International. Business. COMPETING IN THE. GLOBAL MARKETPLAG E.
Charles W. L. Hill. UNIVERSITY OE WASHINGTON ...
8E
International Business C O M P E T I N G IN T H E GLOBAL MARKETPLAG E
C h a r l e s W. L. Hill UNIVERSITY
OE W A S H I N G T O N
part one Introduction and Overview
Country Differences
CHAPTER 1
Globalization 2
National Differences in Political Economy 40
Opening Case
Opening Case
The Globalization of Health Care 2
Egypt, the Troubled Giant 40
Introduction
Introduction 42
4
What Is Globalization? 6
Political Systems 42 Collectivism and Individualism 43 Democracy and Totalitarianism 45
The Globalization of Markets 6 The Globalization of Production 7
Management Focus Vizio and the Market for Flat Panel TVs The Emergence of Global Institutions
8
The Changing Demographics of the Global Economy 16 The Changing World Output and World Trade Picture 16
Country Focus India's Software Sector 18 The Changing Foreign Direct Investment Picture 18 The Changing Nature of the Multinational Enterprise 20
Management Focus China's Hisense—An Emerging Multinational 22 24
The Globalization Debate 24 Antiglobalization Protests 25 Globalization, jobs, and Income 26
Market Economy 48 Command Economy 48 Mixed Economy 49 Legal Systems 49 Different Legal Systems 50 Differences in Contract Law 51 Property Rights and Corruption 51
Country Focus Corruption in Nigeria 54 The Protection of Intellectual Property 55 Product Safety and Liability 56
Management Focus Starbucks Wins Key Trademark Case in China
The Determinants of Economic Development
Protesting Globalization in France 27 Globalization, Labor Policies, and the Environment 29 Globalization and National Sovereignty 3 J Globalization and the World's Poor 31 Managing in the Global Marketplace 33 Chapter Summary 34 Critical Thinking and Discussion Questions 35
Emerging Property Rights in China 66 Geography, Education, and Economic Development 67 States in Transition 68 The Spread of Democracy 68 The New World Order and Global Terrorism 70 The Spread of Market-Based Systems 71
The Nature of Economic Transformation
Research Task 36
Closing Case 36
57
57 Differences in Economic Development 57 Broader Conceptions of Development: Amartya Sen 61 Political Economy and Economic Progress 61
Country Focus
Country Focus
Globalization at General Electric
46
Economic Systems 48
9
Drivers of Globalization 11 Declining Trade and Investment Barriers J J The Role of Technological Change 14 Microprocessors and Telecommunications 14
The Changing World Order 22 The Global Economy of the 2 1 st Century
Country Focus Chavez's Venezuela
Deregulation 73 Privatization 73 Legal Systems 74
73
iftkft) Contents Implications of Changing Political Economy 75
Critical Thinking and Discussion Questions 117
Implications for Managers
Research Task
Chapter Summary
76
Closing Case
80
Critical Thinking and Discussion Questions 80 Research Task
118
Ethics in International Business 122
India's Transformation
81
Opening Case Siemens Bribery Scandal
CHAPTER 3
Differences in Culture 86 McDonald's in India
86
88
What Is Culture?
