International Business Chapters 1-6 PDF

Chap ter Introduction 1 Learning Objectives After studying this chapter, you should be able to 1-1 Explain the concepts of international...

Chap ter Introduction 1 Learning Objectives After studying this chapter, you should be able to 1-1 Explain the concepts of international 1-5 State the size of the global economy business and global business. and its broad trends and understand your likely bias in the globalization 1-2 Give three reasons why it is important debate. to study global business. 1-6 Participate in three leading debates 1-3 Articulate one fundamental question concerning global business. and two core perspectives in the study of global business. 1-7 Draw implications for action. 1-4 Describe the importance of 1-8 Understand the structure of the book globalization, semiglobalization, and and the discipline. risk management. 16403_ch01_hr_001-033.indd 2 1/19/22 4:16 PM  Opening Case Emerging Markets Ethical Dilemma Apple, America, and China “Why couldn’t Apple make the iPhone in the United It employs hundreds of thousands of skilled workers, States?” Vice President Joe Biden asked Apple’s chief who, according to Bloomberg Businessweek, “work executive officer (CEO), Tim Cook, in January 2012. much longer hours, for a fraction of what even the low- Cook had only assumed the CEO position in August est-paid American workers make.” China has not only 2011. Three months later, Apple’s founder and ex-CEO emerged as Apple’s largest production location, but Steve Jobs passed away. This is a standard question also become its largest foreign market (second only to every administration from Obama to Trump to Biden its home market, the United States). would ask Apple’s CEO. The answer, according to New Throughout the Trump years (2017–2021), during York Times, is that Jobs and Cook “believe the vast which the US-China relationship sank to new lows, scale of overseas factories, as well as the flexibility, many firms in the United States, China, and elsewhere diligence, and industrial skills of foreign workers, have suffered in the trade war. But Apple thrived. What so outpaced their American counterparts that ‘Made were Cook’s tricks? He knew how to “play ball” with in the USA’ is no longer a viable option for most Apple both sides. Although Cook supported Hillary Clinton’s products.” When President Obama asked Jobs this presidential bid in 2016, he participated in President question in 2010, Jobs’s blunt answer landed him on Trump’s CEO summits and industry advisory councils. New York Times’s front page: “Those jobs aren’t com- Meanwhile, CEOs from Tesla, Uber, and Under Armour ing back.” resigned over disagreements with the administration. It turns out that the architect of Apple’s strategy of Apple also had disagreements with the administration outsourcing production to China, Cook, is a lot more in areas such as climate change, consumer privacy, diplomatic than his predecessor. During Cook’s ten- and immigration. Yet, Cook went to Washington every ure as CEO, the geopolitical relationship between the four to six weeks, had dinners at the White House, and United States and China has turned worse, with Apple bonded with First Daughter Ivanka and her husband stuck in the middle. Yet, led by Cook, Apple marched Jared Kushner. from success to success, becoming the first firm in In November 2019, Cook accompanied Trump to the world to hit a $1 trillion market capitalization in tour Apple’s Mac Pro factory in Austin, Texas, which 2018. During the decade of 2011–2021, Apple grew is operated by Flex, a contract manufacturer. Cook market capitalization by 561%, reaching $2.4 trillion by called the $6,000 Mac Pro “an example of American July 2021. design, American manufacturing, and American What is special about Apple? Its technological ingenuity.” Trump claimed the plant was a campaign innovation and design excellence are widely known. pledge fulfilled. “I said someday we’re going to see Its manufacturing quality and marketing savvy are Apple building plants in our country, not in China.... legendary. What is not well known is Apple execu- That’s what’s happening.” According to Bloomberg tives, especially Cook, are skilled at deflecting politi- Businessweek, Cook “looked on soberly and didn’t cal pressure and maneuvering between Washington mention what was obvious to factory employees: and Beijing. By the end of 2012, Cook announced Trump was lying. The facility had been in operation for that Apple would start making some Mac Pros in the Apple for six years.” United States—something Apple had not done since In fact, the Austin factory had been a headache. the early 2000s. At the same time, Apple’s reliance on Apple chose to make an expensive product sold in China only grew. Taiwan’s Foxconn, the world’s largest low volume, whose losses were manageable. Local contract manufacturer, built city-size factories in China. suppliers were hard to find, as few were willing to 16403_ch01_hr_001-033.indd 3 1/19/22 4:16 PM  4 Part One  Laying Foundations retool factories for a low-volume, one-off Apple pro­ father-in-law. Once Cook educated Trump and showed duct. Most components had to be imported from Asia. him some of the numbers shown above, Trump Skilled workers were also hard to recruit. Cost overruns changed his mind. The iPhone thus escaped from the were frequent, demand was low, and layoffs followed salvos of the trade war. Cook went on to earn a new at Flex. nickname from Trump: “Tim Apple.” Apple’s losses at its Austin factory were compen- At the same time, Apple was also playing ball in sated by the tremendous political benefits it brought. China. Cook served as chair of the Advisory Board of In 2018–2019, Trump, in his eagerness to reduce the the School of Economics and Management (SEM) at US-China trade deficit, seriously threatened to slap Tsinghua University in Beijing. Founded by former pre- tariffs on “Assembled in China” iPhones as part of his mier Zhu Rongji, SEM is one of the most influential trade war. Although most iPhones were assembled in business schools in China. If business schools use China, hundreds of suppliers and dozens of countries the prestige of their advisory boards to compete with were involved in a global value chain. Accelerometers each other, SEM is likely to be the world’s best. Its from Germany. Cameras from Japan. Chips from advisory board consists of board chairs and CEOs from South Korea. Glass from the United States. Rare earth world-class multinationals such as BMW, BP, Citigroup, minerals from Rwanda. In 2010, one study reported Coca-Cola, Dell, Goldman Sachs, IBM, Li & Fung, that of the $178 wholesale price shipped out of China, Microsoft, PepsiCo, SAP, Shell, Siemens, Softbank, Japan contributed 34%, Germany 17%, South Korea Sony, Tata, Tesla, and Zurich—in addition to Chinese 13%, the United States 6%, and China only 3.6%— heavyweights such as Alibaba, Baidu, and Tencent. almost entirely due to factory labor, management, and Every business school in the world would love to have services. such an advisory board chaired by someone like Cook. Yet, 100% of the $178 product sold to an American In December 2020, during the annual meeting of the consumer was counted by US customs as a “Chinese board presided by Cook, guess who was the keynote import,” adding $1.9 billion to the overall US trade defi- speaker? President Xi Jinping. cit with China of $273 billion in 2010. In the iPhone trade, the United States actually enjoyed a nontrivial Sources: (1) Bloomberg Businessweek, 2021, Tim Cook’s $2.3 t­rillion fortress, February 15: 41–45; (2) J. Boddewyn & M. W. Peng, 2021, trade surplus with China: $48 million. The United States Reciprocity and informal institutions in international market entry, Journal ran trade deficits with Japan ($563 million), Germany of World Business 56: 101145; (3) F. Hochberg, 2020, The iPhone isn’t made in China—it’s made everywhere, Wall Street Journal February 1: C5; ($219 million), South Korea ($138 million), and the rest (4) New York Times, 2012, Apple, America, and a squeezed middle class, of the world ($421 million). However, Japan, Germany, January 21: nytimes.com; (5) Tsinghua University, 2020, Tsinghua SEM holds 2020 Advisory Board meeting, December 9: www.sem.