Danone’s Wrangle with Wahaha This week’s discussion will focus on cultural negotiation using the case study about Danone in China (p. 255 in the textbook). This case is a cautionary tale of how important cultural differences are when forming strategic partnerships or joint ventures with companies from different countries. Our content this week reflects on the impact of conflict on decision-making. As a decision-maker within your organization, it is important for you to deal with conflict in a skilled manner. Doing so can create positive outcomes and provide opportunities for improvement rather than undesirable results. After reading the case, reflect and write your paper on the following: 1. What was the problem in the joint venture that triggered the conflict between the two companies? 2. What were the differences of each company’s understanding of their own respective roles and responsibilities in this venture? 3. Did any aspect of organizational culture or national culture affect this perspective? 4. As a leader, what are some ways you can handle conflict when it arises? Embed course material concepts, principles, and theories, which require supporting citations along with two scholarly peer-reviewed references supporting your answer Be sure to support your statements with logic and argument, citing all sources referenced. © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 7 Cross-Cultural Communication and Negotiation © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Learning Objectives • Define the term communication, examine some examples of verbal communication styles, and explain the importance of message interpretation • Analyze the common downward and upward communication flows used in international communication © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Learning Objectives (continued 1) • Examine the language, perception, culture of communication and nonverbal barriers to effective international communications • Present the steps that can be taken to overcome international communication problems © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Learning Objectives (continued 2) • Develop approaches to international negotiations that respond to differences in culture • Review different negotiating and bargaining behaviors that may improve negotiations and outcomes © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. World of International Management Netflix's Negotiations • Faces setbacks due to negotiation and communication difficulties in: – China - Setbacks due to a long negotiation process – Russia - Setbacks because of Netflix’s lack of communication and negotiation prior to entry © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Communication • Process of transferring meanings from sender to receiver • Advent of the telephone, Internet, and personal communication devices has influenced the way people communicate • Types - Verbal or nonverbal © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Verbal Communication Styles - Context • Information that surrounds a communication and helps convey the message – Plays a key role in explaining many communication differences • High-context societies – Messages are often highly coded and implicit • Low-context societies – Messages are often explicit and speaker says precisely what s/he means © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Table 7.1 - Major Characteristics of Verbal Styles © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Indirect and Direct Styles • High-context cultures - Messages are implicit and indirect – Voice intonation, timing, facial expressions play important roles in conveying information • Low-context cultures - People often meet only to accomplish objectives – Direct and focused in their communications © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Degrees of Communication Quantity • Elaborate style - Most popular in high-context cultures that have a moderate degree of uncertainty avoidance – Widely used in Arabic countries – Involves talking, detailed descriptions, and repetition • Exacting style - Focuses on precision and use of the right amount of words to convey message © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Degrees of Communication Quantity (continued) – More common in low-context, low-uncertaintyavoidance cultures • Used in England, Germany, and Sweden, etc. • Succinct style – More common in high-context cultures with considerable uncertainty avoidance – People say few words and allow understatements, pauses, and silence to convey meaning – Most common in Asia © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Contextual Styles • Focus on the speaker and the relationship of parties – Associated with high-power-distance, collective, and high-context cultures – Speakers choose words that indicate their status relative to the status of the others © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Personal Styles • Focus on the speaker and the reduction of barriers between the parties – More popular in low-power-distance, individualistic, and low-context cultures – Speaker uses first names while addressing others © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Affective Styles • Characterized by language that requires the listener to carefully note what is said and to observe how the message is presented – Meaning is conveyed nonverbally and requires the receiver to use intuitive skills to decipher the message – Common in collective, high-context cultures • Middle East, Latin America, and Asia © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Instrumental Styles • Goal-oriented • Focuses on the sender who clearly lets the other party know what s/he wants the other party to know – Found in individualistic, low-context cultures • Switzerland, Denmark, and the United States © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Table 7.2 - Verbal Styles Used in 10 Select Countries Source: Anne Marie Francesco and Barry Allen Gold, International Organizational Behavior: Text, Readings, Cases, and Skills, 1st ed. (Upper Saddle River, NJ: Prentice Hall, 1998). © 1998. Reproduced by permission of Barry Allen Gold. © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Interpretation of Communications • Effectiveness of communication is determined by how