincoln.

Similar to the iPod that carne before it,

¡Tunes U is also rapidly gaining global
acceptance. Richard Muller, professor of
physics at UC Berkeley, has heard from
people all over the world who listen to his
lectures just for fuñí Professor Muller says,
"[My] podcasts are reaching far wider than I
had expected, including Chile, Holland,
Turkey, and New Zealand." Universities
abroad are also enrolling in ¡Tunes U. For
example, the Université Lumiére Lyon II, ¡n
Lyon, .France, has begun its own iPod
program. So the next time you see a
backpack-toting síudent listening tp her
¡Pod, she
might b'e'' listening to hér''fávorite pfaylisí
orh'er fayqrite instructor:'How can you
tell the difference? "I guess you have to
see how they're bobbing," jokes
Meredith Tenison, a'-Duke University
sénior. As you read this chapter, consider
how globalization is reshaping our
personal lives and altering the octiviiics uf
international companies.
Globalizátion is transforming our world and leading us into uncharted territory. Our cultures are no
longer strictly our own, but absorb the traits and practices of others in distant lands. Our politicians and
media have acquired a new vocabulary—sprin-kling their speeches and writings with terms such as
outsourcing, emerging markets, siis-tainable developinent, strategic alliance, and corporáte social
responsibility. Globalizarion is also changing our national economies and standards of livihg—some for
better, some for worse. Certain nations considered tough competitors in the global economy appear to have
stumbled, while other nations only recently joined the race, The forces driving globalization are.deeply
altering our cultures and our political, legal, and economic systems.
Unprecedented change is also taking place in the world of business. In the past, large companies
produced goods mainly in their home markets. They exported these goods to the world, keeping much
of their wealth at home to enrich the home nation's eitizens. But because markets are global today,
companies also take a global perspectiva when deciding where to lócate production áctivities. Large and
small firms alike now relocate or out-source production to distant, cost-effective locations. As new jobs
increase incomes among people in these locations, these people become. new potential customers.
Meanwhile, regional and global trade agreements continué to encourage cross-border trade and invest-
rnent between nations. These commercial changes are causing seismic shifts in the global pattern of
trade and investment.
INTERNATIONAL BUSINESS INVOLVES US ALL Each of us experiences the result of
dozens of international transactions every day. The General Electric álarm clock/radio
(www.ge.com) that woke you was likely made in China. The breaking news buzzing in
your ears was produced by Britain's BBC radio (www.bbc.co.uk). You slip on your Adidas
sandals (www.adidas.com) made in Indonesia, Abercrómbie & Fitch T-shirt
(www.abercrombie.com) made in the Northern 'Mariana Islands, and American Eagle
jeans (www.ae.com) made in México. You pulí the charger off your Nokia phone
(www.nokia.com), which was designed and manufactured in the United States with parts
from Taiwan, and head out the door. You hop into your Toyota (www.toyota.com) that
was made in Kentucky, ana pop in a CD performed by Canada's Avril Lavigne
(www.avrillavigne.com). You swing by the local Starbucks (www.sfarbucks.com) to
charge your own batteries with coffee brewed from a blend of bearis harvested in Colombia
and Ethiopia. Your day' is just one hour oíd but in a way you've already taken a virtual
'round-the-world trip. A quick glance at the "Made in" tags pn ypur jacket,. backpack,
watch, wallet, or other Ítems with you right now will demónstrate the:pervásiveness of .
international business transactions. International business is any commercial transaction that crosses the
borders of two
or more nations. You don't have to set foot outside a small tpwn tp find.évidence of inter
national business. No matter where you live, you'll be surrounded by imports—goods and
services broúght into a country that are acquired from organizations located abroad. Your
. counterparts around the world.will undoubtedly spe'rid some part of their day using your,.
nation's expórts—goods and services produced or based. in one cpuritry'that are sold
abroad. The total valué of goods and services (both imports and expórts) tnat crpss'national '
borders each year is a staggenñg !"$22,852,000,bOO,OoS"(néarÍy' $23. triílion). That is
nearly 68 times the annual revenue of the world's largest company, Exxon Mobil
(www.exxonmobil.com).

