nternational Business

SIXTH EDITION

Ricky W. Griffin
Texas A&M University

Michael W. Pustay
Texas A&M University

Prentice Hall
Upper Saddle River, NJ 07458

Contents
Maps xx
Preface xxi
Acknowledgments xxiii
About the Authors xxv
PART 1

The World's Marketplaces

Chapter 1

An Overview of International Business 2

CASE: The Business of the Olympics

What Is International Business?

Why Study International Business?

5
5

BRINGING THE WORLD INTO FOCUS: A Rose by Any Other

Name... 7

International Business Activities

Exporting and Importing 7

BRINGING THE WORLD INTO FOCUS: The Early Era of International

Business 8

International Investments

Other Forms of International Business Activity

The Era of Globalization

10

11

The Contemporary Causes of Globalization

Strategic Imperatives

The Environmental Causes of Globalization

Globalization and Emerging Markets

14

14

EMERGING OPPORTUNITIES: Is Globalization Good for Us?

An Overview of the Contents of This Book

Chapter Review 18
Building Global Skills

Chapter 2

13

13

Summary
19

18

CLOSING CASE: A Boom in Bangalore

Questions for Discussion

19

Global Marketplaces and Business Centers

CASE: Mining the Boom

22

23

The Marketplaces of North America

25

The United States 26

Canada 26

EMERGING OPPORTUNITIES: Classifying Countries by Income

Levels 28

Mexico

29

Central America and the Caribbean

29

The Marketplaces of Western Europe

30

The Marketplaces of Eastern Europe and Central Asia

The Marketplaces of Asia
viii

34

15

17

32

19

CONTENTS

ix

Japan 34
Australia and New Zealand

36

The Four Tigers 37

China
India

39
40

Southeast Asian Countries

41

The Marketplaces of Africa and the Middle East

Africa

41

41

Middle East 43
The Marketplaces of South America 43
B VENTURING ABROAD: The New Player in Global Capital Markets:
Sovereign Wealth Funds 44
Chapter Review 47
Building Global Skills

Chapter 3

Summary
48

47

Questions for Discussion

CLOSING CASE: Demography Is Destiny

48

49

Legal, Technological, Accounting, and Political

Environments 52

CASE: Harry Potter Goes to China

The Legal Environment

53

54

Differences in Legal Systems

54

M E-WORLD: Law and the Internet

56

Domestically Oriented Laws 57

Laws Directly Affecting International Business Transactions 58
H VENTURING ABROAD: Where Do Old Toyotas Go? Siberia, of
Course 58
Laws Directed Against Foreign Firms 60
The Impacts of MNCs on Host Countries

61

Dispute Resolution in International Business 62

The Technological Environment

63

BRINGING THE WORLD INTO FOCUS: The Real Problem with

Counterfeiting 66

The Accounting Environment

67

The Roots of National Differences

67

BRINGING THE WORLD INTO FOCUS: The Sarbanes-Oxley Act

Differences in Accounting Practices

Impact on Capital Markets
The Political Environment

69

70

72
73

Political Risk 73

EMERGING OPPORTUNITIES: Piracy on the High Seas

Chapter Review 78
Building Global Skills

Chapter 4

Summary
79

CLOSING CASE; Sour Oil, Soured Deal

The Role of Culture

78

79

82

CASE: Hollywood Abroad

83

Characteristics of Culture 84
E-WORLD: The Internet, National Competitiveness,
and Culture 85
Elements of Culture
Social Structure

86

85

75

Questions for Discussion

79

CONTENTS

BRINGING THE WORLD INTO FOCUS: The Impact of Japanese Culture

on Business 87

Language 89
Communication
Religion

93

95

BRINGING THE WORLD INTO FOCUS: When Interest Is Forbidden by

Religion 97

Values and Attitudes

99

Seeing the Forest, Not the Trees

100

Hall's Low-Context-High-Context Approach

The Cultural Cluster Approach
Hofstede's Five Dimensions
Social Orientation

102

Power Orientation

106

Uncertainty Orientation

100

101

102

107

EMERGING OPPORTUNITIES: Pulling Rank Gets Harder at One Korean

Company 108

Goal Orientation

111

Time Orientation

113

International Management and Cultural Differences

Understanding New Cultures

113

Chapter Review 114 Summary

Building Global Skills 115

Chapter 5

113

114

Questions for Discussion

CLOSING CASE: Quacking Up a Storm of Business

114

115

Ethics and Social Responsibility in International

Business 118

CASE: The Power of Microfinance: The Grameen Bank

EMERGING OPPORTUNITIES: The Outsourcing Dilemma

119
120

The Nature of Ethics and Social Responsibility in International

Business

122

Ethics in Cross-Cultural and International Contexts

How an Organization Treats Its Employees
How Employees Treat the Organization

124

124

125

How Employees and the Organization Treat Other Economic Agents

Managing Ethical Behavior Across Borders
Guidelines and Codes of Ethics
Ethics Training