closely the sender and receiver have the same meaning for the same message – If the meaning is different, effective communication will not take place © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Downward Communication • Transmission of information from manager to subordinate • Purpose - Convey orders or information – Managers use this channel for instructions and performance feedback – Channel facilitates the flow of information to those who need it for operational purposes – Sending mixed signals is never helpful in communication © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Downward Communication (continued) • Challenges posed by downward communication in an international context – Communication is direct and extends beyond business matters in European countries – Communication is less direct in Asian countries © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Upward Communication • Transfer of information from subordinate to superior • Purpose - Provide feedback, ask questions, or obtain assistance from higher-level management – Upward communication is not popular outside Asian countries © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Communication Barriers - Language • Knowledge of the language used at the headquarters of an MNC is essential for personnel placed in a foreign assignment • Fluency, technical knowledge, and writing skills • Misinterpretations often result from unskilled use of a language • Inadequate language training © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Cultural Barriers in Language • Geographic, cultural, and institutional distance challenge international managers • Native speakers might deviate from the standard business communication practices of other cultures © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Perceptual Barriers • Perception – Person’s view of reality • Advertising messages – Misunderstandings caused when words are misinterpreted by others • View of others – May be different from what one thinks – Perceptions influence how individuals see others © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Nonverbal Communication • Transfer of meaning through means such as body language and use of physical space • Types – Kinesics – Proxemics – Chronemics – Chromatics © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Table 7.7 - Common Forms of Nonverbal Communication Source: Adapted from Kendra Cherry, “Types of Non-Verbal Communication,” VeryWell, December 17, 2015,  ->https://www.verywell.com/types-of-nonverbal-communication-2795397 -->. © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Kinesics • Study of communication through body movement and facial expression • Areas of concern - Eye contact, posture, and gestures • Oculesics: Area of communicating through the use of eye contact and gaze • Haptics: Communicating through the use of bodily contact © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Proxemics • Study of the way people use physical space to convey messages – Intimate distance: Used for very confidential communications – Personal distance: Used for talking with family and close friends – Social distance: Used to handle most business transactions – Public distance: Used when calling across room or giving a talk to a group © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Figure 7.2 - Personal Space Categories for Those in the U.S. © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chronemics • Way in which time is used in a culture • Types – Monochronic time schedule: Things done in linear fashion • Used in societies which consider time schedules important and time to be a controllable factor that needs to be used wisely © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chronemics (continued) – Polychronic time schedule: Several things are done at the same time • Place higher value on personal involvement than on getting things done on time • Consider personal relationships more important than time schedules © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chromatics Use of color to communicate messages Knowing the importance and the specifics of chromatics helps avoid embarrassing situations © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Achieving Communication Effectiveness • Open feedback systems – Personal - Face-to-face, phone, or e-mail – Impersonal - Reports, budgets, or plans • Provide language training – Non-native speakers of English need to be provided training to aid them in making face-toface conversations and telephonic conversations – Written communication is important in achieving effectiveness © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Achieving Communication Effectiveness (continued) • Provide cultural training – At least one party has to understand the other’s culture • Increase flexibility and cooperation – Improves effectiveness in communication and understanding and cooperation © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Negotiation • Process of bargaining with one or more parties to arrive at a solution that is acceptable to all • Follows assessing political environments • Used in creating joint ventures with local firms – Once a firm starts operating, additional areas of negotiation are included © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Types of Negotiations • Distributive negotiation: Occurs when two parties with opposing goals compete over a set value • Integrative negotiation: Involves cooperation between two groups to integrate interests, create value, and invest in an agreement © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Table 7.8 - Negotiating Types and Characteristics Source: Adapted from Harvard Business Essentials: Negotiation (Boston: Harvard Business School Press, 2003), pp. 2–6. © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Negotiation Process • Planning – Involves identifying objectives, exploring options to attain objectives, and finding areas of common ground between parties • Interpersonal relationship building – Getting to know people on the other side • Exchanging task-related information – Parties setting forth its position on critical issues © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Negotiation Process (continued) • Persuasion – Success of a negotiation depends on: • • • • Understanding