HBR Case Study
BY JOHN HUMPHREYS, ZAFAR U. AHMED,
AND MILDRED PRYOR
COMMENTARY BY KIRK O. HANSON,
DON PEPPERS AND MARTHA ROGERS,
AND JAMES BORG
World-Class Bull
Inspired sales ploy or ethical breach?
be kidding me, Sam,”
Jeremy sputtered. “Chris brought in
the single biggest piece of business
we’ve won here in more than two
years. He’s our top performer! He
broke that logjam with Armadillo!
He was absolutely brilliant!”
From the window of his 10th-floor
office at Specialty Fleet Services,
sales vice president Jeremy Silva
spied two of the bright yellow repair
trucks of Armadillo Gas & Power a
block away, flanking a rectangular
gash in South Polk near the old Paramount building. Getting Armadillo’s
lucrative fleet-management business
had been a long, hard slog. Had it not been for the fiendishly
clever machinations of sales ninja Christopher Knox (known
as “Fort” to his colleagues, because of his golden touch), SFS
would still be trying to dent Armadillo’s famously resistant
armor. And now, to Jeremy’s amazement, human resources
vice president Samantha Williams was informing him that
she wanted to reprimand Knox for a breach of the SFS code
of ethics.
“If ‘brilliant’ is a synonym for ‘devious,’ maybe so,” said Sam,
eyebrows raised. Sam was Jeremy’s friend and frequent ally,
having helped him push through a reorganization of the sales
force, including new incentive and commission structures. But
she was also currently the chair of SFS’s ethics review board.
“An ethics breach is an ethics breach.
As our code states, ‘deceptive business practices’ are unethical. There
have to be consequences. And you, of
all people, should know that.”
True enough, Jeremy thought.
When he had arrived at SFS five years
ago, on the heels of an embarrassing
kickback scandal, Jeremy had been
a driving force behind creating the
corporate code of ethics. And now
it was being wielded against his star
sales animal, Fort Knox. How had it
come to this?
Daniel Vasconcellos
“YOU’VE GOT TO
One Tough Customer
Six months earlier, regional sales manager Will Meyers had
returned from yet another frustrating visit with Armadillo’s
CFO, Dale Landry. “I just never get any closer,” he said with a
sigh, collapsing into a booth with Jeremy and Fort, who were
already digging into a late lunch at Texas Two-Step, Amarillo’s
leading shrine to barbeque. Will was going to make them listen
to him vent no matter what, and Jeremy got him going.
“So, Dale didn’t like the FleetNet demo?”
“He sat and watched, didn’t ask a single question, and
shrugged when it was over,” Will grumbled.
HBR’s cases, which are fictional, present common managerial
dilemmas and offer concrete solutions from experts.
hbr.org
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Harvard Business Review 35
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HBR Case Study World-Class Bull
hbr.org
fleet managers. It was conseFleetNet was SFS’s new
Offer your solution
quently a thorn in Will’s side
online system for providing
to the dilemma in
this fictional case
that even though Armadillo’s
customized support to clients.
study at salesfleet manager was enthusiUsing GPS-enabled modules
ethics.hbr.org.
astic about FleetNet, he had
installed in every vehicle, the
to defer to Dale Landry, the
system tracked location, miles
only person authorized to pull the trigtraveled, fuel efficiency, and the driver’s
ger on a change in the company’s fleetbehavior (speed, jackrabbit starts, hard
service providers.
stops, and so on) in real time. It also
“Worst thing is Dale’s always encourcompiled maintenance and accident reaging me to drop by to make another
cords, and tracked the cost of upkeep
pitch,” Will complained. “I think he’s
and repair for every vehicle a customer
kinda sadistic.”
owned or leased, the vehicle’s up-to-theChris Knox licked barbeque sauce
minute resale value, and countless other
data points of vital interest to clients’ off his fingers. “Dale Landry…isn’t he
the guy with the hobby ranch by Palo
Duro?”
“Yeah, I think that’s him,” Will said.
“Only time he shows signs of life is when
he’s talking about his bull. He said he
showed it down in Lubbock last weekend, and it won some kind of a ribbon.
Whoop-de-freakin’-do.”
Fort nodded and stared at the pile of
bones on his plate. “Would you mind if
I took a run at the guy? I think maybe I
can get his attention.”
Will looked over at Jeremy, and Jeremy shrugged. “At this point, we’ve got
nothing to lose, right?”
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When it comes to servers, Ken the IT guy knows
how to handle things. “It’s important that you’ve
got a separate server for every different process.
Ideally, we’d have a separate server for every single
department. It makes our job about a thousand
times harder, but I’m pretty sure that more servers
means more power. And more power means
you get more done. At least that’s what we’re
banking on.”
It seems many companies are following Ken’s
lead these days, which is to say they’re spending
more time fixing servers than solving problems.
Indeed, running around and having to maintain
servers all day long has become the bane of Ken’s
department. “Frankly, it’s kind of a nightmare,
when you think about it. But that’s just how we
do things around here, I guess.”
be on track with the lack of growth enjoyed
prior to these troubling times. “I’m not sure
the economy makes much difference. Things
have been this way around here for a long, long
time. It might not be the smartest way, but it’s
our way. And now’s no time to change what
we’ve been doing or haven’t been doing. Stay
the course, that’s our motto. Sure, we could
probably be doing a lot more. But we could
be doing a lot less, too.”
And while business may not exactly be booming,
managing resources and reacting quickly to
problems aren’t a concern for the company.
“We’ve got bigger fish to fry with all these server
issues we have. Look, we’ve got a lot of computers
around here. And we’re counting on those
computers to help us get more done. Everything
else should work itself out. If not, well, then I
guess we’ve got problems. But we’ll cross that
bridge when we get to it.”
Thanks to the high maintenance costs and
licensing fees, many poor performers seem to
1116 May09 Humphreys layout.indd 36
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microsoft.com/peopleready
“Nope,” Will agreed. “I’ve done everything I can think of. It’s time for someone else to try.”
“The commission’d be all yours,” Fort
offered.
“Nah,” Will said. “It’ll take Armageddon to land Armadillo. If you pull it off,
you’ll have earned the commission – and
you’re welcome to it.”
“The two of you will split it,” Jeremy
said. “Fair’s fair.”
Bull Artist
Fort did his research. Dale and Carol
Landry had inherited their small but
picturesque ranch (which Dale, being
a CFO, would have admitted was the
size of a rounding error compared with
some of the far bigger spreads nearby).
The Landrys had a small herd of longhorn cattle and, indeed, one bull in particular that they were bumper-sticker
proud of – as in, “My Bull’s Smarter than
Your Honor Student.”
Fort drove down to the Landry ranch
on a Saturday morning. He’d planned
want you to think I was up to anything
fishy.”
“By all means,” she said. “My husband
and I are very proud of Big Buddy. He’s
won numerous awards.” Fort could almost swear that Carol Landry blushed.
He thanked her, excused himself, walked
back down the fence line to where the
bull was standing, took a dozen digital
photos, and then went on his way.
On the long drive back to town, Fort
stopped by a bridge over a modest brook
that ran along the edge of some woods.
He watched the water sluice over colorful stones. It was hypnotic and serene,
belying the restive forces at play beneath the surface.
Taking the Bait
“Hi there, remember me?” Fort inquired
in a playful tone. Carol Landry did indeed remember the polite young man
who had asked to take pictures of Big
Buddy. She invited him in. It had been
a couple of weeks since their first encounter, and Fort had a surprise for the
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“I wouldn’t want you to think I was
up to anything fishy.”
for the encounter to seem like a happy
accident. As he turned up the winding
drive to the residence, he saw an enormous longhorn bull standing by the
fence, aloof from the herd. “If pursuing
Dale Landry hasn’t worked,” he thought,
“let’s see if I can get him to chase me.”
Knocking at the front door, Fort was
in chess-player mode, thinking several
moves ahead. Carol Landry answered
the door. The game was on.
“Hi, there,” Fort offered cheerfully, his
bright smile and personality on full display as the two introduced themselves. “I
hate to bother you, but I was passing by
and caught sight of that big bull of yours.
If you wouldn’t mind, I’d like to take
some pictures of him. He’s pretty amazing.” Then he added, “I always believe
it’s best to ask permission – I wouldn’t
Landrys. He handed Carol Landry an elegantly framed photo of the impressive
bovine.
“The pictures turned out so well, I
thought you might like to have one,”
he said, beaming. In truth, Fort was an
above-average amateur photographer.
Even if it hadn’t been part of his scheme,
he would have been proud of the photo,
the way he’d captured something essential about the subject – an impassive
stubbornness, black eyes like glass. Fort’s
pleasure with the print radiated to Carol.
“Wow, it’s just magnificent, Mr. Knox!”
she exclaimed.
“Please. Call me Chris.”
She angled the photo on an entry table beside a leather-bound biography of
the British explorer Henry Stanley. She
continued to thank him as he grinned
Because it’s everybody’s___business
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HBR Case Study World-Class Bull
car (Cadillac Escalade) so that he could
ensure that Dale would be home for his
next “spontaneous” visit.
He let three weeks pass – three
weeks during which Dale Landry would
see and appreciate daily the artful
portrait of his beloved Big Buddy and
would hear from his wife (more than
once, Fort was certain) about the polite,
thoughtful, generous young man who
had taken the picture and had it framed
for them. Time was his ally. It would
be foolish to betray any eagerness. Like
rich tea, the ingredients of Fort’s strategy needed to steep.
and made his getaway. But he wouldn’t
be gone for long.
As Fort headed back down the road,
away from the Landry ranch, a car
came toward him over a rise. Behind
the wheel he saw the impassive face of
Dale Landry, full of chiseled concentration, entirely unsuspecting. (Of course,
Fort had Googled Dale and Big Buddy
and had found a number of photos of
the two of them posed together, Big
Buddy looking utterly indifferent to the
ribbons in which, judging by the size of
his grin, Dale was taking such pleasure.)
Fort noted the make and model of the
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Springing the Trap
By the time of his next visit, Fort could
barely refrain from congratulating himself as the Landrys’ driveway came into
view. He was brilliant! He was positively
clairvoyant! During the intervening
weeks, through “casual observation” (a
term he preferred to “surveillance”)
Fort had discovered that Dale Landry
typically came home by noon on Fridays.
“Bingo!” Fort said to himself. Not only
was Dale’s Escalade parked in front of
the house, but he and Carol were outside, each brushing one of Big Buddy’s
hefty flanks.
hbr.org
4/3/09 10:41:32 AM
“Dr. Landry, I presume?” Fort said,
echoing, in a feeble British accent,
Henry Stanley’s famous salutation upon
finding the elusive Dr. Livingstone.
“That’s me,” said CFO Landry.
“Dale,” said Carol Landry, “this is Chris,
the nice man who brought us that wonderful picture of Big Buddy.” Then, turning to Fort, she said, “I’m very sorry to
say I’ve forgotten your last name!”
“Knox. Chris Knox, Mr. Landry.” They
shook hands.