Making Apple's iPod 126 Environmental Pollution 128 Corruption 128 91
Management Focus Unocal in Myanmar
Social Structure 92 Individuals and Groups 92 Social Stratification 94
129
Moral Obligations 131 Ethical Dilemmas
Country Focus
131
The Roots of Unethical Behavior 132 Personal Ethics 132 Decision-Making Processes 133 Organization Culture 133 Unrealistic Performance Expectations 134
Breaking India's Caste System 95 Religious and Ethical Systems 97 Christianity 97 Islam 99
Country Focus
Management Focus
Islamic Capitalism in Turkey Hinduism 103 Buddhism 104 Confucianism 104
102
Language 107 Spoken Language 107 Unspoken Language 108
justice Theories 141
108
Culture and the Workplace
109
111
Implications for Managers Chapter Summary
135
Philosophical Approaches to Ethics 136 Straw Men 136 Utilitarian and Kantian Ethics 138 Rights Theories 139
106
Cultural Change
Pfizer's Drug-Testing Strategy in Nigeria 135 Leadership
Management Focus DMG-Shanghai
124
Management Focus
89
Values and Norms 89 Culture, Society, and the Nation-State 90 The Determinants of Culture
Introduction
122
Ethical Issues in International Business 124 Employment Practices 124 Human Rights 125
Opening Case
Education
Wal-Mart's Foreign Expansion
81
Closing Case
Introduction
117
116
113
Implications for Managers
142
Chapter Summary 146 Critical Thinking and Discussion Questions 147 Research Task
148
xi
Contents
Closing Case Wal-Mart's Chinese Suppliers
Firm Strategy, Structure, and Rivalry Evaluating Porter's Theory 183
148
183
Management Focus
Part Two Cases Google in China 154 Mired in Corruption —Kellogg, Brown & Root in Nigeria 155
The Rise of Finland's Nokia Implications for Managers
184 185
Chapter Summary 187 CriticalThinking and Discussion Questions 188 Research Task
The Global Trade and Investment Environment
189
Closing Case The Ecuadoran Rose Industry
189
Appendix
CHAPTER 5
International Trade and the Balance of Payments 190
International Trade Theory 158 Opening Case Bangladesh's Textile Trade Introduction
158
CHAPTER §
160
An Overview of Trade Theory
The Political Economy of International Trade 196
160
The Benefits of Trade 161 The Pattern of International Trade 161 Trade Theory and Government Policy 162 Mercantilism
Opening Case The Global Financial Crisis and Protectionism Introduction
Absolute Advantage
163
Country Focus
Is China a Neo-Mercantilist Nation? 164
Subsidized Wheat Production in Japan 201 Import Quotas and Voluntary Export Restraints 201 Local Content Requirements 203 Administrative Policies 203
166
The Gains from Trade 167 Qualifications and Assumptions 168 Extensions of the Ricardian Model 169
Management Focus U.S. Magnesium Seeks Protection
Country Focus Moving U.S. White-Collar Jobs Offshore Heckscher-Ohlin Theory The Leontief Paradox
198
Subsidies 200
Country Focus
Comparative Advantage
198
Instruments of Trade Policy Tariffs 199
162
196
The Case for Government Intervention
173
205
Political Arguments for Intervention 205 Economic Arguments for Intervention 208
174 174
The Product Life-Cycle Theory
204
Country Focus 175
Evaluating the Product Life-Cycle Theory
Trade in Hormone-Treated Beef
176
New Trade Theory 178 Increasing Product Variety and Reducing Costs 178 Economies of Scale, First-Mover Advantages, and the Pattern of Trade 179 Implications of New Trade Theory 179
National Competitive Advantage: Porter's Diamond Factor Endowments 182 Demand Conditions 182 Related and Supporting Industries 182
181
209
The Revised Case for Free Trade 211 Retaliation and Trade War 211 Domestic Policies 211 Development of the World Trading System From Smith to the Great Depression 212 1947-1979: GATT, Trade Liberalization, and Economic Growth 213 1980-1993: Protectionist Trends 213 The Uruguay Round and the World Trade Organization 214
212
xii
!cfct?)) Contents WTO: Experience to Date 215 The Future of the WTO: Unresolved Issues and the Doha Round 218
Country Focus Estimating the Gains from Trade for America Implications for Managers Chapter Summary
224
225
253
Government Policy Instruments and FDI 254 Home-Country Policies 254 Host-Country Policies 255 International Institutions and the Liberalization of FDI 256 Implications for Managers
Critical Thinking and Discussion Questions 226 Research Task
222
Home-Country Costs 253 International Trade Theory and FD1
Chapter Summary
257
259
Critical Thinking and Discussion Questions
227
Research Task
Closing Case Why Did Global Food Prices Rise?