each parties’ position Identifying areas of similarity and difference Creating new options Working toward a solution • Agreement – Granting of concessions and hammering out of a final agreement © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Understanding Cultural Differences • Counterpart’s home culture should not be identified too quickly • Western bias toward doing should be approached with caution • Tendency to formulate simple, consistent, and stable images should be counteracted © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Understanding Cultural Differences (continued) • Significance of all aspects of the culture should not be assumed to be equal • Differences might exist between the norms for interactions involving outsiders and between the compatriots • Familiarity with counterpart's culture should not be overestimated © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Negotiation Tactics • Location – Businesses choose a neutral site to avoid gaining advantage of a location and to finish negotiations soon due to the cost of staying at site • Time limits – Important negotiation tactic when one party is under a time constraint © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Negotiation Tactics (continued) • Buyer-seller relationship – Different for certain countries • Americans believe in trading favors • Japanese believe they should get most out of a purchase • Brazilians are deceptive and self-interested © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Negotiation Tactics - Five General Principles Separate the people from the problem • Understand other’s position, avoid blame, stay positive, and recognize emotions Focus on interests over positions • Gives one insight into the motivation behind why a particular position was chosen Generate a variety of options before settling on an agreement • Includes brainstorming and shifting thought focus about the problems © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Negotiation Tactics - Five General Principles (continued) Insist that the agreement be based on objective criteria • Emphasize the communal nature of the process Stand ground • Neither side should agree to terms that will leave it worse off than its best alternative to a negotiated agreement, or BATNA © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Bargaining Behaviors • Verbal and nonverbal – Verbal behaviors are important as they improve the final outcome and are critical to the success of a negotiation • Use of extreme behaviors – Some begin with an extreme offer or request, while some begin with an initial initial position that is close to the one they are seeking © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Bargaining Behaviors (continued) • Promises, threats, and other behaviors – Influenced by culture, and is designed to influence the other party • Nonverbal behaviors – Silent language (silent period, facial gazing, touching, and conversational overlaps) © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Be the International Management Consultant - China • If you are working as a consultant for Coca Cola, how does the dismissal of the deal by the Chinese government affect your continued investment in the country? • What more could private business, like Coca Cola, do to convince the government that new enterprise can bring positive economic development to the country? © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Be the International Management Consultant - China (continued) • Is the prospect of China’s sheer volume of potential customers too good to pass up? – Do the actions of the government and the country’s recent stock market woes indicate a signal that investment should be reconsidered? © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss • How does explicit communication differ from implicit communication? Which is one culture that makes wide use of explicit communication? Implicit communication? Describe how one would go about conveying the following message in each of the two cultures you identified: “You are trying very hard, but you are still making too many mistakes” © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 1) • One of the major reasons that foreign expatriates have difficulty doing business in the United States is that they do not understand American slang – A business executive recently gave the authors the following three examples of statements that had no direct meaning for her because she was unfamiliar with slang © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 2) – “He was laughing like hell” – “Don’t worry. It’s a piece of cake” – “Let’s throw these ideas up against the wall and see if any of them stick” – Why did the foreign expat have trouble understanding these statements, and what could be said instead? © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 3) • Yamamoto Iron & Steel is considering setting up a minimill outside Atlanta, Georgia – At present, the company is planning to send a group of executives to the area to talk with local and state officials regarding this plant • In what way might misperception be a barrier to effective communication between the representatives for both sides? Identify and discuss two examples © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 4) • Diaz Brothers is a winery in Barcelona – The company would like to expand operations to the United States and begin distributing its products in the Chicago area • If things work out well, the company then will expand to both coasts. In its business dealings in the Midwest, how might culture prove to be a communication barrier for the company’s representatives from Barcelona? Identify and discuss two examples © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 5) • Why is nonverbal communication a barrier to effective communication? Would this barrier be greater for Yamamoto Iron & Steel (question 3) or Diaz Brothers (question 4)? Defend your answer • For U.S. companies going abroad for the first time, which form of nonverbal communication barrier would be the greatest, kinesics or proxemics? Why? Defend your answer © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 6) • If a company new to the international arena was negotiating an agreement with a potential partner in an overseas