“Well, Chris Knox, I’m real glad to be
here to meet you. We truly do love the
picture you took. This old bull is almost
like family. So, thank you very much.”
At Carol’s insistence, they went inside
for iced tea. “So, tell me, Chris, what do
you do besides photographing large
farm animals?” Dale asked. Fort told
Dale that he worked in sales for Specialty Fleet Services.
“Really?” Dale exclaimed. “That’s a
heckuva coincidence. I’m with Armadillo Gas & Power, and you folks have
been chasing my business for years.” After explaining that he worked a different territory, Fort offered a morsel. “We
provide our customers with lots of data,
very customized. Because of that we
tend to focus on really large accounts.
I’m not that familiar with Armadillo
Gas, but maybe you don’t need the high
level of service we offer. Maybe we’re a
little more expensive than what you’ve
got now.”
Fort noted the slight flaring of Dale’s
nostrils – so interesting how people really do start to look like their pets. “Well,
I gotta run,” he said. “But, hey, I’m real
glad you liked the photo.” He drained his
iced tea, said his thank-yous, and left.
Dale Landry called first thing Monday
morning – just as Fort figured he would.
But Fort didn’t return the call. Instead,
that Friday, he brought the Landrys a
calendar with photos of prize longhorns.
“This is so beautiful,” Carol said. But Dale
seemed preoccupied, mostly asking Fort
questions about “this online service-net
thing you do.”
Fort also engineered a couple of
other encounters (too many might have
aroused suspicion). Camera in hand, he
ran into Dale Landry at a livestock auction one beautiful Saturday morning.
And in the middle of the following week,
Fort went to watch his nephew play a
Little League game, and there was Dale,
watching his own kid – Dale, Jr. (nicknamed Little Buddy!) – play second base
for the other team.
Every time he spoke with Fort, Dale
seemed more agitated and more curious about SFS. Fort tried hard to contain himself. He couldn’t help thinking
that Dale Landry was so accustomed to
being pursued that he seemed kind of
lame as a pursuer. Fort was invariably
nonchalant, often redirecting their conversation away from business, as though
that was the last thing on his mind.
“Where’s the harm? Nobody got
cheated. Nobody paid a kickback.”
On a day when Dale had left two messages before lunch and one after, Fort
figured it was time to call back. He’d
barely gotten out “Hey, Dale” when the
Armadillo CFO cut him off. “I’d like to
see that demo again,” he said. “Can you
and Will Meyers come over here sometime tomorrow and run me through it?”
didn’t violate a single item in our ethics
code. When all this happened, Landry
wasn’t even a customer of SFS!”
“Technically speaking, maybe not,”
Sam said. “But the story of what Fort
did is now an official source of motivation for our sales force. God forbid, but
will people be out in the field trying to
top him? The whole thing has me thinking that maybe the code of ethics has
a blind spot in it.”
Time to Cut the Bull?
It was a happy day when Armadillo
signed its contract with SFS. So pleased
was Jeremy Silva with Fort’s performance that he sent an e-mail to the entire sales team (subject line: “world-class
bull”) describing Fort’s every maneuver.
Jeremy wisely credited Will with having paved the way for what Fort finally
achieved, making it easy for Will to be
gracious toward his cocky colleague.
But some at SFS were less delighted
than Jeremy and his team. Copies of Jeremy’s e-mail made their way through
the company and, eventually, to the
ethics review board. Now Jeremy was
forced to defend Fort from the very ethics process he had initiated.
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“Look,” said Sam Williams, holding up
a printout of Jeremy’s e-mail in praise
of Fort’s tactics, “what if somebody sent
this over to Landry? How do you think
he would feel about SFS? He’d feel like
we made a fool of him – and his wife!
And he’d be right! So, I think we have to
ask ourselves, as an organization, when
does a so-called smart sales strategy
cross the line to become deceitful? Does
this sort of thing put our relationships
with clients at risk? Does it damage
our reputation? The code requires us to
deal honestly with customers and other
stakeholders. Is this honest?”
Jeremy sputtered, “Where’s the harm?
Nobody got cheated. Nobody paid a
kickback. Armadillo is getting a better
service than it had before. And Fort
Does the SFS sales team deserve
an ethics reprimand or a clean bill
of health? Four commentators offer
expert advice.
John Humphreys (john_humphreys@
tamu-commerce.edu) and Mildred Pryor
(mildred_pryor@tamu-commerce.edu)
are professors of marketing and management at Texas A&M University – Commerce. Zafar U. Ahmed (zafaruahmed@
gmail.com) is a professor and the dean of
the College of Business and Management
at Fahad Bin Sultan University in Tabuk,
Kingdom of Saudi Arabia.
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Harvard Business Review 39
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HBR Case Commentary Does the SFS Sales Team Deserve an Ethics Reprimand or a Clean Bill of Health?
Kirk O. Hanson (kohanson@
scu.edu) is the University
Professor of Organizations
and Society and the executive
director of the Markkula
Center for Applied Ethics
at Santa Clara University
in California. He is also an
emeritus faculty member at
Stanford University’s Graduate School of Business.
WHEN I was young, my father, a lifelong sales
executive, proudly showed me his three-byfive card file, a rich trove of personal facts
about each of his prospects: their children,
their hobbies, their illnesses. “In the end,” he
told me, “people buy from their friends.” He
would spend a portion of every sales call asking about customers’ personal lives. He took
them to baseball games and helped them find
the best summer camps for their children. He
became their friend. And boy, did he sell!
In the SFS case, “Fort” Knox raised the
“friendship strategy” to high art while, in my
estimation, crossing several ethical lines
along the way. I side with Samantha Williams
on this one. Fort should have his hand, and
probably his face, slapped publicly. However,
I think Jeremy Silva deserves even greater
opprobrium for his e-mail in praise of Fort. But
more about that in a moment.
I believe it’s permissible, even desirable, to
share interests and passions with a prospect.
(“I have always wanted to know more about
bull semen. Tell me about it.”) Where Fort
went astray was in deceiving Dale and Carol
Landry about why he was photographing
Big Buddy. Such behavior would have been
and did not evaporate once the sales contract
was signed. Likewise, he could participate
in activities that would bring him in contact
with the Landrys as long as his interest was
somewhat sincere. One of the salesperson’s
most ecstatic moments, of course, is to find
that a longtime friend has suddenly become
a sales prospect.
I’m never surprised when salespeople like
Fort push the envelope of acceptable behavior. They get paid – and paid well – for making
sales. The incentive structure, particularly in
a time of recession, makes this an unavoidable ethical hazard and a prime ethical risk for
many kinds of companies.
What appalls me is Jeremy’s behavior. His
e-mail shows that he doesn’t understand
that such risks must be managed. By baldly
describing and praising Fort’s deception, Jeremy has jeopardized the company. In an era
of blogs and forwarded e-mail, there’s a good
chance his will be posted on a sales blog or
sent to Dale. Can you imagine his bull rage on
reading it? He might launch a vendetta against
SFS, damaging its sales for years to come.
Moreover, as Samantha warns, Jeremy’s
e-mail encourages every SFS salesperson to
borderline if he “ran into” them at a bull exhibition, but Fort crossed an ethical line by
intruding into the Landrys' private lives. His
repeated violation of their personal space
makes the deception particularly distasteful
and objectionable.
How far can you go in developing a common interest with a prospect? The ethical
principle here is from Immanuel Kant: It is
improper to treat an individual merely as a
means to an end. A salesperson cannot feign
an interest or manipulate a prospect just to
get the sale. If Dale or Carol were involved in
a charity, Fort could volunteer for it or contribute to it as long as his altruism was genuine
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try to top Fort’s ruse. Deceptive strategies
will inevitably erupt elsewhere until there is
a public airing of the company’s manipulative
behavior. Jeremy’s kind of “praise” has done
signifi cant damage in several well-known
cases. For example, in the early 1980s, after
top managers at E.F. Hutton praised a branch
for its creative new ways of managing cash
flow, check kiting spread across many of the
brokerage firm's branches. Hutton never recovered from the scandal.
I think Sam and the ethics board should
publicly reprimand Fort. Jeremy’s e-mail
has made that necessary. I doubt Jeremy is
salvageable.
Wendy Wray
Fort crossed an ethical line by intruding
into the Landrys’ private lives.
hbr.org
4/3/09 10:41:48 AM
Deception is never allowed in a
customer relationship.
FORT’S ACTIONS were unethical. Aggressive sales tactics are often celebrated, as
they should be. But deceiving a current or prospective customer is always unethical. Period,
case closed.
Don’t get us wrong: Secrets and deception
are a necessary part of business competition.
No business would want competitors to know
the truth about its strategic plans, for instance,
and outright deception of competitors is completely ethical in many circumstances. But
there’s a big difference between deceiving
to compete more effectively and deceiving to
trick a particular customer.
Our plain-and-simple rule for avoiding this
kind of lapse? Deception is never allowed in
a customer relationship. Any company that
hopes to build long-term value for shareholders has to earn its customers’ trust. A con
man can nearly always make money on a
one-off deal. But only a trusted adviser can
succeed with a customer over time.
It shouldn’t have taken a visit from Samantha to make Jeremy realize that circulating a
description of Fort’s sales conquest, including all the little deceptions he perpetrated,
was highly irresponsible. When that e-mail
comes to Dale’s attention – and eventually it
will – SFS will be embarrassed and wounded.
By hitting the “send” button, Jeremy demonstrated that he does not understand the
policies and behaviors that build long-term
shareholder value. By itself, Jeremy’s e-mail
reduced the value of the company.
Ironically, had Fort used what he already
knew about Dale in a completely ethical, forthright way, he would have been nearly as effective at winning Armadillo’s business in the
short term and far more effective at not losing
it in the long term – which may well happen.
There’s nothing wrong with a salesperson’s
cultivating an interest in bulls or ranches or
cattle shows in order to forge a bond with a
prospect. Fort could have invited the Landrys
to be his guest in the SFS box at the Amarillo rodeo. He could have introduced himself
to Dale – immediately disclosing his position
at SFS – and asked permission to take a picture of the prize bull for his own photography
collection (later sharing the photo with the
Landrys). And arranging to run into Dale at
the local Little League field was completely
legitimate.
Because of the short-term bias built into
the structure of most sales commissions
and incentives, great sales personalities like
Fort will always be tempted to resort to subterfuge and tricks. The immediate reward
is certain, and the long-term consequences
probably aren’t even tracked. But what kind
of future can SFS possibly have with Dale?
After the subterfuge is revealed, how will any
SFS manager look someone from Armadillo in
the eye and even pretend to offer trustworthy
advice?
The CEO of SFS should immediately fire
Jeremy, discipline Fort, send an e-mail to all
employees firmly asserting that deceiving
customers or prospects is not the SFS way
of doing business, rewrite the ethics code to
specify that “deceiving a customer or prospect is always a violation of company policy,”
and meet personally with Dale to let him know
what has happened (before he hears about it
from others).
At this meeting, the CEO should tell Dale
everything SFS is doing to make sure that
this kind of deception doesn’t happen again
and offer to release Armadillo from the contract and to refund any setup costs already
incurred. If the CEO is sincere in his apology,
perhaps Armadillo’s business can be saved
(although that should not be the objective of
the meeting).