­tsinghua. South Korea, and others escaped from US complaints edu.cn/en/News1/25002.html; (6) Wall Street Journal, 2019, How Tim about trade imbalance, while China ended up being Cook got the president’s ear, October 5: B1, B4; (7) Y. Xing & N. Detert, 2010, How iPhone widens the US trade deficit with the PRC, Working the “trade villain” that attracted Trump’s wrath. Paper 257, Tokyo: Asian Development Bank Institute; (8) M. Young, G. Bruton, M. W. Peng, & X. Yu, 2021, American corporations are from An alarmed Cook reached out to Kushner, who Mars, Chinese corporations are from Venus, Business Horizons (in arranged a phone call between Cook and Kushner’s press). How do firms such as Apple compete around the world? What capabilities do they have? How do they deal with the various rules of the game? How do they adapt when the larger geopolitical relationship between their home and host countries changes? What determines their success and failure? This book addresses these and other important questions. 16403_ch01_hr_001-033.indd 4 1/19/22 4:16 PM  Chapter 1  Introduction 5 1-1 International Business and Global Business Learning Objective Explain the concepts of international Traditionally, international business (IB) is defined as a business (firm) that engages business and global business. in international (cross-border) economic activities. It can also refer to the action of doing business abroad. The previous generation of IB textbooks almost always International business (IB) takes the foreign entrant’s perspective. Consequently, such books deal with issues (1) A business (firm) that such as how to enter foreign markets and how to select alliance partners. The most engages in international (cross- frequently discussed foreign entrant is the multinational enterprise (MNE), defined border) economic activities and/or (2) the action of doing as a firm that engages in foreign direct investment (FDI) by directly investing in, business abroad. controlling, and managing value-added activities in other countries.1 Of course, MNEs and their cross-border activities are important. But they only cover one Multinational enterprise (MNE) aspect of IB—the foreign side. Students educated by these books often come away A firm that engages in foreign with the impression that the other aspect of IB—namely, domestic firms—does not direct investment (FDI). exist. Obviously, this is not true. Domestic firms do not just sit around in the face of Foreign direct investment (FDI) foreign entrants. They often actively compete and/or collaborate with foreign Investment in, controlling, and entrants. Sometimes, strong domestic firms have also gone overseas, transforming managing value-added activities themselves to become MNEs too. Overall, focusing on the foreign entrant side only in other countries. captures one side of the coin at best.2 There are two key words in IB: international (I) and business (B).3 However, many previous textbooks focus on the international aspect (the foreign entrant) to such an extent that the business part (which also includes domestic business) almost disappears. This is unfortunate because IB is fundamentally about B in addition to being about I. The IB course in the undergraduate and MBA curricula at numerous business schools is probably the only one with the word “business” in the course title. All other courses are labeled finance, management, marketing, strategy, and so on, representing one functional area but not the overall picture of business. Does it matter? Of course! It means that your IB course is an integrative course that can provide you with a comprehensive, overall enterprise perspective (rather than a functional view) grounded in a global environment. It thus makes sense that your textbook should give you both the I and B parts, not just the I part. To cover both the I and B parts, global business is defined in this book as busi- Global business ness around the globe—thus, the title of this book is Global Business (not IB). In Business around the globe. other words, global business includes both (1) international (cross-border) busi- ness activities covered by traditional IB books and (2) domestic business activities. Such deliberate blurring of the traditional boundaries separating international and domestic business is increasingly important today because many previously domestic markets are now entered by global rivals. Consider the competition in college textbooks, such as this Global Business book that you are studying now. Not long ago, competition among college business textbook publishers was primarily domestic. The Big Three—Cengage Learning (our publisher), Pearson Prentice Hall, and McGraw-Hill—primarily focused on the United States. A different set of publishers competed in other countries. As a result, most textbooks studied by British students would be authored by British professors and published by British publishers, most textbooks studied by Brazilian students would be authored by Brazilian professors and published by Brazilian publishers, and so on. Now Cengage Learning (under British and Canadian own- ership), Pearson Prentice Hall (under British ownership), and McGraw-Hill (under US ownership) have significantly globalized their competition, thanks to the rising demand for high-quality business textbooks in English. 16403_ch01_hr_001-033.indd 5 1/19/22 4:16 PM  6 Part One  Laying Foundations Around the globe, the Big Three are competing against each other in many markets, publishing in multiple languages and versions. For instance, Global Business and its sister books—Global Strategy, Global Strategic Management, Global (paperback), and International Business (titles of different adaptations for the European and Indian/South Asian markets)—are published by different Cengage Learning subsidiaries in Chinese, Spanish, and Portuguese in addition to English, reaching customers in more than 50 countries. Despite such worldwide spread of competition, in each market—down to each school—publishers have to compete locally. This means Global Business has to win adoption in every class, every semes- ter. Overall, it becomes difficult to tell in this competition what is international and what is domestic. Thus, global seems to be a better word to capture the essence of this competition. Learning Objective 1-2 Why Study Global Business? Give three reasons why it is impor- tant to study global business. Global business (or IB) is one of the most exciting and most relevant subjects offered by business schools. Why study it? Table 1.1 outlines three compelling reasons. First, you want to be a winner. Mastering global business knowledge helps advance your employability and career in an increasingly competitive global econ- omy. Take a look at the Opening Day Quiz in Table 1.2. Can you answer all the questions correctly? If not, you will definitely benefit from studying global business. Table 1.1 Why Study Global Business? Enhance your employability and advance your career in the global economy Better preparation for possible expatriate assignments abroad Stronger competence in interacting with foreign suppliers, partners, and competitors, and in working for foreign-owned employers in your own country Table 1.2 Opening Day Quiz 1. Which country made the shirt you are wearing? (A) China (D) Romania (B) Malaysia (E) United States (C) Mexico (F) Other: 2. Which country made your mobile device? (A) China (D) Taiwan (B) Germany (E) United States (C) Singapore (F) Other: 3. How many member countries does the Group of 20 (G20) have? (A) 20 (D) 19 (B) 21 (E) 18 (C) 22 4. Which city has the largest number of headquarters of Fortune Global 500 firms (measured by revenue)? (A) Beijing (D) Paris (B) London (E) Tokyo (C) New York 16403_ch01_hr_001-033.indd 6 1/19/22 4:16 PM  Chapter 1  Introduction 7 The answer to Question 1 is empirical—that