country, what basic steps should it be prepared to implement? Identify and describe them • Which elements of the negotiation process should be done with only your group? Which events should take place with all sides present? Why? © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 7) • An American manager is trying to close a deal with a Brazilian manager, but has not heard back from him for quite some time – The American is getting very nervous that if he waits too long, he is going to miss out on any backup options lost while waiting for the Brazilian • What should the American do? How can the American tell it is time to drop the deal? Give some signs that suggest negotiations will go no further © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Review and Discuss (continued 8) • Wilsten Inc. has been approached by a Japanese firm that wants exclusive production and selling rights for one of Wilsten’s new high-tech products – What does Wilsten need to know about Japanese bargaining behaviors to strike the best possible deal with this company? Identify and describe five © 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. International Management TENTH EDITION Culture, Strategy, and Behavior Fred Luthans | Jonathan P. Doh International Management Culture, Strategy, and Behavior Tenth Edition Jonathan P. Doh Villanova University Fred Luthans University of Nebraska–Lincoln INTERNATIONAL MANAGEMENT: CULTURE, STRATEGY, AND BEHAVIOR, TENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGrawHill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2012, and 2009. 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 LMN 21 20 19 18 17 16 ISBN 978-1-259-70507-6 MHID 1-259-70507-2 Chief Product Officer, SVP Products & Markets: G. Scott Virkler Vice President, General Manager, Products & Markets: Michael Ryan Vice President, Content Design & Delivery: Betsy Whalen Managing Director: Susan Gouijnstook Director, Product Development: Meghan Campbell Director, Management/OB: Michael Ablassmeir Director of Digital Content: Kristy Dekat Product Developer: Laura Hurst Spell Marketing Manager: Debbie Clare Marketing Coordinator: Brittany Bernholdt Digital Product Analyst: Sankha Basu Director, Program Management: Linda Avenarius Program Manager: Mark Christianson Content Project Managers: Danielle Clement/Karen Jozefowicz Buyer: Jennifer Pickel Design: Jessica Serd Content Licensing Specialists: Shannon Manderscheid/Lori Hancock Cover Image: © Glow Images/Rodrigo A Torress Compositor: SPi Global Printer: LSC Communications All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. Library of Congress Cataloging-in-Publication Data Names: Luthans, Fred, author. | Doh, Jonathan P., author. Title: International management : culture, strategy, and behavior / Fred Luthans, University of Nebraska-Lincoln, Jonathan P. Doh, Villanova University. Description: Tenth Edition. | Dubuque: McGraw-Hill Education, [2018] | Revised edition of the authors’ International management, [2015] Identifiers: LCCN 2016055609| ISBN 9781259705076 (alk. paper) | ISBN 1259705072 (alk. paper) Subjects: LCSH: International business enterprises—Management. | International business enterprises—Management—Case studies. Classification: LCC HD62.4 .H63 2018 | DDC 658/.049—dc23 LC record available at https://lccn.loc.gov/2016055609 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 Dedicated in Memory of Rafael Lucea, A Passionate Advocate for Global Business Education and Experience. iii Preface C hanges in the global business environment continue unabated and at an accelerated pace. Many surprising and difficult-to-predict developments have rocked global peace and economic security. Terrorism, mass migration, the United Kingdom’s exit from the European Union, and the rise of anti-immigration political movements in Europe, the United States, and elsewhere have called into question assumptions about the direction of the global political economy. In addition, rapid advances in social media have not only accelerated globalization but also provided a means for those who seek political and economic changes to organize and influence their leaders for more responsible governance, or, in some cases, advance a more narrow ideological agenda (see opening articles in Chapters 1 and 2). In addition, concerns about climate change and other environmental issues have prompted companies, in conjunction with governments and nongovernmental organizations, to consider alternate approaches to business and governance (see Chapter 3 opening article). Some of these developments have challenged longstanding beliefs about the power and benefits of globalization and economic integration, but they also underscore the interconnected nature of global economies. Although many countries and regions around the world are closely linked, important differences in institutional and cultural environments persist, and some of these differences have become even more pronounced in recent years. The challenges for international management reflect this dynamism and the increasing unpredictability of global economic and political events. Continued growth of the emerging markets is reshaping the global balance of economic power, even though differences exist between and among regions and countries. Although many emerging markets continued to experience growth during a period when developed countries’ economies stagnated or declined, others, like Russia and Brazil, have faced major setbacks. Further, some developed economies, such as Greece, Italy, Spain, and Portugal, continue to face formidable challenges that stem from the European debt crisis that began in 2009. Low or negative interest rates reflect a “new normal” of slower-than-average growth among many global economies. The global political and security environment remains unpredictable and volatile, with ongoing conflicts in the Middle East and Africa and continuing tensions in Iran, North Korea, Iraq, and Afghanistan and elsewhere. Another crisis stemming from conflict in Syria and elsewhere has resulted in mass migration—and broad dislocations— across North Africa and Southern, even Northern, Europe (see Chapters 1 and 2 for further discussion). On the economic front, the global trade and integration agenda seems stalled, largely due to