TECHNOLOGY MARES ITHAPPEN Technology is perhaps'the rhost remarcable faciíitator of societal and
commercial changes today. People use technology to réach out to the world on the Internet—accessing
información and purchasing all kinds of goods and services. Companies use technology to
source materíals and producís as easily from Ankara, Turkey, as from Akron, Ohio. And
technology makes distant markets almost as accessible as near ones for the sale of goods and
services.
When businesses or consumers use technology ío conduct trarisactions they engage in e-
business (e-commerce)—the use of .computer networks to purchase, sell, or exchange goods
and services, service customers, collaborate with partners, and transact within a company. E-
business is making it easier for companies to make their producís abroad, not simply import and
export fmished goods. • ... '
Consider how Hewlett-Packard (www.hp.com) recently designed and built a new, low-cost
computer server for small businesses. HP dispersed the design and production of the new server
throughout a'specialized manufactúring system (see Figure 1.1). This helps the company to
minimize labor costs, taxes, and shipping delays.yet maximize the output of its engineers when
designíng, building, and distributing products. Companies use such innovative production and
distribution techniques to squeeze ineffíciencies out of their international operations and boost
their competí ti veness.3
THE GLOBAL RELAY RACE' A decade ago when the Internet was an untamed frontier, many
companies had starry'-eyed ambitions of dominating this new online world. Yet time proved that
scores of them had miscalc'ulated. Today, businesses have a more sober under-standing of what
the Internet can and cannot do for them.
For example, computer software companies today engage in a practice that can best be
described as a global relay race. Say yon're an IBM (www.ibm.com) computer program-mer
based in Seattle. You may never leave the state of Washington, but you'Il be working with
colleagues in faraway places such as China, India, and Central and Eastem Europe. A team of
computer programmers at Beijing's Tsinghua University (www.tsinghua.edu.cn) writes software
using Java technology for IBM. At the end of each day, they send their work over the Internet to
an IBM facility in Seattle. There, programmers build on it before zapping it 5,000 miles to the
Institute of Computer Science in Belarus and the Software House Group in Latvia. From there,
the work goes to India's Tata Group (www.tata.com), which passes the software back to Tsinghua
by the next morning. The process repeats itself until the project is done. IBM's vice president for
Internet technology calis this global relay race "Java around the Clock," and it is fast becoming
the way things are done.4

Another company pioneering new practices on the

Internet is Eli Lilly & Co. (www.lilly.com). The company
had 7,500 employees w.qrking in'ré'SSárch and develop-
ment (R&D) in 2001. By 2003, it had three times that
num.ber, but none on the payroll. Eli Lilly created an
online scientific forum, called InnoCentive
(www.innocentive.com), where it posts particularly
difficult chemical problems. The site is open to anyone,
is available in seven languages, and pays cash awards.
Typical awards are around $2,000'but solutions can pay
as much as $100,000.5
Globalization, technology, outsourcing, and competitiveness are just somé of the hot-button
topics we will come across repeatedly throughout this book. This chapter begins by presenting
globalization—we describe its powerful influence on markets and production and explain the
forces behind its rápid expansión. Following coverage of each main argu-meiit in the debate
over globalization, we examine the key players in internacional busi-ness. We then explain
why international business is special by presenting the dyna/nic, integrated global business
environment. Finally, the appendix at the end of this chapter contains a world atlas to be
used as a primer for this chapter's discussion, and as a refer-ence throughout the remainder
of the book.

