Ottawa University Ethical Dilemmas Discussion

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SUBJECT: Managing in a Global Environment

Read the attached case study "World-ClassBull" and present any ethical dilemmas you have with the situation and answer the following questions 

  • If you were Chris Knox would you have handled the sale the same way? Explain. 
  • If you were the human resources vice president Samantha Williams what action, if any, would you take? Explain. 
  • If you were Mr. and Mrs. Landry and you discovered Chris Knos’ approach how would you feel? Explain.

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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 1116 May09 Humphreys layout.indd 35 | May 2009 | Harvard Business Review 35 4/3/09 10:41:25 AM 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?” ADVERTISEMENT article continued. The Benefits of Beefing Up Servers 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 4/2/09 2:17:51 PM 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 ROI. ASAP. Use virtualization and you can lower your hardware costs right now, while improving your efficiency and responsiveness. Ask how people_ready optimization solutions help you do more with less. “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 1116 May09 Humphreys layout.indd 37 4/2/09 2:18:04 PM 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 38 Harvard Business Review 1116 May09 Humphreys layout.indd 38 | May 2009 | 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. hbr.org 1116 May09 Humphreys layout.indd 39 “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. | May 2009 | Harvard Business Review 39 4/3/09 10:41:41 AM 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 40 Harvard Business Review 1116 May09 Humphreys layout.indd 40 | May 2009 | 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. hbr.org 1116 May09 Humphreys layout.indd 41 | 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 | Harvard Business Review 41 4/3/09 10:41:54 AM 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). 42 Harvard Business Review 1116 May09 Humphreys layout.indd 42 | 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 | 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 10121. Copyright © 2020 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2018, 2016, and 2014. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 LWI 22 21 20 19 ISBN 978-1-260-08837-3 (bound edition) MHID 1-260-08837-5 (bound edition) ISBN 978-1-260-78061-1 (loose-leaf edition) MHID 1-260-78061-9 (loose-leaf edition) Director, Business, Economics, and Computing: Anke Weekes Portfolio Manager: Peter Jurmu Lead Product Developer: Kelly Delso Product Developer: Haley Burmeister Senior Marketing Manager: Nicole Young Content Project Managers: Harvey Yep (Core), Keri Johnson (Assessment) Buyer: Laura M. Fuller Design: Egzon Shaqiri Content Licensing Specialists: Traci Vaske (Image and Text) Cover Image: © VIPRESIONA/Shutterstock Compositor: Aptara®, Inc. Printer: LSC Communications All credits appearing on page are considered to be an extension of the copyright page. 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 endorsement by the authors or McGraw-Hill Education, and 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 Page 6 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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Running Head: DISCUSSION

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Discussion
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DISCUSSION

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It is a dream for every salesperson to achieve outstanding business success, most opting
to carry out activities that do not conform to the set ethical standards. If I were Chris Knox, I
would not have undertaken the business proceedings in the same way. Deceiving a client to gain
sales advantage is entirely unethical and would not be associated with some of my values.
Understanding where to draw the line between ethical and unethical business schemes is a
critical consideration for a sales agent. Associating with similar activities like Chris' would be a
breach of the ethical guidelines used in business. Using deceptive methods to gain business and
sales advantages will be adding more danger to a sales agent's career. In a similar position as
Chris Knox, I would not...


Anonymous
Excellent resource! Really helped me get the gist of things.

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