domestic political pressures in Europe and North America. Although the Trans-Pacific Partnership (TPP), a proposed free-trade agreement including 12 countries in the Americas and Asia, was concluded, its ratification in the United States is uncertain. Similarly, the fate of the Transatlantic Trade and Investment Partnership, which was still under negotiation at the time of this writing, is also unclear. As noted above, the advent of social networking has transformed the way citizens interact; how businesses market, promote, and distribute their products globally; and how civil society expresses its concerns that governments provide greater freedoms and accountability. Concurrently, companies, individuals, and even students can now engage in broad “mass” collaboration through digital, online technology for the development of new and innovative systems, products, and ideas. Both social networking and mass collaboration bring new power and influence to individuals across borders and transform v vi Preface the nature of their relationships with global organizations. Although globalization and technology continue to link nations, businesses, and individuals, these linkages also highlight the importance of understanding different cultures, national systems, and corporate management practices around the world. The world is now interconnected geographically, but also electronically and psychologically; as such, nearly all businesses have been touched in some way by globalization. Yet, as cultural, political, and economic differences persist, astute international managers must be in a position to adapt and adjust to the vagaries of different contexts and environments. In this new tenth edition of International Management, we have retained the strong and effective foundations gained from research and practice over the past decades while incorporating the important latest research and contemporary insights that have changed the context and environment for international management. Several trends have emerged that pose both challenges and opportunities for international managers. First, more nationalistically oriented governments and/or political movements have emerged in many regions of the world, challenging previous assumptions about the benefits and inevitability of globalization and integration. Second, while emerging markets continue to rise in importance, some—such as China and India—have fared much better economically than others—such as Brazil and Russia. Third, aging populations and concerns about migration have challenged many developed country governments as they wrestle with these dual pressures. Fourth, social media and other forms of electronic connectivity continue to facilitate international business of all sorts; however, these connection go only so far, with many barriers and limitations imposed by governments. Although we have extensive new, evidence-based material in this edition, we continue to strive to make the book even more user-friendly and applicable to practice. We continue to take a balanced approach in the tenth edition of International Management: Culture, Strategy, and Behavior. Whereas other texts stress culture, strategy, or behavior, our emphasis on all three critical dimensions—and the interactions among them—has been a primary reason why the previous editions have been the market-leading international management text. Specifically, this edition has the following chapter distribution: environment (three chapters), culture (four chapters), strategy (four chapters), and organizational behavior/human resource management (three chapters). Because the context of international management changes rapidly, all the chapters have been updated and improved. New real-world examples and research results are integrated throughout the book, accentuating the experiential relevance of the straightforward content. As always, we emphasize a balance of research and application. For the new tenth edition we have incorporated important new content in the areas of the emergence and role of social media as a means of transacting business and mobilizing social movements, the global pressures around migration, the role of the “sharing” economy as represented by companies such as Uber, and other important global themes. We have incorporated the latest research and practical insights on pressure for MNCs to adopt more sustainable practices, and the strategies many companies are using to differentiate their products through such “green” management practices. We have updated discussion of a range of contemporary topics, including continued exploration of the role of the comprehensive GLOBE study on cross-cultural leadership. A continuing and relevant end-of-chapter feature in this edition is the “Internet Exercise.” The purpose of each exercise is to encourage students to use the Internet to find information from the websites of prominent MNCs to answer relevant questions about the chapter topic. An end-of-book feature is a series of Skill-Building and Experiential Exercises for aspiring international managers. These in-class exercises represent the various parts of the text (culture, strategy, and behavior) and provide hands-on experience. Preface We have extended from the ninth edition of International Management the chapter-opening discussions called “The World of International Management” (WIM), based on very recent, relevant news stories to grab readers’ interest and attention. Many of these opening articles are new to this edition and all have been updated. These timely opening discussions transition the reader into the chapter topic. At the end of each chapter, there is a pedagogical feature that revisits the chapter’s subject matter: “The World of International Management—Revisited.” Here we pose several discussion questions based on the topic of the opening feature in light of the student’s entire reading of the chapter. Answering these questions requires readers to reconsider and to draw from the chapter material. Suggested answers to these “WIM—Revisited” discussion questions appear in the completely updated Instructor’s Manual, where we also provide some multiple-choice and true-false questions that draw directly from the chapters’ World of International Management topic matter for instructors who want to