is, based on data. You should guess (hypothesize) first and then collect data by looking at the label of your shirt your- self or asking a friend to help you. The key here is international trade. Do you wear a shirt made in your own country or another country? Why? In Question 2, smart students typically ask whether the mobile device (such as a smartphone or an iPad) means the motherboard or the components. My answer is: “The whole device, all the production that went into making the machine.” Then some students respond: “But they could be made in different countries.” Exactly! Specifically, the point here is to appreciate the complexity of a global value chain with different countries making different components. It is likely the tiny compo- nents inside your mobile device have crossed borders dozens of times. Such a value chain is typically managed by an MNE such as Apple (see the Opening Case), Dell, Foxconn, Lenovo, or Samsung. The abilities of organizing a global value chain hints at the importance of resources and capabilities—one of the two key themes of this book. Question 3 is deceptively simple. Unfortunately, 100% of my own students— Group of 20 (G-20) ranging from undergraduates to PhDs—miss it. Surprise! The Group of 20 (G-20) The group of 19 major countries plus the European Union whose only has 19 member countries. The 20th member is the European Union (EU)—a leaders meet on a biannual regional bloc, not a single country. Why the G-20 is formed in such an interesting basis to solve global economic way will hopefully make you curious about how the rules of the game are made problems. around the world. In this case, why are 19 countries in, but numerous others are out? What is special about the EU? Why are other regional blocs not included in the G-20? A focus on the rules of the game—institutions—is another key theme of the book. Question 4 is interesting. Most of my own students pick New York, which has the third-largest number of head- quarters of Fortune Global 500 firms (measured by reve- zhu difeng/Shutterstock.com nue), 16. The winner is Beijing, with 59 Fortune Global 500 ­headquarters—followed by 37 in Tokyo as number two.4 The rise of Beijing is indicative of the changing global economic winds, which have propelled China to become the world’s second-largest economy. To gain a better understanding of the global economy, you need to pay more attention to firms Do you know Beijing now has the world’s largest based in Beijing (and in China and other emerging econo- number of Fortune Global 500 headquarters? mies) (see In Focus 1.1). In addition to the first reason to equip yourself with relevant knowledge, the second compelling reason to study global business is because many ambitious stu- dents aspire to join the top ranks of large firms, where expertise in global business is often a prerequisite. Today, it is increasingly difficult, if not impossible, to find top managers at large firms without significant global competence. Therefore, it is important to foster a global mindset—the ability to “connect the dots” globally. 5 Of Global mindset course, eventually, hands-on experience, not merely knowledge acquired from this Ability to “connect the dots” course, will be required. However, mastery of the knowledge of global business dur- globally. ing your education will set you apart as a more ideal candidate to be selected as an expatriate manager (expat) —a manager who works abroad—to gain such experi- Expatriate manager (expat) ence (see Chapter 15). A manager who works abroad. Thanks to globalization, low-level jobs not only command lower salaries, but are also more vulnerable. However, high-level jobs, especially those held by expats, are 16403_ch01_hr_001-033.indd 7 1/19/22 4:16 PM  8 Part One  Laying Foundations Figure 1.1 The Impact of Globalization and Technology Source: Harvard Business Review April 2012: 34 both financially rewarding and relatively secure. Expats often command an International premium ­international premium in compensation—a significant pay raise when working over- A significant pay raise when seas. In US firms, an expat’s total compensation package can be approximately working overseas. $250,000 to $300,000 (including perks and benefits—not all is take-home pay). When they return to the United States after a tour of duty (usually two to three years), a firm that does not provide attractive career opportunities to experienced expats often find them to be lured away by competitors. To hire away these internationally experi- enced managers, competitors have to pay an even larger premium. This is a virtuous cycle. This hypothetical example is designed to motivate you to study hard so that, someday, you may become one of these sought-after globetrotting managers. But even if you don’t want to be an expat, you really don’t want to join the army of the unemployed due to the impact of globalization and technology (see Figure 1.1). Lastly, even if you do not aspire to compete for the top job at a large firm and instead work at a small firm or are self-employed, you may find yourself dealing with foreign-owned suppliers and buyers, competing with imports in your home market, or perhaps even selling and investing overseas. Alternatively, you may find your- self working for a foreign-owned firm, your domestic employer acquired by a for- eign player, or your unit ordered to shut down for global consolidation. Worldwide approximately 80 million people (including 25 million Chinese and seven million Americans) work for MNE subsidiaries in their countries. Understanding how global business decisions are made may facilitate your own career in such firms. If there is a strategic rationale to downsize your unit, you want to be prepared and start polishing your résumé right away. In other words, it is your career that is at stake. Don’t be the last in the know! Learning Objective 1-3 A Unified Framework Articulate one fundamental question and two core perspectives in the Global business is a vast subject area. It is one of the few courses that will make study of global business. you appreciate why your university requires you to take a number of seemingly unrelated courses in general education. It draws on major social sciences, such 16403_ch01_hr_001-033.indd 8 1/19/22 4:16 PM  Chapter 1  Introduction 9 Figure 1.2 A Unified Framework for Global Business Institution-based view: Formal and informal rules of the game Fundamental question: What determines the success and failure of firms around the globe? Resource-based view: Firm-specific resources and capabilities as economics, geography, history, political science, psychology, and sociology. We also draw on a number of business disciplines, such as finance, human resource management (HRM), marketing, operations, and strategy. The study of global business is, thus, quite interdisciplinary. It is easy to lose sight of the “forest” while scrutinizing various “trees” or even “branches.” The subject is not difficult, and most students find it to be fun. The number-one student complaint (based on pre- vious student feedback) is that there is an overwhelming amount of information. Honestly, this is also my number-one complaint as your author. You may have to read and learn this material, but I have to bring it all together in a way that makes sense and in a (relatively) compact book that does not go on and on and on for 990 pages. To make your learning more focused, more manageable, and hopefully more fun, in this section—and throughout the book in every chapter—we develop a uni- fied framework (shown in Figure 1.2). This provides great continuity to facilitate your learning. Specifically, we discipline ourselves by focusing only on one most fundamental question and two core perspectives. A fundamental question defines a field and orients the attention of students, practitioners, and scholars in a certain direction. Our “big question” is: What deter- mines the success and failure of firms around the globe? 