Globalization
Although national governments retain much control over the producís, people, and capital
crossing their borders, the global economy-is becoming increasingly intertwined.
Globalization is the trend toward greater economic, cultural, poíitical, and technological
interdependence among national institutions and economies. Globalization is a trend char-
actérized by denationalization (national boundaries becoming less relevárit), and is differ-
entfrom internationalization (entities cooperating across national boundaries). The greater
interdependence that globalization causes means an increasingly freer flow of goods, ser-
yices, money, people, and ideas across national borders. . •,.'•.....'" • . ' ! • • • • ; .
As its definition implies, globalization involves much. more thah the expansión of . trade
and invéstment among nations. Globalization embraces concepts and theories from poíitical
science, sociology, anthropology, and philosophy as well as economies. As such, it is not
exclu.s.iyely reserved for multinational corporations and international financial institutions.
Ñor is globalization the exclusive domain of those with only altruistic or moral intentions. In
fact, globalization has been described as going."well beyond the links Ihal.bind coiporations,
traders, fínanciers, and central, bankers, Itprovides'a conduit not . only for ideas but also for
processes .of coordination and cooperation üséd by terrorists, ' politicians, religious leaders,
anti-globalization activísts, and bureaucráts.alike.",6;.;;:"::': •"''.-. .;••' Our discussion will remain
focused on the business impíications pf globalization. Let's take a look at two áreas of
business in which globalization.' is having profound effects—the globalization of bóth
markets and production.

- Globalization of Markets.
' GlobaHzation of markets refers to convergence in büyer preferénces Jñ.;m&:ket|.arou'nd the
'world. ThisJ trend is occurring in.'many product categónes; inciudiñg'cbhsürfíér goods,
industrial producís, and business'services. Clothing retailer L.L. Bean (www.libean.com), shoe
producer Nike (www.nike.com), and electronics maker Sony (www.sony.com) are just a few
companies that sell so-called global producís—produ'cts marketed in all coun- , tries essentially
without any changes. As we read in the chapter.-opening'company profile, the Apple iPod
(www.apple.com) is a highly successful global product. Global products and global competition
characterize many industries and markets, including semiconduc-tors "(Intel, Philips), aircraft
(Airbus, Boeing), construction equipment (Caterpillar, Mitsubishi), autos (Honda, Volkswagen),
financia! services (Citicorp, HSBC), air travel (Lufthansa, Singapore Airlines), accounting services
(Ernst & Young, KPMG), consumer goods (Procter & Gamble, Unilever), and fast food (KFC,
McDonald's). The globalization of markets is important to International business because of the
benefíts it offers compa-nies. Let's now look briefly at each of these benefíts.

Reduces Marketing Costs Companies that sell global producís can

reduce costs by standardizing certain marketing activities. A
company seiling a global consumer good, such as shampoo, can
make an idéntica! product for the global market and then simply design
different packaging to account for the language spoken in each market.
Companies canjachieve further cost savings by creating the same visual
component for all markets, but dubbing TV ads and translating print ads
into local languages.
Creates New Market Opportunities A company that sells a global product can explore
opportunities abroad if the dome market is small or becomes saturated. For example, China
holds enormous' potential for e-business. Although China currently has 80 million Internet
users, one day it is expected to surpass the United States, which has 153. million Web surfers.
So, the battle for market share between the top-two online search engines, Yahoo!
(www.yahoo.com) and Google (www.google.com), has entered the Middle Kingdom. Both
companies recently launched or invested in Chinese-lan-guage services—Yahoo! rolled out
Yisou (www.yisou.com) and Google took a large fiíiancial stake in baidu (www.baidúrcom).7
.Séeking sales''growth abroad can be absolutely éssential for an entrepreneur or small company
that sells a global product but has a limited home market Levéis Uneven Income Streams A
company that sells a global, but séasonal, product can use'international sales to levéi its income
stré'am. By supplementing domestic sales with international sales, the company can reduce or
elimínate wide variations in sales between seasons and steady its cash flow. Por example, a firm that
produces suntan and sunblock lotions can match product distribution with the summer seasons in the
northern and southern hemispheres in altemating fashion—thereby steadying its income from these
global, yet highly séasonal, products.