include this material in their tests. The use and application of cases are further enhanced in this edition. All cases have been updated and several new ones have been added. The short within-chapter country case illustrations—“In the International Spotlight”—can be read and discussed in class. These have all been revised and three have been added—Cuba, Greece, and Nigeria. In addition, we have added an additional exercise, “You Be the International Management Consultant,” that presents a challenge or dilemma facing a company in the subject country of the “Spotlight.” Students are invited to respond to a question related to this challenge. The revised or newly added “Integrative Cases” positioned at the end of each main part of the text were created exclusively for this edition and provide opportunities for reading and analysis outside of class. Review questions provided for each case are intended to facilitate lively and productive written analysis or in-class discussion. Our “Brief Integrative Cases” typically explore a specific situation or challenge facing an individual or team. Our longer and more detailed “In-Depth Integrative Cases” provide a broader discussion of the challenges facing a company. These two formats allow maximum flexibility so that instructors can use the cases in a tailored and customized fashion. Accompanying many of the in-depth cases are short exercises that can be used in class to reinforce both the substantive topic and students’ skills in negotiation, presentation, and analysis. The cases have been extensively updated and several are new to this edition. Cases concerning the controversies over drug pricing, TOMS shoes, Russell Athletics/Fruit of the Loom, Euro Disneyland and Disney Asia, Google in China, IKEA, HSBC, Nike, Walmart, Tata, Danone, Chiquita, Coca-Cola, and others are unique to this book and specific to this edition. Of course, instructors also have access to Create (www.mcgraw-hillcreate.com), McGraw-Hill’s extensive content database, which includes thousands of cases from major sources such as Harvard Business School, Ivey, Darden, and NACRA case databases. Along with the new or updated “International Management in Action” boxed application examples within each chapter and other pedagogical features at the end of each chapter (i.e., “Key Terms,” “Review and Discussion Questions,” “The World of International Management—Revisited,” and “Internet Exercise”), the end-of-part brief and indepth cases and the end-of-book skill-building exercises and simulations in the Connect resources complete the package. International Management is generally recognized to be the first “mainstream” text of its kind. Strategy casebooks and specialized books in organizational behavior, human resources, and, of course, international business, finance, marketing, and economics preceded it, but there were no international management texts before this one, and it remains the market leader. We have had sustainability because of the effort and care put into the revisions. We hope you agree that this tenth edition continues the tradition and remains the “world-class” text for the study of international management. vii viii Preface McGraw-Hill Connect®: connect.mheducation.com Continually evolving, McGraw-Hill Connect® has been redesigned to provide the only true adaptive learning experience delivered within a simple and easy-to-navigate environment, placing students at the very center. ∙ ∙ Performance Analytics—Now available for both instructors and students, easy-to-decipher data illuminate course performance. Students always know how they’re doing in class, while instructors can view student and section performance at a glance. Personalized Learning—Squeezing the most out of study time, the adaptive engine within Connect creates a highly personalized learning path for each student by identifying areas of weakness and providing learning resources to assist in the moment of need. This seamless integration of reading, practice, and assessment ensures that the focus is on the most important content for that individual. Instructor Library The Connect Management Instructor Library is your repository for additional resources to improve student engagement in and out of class. You can select and use any asset that enhances your lecture. To help instructors teach international management, this text is accompanied by a revised and expanded Instructor’s Resource Manual, Test Bank, and PowerPoint slides, all of which are in the Connect Library. Acknowledgments We would like to acknowledge those who have helped to make this book a reality. We will never forget the legacy of international management education in general and for this text in particular provided by our departed colleague Richard M. Hodgetts. Special thanks also go to our growing number of colleagues throughout the world who have given us many ideas and inspired us to think internationally. Closer to home, Jonathan Doh would like to thank the Villanova School of Business and its leadership, especially Provost Pat Maggitti, Interim Dean Daniel Wright, Dean Joyce Russell, Interim Vice Dean Wen Mao, and Herb Rammrath, who generously endowed the Chair in International Business ­Jonathan now holds. Also, for this new tenth edition we would like to thank Ben Littell, who did comprehensive research, graphical design, and writing to update chapter material and cases. Specifically, Ben researched and drafted chapter opening World of International Management features, developed a number of original graphics, and provided extensive research assistance for other revisions to the book. Allison Meade researched and drafted the Chapter 4 World of International Management feature on “Culture Clashes in CrossBorder Mergers and Acquisitions.” Fred Luthans would like to give special recognition to two international management scholars: Henry H. Albers, former Chair of the Management Department at the University of Nebraska and former Dean at the University of Petroleum and Minerals, Saudi Arabia, to whom previous editions of this book were dedicated; and Sang M. Lee, former Chair of the Management Department at Nebraska, founding and current president of the Pan Pacific Business Association, and close colleague on many ventures around the world over the past 30 years. In