SFS should pledge never again to initiate a
faux relationship but instead to forge genuine,
trusting, collaborative relationships that benefit customers and SFS alike.
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Don Peppers (dpeppers
@1to1.com) and Martha
Rogers (rogers@1to1.com)
are the founders of the
Peppers & Rogers Group, a
consultancy headquartered
in Norwalk, Connecticut,
specializing in customer
relationships. They are the
coauthors of Rules to Break
and Laws to Follow: How
Your Business Can Beat
the Crisis of Short-Termism
(Wiley, 2008). Rogers is also
an adjunct professor at Duke
University’s Fuqua School of
Business.
May 2009
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Harvard Business Review 41
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HBR Case Commentary Does the SFS Sales Team Deserve an Ethics Reprimand or a Clean Bill of Health?
LIKE HIM or not, you have to acknowledge
the style of the man with the Midas touch.
Although Fort’s methods may look shady, he
certainly achieved a positive outcome – one
that satisfied both parties.
At first glance, some people might conclude that this was not an admirable display
of persuasive technique but rather the darker
side of manipulation. Indeed, many people
confuse persuasion with manipulation because they have never considered the difference between the two. Persuasion is all about
a customer of Specialty Fleet Services was
an especially good move, helping Fort turn
Dale from quarry into pursuer. Fort’s failure
to return Dale’s phone calls troubled me a bit,
because it undercut the polite, thoughtful nature that he had taken the trouble to establish
(and that was so prized by Carol Landry). But
he redeemed himself by showing up at the
Landrys’ house with yet another present.
Fort pursued a strategy of reciprocity to
good effect: I give you something; you may
give me something back. What did Fort want
Fort simply got Dale’s attention and
let his persuasive skills do the rest.
James Borg is a business
psychologist and interpersonal skills trainer based in
the United Kingdom. He is
the author of Persuasion
(Pearson/Financial Times
Press, 2004) and Body
Language (Pearson/ Prentice
Hall Life, 2008).
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relationships and, therefore, the long term. If
the outcome is not pleasing to both parties,
the relationship eventually crumbles. Manipulation aims to satisfy the needs and wishes of
only one party, with no regard for – and often
at the expense of – the other.
The tactics that the “brilliant” Mr. Knox
employed are carried out, to varying degrees,
by sales reps and businesspeople on a daily
basis. It’s just that we don’t often hear about
them. Sales professionals are, by nature, particularly creative in the pursuit of results. Bear
in mind that they experience more callous rejection in a fortnight than most of us do in a
very bad year. Keeping one’s ego intact can be
a challenge. In most companies, stars like Fort
come with certain idiosyncrasies that are tolerated when they accompany above-average
success. Our man Knox used his special skills
to strike up a rapport, in the first instance, with
Dale’s wife; then he ended up with the holy
grail – a strong third-party referral by the time
he engineered the first meeting with her husband. The salesperson’s dream!
Having established a relationship – something his predecessor, Will Meyers, failed to
do – Fort then played on Dale’s ego-driven nature through a combination of logic and emotion, eventually enticing him to take the bait.
Challenging Armadillo’s suitability to become
May 2009
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in return for the photo of Big Buddy? An audience with Dale. That’s what he got. He didn’t
coerce Landry into considering the services of
SFS. He simply got Dale’s attention and let his
persuasive skills do the rest. There is a clear
difference between persuasion and coercion,
and Knox didn’t cross that line.
Should Fort be hauled in front of an ethics
board? I say let him off with a warning that
focuses on his having concealed from Dale
the knowledge of Dale’s position at Armadillo.
But given that this sort of thing happens often
enough in business and that the client was
enticed to buy, as opposed to needing to be
sold (an essential requirement for ego-driven
people like Dale), I’m comforted by the fact
that both parties ended up with something
valuable. Dale got an arguably superior product for his company, and SFS got a solid new
customer.
As for Jeremy, he should be hauled in front
of the company’s Idiocy Review Board for
sending an ill-advised, potentially damaging
e-mail. Some best practices are better left to
oral history.
Reprint R0905B
Reprint Case only R0905X
Reprint Commentary only R0905Z
To order, see page 131.
hbr.org
4/3/09 10:42:00 AM
Copyright 2009 Harvard Business Publishing. All Rights Reserved. Additional restrictions
may apply including the use of this content as assigned course material. Please consult your
institution's librarian about any restrictions that might apply under the license with your
institution. For more information and teaching resources from Harvard Business Publishing
including Harvard Business School Cases, eLearning products, and business simulations
please visit hbsp.harvard.edu.
Page i
11e
GLOBAL BUSINESS TODAY
Charles W. L. Hill
University of Washington
G. Tomas M. Hult
Michigan State University
Page ii
GLOBAL BUSINESS TODAY, ELEVENTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY
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reserved. Printed in the United States of America. Previous editions
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Library of Congress Cataloging-in-Publication Data
Names: Hill, Charles W. L., author. | Hult, G. Tomas M., author.
Title: Global business today / Charles W.L. Hill, University of
Washington,
G. Tomas M. Hult, Michigan State University.
Description: 11e [edition]. | New York, NY : McGraw-Hill Education,
[2020]
Identifiers: LCCN 2018050510| ISBN 9781260088373 (alk. paper) |
ISBN
1260088375 (alk. paper)
Subjects: LCSH: International business enterprises—Management. |
International trade. | Investments, Foreign. | Capital market.
Classification: LCC HD62.4 .H548 2020 | DDC 658/.049—dc23 LC
record available
at https://lccn.loc.gov/2018050510
The Internet addresses listed in the text were accurate at the time of
publication. The inclusion of a website does not indicate an
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McGraw-Hill Education does not guarantee the accuracy of the
information presented at these sites.
mheducation.com/highered
For my mother June Hill, and the memory of my
father, Mike Hill
—Charles W. L. Hill
For Gert & Margareta Hult, my parents
—G. Tomas M. Hult
Page iii
Page iv
about the authors
CHARLES W. L. HILL
University of Washington
Charles W. L. Hill is the Hughes M. and Katherine Blake Professor
of Strategy and International Business at the Foster School of
Business, University of Washington. Professor Hill has taught in the
MBA, Executive MBA, Technology Management MBA, Management,
and PhD programs at the University of Washington. During his time
at the University of Washington, he has received over 25 awards for
teaching excellence, including the Charles E. Summer Outstanding
Teaching Award. The Foster School is consistently ranked as a Top25 business school. Learn more about Professor Hill at
http://foster.uw.edu/faculty-research/directory/charles-hill.
A native of the United Kingdom, Professor Hill received his PhD
from the University of Manchester, UK. In addition to the University
of Washington, he has served on the faculties of the University of
Manchester, Texas A&M University, and Michigan State University.
Professor Hill has published over 50 articles in top academic
journals, including the Academy of Management Journal, Academy
of Management Review, Strategic Management Journal, and
Organization Science. Professor Hill has also published several
textbooks, including International Business (McGraw-Hill) and Global
Business Today (McGraw-Hill). His work is among the most widely
cited in international business and strategic management.
Beginning in 2014, Dr. Hill partnered with Dr. Tomas Hult in a
formidable co-authorship of the International Business franchise of
textbooks (International Business and Global Business Today).This
brought together two of the most cited international business
scholars in history.
Professor Hill works on a private basis with a number of
organizations. His clients have included Microsoft, where he has
been teaching in-house executive education courses for two
decades. He has also consulted for a variety of other large
companies (e.g., AT&T Wireless, Boeing, BF Goodrich, Group
Health, Hexcel, Microsoft, Philips Healthcare, Philips Medical
Systems, Seattle City Light, Swedish Health Services, Tacoma City
Light, Thompson Financial Services, WRQ, and Wizards of the
Coast). Professor Hill has also served on the advisory board of
several start-up companies.
For recreation, Professor Hill enjoys skiing and competitive
sailing!
Page v
G. TOMAS M. HULT
Michigan State University
Dr. Tomas Hult is Professor of Marketing, Byington Endowed Chair,
and Director of the International Business Center in the Department
of Marketing in the Eli Broad College of Business at Michigan State
University. He also teaches for the Broad College’s Department of
Supply Chain Management and Department of Management. Learn
more about Professor Hult at http://broad.msu.edu/facultystaff/hult.
A native of Sweden, Dr. Hult received a mechanical engineer
degree in Sweden before obtaining Bachelor and MBA degrees in
the United States, followed by a PhD at The University of Memphis.
In addition to Michigan State University, he has served on the
faculties of Florida State University and the University of Arkansas at
Little Rock. Dr. Hult holds visiting professorships in the International
Business Group of his native Uppsala University, Sweden, and the
International Business Division of Leeds University, United Kingdom.
Michigan State, Uppsala, and Leeds are all ranked in the top 10 in
the world in international business research.
Dr. Hult serves as Executive Director and Board Member of the
Academy of International Business (AIB), President and Board
Member of the Sheth Foundation, and serves on the U.S. District
Export Council. Tomas Hult hosts the radio show globalEDGE
Business Beat on the Michigan Business Network.
Hult is one of the world’s leading academic authorities (citations,
publications) in marketing strategy, international business,
international marketing, strategic management, global supply chains,
and complex multinational corporations. He is one of only about 100
Elected Fellows of the Academy of International Business, an
accolade achieved by only the elite international business scholars.
Dr. Hult was also selected in 2016 as the Academy of Marketing
Science/CUTCO-Vector Distinguished Marketing Educator.
He regularly speaks at high profile events (e.g., European
Commission, Swedish Entrepreneurship Forum, United Nation's
Conference on Trade and Development, U.S. Department of
Education, World Investment Forum) and publishes influential op-ed
articles (e.g., Time, Fortune, Fortune, World Economic Forum, The
Conversation). Tomas has developed a large clientele of the world’s
top corporations (e.g., ABB, Albertsons, Avon, BG, Bechtel, Bosch,
BP, Defense Logistics Agency, Domino’s, FedEx, Ford, FreshDirect,
General Motors, GroceryGateway, HSBC, IBM, Michigan Economic
Development Corporation, Masco, NASA, Raytheon, Shell, Siemens,
State Farm, Steelcase, Tech Data, and Xerox).
In addition to co-authoring with Charles W. L. Hill the marketshare leading textbooks in international business (Global Business
Today, now in its 11th edition, and International Business, now in its
12th edition), Dr. Hult has written several popular business trade
books (e.g., Second Shift; Global Supply Chain Management;
Extending the Supply Chain; and Total Global Strategy).
Tennis, golf, and traveling are his favorite recreational activities.