Yet Local Needs Are Important Despite the poténtial benefits of global markets, man-agers must
constantly monitor the match between the firrri's products and markets to not overlook the needs of
buyers. The benefit of serving customers with án adapíed product may outweigh the benefit of a
standardized one. For instance, soft drinks, fast food, and other consumar goods are clearly global
products that continué to penétrate markets around the world. But sometimes these products require
small modifícations so they better suit local tastes. In southern Japan, Coca-Cola (www.cocacola.com)
sweetens its tradi-tional formula to compete with sweeter-tasting Pepsi (www.pepsi.com). In India,
where cows aresacred and the consumption of beef is taboo, McDonald's (www.mcdonalds.com) markets
the "Maharaja Mac"—two all-mutton patties on a sesame-seed bun with all the usual toppings. For
further insights into how' managers of global companies can succeed in the international marketplace, see
the Global Manager's Briefcase titled, "Keys to International Success."

Globalization of Production

Many production activities are also becoming global. Globaüíation

ofproduction refers to the dispersa! ofproduction activities to locations
that help a company achieve its cost-min-imization or quality-
maximization objectives for a good or service. This includes the
sourcing of key production inputs (such as raw materials or products for
ássembly) as well as the international outsourcing of services. Like the
globalization of markets, globalization ofproduction also offers
companies several benefits. Access Lower-Cost Workers Global
production activities allow companies to reduce overall
production costs through access to low-cost labor. For decades,
companies. located their faetones in low-wage nations to churn
out all kinds of goods, including toys and stuffed animáis,
inexpensive electronics, and textiles. Yet whereas relocating
production to lovv-cost locales traditionally meantproduction
ofgoods almost exclusively, ií increasingly applies to the
production of services. For example, although most services
must be pro-duced where they are consumed, some services
can be performed at remote locations : where labor costs are
lower. For years, European companies created cali centers in
Ireland to handle all types of customer service. Now, U.S. and
European firms are moving. cus-tomerservice and other
nonessential work to places as far away as India. Steve
Lanthrope, insurance partner of Accenture (www.accenture.com),
says, "It will- only be a few years before U.K. insurance and
pensión customers will, as a matter of course, nave almost all
their business dealt with abroad." Moving a customer service
center from the United Kingdom to India can lead to cost savings
of 40 to 60 percent.8

Access Technica! Expertise Companies also produce goods

and services abroad to ben-efit from technical know-how.
Film Román (www.filmroman.com) produces the TV series,
The Simpsons, but provides key poses and step-by-step
frame directions to AKOM Production Company
(www.akomkorea.com) in Seoul, South Korea. AKOM then
filis in
. the remaining poses and links them into an animated whole.
Buí there are bumps along the way, says animation director
Mark Kirkland. In one middle-of-the-night phone cali,
Kirkland was explaining ío the Koreans how to draw a
shooting gun. "They don't allow guns in Korea; it's against the
lavv," says Kirkland. "So they were calling me: 'How does a
gun work?'" Kirkland and others put up with such cultural differences and phone calis at
odd hours to tap a highly qualified pool of South Korean animators.9

Access Production Inputs Globalization of production

allows companies to access resources that are unavailable or
more costly at home. The quest for natural resources draws
many companies into international markets. Japan,. for example,
is a small, densely populated island nation with very few natural
resources of its own—especially forests. But . Japan's largest
paper company, Nippon Seishi, does more than simply import
wood pulp. The company owns huge forests and
corresponding processing facilities in Australia,
Canadá,.and,the. United States. This gives. the firm not only
access to an ésseníial resource, but control-Óv.ereariier stages
in the papermaking process: As a result, the cdmpany is
guaranteed a steady flow of its key ingredient (wood pulp) that is
less subject to ssvings in prices and supply associated with
buyina pulp on the open market. Likewise, to Access cheaper
energy resources used ¡n manufacturing, a variety of Japanese
firms.arerelocatinc prorJütítí'ón to China, México, and Vietnam where
energy costs are Itíwerí'"