6 To answer this question, we introduce only two core perspectives throughout this book: (1) an institution-based view and (2) a resource-based view.7 The remainder of this section outlines this framework. 1-3a One Fundamental Question What is it that we do in global business? Why is it so important that practically all students in business schools around the world are either required or recom- mended to take this course? While numerous questions can be raised, a relent- less interest in what determines the success and failure of firms around the globe serves to focus the energy of our field. Global business is fundamentally about not limiting yourself to your home country. It is about treating the global eco­ nomy as your potential playground (or battlefield). Some firms may be successful domestically but fail miserably overseas. Other firms successfully translate their strengths from their home markets to other countries. If you were to lead your 16403_ch01_hr_001-033.indd 9 1/19/22 4:16 PM  10 Part One  Laying Foundations firm’s efforts to enter a particular foreign market, wouldn’t you want to find out what drives the success and failure of other firms in that market? Firm performance has multiple dimensions. In addition to traditional eco- Triple bottom line nomic performance, firms are increasingly evaluated along the triple bottom line — Economic, social, and consisting of economic, social, and environmental performance. To accomplish environmental performance. excellent performance along the triple bottom line, managers need to take care of Stakeholder stakeholders. Stakeholder refers to any group or individual who can affect or is Any group or individual who affected by the achievement of a firm’s objectives. Shareholders, customers, employ- can affect or is affected by ees, and suppliers are primary stakeholders. As secondary stakeholders, govern- the achievement of a firm’s ments, communities, and social and environmental groups are also important (see objectives. Chapter 17). Overall, the focus on firm performance around the globe defines the field of global business (or IB) more than anything else. Numerous other questions all relate in one way or another to this most fundamental question. Therefore, all chapters in this book are centered on this consistent question: What determines the success and failure of firms around the globe? 1-3b First Core Perspective: An Institution-Based View 8 An institution-based view suggests that the success and failure of firms are enabled and constrained by institutions. By institutions, we mean the rules of the game. Doing business around the globe requires intimate knowledge about both formal rules (such as laws) and informal rules (such as values) that govern competition in various countries. Firms that do not do their homework and remain ignorant of the rules of the game are not likely to emerge as winners. Formal institutions include laws, regulations, and rules. For example, the certainty provided by formal laws, regulations, and rules such as those associ- ated with the EU, North American Free Trade Agreement (NAFTA), and China’s entry into the World Trade Organization (WTO) facilitated tremendous growth of cross-border trade and investment. The removal or reduction of some of this certainty, such as Brexit that pulled Britain out of the EU, negotiations prior to the signing of the United States–Mexico–Canada Agreement (USMCA) that replaced NAFTA, and the US trade war against China that violated WTO rules (as determined by the WTO—see the Closing Case in Chapter 5), discouraged inter­national business. Informal institutions include cultures, ethics, and norms. They also play an important part in shaping the success and failure of firms around the globe. For example, individualistic societies, particularly the English-speaking countries, such as Australia, Britain, Canada, and the United States, tend to have a relatively higher level of entrepreneurship, as reflected in the number of business start-ups. Why? Because the act of founding a new firm is a widely accepted practice in indi- vidualistic societies. Conversely, collectivistic societies, such as Japan, often have a hard time fostering entrepreneurship. Most people there refuse to stick their neck out to found new businesses because it is contrary to the norm. Overall, an institution-based view suggests that institutions shed a great deal of light on what drives firm performance around the globe. Illustrated in the Opening Case, as global business becomes even more of a geopolitical battlefield, the institution-based view has become even more important. Next, we turn to our second core perspective. 16403_ch01_hr_001-033.indd 10 1/19/22 4:16 PM  Chapter 1  Introduction 11 1-3c Second Core Perspective: A Resource-Based View 9 The institution-based view suggests that the success and failure of firms are largely determined by their environments. However, insightful as this perspective is, there is a major drawback. If we push this view to its extreme, then firm performance around the globe would be entirely determined by environments. The validity of this extreme version is certainly questionable. The resource-based view helps overcome this drawback. While the institution- based view primarily deals with the external environment, the resource-based view focuses on a firm’s internal resources and capabilities. It starts with a simple observation—in harsh, unattractive environments, most firms either suffer or exit. However, against all odds, a few superstars thrive in these environments. For instance, in spite of the former Soviet Union’s obvious hostility toward the United States during the Cold War, PepsiCo began successfully operating in the former Soviet Union in the 1970s. Despite the lethal combination of US sanctions and COVID-19, Huawei managed to grow its revenue by 4% in 2020. In the fiercely competitive fashion industry, Zara has been defying gravity. How can these firms succeed in such challenging environments? What is special about them? A short answer is that PepsiCo, Huawei, and Zara must have certain valuable and unique firm-specific resources and capabilities that are not shared by competitors. Doing business outside one’s home country is challenging. Foreign firms have to overcome a liability of foreignness, which is the inherent disadvantage that foreign Liability of foreignness firms experience in host countries because of their nonnative status.10 Just think The inherent disadvantage that about all the differences in regulations, languages, cultures, and norms. Against foreign firms experience in host countries because of their such significant odds, the primary weapons that foreign firms employ are over- nonnative status. whelming resources and capabilities that can offset their liability of foreignness. Today, many of us take it for granted that the best-selling car in the United States rotates between the Toyota RAV4 and the Honda CR-V, that Coca-Cola is the ­number-one soft drink in Mexico, and that Microsoft Word is the world’s most popular word processing software. We really shouldn’t. Why? Because it is not natu- ral for foreign firms to dominate nonnative markets. These firms must possess some very rare and powerful firm-specific resources and capabilities. This is a key theme of the resource-based view, which focuses on how winning firms acquire and develop such unique resources and capabilities and how competitors imitate and then innovate in an effort to outcompete the winning firms (see In Focus 1.1). Our Opening Case shows that in the intensifying geopolitical rivalry between the United States and China, Apple, instead of being squeezed or crushed, has risen to the challenge and added $1 trillion in market capitalization (its second trillion) between 2018 and 2021. One reason that Apple in the post–Steve Jobs decade, dur- ing which institutional turbulence has intensified, can accomplish such enviable growth is because of CEO Tim Cook. Cook has the rare combination of operational skills and diplomatic finesse. “Tim understands the world to a degree,” accord- ing to Warren Buffet, whose Berkshire