Page vi
brief contents
PART ONE
Introduction and Overview
Chapter One
PART TWO
Globalization 2
National Differences
Chapter Two
National Differences in Political, Economic,
and Legal Systems 36
Chapter Three
Development 58
Chapter Four
National Differences in Economic
Differences in Culture 86
Chapter Five
Ethics, Corporate Social Responsibility, and
Sustainability 122
PART THREE
The Global Trade and Investment Environment
Chapter Six
International Trade Theory 150
Chapter Seven
184
Government Policy and International Trade
Chapter Eight
Foreign Direct Investment 212
Chapter Nine
PART FOUR
Regional Economic Integration 240
The Global Monetary System
Chapter Ten
The Foreign Exchange Market 270
Chapter Eleven
PART FIVE
The International Monetary System 294
The Strategy of International Business
Chapter Twelve
The Strategy of International Business 320
Chapter Thirteen
Markets 356
PART SIX
Entering Developed and Emerging
International Business Functions
Chapter Fourteen
382
Exporting, Importing, and Countertrade
Chapter Fifteen
Management 408
Global Production and Supply Chain
Chapter Sixteen
438
Global Marketing and Business Analytics
Chapter Seventeen
474
Global Human Resource Management
GLOSSARY 503
NAME INDEX 511
SUBJECT INDEX 513
ACRONYMS 531
COUNTRIES AND THEIR CAPITALS 532
Page vii
the proven choice for international
business
Current. Application Rich,
Relevant. Accessible and Student
Focused.
Global Business Today (GBT), the worldwide market leader among
international business products, has set a new standard for
international business teaching. We have focused on creating
resources that
Are comprehensive, state of the art, and timely.
Are theoretically sound and practically relevant.
Focus on applications of international business concepts.
Tightly integrate the chapter topics throughout.
Are fully integrated with results-driven technology.
Take full and integrative advantage of globalEDGE.msu.edu—
the Google-ranked #1 web resource for “international business
resources.”
International Business (now in its 12th edition, 2019), also coauthored by Charles W. L. Hill and G. Tomas M. Hult, is a more
comprehensive and case-oriented version that lends itself to the core
course in international business for those that want a deeper focus
on the global monetary system, structure of international business,
international accounting, and international finance.
GBT has always endeavored to be current, relevant, application
rich, accessible, and student-focused. Our goal has always been to
cover macro and micro issues equally and in a relevant, practical,
accessible, and student-focused approach. We believe that anything
short of such a breadth and depth of coverage is a serious
deficiency. Many of the students in these international business
courses will soon be working in global businesses, and they will be
expected to understand the implications of international business for
their organization’s strategy, structure, and functions in the context of
the global marketplace. We are proud and delighted to have put
together this international business learning experience for the
leaders of tomorrow.
Over the years, and now through 11 editions, Dr. Charles Hill has
worked hard to adhere to these goals. Since the ninth edition,
Charles’ co-author, Dr. Tomas Hult, has followed the same approach.
In deciding what changes to make, we have been guided not only by
our own reading, teaching, and research but also by the invaluable
feedback we received from professors and students around the
world, from reviewers, and from the editorial staff at McGraw-Hill
Education. Our thanks go out to all of them.
Comprehensive and Up-to-Date
To be relevant and comprehensive, an international business
package must
Explain how and why the world’s cultures, countries, and
regions differ.
Cover economics and politics of international trade and
investment.
Tackle international issues related to ethics, corporate social
responsibility, and sustainability.
Explain the functions and form of the global monetary system.
Examine the strategies and structures of international
businesses.
Assess the special roles of the various functions of an
international business.
Relevance and comprehensiveness also require coverage of the
major theories. It has always been a goal to incorporate the insights
gleaned from recent academic scholarship into the book.
Page viii
Consistent with this goal, insights from the following
research, as a sample of theoretical streams used in the book, have
been incorporated:
New trade theory and strategic trade policy.
The work of Nobel Prize–winning economist Amartya Sen on
economic development.
Samuel Huntington’s influential thesis on the “clash of
civilizations.”
Growth theory of economic development championed by Paul
Romer and Gene Grossman.
Empirical work by Jeffrey Sachs and others on the relationship
between international trade and economic growth.
Michael Porter’s theory of the competitive advantage of nations.
Robert Reich’s work on national competitive advantage.
The work of Nobel Prize–winner Douglass North and others on
national institutional structures and the protection of property
rights.
The market imperfections approach to foreign direct investment
that has grown out of Ronald Coase and Oliver Williamson’s
work on transaction cost economics.
Bartlett and Ghoshal’s research on the transnational
corporation.
The writings of C. K. Prahalad and Gary Hamel on core
competencies, global competition, and global strategic alliances.
Insights for international business strategy that can be derived
from the resource-based view of the firm and complementary
theories.
Paul Samuelson’s critique of free trade theory.
Conceptual and empirical work on global supply chain
management—logistics, purchasing (sourcing), operations, and
marketing channels.
In addition to including leading-edge theory, in light of the fastchanging nature of the international business environment, we have
made every effort to ensure that this product is as up-to-date as
possible. A significant amount has happened in the world since we
began revisions of this book. By 2016, almost $4 trillion per day were
flowing across national borders. The size of such flows fueled
concern about the ability of short-term speculative shifts in global
capital markets to destabilize the world economy.
The world continued to become more global. As you can see in
Chapter 1 on Globalization, trade across country borders has almost
exponentially escalated in the last few years. Several Asian
economies, most notably China and India, continued to grow their
economies at a rapid rate. New multinationals continued to emerge
from developing nations in addition to the world’s established
industrial powers.
Increasingly, the globalization of the world economy affected a
wide range of firms of all sizes, from the very large to the very small.
We take great pride in covering international business for small- and
medium-sized enterprises (SMEs), as well as larger multinational
corporations. We also take great pride in covering firms from all
around the world. Some sixty SMEs and multinational corporations
from all six core continents are covered in the chapters’ opening
cases, closing cases, and/or Management Focus boxes.
And unfortunately, global terrorism and the attendant geopolitical
risks keep emerging in various places globally, many new and
inconceivable just a decade ago. These represent a threat to global
economic integration and activity. Plus, with the United Kingdom
opting to leave the European Union (Brexit), which has implications
past 2019, the election of President Donald Trump in the United
States (who espouses views on international trade that break with
the long established consensus), and several elections around the
world, the globe—in many ways—has paid more attention to
nationalistic issues over trade. These topics and many more are
integrated into this text for maximum learning opportunities.
WHAT’S NEW IN THE 11TH EDITION
The success of the first ten editions of Global Business Today (and
its longer, more in-depth textbook option and companion,
International Business, now in the 12th edition) was based in part on
the incorporation of leading-edge research into the text, the use of
the up-to-date examples and statistics to illustrate global trends and
enterprise strategy, and the discussion of current events within the
context of the appropriate theory. Building on these strengths, our
goals for the 11th edition have focused on the following:
1. Incorporate new insights from scholarly research.
2. Make sure the content covers all appropriate issues.
Page ix
3. Make sure the text is up-to-date with current events,
statistics, and examples.
4. Add new and insightful opening and closing cases in most
chapters.
5. Incorporate value-added globalEDGETM features in every
chapter.
6. Connect every chapter to a focus on managerial implications.
As part of the overall revision process, changes have been made to
every chapter in the book. All statistics have been updated to
incorporate the most recently available data. As before, we provide
the only textbook in International Business that ensures that all
material is up-to-date on virtually a daily basis. The copyright for the
book is 2020, but you are likely using the text somewhere between
the years 2019 to 2022. We keep the textbook updated to each
semester you use the text in your course! We do this by integrating
Connect and globalEDGETM features in every chapter.
Specifically, combining McGraw Hill’s Connect platform with the
Google number-one-ranked globaledge.msu.edu site (for
“international business resources”), we can add up-to-date materials
and exercises to each chapter to add value to the material and
provide relevant data and information. This keeps chapter material
constantly and dynamically updated for teachers who want to infuse
Connect and globalEDGETM material into the chapter topics, and it
keeps students abreast of current developments in international
business.
In addition to updating all statistics, figures, and maps to
incorporate most recently published data, a chapter-by-chapter
selection of changes for the 10th edition include the following:
CHAPTER 1: GLOBALIZATION
New opening case: GM and Its Chevrolet Supercar, The
Corvette ZR1
New materials on international trade, trade agreements, world
production, and world population
Explanations of differences in cross-border trade and in-country
production; the value of trade agreements; and population
implications related to resource constraints
Revised Management Focus: Boeing’s Global Production
System
Revised Management Focus: Wanda Group
New closing case: Globalization of BMW, Rolls-Royce, and the
MINI
CHAPTER 2: NATIONAL
DIFFERENCES IN POLITICAL,
ECONOMIC, AND LEGAL SYSTEMS
New opening case: Transformation in Saudi Arabia
New Country Focus: Putin’s Russia
Updated data on corruption
Updated Country Focus: Corruption in Brazil
New closing case: The Decline of Zimbabwe
CHAPTER 3: NATIONAL
DIFFERENCES IN ECONOMIC
DEVELOPMENT
New opening case: Brazil’s Struggling Economy
Updated statistics and discussion in section Differences in
Economic Development
Updated Country Focus: Property Rights in China
Updated statistics and discussion in section States in Transition
New closing case: Economic Development in Bangladesh
CHAPTER 4: DIFFERENCES IN
CULTURE
New opening case: China, Hong Kong, Macau, and Taiwan
Deeper treatment of culture, values, and norms
Revised the foundation that most religions are now pro-business
Updated the Hofstede culture framework with new research
New Country Focus: Determining Your Social Class by Birth
New Country Focus: Turkey, Its Religion, and Politics
New Management Focus: China and Its Guanxi
New closing case: The Swatch Group and Cultural Uniqueness
Page x
CHAPTER 5: ETHICS, CORPORATE
SOCIAL RESPONSIBILITY, AND
SUSTAINABILITY
New opening case: Sustainability Initiatives at Natura, the
Bodyshop, and Aesop
Deeper focus on corporate social responsibility and
sustainability at the country, company, and customer levels
New Management Focus: “Emissionsgate” at Volkswagen
New closing case: Woolworths’s Corporate Responsibility
Strategy
CHAPTER 6: INTERNATIONAL TRADE
THEORY
New opening case: “Trade Wars Are Good and Easy to Win”
Discussion of President Donald Trump’s approach to
international trade
Updated Country Focus: Is China Manipulating Its Currency in
Pursuit of a Neo-Mercantilist Policy?
New closing case: The Trans Pacific Partnership (TPP) Is Dead;
Long Live the CPTPP!
Updated Appendix: International Trade and the Balance of
Payments with new data and revised discussion
CHAPTER 7: GOVERNMENT POLICY
AND INTERNATIONAL TRADE
New opening case: U.S. and South Korea Strike a Revised
Trade Deal
New section: The World Trading System Under Threat, which
discusses the potential ramifications of Brexit and the trade
policies of the Trump administration
New Closing Case: Boeing and Airbus Are in a Dogfight over
Illegal Subsidies
CHAPTER 8: FOREIGN DIRECT
INVESTMENT
New opening case: Geely Goes Global
Updated statistics and discussion in the section Foreign Direct
Investment in the World Economy
New Management Focus: Burberry Shifts Its Entry Strategy in
Japan
New closing case: FDI in the Indian Retail Sector
CHAPTER 9: REGIONAL ECONOMIC
INTEGRATIONS
New opening case: NAFTA 2.0?