126

127

127

127

Organizational Practices and the Corporate Culture

127

Social Responsibility in Cross-Cultural and International

Contexts

128

VENTURING ABROAD: Siemen Pays-and Pays and Pays

Areas of Social Responsibility

Organizational Stakeholders
The Natural Environment
General Social Welfare

129

130

130

130
131

Managing Social Responsibility Across Borders 131

BRINGING THE WORLD INTO FOCUS: Should Firms Practice Corporate
Social Responsibility? 133
Approaches to Social Responsibility
Managing Compliance

133

135

Informal Dimensions of Social Responsibility

Evaluating Social Responsibility

137

136

CONTENTS
Difficulties of Managing CSR Across Borders
The Anglo-Saxon Approach
The Asian Approach

137

137

138

The Continental European Approach

138

Regulating International Ethics and Social Responsibility

EMERGING OPPORTUNITIES: Conflict Diamonds

Chapter Review 140 Summary

Building Global Skills 141

PART 2

140

PART 1: Closing Cases

PART 1: Market Entry Strategy Project Exercises

Classical Country-Based Trade Theories

148
149

150

152

152

Absolute Advantage

153

Comparative Advantage

154

BRINGING THE WORLD INTO FOCUS: The Lincoln Fallacy

Comparative Advantage with Money

Relative Factor Endowments

155

156

158

Modern Firm-Based Trade Theories

Country Similarity Theory

159

Product Life Cycle Theory

160

Global Strategic Rivalry Theory

159

162

E-WORLD: Blossoming E-Commerce

163

Porter's Theory of National Competitive Advantage

148

International Trade and the World Economy

177

147

0 CASE: Caterpillar: Making Money by Moving Mountains

'

144

International Trade and Investment

141

142

Mercantilism

138

139

Questions for Discussion

CLOSING CASE: A Pipeline of Good Intentions

The International Environment

Chapter 6

Xi

164

E-WORLD: Nokia's Incredible Transformation

An Overview of International Investment

167

168

Types of International Investments 168

The Growth of Foreign Direct Investment 168
Foreign Direct Investment and the United States
International Investment Theories
Ownership Advantages
Internalization Theory

169

170

170
172

Dunning's Eclectic Theory

172

Factors Influencing Foreign Direct Investment

Supply Factors

173

Demand Factors

174

Political Factors

175

Chapter Review 176 Summary

Building Global Skills 177

176

Questions for Discussion

D CLOSING CASE: Twenty-First Century Pirates

Chapter 7

172

177

The International Monetary System and the Balance of

Payments 180
CASE: Will the Stars Shine on Astra Again?

181

History of the International Monetary System

183

The Gold Standard

183

The Collapse of the Gold Standard

184

Xii

CONTENTS
The Bretton Woods Era

186

B EMERGING OPPORTUNITIES: Frog Ranching in Peru

189

The End of the Bretton Woods System 191

Performance of the International Monetary System Since 1971 192

BRINGING THE WORLD INTO FOCUS: Fixed Versus Flexible Exchange

Rates 193

M BRINGING THE WORLD INTO FOCUS: Should Bretton Woods Be

Restored? 197
The Balance of Payments Accounting System

198

The Major Components of the Balance of Payments Accounting System

The U.S. Balance of Payments in 2007

204

Defining Balance of Payments Surpluses and Deficits

Chapter Review 208 Summary
Building Global Skills 209

Chapter 8

199

BRINGING THE WORLD INTO FOCUS: Ben Franklin, World

Traveler 204

208

207

Questions for Discussion

209

CLOSING CASE: Recent U.S. BOP Performance: Is the Sky Falling?