Hathaway has an over $100 billion stake in Apple, “that very, very few CEOs I’ve met over the past 60 years could match.”11 1-3d A Consistent Theme Given our focus on the fundamental question of what determines the success and failure of firms around the globe, we develop a consistent theme by organiz- ing materials in every chapter according to the two core perspectives, namely, the 16403_ch01_hr_001-033.indd 11 1/19/22 4:16 PM  12 Part One  Laying Foundations In Focus 1.1 Emerging Markets How Firms From Emerging Economies Overcome Liability of Foreignness Market opening throughout emerging economies and restaurants that do not have anything to do with often means the arrival of multinational enterprises Mexican food. In short, Corona has “gone native.” (MNEs) from developed economies. While MNEs put Third, some emerging multinationals simply buy an enormous amount of pressure on local firms, MNEs Western firms or brands off the shelf. Tata Motors also serve a useful purpose of demonstrating what is of India bought Jaguar Land Rover, Geely of China possible and motivating local firms to try harder. Since acquired Volvo, and Natura of Brazil took over Avon the best defense is offense, trying harder—in addition and The Body Shop. Such high-profile acquisitions sig- to mounting a rigorous defense—usually means to get nificantly enhanced the global profile of these ambi- out of local firms’ increasingly crowded home mar- tious firms from emerging economies (see the Closing kets. How do firms from emerging economies fight Case in Chapter 12). back by overcoming their liability of foreignness? Finally, firms from emerging economies have to At least four patterns have emerged. The first overcome enormous institution-based barriers, some is to follow the well-known Japanese and Korean formal and some informal. Although Huawei of China strategies of first establishing a beachhead by successfully exported telecom equipment to 45 of the exporting something good enough and then raising world’s top 50 telecom operators, it was not allowed quality, perception, and price. By following these to penetrate the remaining five, all of which are in steps, Pearl River of China has dethroned Yamaha to the United States. A major reason is because the US become the largest piano maker in the world. It has government—in fear of the privately-owned Huawei also significantly improved quality so that the high- working for the Chinese government—labeled Huawei end market leader Steinway, after first rejecting a “national security threat” in the absence of hard evi- Pearl River for an alliance proposal, more recently dence. Undeterred, Huawei became an emerging con- approached Pearl River to become Steinway’s tender in smartphones. In addition to formal barriers, original equipment manufacturer for its low-end how to overcome informal consumer perceptions that models. Likewise, Mahindra & Mahindra of India typically associate emerging economies with poor solidly established itself in the American heartland quality is another challenge. For example, cosmetics and ended up becoming the world’s largest tractor users in the world do not think of Brazil highly—or do maker by volume. not think of Brazil at all. Natura had no precedents to A second path is to follow the diaspora. To bring follow, because no Brazilian consumer products brands Bollywood hits to the diaspora, Reliance Media of India have succeeded outside Latin America. Highlighting its launched the BIG Cinemas chain in the United States. natural ingredients from the Amazon rainforest, Natura King of fast food in the Philippines, Jollibee chased endeavored to tap into Brazil’s positive country-of-origin the diaspora by expanding to Hong Kong, Dubai, and image of biodiversity. This reigning queen of cosmetics California. Tencent of China exported its WeChat to in Brazil had to try hard to show its charm overseas. many overseas Chinese. But joining the mainstream has been hard for firms focusing on the diaspora. More Sources: (1) P. Deng, A. Delios, & M. W. Peng, 2020, A geographic rela- tional perspective on the internationalization of emerging market firms, interesting is a “reverse diaspora” strategy: Corona Journal of International Business Studies 51: 50–71; (2) Economist, 2013, Beer of Mexico, after giving American customers a Looks good, September 28 (special report): 14–15; (3) V. Govindarajan & C. Trimble, 2012, Reverse Innovation, Boston: Harvard Business Review happy time when visiting Mexico, successfully chased Press; (4) S. Lange, 2016, Huawei deals with liability of foreignness, in M. W. Peng, Global Strategy, 4th ed., Boston: Cengage; (5) C. Mutlu, such customers back home. Corona is now one of W. Zhan, M. W. Peng, & Z. Lin, 2015, Competing in (and out of) transition the most frequently served beers in American bars economies, Asia Pacific Journal of Management 32: 571–596. 16403_ch01_hr_001-033.indd 12 1/19/22 4:16 PM  Chapter 1  Introduction 13 institution-based and resource-based views (see the Opening Case). With our uni- fied framework—an innovation in IB textbooks—we not only explore the global business “trees,” but also see the global business “forest.” 1-4 Globalization and Semiglobalization Learning Objective Describe the importance of global- Globalization, broadly speaking, is the close integration of countries and peoples of ization, semiglobalization, and risk the world. This abstract five-syllable word is now frequently heard and debated. management Advocates of globalization count its contributions to include greater economic growth, higher standards of living, improved technology, and more extensive cul- Globalization tural exchange. Critics argue that globalization destroys jobs in rich countries, The close integration of exploits workers in poor countries, grants MNEs too much power, degrades the countries and peoples of the environment, and promotes inequality. This section (1) outlines three views on glo- world. balization, (2) reviews the swing of the pendulum, (3) highlights the importance of risk management, and (4) discusses the important idea of semiglobalization. 1-4a Three Views on Globalization Globalization is a shorthand version for economic globalization (or international economic integration)—no one is ever serious about political globalization.12 Three major views conceptualize globalization as: A new force sweeping through the world in recent times A long-run historical evolution since the dawn of human history A pendulum that swings from one extreme to another from time to time. An understanding of these views helps put the debate about globalization in perspective (see Debate 1). First, opponents of globalization suggest that it is a new phenomenon beginning in the late 20th century. The arguments against globaliza- tion focus on (1) manufacturing decline, job loss, and income inequality in high- income countries; (2) environmental stress and sweatshop labor in low-income countries; and (3) global warming and climate crisis on a worldwide basis. A second view contends that globalization has always been part and parcel of human history. The earliest traces of MNEs have been discovered in Assyrian, Phoenician, and Roman times.13 International competition from low-cost countries is nothing new. In the first century AD, the Roman emperor Tiberius was so con- cerned about the huge quantity of low-cost Chinese silk imports that he imposed the world’s first-known import quota on textiles.14 In a nutshell, globalization is nothing new and will always exist. A third view suggests that globalization is the “closer integration of the coun- tries and peoples of the world which has been brought about by the enormous reduction of the costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and (to a lesser extent) people across borders.”15 Globalization is neither recent nor one- directional. It is, more accurately, a process similar to the swing of a ­pendulum—a perspective to which we turn next. 1-4b The Swing of a Pendulum Globalization has never been going in one direction. It has always been subject to tensions and contradictions.16 Therefore, the pendulum view is more realistic and makes the most sense. 