Extended discussion of Brexit and its ramifications
New section The Future of NAFTA, which discusses the
renegotiation of NAFTA by the Trump administration
New closing case: Free Trade in Africa: TFTA and CFTA
CHAPTER 10: THE FOREIGN
EXCHANGE MARKET
New opening case: The Fluctuating Value of the Yuan Gives
Chinese Business a Lesson in Foreign Exchange Risk
New closing case: The Mexican Peso, the Japanese Yen, and
Pokemon Go
CHAPTER 11: THE INTERNATIONAL
MONETARY SYSTEM
New opening case: Can Dollarization Save Venezuela?
Updated statistics discussion of floating exchange rates through
to early 2018
New Country Focus: China’s Exchange Rate Regime
New Closing Case: Egypt and the IMF
CHAPTER 12: THE STRATEGY OF
INTERNATIONAL BUSINESS
New opening case: Red Bull, a Leader in International Strategy
Deeper discussion of the rise of regionalism
Integration of global strategy thoughts
New Management Focus: IKEA’s Global Strategy
New Management Focus: Unilever’s Global Organization
New closing case: Sony Corporation: An International
Innovator?
Page xi
CHAPTER 13: ENTERING
DEVELOPED AND EMERGING
MARKETS
New opening case: IKEA Entering India, Finally!
New scope of the chapter to include entering developed and
emerging markets, as well as aspects of less developed
markets
New closing case: Cutco Corporation—Sharpening Your Market
Entry
CHAPTER 14: EXPORTING,
IMPORTING, AND COUNTERTRADE
New opening case: Spotify and SoundCloud
New material on company readiness to export and import
material
New and revised material on globalEDGETM Diagnostic Tools,
with a focus on Company Readiness to Export (CORE)
New Management Focus: Embraer and Brazilian Importing
New Management Focus: Exporting Desserts by a Hispanic
Entrepreneur
New Management Focus: Two Men and a Truck
New closing case: Tata Motors and Exporting
CHAPTER 15: GLOBAL PRODUCTION
AND SUPPLY CHAIN MANAGEMENT
New opening case: Procter & Gamble Remakes Its Global
Supply Chains
Revised and new material on global logistics, global purchasing,
and global operations
Revised sections Strategic Roles for Production Facilities,
Make-or-Buy Decisions, and Global Supply Chain Functions
New material in the sections Role of Information Technology,
Coordination in Global Supply Chains, and Interorganizational
Relationships
New Management Focus: IKEA Production in China
New Management Focus: Amazon’s Global Supply Chains
New closing case: Alibaba and Global Supply Chains
CHAPTER 16: GLOBAL MARKETING
AND BUSINESS ANALYTICS
New opening case: Fake News and Alternative Facts
Revised section Globalization of Markets and Brands
New section on Business Analytics; reordered with International
Marketing Research to provide a better flow of the chapter
material
Revised section International Marketing Research
Inclusion of more social media topics throughout
Revised positioning of the Product Development and R&D
section
New Management Focus: Global Branding, Marvel Studios, and
Walt Disney Company
New Management Focus: Burberry’s Social Media Marketing
New closing case: ACSI and Satisfying Global Customers
CHAPTER 17: GLOBAL HUMAN
RESOURCE MANAGEMENT
New opening case: Global Mobility at Shell
New section: Building a Diverse Global Workforce, which looks
at the benefits, challenges, and policies for building a diverse
global workforce in a multinational enterprise
New Closing Case: Sodexo: Building a Diverse Global
Workforce
Beyond Uncritical Presentation
and Shallow Explanation
Many issues in international business are complex and thus
necessitate considerations of pros and cons. To demonstrate this to
students, we have adopted a critical approach that presents the
arguments for and against economic theories, government policies,
business strategies, organizational structures, and so on.
Related to this, we have attempted to explain the complexities of
the many theories and phenomena unique to international business
so the student might fully comprehend the statements of a theory or
the reasons a phenomenon is the way it is. We believe that these
theories and phenomena are explained in more depth in this Page xii
work than they are in the competition, which seem to use
the rationale that a shallow explanation is little better than no
explanation. In international business, a little knowledge is indeed a
dangerous thing.
Practical and Rich Applications
We have always believed that it is important to show students how
the material covered in the text is relevant to the actual practice of
international business. This is explicit in the later chapters of the
book, which focus on the practice of international business, but it is
not always obvious in the first half of the book, which considers
macro topics. Accordingly, at the end of each chapter in Parts Two,
Three, and Four—where the focus is on the environment of
international business, as opposed to particular firms—there is a
section titled Focus on Managerial Implications. In this section, the
managerial implications of the material discussed in the chapter are
clearly explained. Additionally, most chapters have at least one
Management Focus box. The purpose of these boxes is to illustrate
the relevance of chapter material for the practice of international
business.
A Did You Know? feature in each chapter challenges students to
view the world around them through the lens of international
business (e.g., Did you know that sugar prices in the United States
are much higher than sugar prices in the rest of the world?). The
authors recorded short videos explaining the phenomenon.
In addition, each chapter begins with an opening case that sets
the stage for the chapter and ends with a closing case that
illustrates the relevance of chapter material for the practice of
international business.
To help students go a step further in expanding their applicationlevel understanding of international business, each chapter
incorporates two globalEDGETM research tasks designed and
written by Tomas Hult. The exercises dovetail with the content just
covered.
Integrated Progression of Topics
A weakness of many texts is that they lack a tight, integrated flow of
topics from chapter to chapter. This book explains to students in
Chapter 1 how the book’s topics are related to each other.
Integration has been achieved by organizing the material so that
each chapter builds on the material of the previous ones in a logical
fashion.
PART ONE
Chapter 1 provides an overview of the key issues to be addressed
and explains the plan of the book. Globalization of markets and
globalization of production is the core focus.
PART TWO
Chapters 2 through 4 focus on country differences in political
economy and culture, and Chapter 5 on ethics, corporate social
responsibility, and sustainability issues in international business.
Most international business textbooks place this material at a later
point, but we believe it is vital to discuss national differences first.
After all, many of the central issues in international trade and
investment, the global monetary system, international business
strategy and structure, and international business functions arise out
of national differences in political economy and culture.
PART THREE
Chapters 6 through 9 investigate the political economy of global
trade and investment. The purpose of this part is to describe and
explain the trade and investment environment in which international
business occurs.
PART FOUR
Chapters 10 and 11 describe and explain the global monetary
system, laying out in detail the monetary framework in which
international business transactions are conducted.
PART FIVE
In Chapters 12 and 13, attention shifts from the environment to the
firm. In other words, we move from a macro focus to a micro focus at
this stage of the book. We examine strategies that firms adopt to
compete effectively in the international business environment.
PART SIX
In Chapters 14 through 17, the focus narrows further to investigate
business functions and related operations. These chapters explain
how firms can perform their key functions—exporting, importing, and
countertrade; global production; global supply chain management;
global marketing; global research and development (R&D); human
resource management—to compete and succeed in the international
business environment.
Throughout the book, the relationship of new material to topics
discussed in earlier chapters is pointed out to the students to
reinforce their understanding of how the material comprises an
integrated whole. We deliberately bring a management focus to the
macro chapters (Chapters 1 through 11). We also integrate macro
themes in covering the micro chapters (Chapters 12 through 17).
Page xiii
Acknowledgments
Numerous people deserve to be thanked for their assistance in
preparing this book. First, thank you to all the people at McGraw-Hill
Education who have worked with us on this project:
Anke Braun Weekes, Executive Brand Manager
Gabriela G. Velasco, Product Developer
Michael Gedatus, Senior Marketing Manager
Brittany Bernholdt, Marketing Coordinator
Mary Powers, Content Project Manager (Core)
Evan Roberts, Content Project Manager (Assessment)
Jennifer Pickel, Senior Buyer
Srdjan Savanovic, Designer
Lori Hancock, Content Licensing Specialist (Image)
DeAnna Dausener, Content Licensing Specialist (Text)
Second, our thanks go to the reviewers who provided good feedback
that helped shape this book:
Ratee Apana, University of Cincinnati
Michael Ba Banutu-Gomez, Rowan University – Glassboro New
Jersey
Constant Cheng, George Mason University
Jeongho Choi, St. John Fisher College, Rochester, NY
Susan Dragotta, Waukesha County Technical College
Wade Hampton Britt, IV, Drake University
Ralph Haug, Roosevelt University, Schaumburg, IL
Reinhard Janson, University of Texas Arlington
C. Jayachandran, Montclair State University
David Kelson, Ferris State University
Stephanie E. Kontrim-Baumann, Missouri Baptrist University, Saint
Louis
Kim LaFevor, Athens State University-Athens, Alabama
Yunshan Lian, University of Wisconsin-Platteville
Manveer K. Mann, Montclair State University
John P. Marr, Boise State University
Lilac Nachum, Baruch College
J. Timothy Nolan, SUNY Buffalo State
Louis I. Nzegwu, University of Wisconsin-Platteville
Kathy Pennington, San Diego State University
Jim Ryan, Bradley University
Wayne H. Stewart Jr., Clemson University
Vas Taras, University of North Carolina at Greensboro
Siri Terjesen, American U & NHH
William H. Toel, Bradley University – Peoria, Illinois
A special thanks to David Closs and David Frayer for allowing us to
borrow elements of the sections on Strategic Roles for Production
Facilities; Make-or-Buy Decisions; Global Supply Chain Functions;
Coordination in Global Supply Chains; and Interorganizational
Relationships for Chapter 15 of this text from Tomas Hult, David
Closs, and David Frayer (2014), Global Supply Chain Management,
New York: McGraw-Hill.