260
260
Closing Case
227
Lakshmi Mitt a I and the Growth of Mittal Steel
CHAPTER 7
Foreign Direct Investment
230
Regional Economic Integration 264
Opening Case Spain's Telefonica Introduction
Opening Case
230
NAFTA and Mexican Trucking
232
Introduction
Foreign Direct Investment in the World Economy 232 Trends in FDI 232 The Direction of FDI 234
Country Focus Foreign Direct Investment in China 236 The Source of FDI 237 The Form of FDI: Acquisitions versus Greenfield Investments 237 The Shift to Services 238 Theories of Foreign Direct Investment Why Foreign Direct Investment.7 239
239
266
Levels of Economic Integration 267 The Case for Regional Integration 268 The Economic Case for Integration 269 The Political Case for Integration 269 Impediments to Integration 270 The Case against Regional Integration Regional Economic Integration in Europe 271 Evolution of the European Union 271 Political Structure of the European Union
270
271
Management Focus
Management Focus Foreign Direct Investment by Cemex 240 The Pattern of Foreign Direct Investment 242 The Eclectic Paradigm 244 Political Ideology and Foreign Direct Investment 245 The Radical View 245 The Free Market View 246 Pragmatic Nationalism 247 Shifting Ideology 247
Management Focus DP World and the United States
Benefits and Costs of FDI
264
249
Host-Country Benefits 249 Host-Country Costs 251 Home-Country Benefits 253
248
The European Commission and Media Industry Mergers 274 The Single European Act 274
Country Focus Creating a Single European Market in Financial Services 276 The Establishment of the Euro 277 Enlargement of the European Union 279 Regional Economic Integration in the Americas 280 The North American Free Trade Agreement 280 The Andean Community 283 MERCOSUR 284 Central American Common Market, CAFTA, and CARICOM 285 Free Trade Area of the Americas 285
261
Contents i^k Regional Economic Integration Elsewhere 286 Association of Southeast Asian Nations 286 Asia-Pacific Economic Cooperation 286 Regional Trade Blocs in Africa 288 Implications for Managers 289 Chapter Summary 291 Critical Thinking and Discussion Questions 292 Research Task 292
xiii
Currency Convertibility 330 Implications for Managers 331
Management Focus Dealing with the Rising Euro 333 Chapter Summary 335 CriticalThinking and Discussion Questions 336 Research Task 336
Closing Case
Closing Case The Euro Energy Market 293
Hyundai and Kia 337
Part Three Cases NAFTA and the U.S.Textile Industry 298 Martin's Textiles 299 Agricultural Subsidies and Development 300 Boeing versus Airbus 302 Starbucks Foreign Direct Investment 308
CHAPTER 10
The International Monetary System
340
Opening Case Economic Turmoil in Latvia 340 Introduction 342
The Global Monetary System The Foreign Exchange Market 310 Opening Case Caterpillar Tractor
310
Introduction 312 The Function of the Foreign Exchange Market 313 Currency Conversion 313 Insuring against Foreign Exchange Risk 315
Management Focus Volkswagen's Hedging Strategy 317 The Nature of the Foreign Exchange Market 318
The Gold Standard 343 Mechanics of the Gold Standard 343 Strength of the Gold Standard 344 344 The Period between the Wars, 1918-1939 The Bretton Woods System 345 The Role of the IMF 345 The Role of the World Bank 347 The Collapse of the Fixed Exchange Rate System 347
The Floating Exchange Rate Regime 348 The Jamaica Agreement 348 Exchange Rates since 1973 349 Fixed versus Floating Exchange Rates 351
Country Focus The U.S. Dollar, Oil Prices, and Recycling Petrodollars 352 The Case for Floating Exchange Rates 352 The Case for Fixed Exchange Rates 353 Who Is Right? 354
Economic Theories of Exchange Rate Determination 319 Prices and Exchange Rates 319
Exchange Rate Regimes in Practice
Country Focus Anatomy of a Currency Crisis 326
IMF Crisis Management 357 Financial Crises in the Post-Bretton Woods Era 357 Mexican Currency Crisis of 1995 358 The Asian Crisis 359 Evaluating the IMF's Policy Prescriptions 363
Summary 328
Exchange Rate Forecasting 328 The Efficient Market School 328 The Inefficient Market School 328 Approaches to Forecasting 329
355
Pegged Exchange Rates 355 Currency Boards 356
Country Focus Turkey and the IMF 364
xiv
Contents
Implications for Managers
Closing Case
366
Industrial and Commercial Bank of China 395