16403_ch01_hr_001-033.indd 13 1/19/22 4:16 PM  14 Part One  Laying Foundations The current era of globalization originated in the aftermath of World War II, when major Western countries committed themselves to global trade and invest- ment. However, between the 1950s and the 1970s, this view was not widely shared.17 Communist countries, such as China and the Soviet Union, sought to develop self- sufficiency. Many noncommunist developing countries, such as Brazil, India, and Mexico, focused on protecting domestic industries. But refusing to participate in global trade and investment ended up breeding uncompetitive industries. In con- trast, four developing economies in Asia—Hong Kong, Singapore, South Korea, and Taiwan—earned their stripes as the “Four Tigers” by participating in the global economy. They became the only economies once recognized as “less-­developed (low-income)” by the World Bank to have subsequently achieved “­developed (high- income)” status. Inspired by the Four Tigers, more countries and regions—such as China in the 1970s, Latin America and Central and Eastern Europe in the 1980s, and India and Russia in the 1990s—joined the global economy. As these countries emerged as Emerging economy new players in the global economy, they became collectively known as emerging A term that has gradually economies (or emerging markets)—fast-growing developing economies.18 Because replaced the term “developing of their traditionally low income, they had been at the base of the pyramid (BoP) of country” since the 1990s. the global economy that had been largely ignored by MNEs in the West.19 Now such Emerging market BoP markets emerged, first as vast low-cost labor markets and gradually as emerg- A term that is often used ing middle-class consumer markets. Incorporating more emerging economies, glo- interchangeably with “emerging balization rapidly accelerated. economy.” However, globalization, like a pendulum, will not keep going in one direction. Base of the pyramid (BoP) Rapid globalization in the 1990s and the 2000s saw some significant backlash, Economies where people make resulting in a historically inaccurate view that globalization is new. The September less than $2,000 per capita per 2001 terrorist attacks in New York and Washington undoubtedly were some of the year. most visible and most violent acts of antiglobalization forces at work. As a result, international travel was curtailed, and global trade and investment flows slowed down in the early 2000s. However, by the mid-2000s, worldwide GDP, cross-border trade, and per capita BRIC GDP all soared to historically high levels. It was during that period that BRIC —an Brazil, Russia, India, and China. acronym for four major emerging economies, Brazil, Russia, India, and China— became a buzzword.20 A few years later, adding South Africa, BRIC became a BRICS more inclusive label of BRICS. One interesting development is reverse innovation Brazil, Russia, India, China, and (or frugal innovation) —an innovation that is adopted first in emerging economies South Africa. and then diffused around the world.21 The traditional flow of innovation is from Reverse innovation (or frugal developed to developing economies. In contrast, General Electric (GE) developed innovation) a basic ultrasound scanner from scratch in China. John Deere developed a An innovation that is adopted 35-horsepower tractor from scratch in India. In both cases, the origin of first in emerging economies innovations was from the BoP and the cost was about 10% of the cost if they had and is then diffused around the been developed in developed economies. The two multinational giants not only world. marketed these products in China and India, but also brought them back home and diffused them throughout the world. In other words, the flow of innovation is now sometimes reversed. While MNEs are actively competing in emerging economies, emerging economies have also become a breeding ground of a new class of global competitors (see In Focus 1.1).22 Unfortunately, the party suddenly ended in 2008. The Great Recession of 2008–2009 was unlike anything the world had seen since the Great Depression of 1929–1933. The crisis showed how interconnected the global economy had become. Deteriorating housing markets in the United States, fueled by unsustainable 16403_ch01_hr_001-033.indd 14 1/19/22 4:16 PM  Chapter 1  Introduction 15 subprime lending practices, led to massive government bailouts of failed firms. The crisis quickly spread around the world. Global output, trade, and investment plummeted, while unemployment skyrocketed. After unprecedented government intervention in developed economies, the global economy had turned the corner.23 However, starting in 2010, the Greek debt crisis and then the broader PIGS debt crisis (“PIGS” refers to Portugal, Ireland or Italy, Greece, and Spain) erupted. The already slow recovery in Europe thus slowed even further. In 2016, a majority of citizens in Britain—frustrated by slow growth, high unemployment, influx of immigrants, and endless needs to bail out troubled countries—voted to exit the EU. Eventually, Brexit took place in 2020. In 2016, Americans voted Donald Trump into power. Emphasizing “America first,” he departed from earlier presidents’ interest in globalization. President Trump withdrew US participation in the Trans–Pacific Partnership (TPP), threat- ened to dismantle NAFTA, and launched trade wars with Canada, China, the EU, and Mexico. In contrast, Chinese leaders became defenders of globalization, arguing that “economic openness serves everyone better.” 24 It is a great irony that in the 1980s, it was Chinese leaders who were lectured by American politicians about the merits of abandoning isolationism and joining the global economy. However, this is exactly why the pendulum view on globalization is so powerful and insightful. 1-4c Black Swan and Risk Management In 2020, the coronavirus (COVID-19) hit the world. Borders were closed and econo- mies were locked down one after another. All nonessential businesses closed, oil prices dived into the negative, unemployment soared, and firms went bankrupt left and right. While vaccines became available by 2021, on a worldwide basis the percentage of people vaccinated remains small and uneven. Plagued by the new COVID-19 variants, recovery is slow and painful. The pandemic reminds all firms and managers of the importance of risk Risk management ­management—the identification and assessment of risks and the preparation to The identification and minimize the impact of high-risk, unfortunate events.25 What is especially unex- assessment of risks and the preparation to minimize the pected is a black swan event. According to risk management guru Nassim Taleb, a impact of high-risk, unfortunate black swan event is an unpredictable one that is beyond what is normally expected events. and that has severe consequences.26 Examples of black swan events include the 1991 Black swan event dissolution of the Soviet Union, the September 2001 terrorist attacks, and the 2020 An unpredictable event that COVID-19 outbreak. As a technique to plan for multiple scenarios and especially to is beyond what is normally cope with black swan events, scenario planning is now extensively used (see expected and that has severe Table 1.3).27 consequences. Scenario planning Table 1.3 Basics of Scenario Planning A technique to prepare and plan for multiple scenarios (either Obtain input from global and regional teams (and outside experts if necessary). high risk or low risk). Evaluate the likelihood of the most disruptive events to your operations. For each scenario, plot several alternative plans. For each scenario, incorporate broad stakeholder input to choose the most effective plans. Work with key suppliers, customers, community representatives, and government officials. Be sure to document it all, both for compliance purposes and implementation purposes. 