Page xiv
Page xv
Page xvi
contents
PART ONE
Introduction and Overview
Chapter one Globalization 2
Opening Case: GM and Its Chevrolet Supercar, the Corvette ZR1
3
Introduction 4
What Is Globalization? 6
The Globalization of Markets 6
The Globalization of Production 8
Management Focus: Boeing’s Global Production System 9
The Emergence of Global Institutions 9
Drivers of Globalization 11
Declining Trade and Investment Barriers 11
Role of Technological Change 15
The Changing Demographics of the Global Economy 16
The Changing World Output and World Trade Picture 17
Country Focus: India’s Software Sector 18
The Changing Foreign Direct Investment Picture 18
The Changing Nature of the Multinational Enterprise 20
Management Focus: Wanda Group 21
The Changing World Order 21
Global Economy of the Twenty-First Century 22
The Globalization Debate 23
Antiglobalization Protests 23
Country Focus: Protesting Globalization in France 24
Globalization, Jobs, and Income 24
Globalization, Labor Policies, and the Environment 26
Globalization and National Sovereignty 28
Globalization and the World’s Poor 28
Managing in the Global Marketplace 30
Summary 31
Critical Thinking and Discussion Questions 32
Research Task 33
Closing Case: Globalization of BMW, Rolls-Royce, and the MINI
33
Endnotes 34
PART TWO
National Differences
Chapter Two National Differences in Political, Economic, and
Legal Systems 36
Opening Case: Transformation in Saudi Arabia 37
Introduction 38
Political Systems 39
Collectivism and Individualism 39
Democracy and Totalitarianism 41
Country Focus: Putin’s Russia 42
Economic Systems 44
Market Economy 44
Command Economy 45
Mixed Economy 45
Legal Systems 46
Different Legal Systems 46
Differences in Contract Law 47
Property Rights and Corruption 48
Country Focus: Corruption in Brazil 50
Management Focus: Did Walmart Violate the Foreign Corrupt
Practices Act? 51
The Protection of Intellectual Property 51
Management Focus: Starbucks Wins Key Trademark Case in
China 53
Product Safety and Product Liability 53
Focus on Managerial Implications:The Macro Environment
Influences Market Attractiveness 54
Summary 55
Critical Thinking and Discussion Questions 55
Research Task 55
Closing Case: The Decline of Zimbabwe 56
Endnotes 57
Page xvii
Chapter Three National Differences in Economic Development
58
Opening Case: Brazil’s Struggling Economy 59
Introduction 60
Differences in Economic Development 60
Broader Conceptions of Development: Amartya Sen 64
Political Economy and Economic Progress 65
Innovation and Entrepreneurship are the Engines of Growth
65
Innovation and Entrepreneurship Require a Market Economy
66
Innovation and Entrepreneurship Require Strong Property
Rights 66
Country Focus: Property Rights in China 67
The Required Political System 68
Economic Progress Begets Democracy 68
Geography, Education, and Economic Development 68
States in Transition 69
The Spread of Democracy 69
The New World Order and Global Terrorism 72
The Spread of Market-Based Systems 73
The Nature of Economic Transformation 74
Deregulation 74
Country Focus: India’s Economic Transformation 75
Privatization 76
Legal Systems 76
Implications of Changing Political Economy 77
Focus on Managerial Implications: Benefits, Costs, Risks, and
Overall Attractiveness of Doing Business Internationally 78
Summary 82
Critical Thinking and Discussion Questions 82
Research Task 82
Closing Case: Economic Development in Bangladesh 83
Endnotes 84
Chapter Four Differences in Culture 86
Opening Case: China, Hong Kong, Macau, and Taiwan 87
Introduction 88
What Is Culture? 90
Values and Norms 91
Culture, Society, and the Nation-State 92
Determinants of Culture 93
Social Structure 93
Individuals and Groups 94
Social Stratification 96
Country Focus: Determining Your Social Class by Birth 97
Religious and Ethical Systems 98
Christianity 100
Islam 101
Country Focus: Turkey, Its Religion, and Politics 103
Hinduism 104
Buddhism 105
Confucianism 105
Management Focus: China and Its Guanxi 107
Language 107
Spoken Language 107
Unspoken Language 108
Education 109
Culture and Business 109
Cultural Change 113
Focus on Managerial Implications:Cultural Literacy and
Competitive Advantage 114
Summary 116
Critical Thinking and Discussion Questions 117
Research Task 117
Closing Case: The Swatch Group and Cultural Uniqueness 118
Endnotes 119
Chapter Five Ethics, Corporate Social Responsibility, and
Sustainability 122
Opening Case: Sustainability Initiatives at Natura, the
Bodyshop, and Aesop 123
Introduction 124
Ethics and International Business 126
Employment Practices 126
Management Focus: “Emissionsgate” at Volkswagen 127
Human Rights 127
Environmental Pollution 129
Corruption 130
Ethical Dilemmas 131
Roots of Unethical Behavior 132
Personal Ethics 133
Decision-Making Processes 133
Organizational Culture 133
Unrealistic Performance Goals 134
Leadership 134
Societal Culture 134
Page xviii
Philosophical Approaches to Ethics 134
Straw Men 135
Utilitarian and Kantian Ethics 137
Rights Theories 138
Justice Theories 139
Focus on Managerial Implications: Making Ethical Decisions
Internationally 140
Management Focus: Corporate Social Responsibility at
Stora Enso 144
Summary 146
Critical Thinking and Discussion Questions 146
Research Task 147
Closing Case: Woolworths’ Corporate Responsibility Strategy
147
Endnotes 148
PART THREE
The Global Trade and Investment Environment
Chapter Six International Trade Theory 150
Opening Case: “Trade Wars are Good and Easy to Win” 151
Introduction 152
An Overview of Trade Theory 153
The Benefits of Trade 153
The Pattern of International Trade 154
Trade Theory and Government Policy 155
Mercantilism 155
Country Focus: Is China Manipulating Its Currency in Pursuit of
a Neo-Mercantilist Policy? 156
Absolute Advantage 157
Comparative Advantage 159
The Gains from Trade 159
Qualifications and Assumptions 160
Extensions of the Ricardian Model 161
Country Focus: Moving U.S. White-Collar Jobs Offshore 164
Heckscher–Ohlin Theory 165
The Leontief Paradox 166
The Product Life-Cycle Theory 167
Product Life-Cycle Theory in the Twenty-First Century 168
New Trade Theory 168
Increasing Product Variety and Reducing Costs 169
Economies of Scale, First-Mover Advantages, and the Pattern
of Trade 169
Implications of New Trade Theory 170
National Competitive Advantage: Porter’s Diamond 171
Factor Endowments 172
Demand Conditions 172
Related and Supporting Industries 173
Firm Strategy, Structure, and Rivalry 173
Evaluating Porter’s Theory 174
Focus on Managerial Implications: Location, First-Mover
Advantages, and Government Policy 174
Summary 176
Critical Thinking and Discussion Questions 177
Research Task 177
Closing Case: The Trans Pacific Partnership (TPP) Is Dead;
Long Live the CPTPP! 177
Appendix: International Trade and the Balance of Payments
179
Endnotes 182
Chapter Seven Government Policy and International Trade 184
Opening Case: U.S. and South Korea Strike a Revised Trade
Deal 185
Introduction 186
Instruments of Trade Policy 187
Tariffs 187
Subsidies 188
Country Focus: Are the Chinese Illegally Subsidizing Auto
Exports? 188
Import Quotas and Voluntary Export Restraints 189
Export Tariffs and Bans 190
Local Content Requirements 190
Administrative Policies 191
Antidumping Policies 191
Management Focus: Protecting U.S. Magnesium 192
The Case for Government Intervention 192
Political Arguments for Intervention 192
Economic Arguments for Intervention 195
The Revised Case for Free Trade 197
Retaliation and Trade War 197
Domestic Policies 197
Development of the World Trading System 198
From Smith to the Great Depression 198
1947–1979: GATT, Trade Liberalization, and Economic Growth
199
1980–1993: Protectionist Trends 199
The Uruguay Round and the World Trade Organization 199
WTO: Experience to Date 200
The Future of the WTO: Unresolved Issues and the Doha
Round 201
Page xix
Country Focus: Estimating the Gains from Trade for America
204
Multilateral and Bilateral Trade Agreements 205
The World Trading System under Threat 205
Focus on Managerial Implications: Trade Barriers, Firm
Strategy, and Policy implications 206
Summary 208
Critical Thinking and Discussion Questions 209
Research Task 209
Closing Case: Boeing and Airbus are in a Dogfight over Illegal
Subsidies 209
Endnotes 210
Chapter Eight Foreign Direct Investment 212
Opening Case: Geely Goes Global 213
Introduction 214
Foreign Direct Investment in the World Economy 214
Trends in FDI 214
The Direction of FDI 215
The Source of FDI 216
Country Focus: Foreign Direct Investment in China 216
The Form of FDI: Acquisitions versus Greenfield Investments
217
Theories of Foreign Direct Investment 218
Why Foreign Direct Investment? 218
Management Focus: Burberry Shifts Its Entry Strategy in Japan
219
The Pattern of Foreign Direct Investment 221
The Eclectic Paradigm 222
Political Ideology and Foreign Direct Investment 223
The Radical View 223
The Free Market View 224
Pragmatic Nationalism 224
Shifting Ideology 225
Benefits and Costs of FDI 225
Host-Country Benefits 225
Host-Country Costs 228
Home-Country Benefits 229
Home-Country Costs 229
International Trade Theory and FDI 230
Government Policy Instruments and FDI 230
Home-Country Policies 230
Host-Country Policies 231
International Institutions and the Liberalization of FDI 232
Focus on Managerial Implications: FDI and Government Policy
232
Summary 235
Critical Thinking and Discussion Questions 235
Research Task 236
Closing Case: FDI in the Indian Retail Sector 236
Endnotes 237
Chapter Nine Regional Economic Integration 240
Opening Case: NAFTA 2.0: The USMCA 241
Introduction 242
Levels of Economic Integration 243
The Case for Regional Integration 245
The Economic Case for Integration 245
The Political Case for Integration 245
Impediments to Integration 246
The Case against Regional Integration 246
Regional Economic Integration in Europe 247
Evolution of the European Union 247
Political Structure of the European Union 248
Management Focus: The European Commission and Intel 249
The Single European Act 250
The Establishment of the Euro 251
Enlargement of the European Union 254
Country Focus: The Greek Sovereign Debt Crisis 255
British Exit from the European Union (Brexit) 256
Regional Economic Integration in the Americas 257
The North American Free Trade Agreement 257
The Andean Community 260
Mercosur 260
Central American Common Market, CAFTA, and CARICOM
261
Regional Economic Integration Elsewhere 262
Association of Southeast Asian Nations 262
Regional Trade Blocs in Africa 262
Other Trade Agreements 264
Focus on Managerial Implications: Regional Economic
Integration Threats 264
Summary 266
Critical Thinking and Discussion Questions 267
Research Task 267
Closing Case: Free Trade in Africa: TFTA and CFTA 267
Endnotes 268
PART FOUR
Page xx
The Global Monetary System
Chapter Ten The Foreign Exchange Market 270
Opening Case: The Fluctuating Value of the Yuan gives Chinese
Business a Lesson in Foreign Exchange Risk 271
Introduction 272
The Functions of the Foreign Exchange Market 273
Currency Conversion 273
Insuring against Foreign Exchange Risk 275
Management Focus: Embraer and the Gyrations of the Brazilian
Real 276
The Nature of the Foreign Exchange Market 277
Economic Theories of Exchange Rate Determination 278
Prices and Exchange Rates 278
Country Focus: Quantitative Easing, Inflation, and the Value of
the U.S. Dollar 282
Interest Rates and Exchange Rates 283
Investor Psychology and Bandwagon Effects 284
Summary of Exchange Rate Theories 284
Exchange Rate Forecasting 285
The Efficient Market School 285
The Inefficient Market School 285
Approaches to Forecasting 285
Currency Convertibility 286
Focus on Managerial Implications: Foreign Exchange Rate Risk
287
Reducing Translation and Transaction Exposure 288
Reducing Economic Exposure 289
Other Steps for Managing Foreign Exchange Risk 289
Summary 290
Critical Thinking and Discussion Questions 291
Research Task 291
Closing Case: The Mexican Peso, the Japanese Yen, and
Pokemon Go 292
Endnotes 292
Chapter Eleven The International Monetary System 294
Opening Case: Can Dollarization Save Venezuela? 295
Introduction 296
The Gold Standard 297
Mechanics of the Gold Standard 298
Strength of the Gold Standard 298
The Period between the Wars: 1918–1939 298
The Bretton Woods System 299
The Role of the IMF 299
The Role of the World Bank 300
The Collapse of the Fixed Exchange Rate System 301
The Floating Exchange Rate Regime 302
The Jamaica Agreement 302
Exchange Rates Since 1973 302
Fixed versus Floating Exchange Rates 305
The Case for Floating Exchange Rates 305
The Case for Fixed Exchange Rates 306
Who Is Right? 307
Exchange Rate Regimes in Practice 307
Pegged Exchange Rates 307
Country Focus: China’s Exchange Rate Regime 308
Currency Boards 309
Crisis Management by the IMF 309
Financial Crises in the Post–Bretton Woods Era 310
Country Focus: The IMF and Iceland’s Economic Recovery 310
Evaluating the IMF’s Policy Prescriptions 312
Focus on Managerial Implications: Currency Management,
Business Strategy, and Government Relations 314
Management Focus: Airbus and the Euro 315
Summary 316
Critical Thinking and Discussion Questions 317
Research Task 318
Closing Case: Egypt and the IMF 318
Endnotes 319
PART FIVE
The Strategy of International Business
Chapter Twelve The Strategy of International Business 320
Opening Case: Red Bull, A Leader in International Strategy 321
Introduction 322
Strategy and the Firm 323
Value Creation 324
Strategic Positioning 325
Management Focus: AB InBev, Beer Globally, and Creating
Value 326
Operations: The Firm as a Value Chain 327
Global Expansion, Profitability, and Profit Growth 331
Expanding the Market: Leveraging Products and
Competencies 331
Page xxi
Location Economies 332
Experience Effects 334
Leveraging Subsidiary Skills 336
Profitability and Profit Growth Summary 336
Cost Pressures and Pressures for Local Responsiveness 337
Pressures for Cost Reductions 337
Pressures for Local Responsiveness 338
Management Focus: IKEA’s Global Strategy 339
Choosing a Strategy 341
Global Standardization Strategy 342
Management Focus: Unilever’s Global Organization 343
Localization Strategy 343
Transnational Strategy 344
International Strategy 345
The Evolution of Strategy 345
Management Focus: Evolution of Strategy at Procter & Gamble
346
Strategic Alliances 347
The Advantages of Strategic Alliances 347
The Disadvantages of Strategic Alliances 348
Making Alliances Work 348
Summary 351
Critical Thinking and Discussion Questions 352
Research Task 352
Closing Case: Sony Corporation: An International Innovator?