211

Foreign Exchange and International Financial

Markets 212

CASE: The Loonie Takes Flight

213

The Economics of Foreign Exchange

215

The Structure of the Foreign-Exchange Market

217

B BRINGING THE WORLD INTO FOCUS: A Brief Hint

The Role of Banks

217

218

m E-WORLD: The Biggest Online Market

Spot and Forward Markets

220

221

Arbitrage and the Currency Market

223

B BRINGING THE WORLD INTO FOCUS: The Big Mac Index:

Sandwiched 225
B VENTURING ABROAD: The Carry Trade
The International Capital Market

230

231

Major International Banks 231

The Eurocurrency Market

233

The International Bond Market

Global Equity Markets

234

234

Offshore Financial Centers

235

Chapter Review 235 Summary

Building Global Skills 236

Chapter 9

235

Questions for Discussion

CLOSING CASE: The Subprime Meltdown

237

Formulation of National Trade Policies

CASE: Jumbo Battle over Jumbo Jets

Rationales for Trade Intervention

Industry-Level Arguments
National Trade Policies

241

242

243

246

B VENTURING ABROAD: Toyota's Politics Is Local

Barriers to International Trade
Tariffs

240

250

250

B BRINGING THE WORLD INTO FOCUS: X-Men: Men

or Beasts? 251
Nontariff Barriers 252

249

236

CONTENTS
Promotion of International Trade
Subsidies

258

258

EMERGING OPPORTUNITIES: Cotton Subsidies and World

Poverty 259

Foreign Trade Zones

260

Export Financing Programs

261

Controlling Unfair Trade Practices

Countervailing Duties

262

262

Antidumping Regulations

263

Should Countries Enforce Their Unfair Trade Practice Laws?

Safeguards

263

264

Chapter Review 264 Summary

Building Global Skills 265

xiii

264

Questions for Discussion

CLOSING CASE: The Long and Winding Road to Free Trade

265

265

Chapter 10 International Cooperation Among Nations 268

D CASE: Trade and Prosperity: The Case of Mexico

269

The General Agreement on Tariffs and Trade and the World Trade
Organization

270

The Role of the General Agreement on Tariffs and Trade 271

BRINGING THE WORLD INTO FOCUS: Most Nations Are Favored

The World Trade Organization

Regional Economic Integration

Forms of Economic Integration

275

275

The Impact of Economic Integration on Firms

The European Union

278

BRINGING THE WORLD INTO FOCUS: Three Majorities Are Better

Than One 281

The Struggle to Create a Common Market

276

277

Governing the European Union

272

273

283

VENTURING ABROAD: Lobbying the European Union

From Common Market to European Union

283

285

Other Regional Trading Blocs 288

The North American Free Trade Agreement

288

Other Free Trade Agreements in the Americas

289

Trade Arrangements in the Asia-Pacific Region

292

African Initiatives

293

Chapter Review 295 Summary

Building Global Skills 296

295

Questions for Discussion

D CLOSING CASE: Will Whirlpool Clean Up in Europe?

@ PART 2: Closing Cases

Managing International Business

Chapter 11

296

298

H PART 2: Market Entry Strategy Project

PART 3

295

301

302

International Strategic Management 302

D CASE: Global Mickey

303

The Challenges of International Strategic Management

306

EMERGING OPPORTUNITIES: How Does a Japanese Firm Compete

in China?... Act More American 308

Strategic Alternatives

310

m BRINGING THE WORLD INTO FOCUS: Master of the Furniture

Universe 311

Xiv

CONTENTS
Components of an International Strategy
Distinctive Competence
Scope of Operations

314

314

314

B EMERGING OPPORTUNITIES: The Bottom of the Pyramid

Resource Deployment
Synergy

316

Developing International Strategies

Mission Statement

317

317

Environmental Scanning and the SWOT Analysis

Strategic Goals
Tactics

320

Control Framework

320

Corporate Strategy
Business Strategy

321

321
323

Functional Strategies 325

Chapter Review 325 Summary
Building Global Skills 326

Chapter 12

317

320

Levels of International Strategy

315

316

325

Questions for Discussion

CLOSING CASE: The New Conquistador

326

327

Strategies for Analyzing and Entering Foreign

Markets 330
D CASE: Starbucks Brews Up a Global Strategy
Foreign Market Analysis

331

332

Assessing Alternative Foreign Markets

333

Evaluating Costs, Benefits, and Risks 336

Choosing a Mode of Entry

337

Exporting to Foreign Markets

Forms of Exporting 342

340

B EMERGING OPPORTUNITIES: Internet Turns Firms into Overseas

Businesses 343
Additional Considerations
Export Intermediaries

345

347

International Licensing

348

Basic Issues in International Licensing

350

Advantages and Disadvantages of International Licensing

International Franchising

351

352

Basic Issues in International Franchising

352

Advantages and Disadvantages of International Franchising

353

Specialized Entry Modes for International Business

353

Contract Manufacturing
Management Contract
Turnkey Project

353
354

355

fl EMERGING OPPORTUNITIES: Business Process Outsourcing

Foreign Direct Investment
The Greenfield Strategy
The Acquisition Strategy
Joint Ventures