16403_ch01_hr_001-033.indd 15 1/19/22 4:16 PM  16 Part One  Laying Foundations 1-4d Semiglobalization Despite the hype, globalization—even at its peak—is not complete. Before the recent movement to deglobalize (see Debate 1), did we really live in a globalized world? Are selling, investing, and living abroad just as easy as at home? Obviously not. Before COVID-19, most measures of market integration, such as trade and FDI, scaled new heights but still fell far short of pointing to a single, globally inte- Semiglobalization grated market. In other words, what we have may be labeled semiglobalization, A perspective that suggests that which is a perspective that suggests that barriers to market integration at borders barriers to market integration at are high but not high enough to insulate countries from each other completely.28 borders are high, but not high More complex than extremes of total isolation and total globalization, semi- enough to insulate countries from each other completely. globalization calls for more than one way of doing business around the globe. Total isolation (or total deglobalization) on a nation-state basis would suggest ­localization—treating each country as a unique market and developing tailor-made products. An MNE marketing products to 100 countries will need to come up with 100 versions. This way is clearly too costly. Even the strongest critics of globalization are not advocating such a retreat—each country becoming a self-sufficient hermit. Total globalization, on the other hand, would suggest that The World is Flat, which is the title of an influential 2005 book by Thomas Friedman, a journalist.29 Such a flat world would lead to standardization—treating the entire world as one market. An MNE can just market one version of “world car” or “world drink.” But the world obviously is not that simple. Overall, semiglobalization can be viewed as a continuum between total isola- tion and total globalization. Given the heightened trade and investment barriers recently, the world clearly is not flat. It is spiky.30 However, the world is not going toward total isolation either. Thus, it seems useful to view that we live in a world of semiglobalization. Like the proverbial elephant, (semi)globalization is seen by everyone yet rarely comprehended. Remember all of us felt sorry when we read the story of a bunch of blind men trying to figure out the shape and form of an elephant. Although we are not blind, our task is also challenging in that our beast—globalization—does not stand still and often rapidly moves back and forth (!). Yet, we try to avoid being crushed by it and attempt to profit from its movement. Therefore, an understanding of the size and nature of the beast is useful. Learning Objective 1-5 Global Business and Globalization at a Crossroads State the size of the global economy and its broad trends and understand Twenty-first-century business leaders face enormous challenges. This book helps your likely bias in the globalization overcome these challenges. As a backdrop for the remainder of this book, this debate. section makes two points. First, a basic understanding of the global economy is necessary. Second, it is important to critically examine your own personal views Gross domestic product (GDP) and biases regarding globalization. The sum of value added by resident firms, households, and governments operating in an 1-5a A Glance at the Global Economy economy. The global economy in 2021 was approximately $94 trillion in size. This was the Purchasing power parity (PPP) total global gross domestic product (GDP) calculated at official, nominal exchange A conversion that determines rates—or $142 trillion on the basis of purchasing power parity (PPP).31 While there the equivalent amount of goods and services that different is no need to memorize a lot of statistics, it is useful to remember this $94 trillion currencies can purchase. (or $142 trillion) figure to put things in perspective (see In Focus 1.2). 16403_ch01_hr_001-033.indd 16 1/19/22 4:16 PM  Chapter 1  Introduction 17 In Focus 1.2 Emerging Markets Setting the Terms Straight GDP, GNP, GNI, PPP—there is a bewildering variety of The PPP between two countries is the rate at which acronyms that are used to measure an economy. It is the currency of one country needs to be converted useful to set these terms straight before proceeding. into that of a second country to ensure that a given Gross domestic product (GDP) is measured as the sum amount of the first country’s currency will purchase of value added by resident firms, households, and gov- the same basket of goods and services in the second ernments operating in an economy. For example, the country (see Chapter 7). According to the International value added by foreign-owned firms operating in Mexico Monetary Fund (IMF), the Swiss per capita GDP is would be counted as part of Mexico’s GDP. However, $94,696 based on official (nominal) exchange rates— the earnings of nonresident sources that are sent back 39% more than the official US per capita GDP of to Mexico (such as earnings of Mexicans who do not $68,309. However, everything is more expensive in live and work in Mexico, and dividends received by Switzerland. A Big Mac costs $7.04 in Switzerland ver- Mexicans who own non-Mexican stocks) are not sus $5.65 in the United States. Switzerland’s per cap- included in Mexico’s GDP. One measure that captures ita GDP based on PPP shrinks to $75,880—only 11% this is gross national product (GNP). Recently, the World higher than the US per capita GDP based on PPP of Bank and other international organizations have used a $68,309 (the IMF uses the United States as a bench- new term, gross national income (GNI), to supersede mark in PPP calculation, which does not change from GNP. Conceptually, there is no difference between GNI the nominal number). The lesson here? When you and GNP. What exactly is GNI/GNP? It comprises GDP read statistics about GDP, GNP, and GNI, always pay plus income from nonresident sources abroad. attention to whether these numbers are based on offi- While GDP, GNP, and now GNI are often used cial exchange (nominal) rates or PPP, which can make as yardsticks of economic development, differences a huge difference. in cost of living make such a direct comparison less Sources: (1) Economist, 2020, Crisis measures, May 30: 65; (2) Economist, meaningful. A dollar of spending in Thailand can buy 2020, The notorious GDP, October 31: 66; (3) Economist, 2021, The Big Mac index: Our interactive currency comparison tool, January 12: www. a lot more than in Japan. Therefore, conversion based economist.com; (4) IMF, 2021, World economic outlook database, April, on purchasing power parity (PPP) is often necessary. Washington: IMF. One frequent observation in the globalization debate is the enormous size of MNEs. Table 1.4 shows the most recent top ten firms. If the largest MNE, Walmart, were an independent country, it would be the 26th largest economy—its revenue is smaller than Thailand’s GDP but larger than Nigeria’s. More than 82,000 MNEs manage at least 810,000 subsidiaries overseas.32 Total annual sales for the largest Gross national product (GNP) 500 MNEs exceed $32 trillion (about one-third of global output).33 GDP plus income from nonresident sources abroad. Table 1.5 documents the change in the makeup of the 500 largest MNEs on the Fortune Global 500 list. While MNEs from the Triad (North America, Europe, Gross national income (GNI) and Japan) dominate the list, their share has been shrinking—from 405 in 2005 GDP plus income from to 255 in 2021. Among MNEs from emerging economies, those from BRIC grew nonresident sources abroad. GNI is a term used by the World from 35 in 2005 to 152 in 2021. In particular, MNEs from China have come on Bank and other international strong. Since 2020, Chinese MNEs outnumber US ones on the Fortune Global 500 organizations to supersede the list. Beijing is now headquarters to 59 Fortune Global 500 firms, significantly more term GNP. 16403_ch01_hr_001-033.indd 17 1/19/22 4:16 PM  18 Part One  Laying