352
Endnotes 353
Chapter Thirteen Entering Developed and Emerging Markets
356
Opening Case: IKEA Entering India, Finally! 357
Introduction 358
Basic Entry Decisions 359
Which Foreign Markets? 359
Timing of Entry 360
Management Focus: Tesco’s International Growth Strategy 361
Scale of Entry and Strategic Commitments 362
Market Entry Summary 363
Management Focus: The Jollibee Phenomenon 364
Entry Modes 364
Exporting 364
Turnkey Projects 365
Licensing 366
Franchising 367
Joint Ventures 368
Wholly Owned Subsidiaries 369
Selecting an Entry Mode 370
Core Competencies and Entry Mode 370
Pressures for Cost Reductions and Entry Mode 372
Management Focus: General Motors on the Upswing 372
Greenfield Venture or Acquisition? 373
Pros and Cons of Acquisitions 373
Pros and Cons of Greenfield Ventures 375
Which Choice? 375
Summary 376
Critical Thinking and Discussion Questions 377
Research Task 377
Closing Case: Cutco Corporation—Sharpening Your Market
Entry 378
Endnotes 379
PART SIX
International Business Functions
Chapter Fourteen Exporting, Importing, and Countertrade 382
Opening Case: Spotify and SoundCloud 383
Introduction 384
The Promise and Pitfalls of Exporting 386
Management Focus: Embraer and Brazilian Importing 388
Improving Export Performance 388
International Comparisons 388
Information Sources 389
Management Focus: Exporting Desserts by a Hispanic
Entrepreneur 390
Service Providers 391
Export Strategy 391
Management Focus: Two Men and a Truck 392
The globalEDGE™ Exporting Tool 393
Export and Import Financing 394
Lack of Trust 394
Letter of Credit 396
Draft 396
Bill of Lading 397
A Typical International Trade Transaction 397
Export Assistance 398
Export-Import Bank 398
Export Credit Insurance 399
Countertrade 400
The Popularity of Countertrade 400
Types of Countertrade 401
Pros and Cons of Countertrade 402
Summary 403
Critical Thinking and Discussion Questions 403
Research Task 404
Closing Case: Tata Motors and Exporting 404
Endnotes 405
Page xxii
Chapter Fifteen Global Production and Supply Chain
Management 408
Opening Case: Procter & Gamble Remakes Its Global Supply
Chains 409
Introduction 410
Strategy, Production, and Supply Chain Management 411
Where to Produce 414
Country Factors 414
Management Focus: IKEA Production in China 414
Technological Factors 415
Production Factors 418
The Hidden Costs of Foreign Locations 420
Management Focus: Amazon’s Global Supply Chains 421
Make-or-Buy Decisions 422
Global Supply Chain Functions 425
Global Logistics 425
Global Purchasing 427
Managing a Global Supply Chain 427
Role of Just-in-Time Inventory 428
Role of Information Technology 429
Coordination in Global Supply Chains 429
Interorganizational Relationships 430
Summary 432
Critical Thinking and Discussion Questions 433
Research Task 433
Closing Case: Alibaba and Global Supply Chains 434
Endnotes 435
Chapter Sixteen Global Marketing and Business Analytics 438
Opening Case: Fake News and Alternative Facts 439
Introduction 440
Globalization of Markets and Brands 442
Market Segmentation 443
Management Focus: Global Branding, Marvel Studios, and Walt
Disney Company 444
Business Analytics 445
International Marketing Research 446
Product Attributes 449
Cultural Differences 449
Economic Development 450
Product and Technical Standards 450
Distribution Strategy 450
Differences Between Countries 451
Choosing a Distribution Strategy 453
Communication Strategy 453
Management Focus: Burberry’s Social Media Marketing 454
Barriers to International Communication 455
Push versus Pull Strategies 456
Global Advertising 457
Pricing Strategy 458
Price Discrimination 458
Strategic Pricing 459
Regulatory Influences on Prices 460
Configuring the Marketing Mix 461
Product Development and R&D 463
The Location of R&D 463
Integrating R&D, Marketing, and Production 464
Cross-Functional Teams 465
Building Global R&D Capabilities 466
Summary 467
Critical Thinking and Discussion Questions 468
Research Task 469
Closing Case: ACSI and Satisfying Global Customers 469
Endnotes 470
Chapter Seventeen Global Human Resource Management 474
Opening Case: Global Mobility at Shell 475
Introduction 476
Strategic Role of Global HRM: Managing a Global Workforce
477
Staffing Policy 478
Types of Staffing Policies 479
Expatriate Managers 482
Global Mindset 485
Training and Management Development 486
Training for Expatriate Managers 486
Repatriation of Expatriates 487
Management Focus: Monsanto’s Repatriation Program 488
Management Development and Strategy 488
Performance Appraisal 489
Performance Appraisal Problems 489
Guidelines for Performance Appraisal 489
Compensation 490
National Differences in Compensation 490
Expatriate Pay 490
Management Focus: McDonald’s Global Compensation
Practices 491
Building a Diverse Global Workforce 493
Page xxiii
International Labor Relations 494
The Concerns of Organized Labor 494
The Strategy of Organized Labor 495
Approaches to Labor Relations 495
Summary 496
Critical Thinking and Discussion Questions 497
Research Task 497
Closing Case: Sodexo: Building a Diverse Global Workforce 498
Endnotes 499
GLOSSARY 503
NAME INDEX 511
SUBJECT INDEX 513
ACRONYMS 531
COUNTRIES AND THEIR CAPITALS 532
Part 1 Introduction and Overview
Page 2
1
Globalization
Learning Objectives
After reading this chapter, you will be able to:
LO1-1 Understand what is meant by the term globalization.
LO1-2 Recognize the main drivers of globalization.
LO1-3 Describe the changing nature of the global economy.
LO1-4 Explain the main arguments in the debate over the impact of globalization.
LO1-5 Understand how the process of globalization is creating opportunities and
challenges for management practice.
Page 3
GM and Its Chevrolet Supercar, the Corvette ZR1
opening case
The General Motors Company (gm.com), commonly abbreviated as GM (which is also
the company’s symbol on the New York Stock Exchange), is an American
multinational corporation headquartered in Detroit, Michigan, that designs,
manufactures, markets, and distributes vehicles and vehicle parts. GM was founded in
Flint, Michigan, on September 16, 1908. In addition, to support its auto operations,
GM Financial is a wholly owned captive finance subsidiary of General Motors, albeit
headquartered in Fort Worth, Texas (and not at the main headquarters location in
Detroit).
Interestingly, GM is a large conglomerate with a one-industry focus on automobiles
that operates as a holding company for various vehicle brands. Consequently, there
are no General Motors, or GM, branded cars. But the company has been around for
more than 100 years making vehicles. Today, there are eight distinctive automotive
brands under the General Motors umbrella: Chevrolet, Buick, GMC, Cadillac, Holden,
Baojun, Wuling, and Jiefang. At one point the company owned more than 20
automobile brands (e.g., Hummer, McLaughlin, Oakland, Oldsmobile, Opel, Pontiac,
Saab, Saturn, and Vauxhall).
Within its current brand umbrella, GM is served by about 180,000 employees who
speak some 70 different languages, and operate on five continents across 23 time
zones. GM delivers about 9 million vehicles via 12,450 dealers in 125 countries
annually. China has become critical to GM’s operations as one of the company’s top
markets in recent years, now accounting for about 5 million of the 9 million vehicles
sold globally on an annual basis. To support this heavy Chinese focus, GM is building
an additional five new manufacturing plants in the country (adding to its already strong
Chinese presence of 10 joint ventures and two wholly owned enterprises and more
than 58,000 employees).
Within GM, the Chevrolet brand, or vehicle line, occupies a distinctive position for
its range of car makes. Amazingly, a Chevrolet is sold somewhere in the world every
8.33 seconds! Louis Chevrolet and then ousted GM founder William C. Durant started
Chevrolet in 1911 as the Chevrolet Motor Car Company, and it became part of the
General Motors Company in 1918. As of today, Chevrolet-branded vehicles are sold in
all markets worldwide. Until 2017, Oceania had been an exception since GM had
been represented in that part of the world since the 1980s by its Australian subsidiary,
Holden. However, GM has also decided to focus its India manufacturing on producing
vehicles for export only and will transition its South Africa manufacturing to Isuzu
Motors. Consequently, GM’s Chevrolet brand was phased out of both country markets
by the end of 2017.
