Hoofdstuk 1: Globalizing business
1. Learning objectives
Explain the concept of international business (IB): GDP, GNI, etc….,
understand trade and foreign direct investment trends.
Identify one fundamental question in international business from two
core perspectives that provide a framework to explain the success of
companies abroad: institution-based and/or resource-based view.
Provide different definitions of globalization (4). (slide 22)
Explain 3 views on the extent of globalization - the link between
globalization and poverty reduction.
Explain 3 views on globalization: Friedman (flat world) vs. Florida (spiky
world) vs. Ghemawat (semi-globalization) (slide 27-29)
Participate in the debate on globalization/deglobalization or
slowbalization with a reasonably balanced and realistic view.
Discuss the factors discouraging globalization
2. Terminology: what is global business?
International business (IB)
o Business (firm) that engages in international (cross-border)
economic activities or the action of doing business abroad
Global business
o Business around the globe including both international (cross-
border) activities and domestic business activities
Multinational enterprise (MNE)
o Firm that engages in foreign direct investments
o What is foreign direct investment (FDI)?
Investments in, controlling, and managing value-added
activities in other countries (tegenovergestelde van
“portfolio investment”, hier willen ze controle uitvoeren op
de bedrijven)
Gross national product (GNP) –
o Measured as the sum of value added by resident firms,
households, and government operating in an economy (belgische
inwoners/bedrijven).
Gross domestic product (GDP)
o Total market value of all final goods and services produced
within a country in a given period of time usually a calendar year.
Gross national income (GNI)
o GDP plus income from nonresident sources abroad.
Purchasing power parity (ppp)
o Adjustment made to the GDP to reflect differences in the cost of
living.
Link income and life expectancy:
o Ted talk:
https://www.ted.com/talks/hans_rosling_shows_the_best_stats_yo
u_ve_ever_seen
When can we talk about an emerging markets:
o Hoge groei
o Instituties zijn gebrekkig
o Gemiddelde inkomens (geen lage!)
,3. A unified framework: what determines the success and failure of firms?
Institution-based view
o Doing business around the globe requires intimate knowledge
about the formal and informal rules of doing business in various
countries.
Some formal rules, such as the requirements to treat
domestic and foreign firms as equals, enhance the
potential odds for foreign firms’ success. (see Chapter 2)
informal rules such as culture, norms and values play an
equally important part in shaping the success and failure
of firms around the globe. (see Chapter 3)
o An institution-based view suggests that the formal and informal
rules of the game, known as institutions, shed light on what is
behind firms’ performance around the globe
Resource-based view
o The resource-based view focuses on a firm’s internal resources
and capabilities.
o the “liability of foreigness” (“LOF”) infers
The more a firm’s origins differ from the host environment
The less the firm has experience in the host country
And the further away its nearest prior affiliate.
o Firms as Coca Cola and Microsoft possess firm-specific resources
that enabled them to attain leadership positions around the
globe.
o Hence the primary weapon of foreign firms is
overwhelming resources and capabilities that, after
offsetting the liability of outsidership/foreignness, still
result in some significant competitive advantage.
4. What is globalization?
Verschillende definities:
o Accelerated spread of communication and transportation technology
o Rising powers of MNE’s and increased inequality
o Increased competition for jobs, especially low skilled workers
o A force eliminating differences among distinctive national cultures
and identities
Is the world economy DE-globalizing? No, but there is a slowbalization
o There is a slowdown from even before the pandemic but not a
reversal of the trend driven by China and India. (protectionisme has
been brought back to life by trump and china even before the
pandemic)
o FDI will recover again beyond the pandemic.
o The concept gross fixed capital information = domestic + foreign
investment
This is still rising (so we invest more in our own domestic
market)
o Zero sum = some people think that globalization is a cake, so if you
put tariffs on import your own economy can capitalize on this free
peace.
Three views on globalization:
, o The world is flat (Friedman, 2005) – Globalization is advanced and
inevitable
Globalization is everywhere.
o The world is spiky (Florida, 2005) – Globalization is concentrated and
stable
Some city’s are more globalized than others
o Semi-globalization (Ghemawat, 2007) – Globalization is partial and
limited:
“The 10% rule”: immigration, phone call, direct investment,
web traffic, private charity, patent, portfolio investment, etc.
Only 10% are immigrants, only 10% of people you call
are around the world, only 10% of direct investments
are globalized, …
o So globalization is not everywhere and is still
really small.
Which products make companies now?
o Most companies make the cheapest products, because then they
have the biggest customer base (bottom of the pyramid) that has
the money to buy the products. Because the majority of humanity,
makes less than 1500€ a year.
Als je wilt berekenen hoe internationaal een bedrijf is?
o Transnationaliteids index op basis van 3 ratios:
Hoeveelheid buitenlandse activa tot totale activa
Hoeveelheid buitenlandse sales tot totale sales
Hoeveelheid buitenlandse werknemers tot totale werknemers
5. Factors discouraging globalization
Brexit vote: 2016
Covid
o Supply shock has caused protectionism
o There are concerns about the resilience of the supply chain
US tariffs and US-China trade war: 2018-present
o Welfare in the home country will decline when the most important
export country puts up tariffs.
o But trade is not gone because of the trade war, there is now more
import from other countries.
Appelate body crisis and paralysis of WTO since end of 2019
o Wie oordeelt wie gelijk heeft wanneer er een conflict is op de
wereldmarkt omtrent handel? De WTO heeft niet echt een mening.
Industrial policy in the US (Chips act)
o Amerika wilt niet dat andere mensen aan de technologie van die
Chips kunnen (protectionisme)
Export restrictions targeting china
Russia-Ukraine war
o national security is a first-order concern, there is a focus on dual
goods (goods that have both military and civilian use)
o So there is more resilience, but only to geopolitical risks not to other
shocks
, 6. Cases of the retreat in globalization: three phases
Hoofdstuk 2: Formal institutions; political, economic and legal
systems
1. Learning objectives
Explain the concept of institutions and their key role in reducing
uncertainty.
Explain the basic differences among political systems.
Explain the systemic differences between economic systems.
Explain the basic differences between legal systems.
Participate in three leading debates on institutions in international
business.
Answer the questions on the REPSOL case I followed in the European
Parliament and at ECIPE
Draw implications for action.
2. Institution-based view
Institutional framework
o The institutional framework, governing a particular context is
made up of formal and informal institutions governing individual
and firm behavior.
Formal institutions: laws, regulations, rules set by
authorized bodies.
Regulatory pillar: The coercive power of
governments.
o When governments mandated lockdowns
they introduced new laws to do so.
Informal institutions: rules that exist in norms and values
(what is morally right or wrong).
Normative pillar: The mechanism through which
norms influence individual and firm behavior.
o In lockdown norms of compliance with rules
were set to protect the elderly
Cognitive pillar: The internalized, taken-for-granted
values and beliefs that guide individual and firm
behavior.
o When covid got out in china, the firms did not
believe it could get to Europe because there
were not aware of the severity.