Foundations Table 1.4 Top Ten Largest Firms in the World (Measured by Revenue in US$) 1 2 3 4 5 6 7 8 9 10 Walmart State Grid Amazon China Sinopec Apple CVS Health United- Toyota Volkswagen (USA) (China) (USA) National Group (USA) (USA) Health Motor (Germany) Petroleum (China) Group (Japan) (China) (USA) Source: Adapted from Fortune, 2021, Global 500, fortune.com/global500/ (accessed August 31, 2021). Data refer to 2020. Table 1.5 Recent Changes in the Fortune Global 500 2005 2010 2014 2021 Developed economies United States 170 133 128 121 European Union 165 149 128 81 Japan 70 68 57 53 Switzerland 12 15 13 13 Canada 14 11 10 12 Australia 8 8 8 4 Emerging economies China 20 61 95 135 India 6 8 8 7 Brazil 4 7 7 6 Russia 5 7 8 4 BRIC 35 83 118 152 Sources: Adapted from various Fortune issues. The most recent Fortune Global 500 list (for 2021) is from Fortune, 2021, Global 500, fortune.com/global500/ (accessed August 31, 2021). Data refer to 2020. The number for China includes firms headquartered in Hong Kong. The number for the EU includes UK firms. than Tokyo’s 37 and New York’s 16 (remember Question 4 in Opening Day Quiz). Clearly, Western rivals cannot afford to ignore these emerging multinationals, and students studying this book need to pay attention to these new multinationals.34 1-5b The Globalization Debate and You As a future business leader, you are not a detached reader. The globalization debate directly affects your future. Therefore, it is imperative that you participate in the debate about globalization that will significantly affect your career, your consump- tion, and your country. It is also important to know your own biases when joining the debate. By the very act of taking an IB course and studying this book, you prob- ably already have some proglobalization biases, compared to nonbusiness majors elsewhere on campus and the general public in your country. You are not alone. In the last several decades, most managers, policy makers, and scholars in both developed and emerging economies, who are generally held to be the elite in these societies, are biased toward acknowledging the benefits of 16403_ch01_hr_001-033.indd 18 1/19/22 4:16 PM  Chapter 1  Introduction 19 globalization. However, many other members of the society do not share the same views. Unfortunately, many of the elite fail to understand the limits of their beliefs and mistakenly assume that the rest of the world thinks like them. They had a rude awakening when confronting the backlash against globalization. 35 Many of the opponents of globalization are nongovernmental organizations Nongovernmental (NGOs), such as environmentalists, human rights activists, and consumer groups. organizations (NGO) Ignoring them will be a big mistake when doing business around the globe. Instead An organization that is not affiliated with any government. of viewing NGOs as opponents, many firms view them as partners (see Chapter 17). Many NGOs do raise a valid point when they insist that MNEs should have broader concerns for various stakeholders (see the Closing Case). It is certainly interesting, and perhaps alarming, to note that as would-be busi- ness leaders who will shape the global economy in the future, current business school students already exhibit values and beliefs in favor of globalization similar to those held by managers, policy makers, and scholars that differ from those held by the general public.36 My lectures around the world suggest that most business students—regardless of their nationality—seem to share similar positive views on globalization and are less concerned with its darker sides. Since business schools aspire to train future business leaders by indoctri- nating students with the dominant values that managers hold, business schools may have largely succeeded in this mission. However, to the extent that current managers (and professors) have some blind spots, business students may already share these blind spots. Knowing such limitations, business school professors and students need to work especially hard to break out of this mental straitjacket. Developing critical thinking skills to participate in major debates would be a useful start. 1-6 Debates and Extensions Learning Objective Participate in three leading debates Compared with other fields, the field of global business distinguishes itself with concerning global business. the frequency and magnitude of debates.37 Debates are systematically introduced in every chapter to provoke more critical thinking—a hallmark for high-level uni- versity training. Many other textbooks uncritically present knowledge “as is” and ignore the fact that the field is alive with numerous debates. No doubt, debates drive practice and research forward. Therefore, it is imperative that you be exposed to cutting-edge debates and encouraged to form your own views. This sec- tion outlines three leading debates concerning global business and globalization/ deglobalization. 1-6a Debate 1: Globalization versus Deglobalization Globalization is always controversial. Critics argue that globalization has reached its peak, is in trouble, and is in retreat. Defined as the process of weakening eco- nomic interdependence among countries, deglobalization seems to be the wave of Deglobalization the future.38 Globalism is out. Nationalism is in. Trade wars. Investment screenings. The process of weakening Supply chain localization. Immigration controls. Border closures. COVID-induced economic interdependence among countries. lockdowns. Evidence seems everywhere. Some suggest that the backlash against globalization was triggered by the single-minded, one-directional push for hyperglobalization by “hyperglobalists” approximately between 1991 and 2008—a historical period bracketed by the end 16403_ch01_hr_001-033.indd 19 1/19/22 4:16 PM  20 Part One  Laying Foundations of the Cold War and the Great Recession. Globalization, according to President Bill Clinton (in power 1993–2001), “is the economic equivalent of a force of nature, like wind or water.” Debating globalization? British Prime Minister Tony Blair (in power 1997–2007) laughed it off, suggesting that “you might as well debate whether autumn should follow summer.”39 Denying the existence of the globalization debate does not make it go away. Such denial (or arrogance) has made many policy makers and business leaders to focus only on the benefits of globalization, while failing to appreciate its drawbacks. For communities and individuals deeply impacted by the forces of globalization, the losses in terms of jobs, firms, and opportunities can be substantial.40 Ignoring such drawbacks, many policy makers and business leaders have been repeatedly surprised by the rise of nationalist politicians in countries such as Brazil, Britain, Hungary, Poland, Turkey, and the United States recently.41 Some argue that globalization is not in retreat. It is now “being driven by digital technology.”42 While global trade growth had slowed down recently (even before COVID-19), trade in digital services is growing by leaps and bounds. The growth of cross-border bandwidth use increased 90-fold between 2005 and 2016, and will likely grow an additional 13-fold by 2023. Half of all trade in global services now relies on digital technology. A pair of Adidas sneakers can be 3D-printed in the United States, and thus does not need to be made in Vietnam and shipped across the Pacific. The 3D printer operator in the United States will need to pay royalties to Adidas in Germany—an example of digital service trade, which has substituted for some goods trade. Such technology-enabled trade is good news for intellectual property owners (Adidas in this case) and 3D printer producers and operators, but is bad news to thousands of employees working in shoe factories and hundreds of employees involved in the supply chain worldwide. Although thriving, digital trade is still modest in scale. The overseas sales of Amazon, Facebook, and Microsoft are equivalent to only 1.3% of world merchandise (goods) exports.43 At the end of the day, the d