355

356

357
357

358

B EMERGING OPPORTUNITIES: Merger, Indian Style: Buy a Brand, Leave

It Alone 359
Chapter Review 360 Summary
Building Global Skills 361

360

Questions for Discussion

D CLOSING CASE: Heineken's Global Reach

362

361

CONTENTS

Chapter 13

International Strategic Alliances

364

CASE: Slimline; Marching to a Different Drummer

International Corporate Cooperation

Benefits of Strategic Alliances
Ease of Market Entry

XV

365

367

369

369

Shared Risk 370

fl EMERGING OPPORTUNITIES: The Ups and Downs of Market Entry
Shared Knowledge and Expertise

Synergy and Competitive Advantage

371

372
373

VENTURING ABROAD: Sea Launch: A Match Made in the

Heavens

373

Scope of Strategic Alliances

Comprehensive Alliances
Functional Alliances

374

375

375

B VENTURING ABROAD: Alliances in the Sky

Implementation of Strategic Alliances
Selection of Partners
Form of Ownership

376

378

378
379

Joint Management Considerations

381

Pitfalls of Strategic Alliances

382

Incompatibility of Partners 382

Access to Information

383

Conflicts over Distributing Earnings 383

Loss of Autonomy

382

Changing Circumstances

384

Chapter Review 384 Summary

Building Global Skills 385

Chapter 14

384

Questions for Discussion

CLOSING CASE: Look Before You Leap

386

International Organization Design and Control

CASE: Unilever Matches Strategy and Structure

389

The Nature of International Organizational Design

391

Global Organization Designs

Global Product Design
Global Area Design

392

393

394

B EMERGING OPPORTUNITIES: Flying Solo in China

Global Functional Design
Global Matrix Design

395

395

Global Customer Design

396

398

Hybrid Global Designs 399

Related Issues in Global Organization Design

Centralization Versus Decentralization

400

Role of Subsidiary Boards of Directors

400

Coordination in the Global Organization

403

403

Organizational Control
Operations Control

400

402

The Control Function in International Business

Strategic Control

405

407

Managing the Control Function in International Business

Establishing International Control Systems 409
B E-WORLD: Reel Time Information
Essential Control Techniques

412

410

385

408

388

XVi

CONTENTS

B BRINGING THE WORLD INTO FOCUS: Getting Back to Basics

Behavioral Aspects of International Control
Chapter Review 416 Summary
Building Global Skills 417