addition, we would like to acknowledge the help that we received from the many reviewers from around the globe, whose feedback guided us in preparing the tenth edition of the text. These include Joseph S. Anderson, Northern Arizona University Chi Anyansi-Archibong, North Carolina A&T State University Koren Borges, University of North Florida Lauryn De George, University of Central Florida Jae Jung, University of Missouri at Kansas City Manjula S. Salimath, University of North Texas ix Preface Our thanks, too, to the reviewers of previous editions of the text: Thomas M. Abbott, Post University Yohannan T. Abraham, Southwest Missouri State University Janet S. Adams, Kennesaw State University Irfan Ahmed, Sam Houston State University Chi Anyansi-Archibong, North Carolina A&T State University Kibok Baik, James Madison University R. B. Barton, Murray State University Lawrence A. Beer, Arizona State University Koren Borges, University of North Florida Tope A. Bello, East Carolina University Mauritz Blonder, Hofstra University Gunther S. Boroschek, University of Massachusetts–Boston Charles M. Byles, Virginia Commonwealth University Constance Campbell, Georgia Southern University Scott Kenneth Campbell, Georgia College & State University M. Suzanne Clinton, University of Central Oklahoma Helen Deresky, SUNY Plattsburgh Dr. Dharma deSilva, Center for International Business Advancement (CIBA) David Elloy, Gonzaga University Val Finnigan, Leeds Metropolitan University David M. Flynn, Hofstra University Jan Flynn, Georgia College and State University Joseph Richard Goldman, University of Minnesota James Gran, Buena Vista University Robert T. Green, University of Texas at Austin Annette Gunter, University of Central Oklahoma Jerry Haar, Florida International University–Miami Jean M. Hanebury, Salisbury State University Richard C. Hoffman, Salisbury State University Johan Hough, University of South Africa Julie Huang, Rio Hondo College Mohd Nazari Ismail, University of Malaya Steve Jenner, California State University–Dominguez Hills James P. Johnson, Rollins College Marjorie Jones, Nova Southeastern University Jae C. Jung, University of Missouri–Kansas City Ann Langlois, Palm Beach Atlantic University Robert Kuhne, Hofstra University Christine Lentz, Rider University Ben Lever III, College of Charleston Robert C. Maddox, University of Tennessee Curtis Matherne III, East Tennessee State University Douglas M. McCabe, Georgetown University Jeanne M. McNett, Assumption College Lauryn Migenes, University of Central Florida Alan N. Miller, University of Nevada, Las Vegas Ray Montagno, Ball State University Rebecca J. Morris, University of Nebraska–Omaha Ernst W. Neuland, University of Pretoria William Newburry, Rutgers Business School Yongsun Paik, Loyola Marymount University Valerie S. Perotti, Rochester Institute of Technology Richard B. Peterson, University of Washington Suzanne J. Peterson, University of Nebraska–Lincoln Joseph A. Petrick, Wright State University Juan F. Ramirez, Nova Southeastern University Richard David Ramsey, Southeastern Louisiana University Owen Sevier, University of Central Oklahoma Mansour Sharif-Zadeh, California State Polytechnic University–Pomona Emeric Solymossy, Western Illinois University. Jane H. Standford, Texas A&M University–Kingsville Dale V. Steinmann, San Francisco State University Randall Stross, San Jose State University George Sutija, Florida International University Deanna Teel, Houston Community College David Turnipseed, University of South Alabama–Mobile Katheryn H. Ward, Chicago State University Li Weixing, University of Nebraska–Lincoln Aimee Wheaton, Regis College Marion M. White, James Madison University Timothy Wilkinson, University of Akron George Yacus, Old Dominion University Corinne Young, University of Tampa Zhe Zhang, University of Central Florida–Orlando Anatoly Zhuplev, Loyola Marymount University Finally, thanks to the team at McGraw-Hill who worked on this book: Susan Gouijnstook, Managing Director; Anke Weekes, Executive Brand Manager; Laura Hurst Spell, Senior Product Developer; Erin Guendelsberger, Development Editor; Michael Gedatus, Marketing Manager; and Danielle Clement, Content Project Manager. Last but by no means least, we greatly appreciate the love and support provided by our families. Fred Luthans and Jonathan P. Doh Luthans The tenth edition of International Management: Culture, Strategy, and Behavior is still setting the standard. Authors Jonathan Doh and Fred Luthans have Doh New and Enhanced Themes ∙ ∙ ∙ ∙ ∙ taken care to retain the effective foundation gained from research and ∙ ∙ practice over the past decades. At the same time, they have fully Thoroughly Revised and Updated Chapter Content ∙ incorporated important new and emerging developments that have changed what international managers are currently facing and likely to face in the coming years. ∙ ∙ ∙ ∙ x Thoroughly revised and updated chapters to reflect the most critical issues for international managers. Greater attention to demographic trends and human mobility, underscoring the importance of aging work forces, migration, culture, and global talent management. Focus on global sustainability and sustainable management practices and their impact on international management. New or revised opening World of International Management (WIM) features written by the authors on current international management challenges; these mini-cases were prepared expressly for this edition and are not available elsewhere. Discussions of the rise of global terrorism, the migrant crisis, the growing role of social media in international transactions, and many other contemporary topics presented in the opening chapter and throughout the book. New and updated discussions of major issues in global ethics, sustainability, and insights from project GLOBE and other cutting-edge research. Greater emphasis on major emerging regions, economic challenges in major countries such as Brazil and Russia, and specific case illustrations on how companies are managing these challenges. New or revised opening WIM discussions on topics including the global influences of social media using the case of Snapchat; the role of social networking in political change in the Middle East; sustainability as a global competitive advantage