Management Focus Airbus and the Euro Chapter Summary
368
Part Four Case
369
Argentina's Monetary Crisis
399
Critical Thinking and Discussion Questions 370 Research Task
370
Closing Case China's Managed Float
The Strategy and Structure of International Business
371
CHAPTER I I
The Global Capital Market 374 Opening Case Global Capital Markets in Crisis Introduction
Opening Case
374
The Evolving Strategy of IBM
376
Introduction
Benefits of the Global Capital Market
376
Functions of a Generic Capital Market 376 Attractions of the Global Capital Market 377
Management Focus Deutsche Telekom Taps the Global Capital Market 379 Growth of the Global Capital Market 382 Global Capital Market Risks
384
Did the Global Capital Markets Fail Mexico? 385 The Eurocurrency Market 386 Genesis and Growth of the Market 386 Attractions of the Eurocurrency Market 386 Drawbacks of the Eurocurrency Market 388 The Global Bond Market 388 Attractions of the Eurobond Market The Global Equity Market
389
Foreign Exchange Risk and the Cost of Capital 390 The Search for Capital in the
Chapter Summary
Strategy and the Firm
402
Value Creation 403 Strategic Positioning 404 Operations: The Firm as a Value Chain
392
393
Local Responsiveness at MTV Networks 417 Choosing a Strategy 419 Global Standardization Strategy
Management Focus Vodaphone in Japan 420
Management Focus
Critical Thinking and Discussion Questions 394
Evolution of Strategy at Procter & Gamble 423 The Evolution of Strategy 423
Research Task
Chapter Summary
394
405
Cost Pressures and Pressures for Local Responsiveness 415 Pressures for Cost Reductions 415 Pressures for Local Responsiveness 416
Localization Strategy 420 Transnational Strategy 421 International Strategy 422
391
Implications for Managers
402
Management Focus
389
Country Focus
400
Global Expansion, Profitability, and Profit Growth 408 Expanding the Market: Leveraging Products and Competencies 408 Location Economies 409 Experience Effects 411 Leveraging Subsidiary Skills 414 Summary 414
Country Focus
Czech Republic
The Strategy of International Business 400
424
419
Contents i/HJ
xv
CriticalThinking and Discussion Questions 425
CriticalThinking and Discussion Questions 464
Research Task 425
Research Task 464
Closing Case
Closing Case
Coca Cola 426
A Decade of Organizational Change at Unilever 465
Appendix Profitability, Growth, and Valuation 428
CHAPTER 113
Entry Strategy and Strategic Alliances 468
The Organization of International Business 430
Opening Case
Opening Case
General Electric's Joint Ventures 468
Nestle 430
Introduction 470
Introduction 432
Basic Entry Decisions 470 Which Foreign Markets? 470 Timing of Entry 471
Organizational Architecture 433 Organizational Structure 434 Vertical Differentiation: Centralization and Decentralization 434
Management Focus The International Division at Wal-Mart Horizontal Differentiation: The Design of Structure 437
436
Management Focus The Rise and Fall of Dow Chemical's Matrix Structure 442 Integrating Mechanisms 444
Control Systems and Incentives' 448 Types of Control Systems 448 Incentive Systems 449 Control Systems, Incentives, and Strategy in the International Business 451 Processes 452 Organizational Culture 454 Creating and Maintaining Organizational Culture 454 Organizational Culture and Performance in the International Business 455
Management Focus Culture and Incentives at Lincoln Electric 456
Synthesis: Strategy and Architecture 458 Localisation Strategy 458 International Strategy 459 Global Standardization Strategy 459 Transnational Strategy 459 Environment, Strategy, Architecture, and Performance 460
Organizational Change 460 Organisational Inertia 461 Implementing Organizational Change 462 Chapter Summary 463
Management Focus Tesco's International Growth Strategy 472 Scale of Entry and Strategic Commitments 472 Summary 474
Entry Modes 475 Exporting 475 Management Focus The Jollibee Phenomenon—A Philippine Multinational 476 Turnkey Projects 477 Licensing 478 Franchising 480 joint Ventures 481 Wholly Owned Subsidiaries 482
Selecting an Entry Mode 483 Core Competencies and Entry Mode Pressures for Cost Reductions and Entry Mode 484
484
485 Pros and Cons of Acquisitions 485 Pros and Cons of Greenfield Ventures 487 Greenfield or Acquisition? 488
Greenfield Ventures or Acquisition?