What is not phased out is the Corvette! Chevrolet’s sports car, Corvette, has been
around since it was introduced at the GM Motorama at the New York Auto Show in
1953. Myron Scott is credited for naming the sports car after a relatively small,
maneuverable warship called a corvette. As any automobile brand, the Page 4
“Vette” or “Chevy Corvette,” has several different brand designations, and
the car models are priced from a low of about $60,000 to a high of $160,000.
Uniquely, the Corvette ZR1 was again introduced in 2019 (produced from mid-year
2018). This particular Corvette designation, ZR1, had been in production from 1969–
1971, 1990–1995, and 2009–2013 before it again made a comeback in 2019.
“ZR1 has returned to the throne to push the Corvette legacy to its highest point
ever. It’s a supercar that’s at once luxurious and overwhelmingly capable, delivering
the icon’s fastest, most powerful, most advanced performance in a production
Corvette to date. Drivers, hail the new King.” In much of the world, the Chevrolet
Corvette is an instantly recognizable sports car. The pinnacle of its lineup is the ZR1,
an extraordinary engine and performance pack that dates back to the 1969 model. But
for the 2019 model and on, only 2,000 to 3,000 ZR1s are expected to be produced
each year. The car has 755 horsepower, does zero to 60 miles per hour (about 97
kmh) in under 2.85 seconds, and has a top speed of 212 mph (about 341 kmh).
The 2019 ZR1’s aerodynamics benefited in design from Corvette’s racing teams
that compete in races around the world (e.g., the annual 24 Hours of Le Mans
endurance race in France). The new version has more carbon fiber parts than any
Corvette before it. This includes an optional high wing rising from the rear deck that
generates such a powerful downforce that it had to be mounted on the Vette’s frame
since the trunk would buckle under the pressure. The wing is needed to help keep the
car planted solidly on the road at speeds where it might otherwise leave the ground.
Given its periodic dormant production within the Chevrolet Corvette product family,
the Corvette ZR1 is a global phenomenon. It is the top of the line Corvette, produced
in small numbers, and produced only periodically (and not every year as most other
cars). The Corvette is a globally recognizable brand that inspires true passion,
engagement, and commitment from its owners.
The global branding and a testament to its staying power are nicely exemplified by
the first 2019 Corvette ZR1 having been sold for $925,000 at a Barrett-Jackson
auction in Scottsdale, Arizona. It was sold to Rick Hendrick, Chairman of Hendrick
Automotive Group and owner of the Hendrick Motorsports NASCAR team. The price
was a hefty markup paid to be first to get the new 2019 version of ZR1, since the
Corvette ZR1 starts at about $120,000. However, the full sales price benefited the
Stephen Siller Tunnel to Towers Foundation—a charitable foundation—and so the
high sticker price went to a good cause. •
Sources:
“Corvette
ZR-1:
Consider
the
Pace
Set,”
Chevrolet,
www.chevrolet.com/performance/corvette-zr1-supercar (accessed April 16, 2018); Hannah
Elliott, “GM Takes On Ferrari and Lamborghini with the 2019 Corvette ZR1,” Bloomberg
BusinessWeek, November 29, 2017; Bradley Brownell, “The First Corvette ZR1 Just Sold For
$925,000,” Jalopnik, January 21, 2018; Mark Phelan, “First Look: 2019 Chevy Corvette ZR1
Convertible Is Faster and More Powerful than Ever,” Detroit Free Press, November 29, 2017;
David Hollister, Ray Tadgerson, David Closs, and Tomas Hult, “Second Shift: The Inside Story
of the Keep GM Movement,” McGraw-Hill Professional, 2016; and Chris Davies, “2019 Corvette
ZR1: 5 Fast Facts About Chevy’s New Supercar,” Slash Gear, November 13, 2017.
Introduction
Over the past five decades, a fundamental shift has been occurring in the
world economy. We have been moving away from a world in which
national economies were relatively self-contained entities, isolated from
each other by barriers to cross-border trade and investment; by distance,
time zones, and language; and by national differences in government
regulation, culture, and business systems. As we will see later on in this
chapter and throughout the text, international trade across country
borders has become the norm, with an almost exponential increase in
trade during the last decade.
We are moving toward a world in which barriers to cross-border trade
and investment are declining; perceived distance is shrinking due to
advances in transportation and telecommunications technology; material
culture is starting to look similar the world over; and national economies
are merging into an interdependent, integrated global economic system.
The process by which this transformation is occurring is commonly
referred to as globalization. At the same time, recent political
Page 5
world events (e.g., increase of terrorism in many parts of the
world, the United Kingdom leaving the European Union, and elections
globally of nationalistic politicians) create tension and uncertainty
regarding the future of global trade activities. These political swings
usually temper, or even out, over time in democratic societies, and longterm indications generally are for stability in the marketplace. We are
unlikely to backtrack on globalization and global companies’ willingness to
satisfy the needs and wants of global customers.
For example, as described in the opening case, General Motors and its
Chevrolet brand are an illustration of the trend toward the unique
opportunities that globalization can present to a company. It is pretty
amazing to think that a Chevrolet is sold somewhere in the world every
8.33 seconds! However, it is clear that within GM’s global product portfolio
(Chevrolet, Buick, GMC, Cadillac, Holden, Baojun, Wuling, and Jiefang),
the Chevrolet brand occupies a distinctive position. People in the U.S.
know Chevrolet along with GM’s other core brands (Buick, GMC, and
Cadillac) well but have not been exposed so much to Holden, Baojun,
Wuling, and Jiefang. GM uses Holden to focus on Oceania and also
manufactures and sells numerous Baojun, Wuling, and Jiefang vehicles in
the important Chinese market. As we’ve mentioned, five million of GM’s
nine million annual vehicle sales are in the Chinese market.
Proponents of increased global trade argue that cross-cultural
engagement and trade across country borders is the future and that
returning back to a nationalistic perspective is the past. On the other
hand, the nationalistic argument rests in citizens wanting their country to
be sovereign, self-sufficient as much as possible, and basically in charge
of their own economy and country environment. As with any debate, both
sides of the argument have merit. We will explore many aspects of today’s
global marketplace in this text’s 17 integrated and topical chapters.
Globalization now has an impact on almost everything we do. For
example, an American medical doctor—let’s call her Laurie—might drive
to work at her pediatric office in a sports utility vehicle (SUV) that was
designed in Stuttgart, Germany, and assembled in Leipzig, Germany,
and Bratislava, Slovakia, by Porsche from components from parts
suppliers worldwide, which in turn were fabricated from Korean steel and
Malaysian rubber. Laurie may have filled her car with gasoline at a Shell
service station owned by a British-Dutch multinational company. The
gasoline could have been made from oil pumped out of a well off the
coast of Africa by a French oil company that transported it to the United
States in a ship owned by a Greek shipping line. While driving to work,
Laurie might talk to her stockbroker (using a hands-free, in-car speaker)
on an Apple iPhone that was designed in California and assembled in
China using chip sets produced in Japan and Europe, glass made by
Corning in Kentucky, and memory chips from South Korea. Perhaps on
her way Laurie might tell the stockbroker to purchase shares in Lenovo, a
multinational Chinese PC manufacturer whose operational headquarters
is in North Carolina and whose shares are listed on the New York Stock
Exchange.
This is the world in which we live. In many cases we simply do not
know or perhaps even care where a product was designed and where it
was made. Just a couple of decades ago, “Made in the USA” or “Made in
Germany” (or “Made in the United Kingdom” for Charles W. L. Hill, the first
author of this textbook, or “Made in Sweden” for G. Tomas M. Hult, the
second author of this textbook) had strong meaning and referred to
something. The U.S. often stood for quality and Germany often stood for
sophisticated engineering. Now the country of origin for a product has
given way to, for example, “Made by BMW,” and the company is the
quality assurance platform, not the country. In many cases, it goes even
beyond the company to the personal relationship a customer has
developed with a representative of the company, and so we focus on what
has become known as CRM (Customer Relationship Management).
Whether it is still the quality associated with the country of origin of a
product, or the assurance given by a specific company regardless of
where they manufacture their product, we live in a world where the
volume of goods, services, and investments crossing national borders has
expanded faster than world output for more than half a century. It is a
world in which international institutions such as the World Trade
Organization and gatherings of leaders from the world’s most powerful
economies continue to work for even lower barriers to cross-border trade
and investment. The symbols of material culture and popular culture are
increasingly global, from Coca-Cola and Starbucks, to Sony PlayStation,
Facebook, Netflix video streaming service, IKEA stores, and Apple iPads
and iPhones. Vigorous and vocal groups protest against globalization,
which they blame for a list of ills from unemployment in developed nations
to environmental degradation and the Westernization or
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Americanization of local cultures. These protesters come from
environmental groups, which have been around for some time, but more
recently also from nationalistic groups focused on their countries being
more sovereign.
Will the United States Produce Just Services?
The United States has the largest and most technologically powerful economy in the
world, with a per capita GDP (gross domestic product) of $57,466. The country’s
overall GDP is valued at $18.57 trillion. Most of the labor force (80 percent) is
employed in the services sector, with 19 percent employed in manufacturing
industries, and only 1 percent in the agricultural area. China, India, and the European
Union have labor forces larger than that of the United States. Data show that the
United States has become much more of a service economy over the years. Will the
United States continue to increase its service sector at the cost of manufacturing and
agriculture?
Source: U.S. Central Intelligence Agency, World Factbook, 2019. www.cia.gov.
For businesses, the globalization process has many opportunities.
Firms can expand their revenues by selling around the world and/or
reduce their costs by producing in nations where key inputs, including
labor, are cheap. The global expansion of enterprises has been facilitated
by generally favorable political and economic trends. This has allowed
businesses both large and small, from both advanced nations and
developing nations, to expand internationally. As globalization unfolds, it is
transforming industries and creating anxiety among those who believed
their jobs were protected from foreign competition. Advances in
technology, lower transportation costs, and the rise of skilled workers in
developing countries imply that many services no longer need to be
performed where they are delivered. As best-selling author Thomas
Friedman has argued, the world is becoming “flat.”1 People living in
developed nations no longer have the playing field tilted in their favor.
Increasingly, enterprising individuals based in India, China, or Brazil have
the same opportunities to better themselves as those living in Western
Europe, the United States, or Canada.
In this text, we will take a close look at these issues and many more.
We will explore how changes in regulations governing international trade
and investment, when coupled with changes in political systems and
technology, have dramatically altered the competitive playing field
confronting many businesses. We will discuss the resulting opportunities
and threats and review the strategies that managers can pursue to exploit
the opportunities and counter the threats. We will consider whether
globalization benefits or harms national economies. We will look at what
economic theory has to say about the outsourcing of manufacturing and
service jobs to places such as India and China and look at the benefits
and costs of outsourcing, not just to business firms and their employees
but to entire economies. First, though, we need to get a better overview of
the nature and process of globalization, and that is the function of this first
chapter.
What Is Globalization?
LO 1-1 Understand what is meant by the term globalization.
As used in this text, glo...
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