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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
CHAPTER 1
Globalization 2
Opening Case
The Globalization of Health Care 2 Introduction 4
What Is Globalization? 6
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 9
46
Economic Systems 48
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
Drivers of Globalization 11 Declining Trade and Investment Barriers J J The Role of Technological Change 14 Microprocessors and Telecommunications 14
Country Focus
India's Software Sector 18 The Changing Foreign Direct Investment Picture 18 The Changing Nature of the Multinational Enterprise 20
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 57
57 Differences in Economic Development 57 Broader Conceptions of Development: Amartya Sen 61 Political Economy and Economic Progress 61
Country Focus
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 Research Task 36
Country Focus
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
73
Closing Case
Globalization at General Electric 36
iftkft) Contents Implications of Changing Political Economy 75 Implications for Managers Chapter Summary 80 76 Critical Thinking and Discussion Questions 117 Research Task 117 118
Closing Case
Wal-Mart's Foreign Expansion
Closing Case
India's Transformation 81
CHAPTER 3
Differences in Culture 86
Opening Case
McDonald's in India Introduction 88 86
Ethical Issues in International Business 124 Employment Practices 124 Human Rights 125
What Is Culture?
89
Management Focus
Making Apple's iPod 126 Environmental Pollution 128 Corruption 128 91
Values and Norms 89 Culture, Society, and the Nation-State 90 The Determinants of Culture Social Structure 92 Individuals and Groups 92 Social Stratification 94
Management Focus
Unocal in Myanmar
Ethical Dilemmas
129
131
Country Focus
Breaking India's Caste System 95 Religious and Ethical Systems 97 Christianity 97 Islam 99
The Roots of Unethical Behavior 132 Personal Ethics 132 Decision-Making Processes 133 Organization Culture 133 Unrealistic Performance Expectations 134
Country Focus
Islamic Capitalism in Turkey Hinduism 103 Buddhism 104 Confucianism 104 102
Management Focus
Pfizer's Drug-Testing Strategy in Nigeria 135
Leadership 135
Management Focus
DMG-Shanghai 106 Language 107 Spoken Language 107 Unspoken Language 108 Education 108 109
Philosophical Approaches to Ethics 136 Straw Men 136 Utilitarian and Kantian Ethics 138 Rights Theories 139 justice Theories 141 Implications for Managers 142
113
Chapter Summary 146 Critical Thinking and Discussion Questions 147 Research Task 148
Contents
xi 183
Closing Case
Wal-Mart's Chinese Suppliers 148 Part Two Cases Google in China 154 Mired in Corruption Kellogg, Brown & Root in Nigeria 155
Management Focus
The Rise of Finland's Nokia Implications for Managers 184 185
Research Task
189 189
Closing Case
The Ecuadoran Rose Industry
Appendix
International Trade and the Balance of Payments 190
CHAPTER
160
The Benefits of Trade 161 The Pattern of International Trade 161 Trade Theory and Government Policy 162 Mercantilism 162 163
Absolute Advantage
Country Focus
Is China a Neo-Mercantilist Nation? 164
Country Focus
Subsidized Wheat Production in Japan 201 Import Quotas and Voluntary Export Restraints 201 Local Content Requirements 203 Administrative Policies 203
Comparative Advantage
166
The Gains from Trade 167 Qualifications and Assumptions 168 Extensions of the Ricardian Model 169
Management Focus
U.S. Magnesium Seeks Protection 173 204
Country Focus
Moving U.S. White-Collar Jobs Offshore Heckscher-Ohlin Theory
The Leontief Paradox
205
174
174
Country Focus
175 176
Trade in Hormone-Treated Beef 209
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
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
181
xii
!cfct?)) Contents WTO: Experience to Date 215 The Future of the WTO: Unresolved Issues and the Doha Round 218 Home-Country Costs 253 International Trade Theory and FD1
253
Country Focus
Estimating the Gains from Trade for America Implications for Managers Chapter Summary 225 224 222
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 Chapter Summary 259 260 257
Critical Thinking and Discussion Questions 226 Research Task 227 227
Closing Case
Why Did Global Food Prices Rise?