Strategic Alliances 488 The Advantages of Strategic Alliances 489 The Disadvantages of Strategic Alliances
Management Focus Cisco and Fujitsu 490 Making Alliances Work 490 Chapter Summary 493 CriticalThinking and Discussion Questions 494 Research Task 495
xvi
Contents
Closing Case JCB in India 495 P a r t Five Cases The Global Automobile Industry in 2009 502 IKEA: Furniture Retailer to the World 512 Downey's Soup 518
part six International Business Operations
Chapter Summary 538 CriticalThinking and Discussion Questions 539 Research Task 539 Closing Case Exporting and Growth for Small Businesses 539
CHAPTER H©
Global Production, Outsourcing, and Logistics 542
CHAPTER 15
Opening Case
Exporting, Importing, and Countertrade 520
The Rise of the Indian Automobile Industry 542
Opening Case MD International 520 Introduction 522 The Promise and Pitfalls of Exporting 522 Improving Export Performance 523 A n International Comparison 523
Management Focus FCX Systems 524 Information Sources 525 Utilizing Export Management Companies 525
Management Focus Exporting with a Little Government Help 526 Export Strategy 527 Export and Import Financing 527
Management Focus Export Strategy at 3M 528 Lack of Trust 528
Management Focus
Introduction 544 Strategy, Production, and Logistics 544 Where to Produce 547 Country Factors 547
Management Focus Philips in China 548 Technological Factors 548 Product Factors 552 Locating Production Facilities 552 The Strategic Role of Foreign Factories 554
Management Focus Hewlett-Packard in Singapore
555
Outsourcing Production: Make-or-Buy Decisions 556 The Advantages of Make 557 The Advantages of Buy 558 Trade-offs 560
Red Spot Paint & Varnish 529 Letter of Credit 530 Draft 531 Bill of Lading 532 A Typical International Trade Transaction 532
Managing a Global Supply Chain 561
Export Assistance 534
Chapter Summary 562
Export-Import Bank 534 Export Credit Insurance 535 Countertrade 535 The Incidence of Countertrade 535 Types of Countertrade 536 The Pros and Cons of Countertrade 537
Strategic Alliances with Suppliers 560 The Role of just-in-Time Inventory 561 The Role of Information Technology and the Internet 562
CriticalThinking and Discussion Questions 563 Research Task 564
Closing Case Building the Boeing 787 564
Contents
CHAPTER 11
CHAPTER 118
Global Marketing and R&D
568
Opening Case Microsoft in India
xvii
568
Global Human Resource Management 602 Opening Case
Introduction 570
AstraZeneca 602
The Globalization of Markets and Brands 570
Introduction 604
Market Segmentation 571
The Strategic Role of International HRM 604
Product Attributes 572
Staffing Policy 606 Types of S taffing Policy 606 Expatriate Managers 609
Management Focus Marketing to Black Brazil 573 Cultural Differences 573 Economic Development 574 Product and Technical Standards 575 Distribution Strategy 575 Differences between Countries 576 Choosing a Distribution Strategy 578
Communication Strategy 579 Barriers to International Communication 579
Management Focus
Management Focus Managing Expatriates at Royal Dutch/Shell 612 The Global Mind-Set 613 Training and Management Development 613 Training for Expatriate Managers 614 Repatriation of Expatriates 615 Management Development and Strategy 615
Management Focus Monsanto's Repatriation Program