413

415

416

Questions for Discussion

417

CLOSING CASE: Daimler and Chrysler: The Dream and the

Nightmare 418

Chapter 15 Leadership and Employee Behavior in International

Business 420
CASE: Making Risky Decisions at Porsche

421

Individual Behavior in International Business

422

Personality Differences across Cultures

Attitudes across Cultures
Perception across Cultures

423

425
427

EMERGING OPPORTUNITIES: The U.S. Is Crowded with Liars Who

Prefer Pets to Kids 427

Stress across Cultures

429

Motivation in International Business

Needs and Values across Cultures

Motivational Processes across Cultures

Need-Based Models across Cultures

430

430
430

430

BRINGING THE WORLD INTO FOCUS: Mixing and Matching in a Joint

Venture 431
,

Process-Based Models across Cultures

433

The Reinforcement Model across Cultures

433

Leadership in International Business

433

Decision Making in International Business

Models of Decision Making

437

437

The Normative Model across Cultures

438

The Descriptive Model across Cultures 440

Groups and Teams in International Business
The Nature of Group Dynamics

440

440

Managing Cross-Cultural Teams 441

BRINGING THE WORLD INTO FOCUS: They May Speak the Same
Language, b u t . . . 441

Chapter Review 442 Summary

Building Global Skills 443

442

Questions for Discussion

O CLOSING CASE: IKEA's Transformational Leader

B PART 3: Closing Cases

PART 4

444

445

PART 3: Market Entry Strategy Project

454

Managing International Business Operations

456

Chapter 16 International Marketing 456

CASE: Novica Opens Doors Across National Boundaries

International Marketing Management

459

International Marketing and Business Strategies

459

EMERGING OPPORTUNITIES: Pretty Garlic

The Marketing Mix

462

Standardization versus Customization

Product Policy

462

465

Standardized Products or Customized Products? 465

Legal Forces 466

443

461

457

CONTENTS
Cultural Influences

xvii

466

m E-WORLD: E-Translation

467

Economic Factors 468

Brand Names 468
Pricing Issues and Decisions
Pricing Policies 468
Market Pricing

469

470

Promotion Issues and Decisions

Advertising

472

472

BRINGING THE WORLD INTO FOCUS: Sailing for Sales

473

Personal Selling 474

Sales Promotion

475

Public Relations

476

Distribution Issues and Decisions

International Distribution
Channels of Distribution

478

Chapter Review 4 8 1 Summary

Building Global Skills 482

Chapter 17

476

477
481

CLOSING CASE: A Call for Progress

Questions for Discussion

CASE: Racing to Market

484

485

The Nature of International Operations Management

487

The Strategic Context of International Operations Management

Complexities of International Operations Management
Production Management

489

BRINGING THE WORLD INTO FOCUS: Suppliers: Friend or Foe?

Location Decisions

492

494

International Logistics and Materials Management

488

488

489

Supply Chain Management and Vertical Integration

482

International Operations Management

481

498

BRINGING THE WORLD INTO FOCUS: Cutting Costs to

the Bone 499

International Service Operations

500

Characteristics of International Services

501

The Role of Government in International Services Trade 501

Managing Service Operations

502

Managing Productivity in International Business

Managing Quality in International Business

503

Managing Information in International Business

Chapter Review

507

Building Global Skills

Chapter 18

Summary

507

502
505

Questions for Discussion

CLOSING CASE: The Weakest Link

510

International Financial Management

512

D CASE: Singapore Airlines's Worldwide Financial Management

Financial Issues in International Trade
Choice of Currency
Credit Checking

513

514

514

515

Method of Payment
Financing Trade

508

508

515

522

EMERGING OPPORTUNITIES: The Three Gorges Dam: It's Not a Feast

for U.S. Firms 524

xviii

CONTENTS
Managing Foreign Exchange Risk
Transaction Exposure

525

Translation Exposure

528

Economic Exposure

525

528

Management of Working Capital

531

Minimizing Working Capital Balances

531

B VENTURING ABROAD: Colefax and Fowler's Cash Flow Solution

Minimizing Currency Conversion Costs
Minimizing Foreign-Exchange Risk

532

532

534

International Capital Budgeting

534

Net Present Value 534

Internal Rate of Return 536
Payback Period 536
Sources of International Investment Capital
External Sources of Investment Capital

536

Internal Sources of Investment Capital

537

Strategic Use of Transfer Pricing

Tax Havens

536

538

540

M VENTURING ABROAD: Taxation of Subsidiary Income by the U.S.

Government 541
Chapter Review 542 Summary
Building Global Skills 543

Chapter 19

542

Questions for Discussion

CLOSING CASE: Everything's Green in Ireland

543

544

International Human Resource Management and Labor

Relations 548

CASE: Training for the World

549

The Nature of International Human Resource Management

550

Strategic Significance of HRM 551

International Managerial Staffing Needs
Scope of Internationalization

552

552

Centralization versus Decentralization of Control

Staffing Philosophy

553

554

EMERGING OPPORTUNITIES: Thinking Globally but Hiring Locally

BRINGING THE WORLD INTO FOCUS: Schlumberger Profits from

Geocentric Staffing 556

Recruitment and Selection

Recruitment of Managers
Selection of Managers

557

557

559

Expatriation and Repatriation Issues

Training and Development

560

562

Assessing Training Needs 562

Basic Training Methods and Procedures

563

Developing Younger International Managers

564

Performance Appraisal and Compensation

Assessing Performance in International Business

564
564

Determining Compensation in International Business

565

BRINGING THE WORLD INTO FOCUS: Seeing Opportunity in

Security 566

Retention and Turnover

569

Human Resource Issues for Nonmanagerial Employees

Recruitment and Selection

570

Training and Development

571

570

555

CONTENTS
Compensation and Performance Appraisal

Xix

571

M BRINGING THE WORLD INTO FOCUS: American-Style Management

Comes to Global Dining 572
Labor Relations

573

Comparative Labor Relations

Collective Bargaining

573

573

Union Influence and Codetermination

Chapter Review 574 Summary
Building Global Skills 575

574
574

Questions for Discussion

Q CLOSING CASE: "You Americans Work Too Hard"

fl PART 4: Closing Cases

577

fl PART 4: Market Entry Strategy Project

Endnotes 584
Glossary 601
Name Index 614
Company Index 618
Subject Index 623

583

576

575