Closing Case
Lakshmi Mitt a I and the Growth of Mittal Steel 261
CHAPTER 7
230
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
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
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
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
Management Focus
DP World and the United States 248
249
xiii
Management Focus
Dealing with the Rising Euro 333 Chapter Summary 335 CriticalThinking and Discussion Questions 336 Research Task 336
Closing Case
The Euro Energy Market 293
Closing Case
Hyundai and Kia 337
CHAPTER 10
340
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
355
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
xiv
Implications for Managers 366
Contents
Closing Case
Industrial and Commercial Bank of China 395
Management Focus
Airbus and the Euro Chapter Summary 368 369
Critical Thinking and Discussion Questions 370 Research Task 370 371
Closing Case
China's Managed Float
The Strategy and Structure of International Business The Strategy of International Business 400
Opening Case
The Evolving Strategy of IBM Introduction 402 400
CHAPTER I I
376
Functions of a Generic Capital Market 376 Attractions of the Global Capital Market 377
402
Management Focus
Deutsche Telekom Taps the Global Capital Market 379 Growth of the Global Capital Market 382 Global Capital Market Risks 384
Value Creation 403 Strategic Positioning 404 Operations: The Firm as a Value Chain
405
Country Focus
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 389 389
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 Cost Pressures and Pressures for Local Responsiveness 415 Pressures for Cost Reductions 415 Pressures for Local Responsiveness 416
Management Focus
Local Responsiveness at MTV Networks 417 Choosing a Strategy 419 Global Standardization Strategy 419
Country Focus
The Search for Capital in the Czech Republic 391 392
Management Focus
Evolution of Strategy at Procter & Gamble 423 The Evolution of Strategy 423 Chapter Summary 424
Contents i/HJ
CriticalThinking and Discussion Questions 425 Research Task 425 CriticalThinking and Discussion Questions 464 Research Task 464
xv
Closing Case
Coca Cola 426
Closing Case
A Decade of Organizational Change at Unilever 465
Appendix
Profitability, Growth, and Valuation 428
CHAPTER 113
Management Focus
Tesco's International Growth Strategy 472 Scale of Entry and Strategic Commitments 472 Summary 474
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
484
Management Focus
Culture and Incentives at Lincoln Electric 456
485 Pros and Cons of Acquisitions 485 Pros and Cons of Greenfield Ventures 487 Greenfield or Acquisition? 488
Strategic Alliances 488 The Advantages of Strategic Alliances 489 The Disadvantages of Strategic Alliances
xvi 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
Contents
Chapter Summary 538 CriticalThinking and Discussion Questions 539 Research Task 539 Closing Case Exporting and Growth for Small Businesses 539
part six
International Business Operations
CHAPTER 15
CHAPTER H
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
Exporting with a Little Government Help 526 Export Strategy 527 Export and Import Financing 527
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
Management Focus
Export Strategy at 3M 528
Lack of Trust 528
Management Focus
Red Spot Paint & Varnish 529 Letter of Credit 530 Draft 531 Bill of Lading 532 A Typical International Trade Transaction 532
Closing Case
Building the Boeing 787 564
Contents
xvii
CHAPTER 11
CHAPTER 118
568
The Globalization of Markets and Brands 570 Market Segmentation 571 Product Attributes 572
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 Performance Appraisal 617 Performance Appraisal Problems 617 Guidelines for Performance Appraisal 617 Compensation 618 National Differences in Compensation 618 Expatriate Pay 619
Management Focus
Overcoming Cultural Barriers to Selling Tampons 581 Push versus Pull Strategies 582
Management Focus
Global Compensation Practices at McDonald's 620
Management Focus
Levi Strauss Goes Local 590
Closing Case
Lenovo 626
CHAPTER IB
Closing Case
DoveBuilding a Global Brand 597
xviii
Management Focus
The Consequences of Different Accounting Standards 638 Multinational Consolidation and Currency Translation 639
Management Focus
Novartis Joins the International Accounting Club Consolidated Financial Statements 640 Currency Translation 642 Current U.S. Practice 643 640
Moving Money across Borders: Attaining Efficiencies and Reducing Taxes 662 Dividend Remittances 662 Royalty Payments and Fees 662 Transfer Prices 663 Fronting Loans 664
Closing Case
Brazil's Gol 670 649 Part Six Cases Li & Fung 676 Castrol Oil in Vietnam China Mobile 678
Closing Case
Adopting International Accounting Standards
677
Glossary
680 692