616
Overcoming Cultural Barriers to Selling Tampons 581 Push versus Pull Strategies 582
Performance Appraisal 617 Performance Appraisal Problems 617 Guidelines for Performance Appraisal 617
Management Focus Unilever—Selling to India's Poor 583
Compensation 618 National Differences in Compensation 618 Expatriate Pay 619
Global Advertising 584
Pricing Strategy 585 Price Discrimination 585 Sti'ategic Pricing 587 Regulatory Influences on Prices 588 Configuring the Marketing Mix 589
Management Focus Levi Strauss Goes Local 590
New-Product Development 590 The Location of R&D 591 Integrating R&D, Marketing, and Production 592 Cross-Functional Teams 593 Building Global R(S?D Capabilities 594
Management Focus Global Compensation Practices at McDonald's 620
International Labor Relations 622 The Concerns of Organized Labor 622 The Strategy of Organized Labor 622 Approaches to Labor Relations 623 Chapter Summary 624 CriticalThinking and Discussion Questions 625 Research Task 625
Closing Case Lenovo 626
Chapter Summary 595 CriticalThinking and Discussion Questions 596 Research Task 597
Closing Case Dove—Building a Global Brand 597
CHAPTER IB
Accounting in the International Business 630 Opening Case Chinese Accounting 630 Introduction 632
xviii
Contents
Country Differences in Accounting Standards 632 Relationship between Business and Providers of Capital 633 Political and Economic Ties with Other Countries 635 Inflation Accounting 635 Level of Development 635 Culture 636
National and International Standards 636
Management Focus The Consequences of Different Accounting Standards 638
Management Focus Novartis Joins the International Accounting Club Consolidated Financial Statements 640 Currency Translation 642 Current U.S. Practice 643
640
Financing Decisions 658 Source of Financing 659 Financial Structure 659
Exchange Rate Changes and Control Systems 644 Transfer Pricing and Control Systems 646 Separation of Subsidiary and Manager Performance 646
Moving Money across Borders: Attaining Efficiencies and Reducing Taxes 662 Dividend Remittances 662 Royalty Payments and Fees 662 Transfer Prices 663 Fronting Loans 664
Multilateral Netting Chapter Summary
667 669
CriticalThinking and Discussion Questions
647 648
Brazil's Gol 670
Closing Case 649
Financial Management in the International Business 652 Opening Case Global Treasury Management at Procter & Gamble 652 654
Investment Decisions 655 Capital Budgeting 655 Project and Parent Cash Flows 656 Adjusting for Political and Economic Risk 656
Research Task 670
Closing Case
Research Task 649 Adopting International Accounting Standards
661
Techniques for Global Money Management 666 Centralized Depositories 666
Accounting Aspects of Control Systems 644
Introduction
658
Global Money Management: TheTax Objective
Multinational Consolidation and Currency Translation 639
CriticalThinking and Discussion Questions
Risk and Capital Budgeting
Global Money Management: The Efficiency Objective 660 Minimizing Cash Balances 660 Reducing Transaction Costs 660
Lack of Comparability 636 International Standards 637
Chapter Summary
Management Focus Black Sea Energy Ltd. 657
Part Six Cases Li & Fung 676 Castrol Oil in Vietnam China Mobile 678
Glossary
680
Photo Credits Index
694
692
677
670