using examples of Patagonia, Tesla, and Nestlé; and cultural challenges in global mergers and acquisitions. Others address the competitive dynamics between Apple and Xiaomi and Amazon and Alibaba, the emergence of Haier as the largest global appliance company, Netflix’s challenges in China and Russia, and many others. These features were written expressly for this edition and are not available elsewhere. Updated and strengthened emphasis on ethics, social responsibility, and sustainability. Extensive coverage of Project GLOBE, its relationship to other cultural frameworks, and its application to international management practice (Chapters 4, 13). Revised or new “In the International Spotlight” inserts that profile the key economic and political issues relevant to managers in specific countries. Greater coverage of the challenges and opportunities for international strategy targeted to the developing “base of the pyramid” economies (Chapter 8 and Tata cases). Continues to Set the Standard. . . Thoroughly Updated and/or New Cases, Inserts, and Exercises ∙ ∙ ∙ ∙ ∙ ∙ ∙ ∙ Completely new “In the International Spotlight” country profiles at the end of every chapter including the addition of profiles on Cuba, Greece, and Nigeria. “You Be the International Management Consultant” exercises presenting an actual company’s challenge in that country and inviting students to recommend a course of action. New “International Management in Action” features, including discussions on timely topics such as the rise of Bitcoin, the Volkswagen emissions scandal, and the political risks facing Uber, to name a few. Thoroughly updated cases (not available elsewhere): TOMS shoes, Russell Athletics/Fruit of the Loom, Euro Disneyland and Disney Asia, Google in China, IKEA, HSBC, Nike, Walmart, Tata, Danone, Chiquita, Coca-Cola, and others are unique to this book and specific to this edition. Brand new end-of-part cases developed exclusively for this edition (not available elsewhere): TOMS Puts Its Right Foot Forward; The Ethics of Global Drug Pricing. Brand new “World of International Management” chapter opening discussions, including topics such as Netflix’s expansion to emerging markets, the merger of ABInBev and SABMiller, the battle brewing between Apple’s iPhone and Chinese cell phone startups, the impact of Russian sanctions on international businesses, and the growth of Chinese brand Haier, to name a few. New and revised graphics throughout. Timely updates throughout, based on the latest research, including an extended discussion of the GLOBE project, the continued impact of global terrorism on international business, and the push towards a sustainable future, to name a few. Totally Revised Instructor and Student Support The following instructor and student support materials can be found in Connect® at connect.mheducation.com for the Tenth Edition. ∙ ∙ The Instructor’s Manual offers a summary of Learning Objectives and a teaching outline with lecture notes and teaching tips, as well as suggested answers to questions found throughout and at the conclusion of each chapter. Suggested answers are also provided for all the cases found in the book. The test bank is offered in both Word and EZ Test formats and offers over 1,000 test items consisting of true/false, multiple choice, and essay. Answers are provided for all test bank questions. xi xii Continues to Set the Standard. . . ∙ ∙ ∙ ∙ PowerPoint Presentations consisting of 30 slides per chapter give instructors talking points, feature exhibits from the text, and are summarized with a review and discussion slide. LearnSmart®: The Tenth Edition of International Management is available with LearnSmart, the most widely used adaptive learning resource, which is proven to improve grades. To improve your understanding of this subject and improve your grades, go to McGraw-Hill Connect® at connect.mheducation.com and find out more about LearnSmart. By helping students focus on the most important information they need to learn, LearnSmart personalizes the learning experience so they can study as efficiently as possible. SmartBook®: An extension of LearnSmart, SmartBook is an adaptive eBook that helps students focus their study time more effectively. As students read, SmartBook assesses comprehension and dynamically highlights where they need to study more. Create: Instructors can now tailor their teaching resources to match the way they teach! With McGraw-Hill Create, create.mheducation.com, instructors can easily rearrange chapters, combine material from other content sources, and quickly upload and integrate their own content, like course syllabi or teaching notes. Find the right content in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange the material to fit your teaching style. Order a Create book and receive a complimentary print review copy in 3–5 business days or a complimentary electronic review copy (echo) via e-mail within one hour. Go to create.mheducation.com today and register. McGraw-Hill Campus™ McGraw-Hill Campus is a new one-stop teaching and learning experience available to users of any learning management system. This institutional service allows faculty and students to enjoy single sign-on (SSO) access to all McGraw-Hill Higher Education materials, including the awardwinning McGraw-Hill Connect platform, from directly within the institution’s website. With McGraw-Hill Campus, faculty receive instant access to teaching materials (e.g., eTextbooks, test banks, PowerPoint slides, learning objectives, etc.), allowing them to browse, search, and use any instructor ancillary content in our vast library at no additional cost to instructor or students. In addition, students enjoy SSO access to a variety of free content and subscription-based products (e.g., McGraw-Hill Connect). With McGraw-Hill Campus enabled, faculty and students will never need to create another account to access McGraw-Hill products and services. Learn more at www.mhcampus.com. Assurance of Learning Ready Many educational institutions today focus on the notion of assurance of learning, an important element of some accreditation standards. International Management is designed specifically to support instructors’ assurance of learning initiatives with a simple yet powerful solution. Each test bank question for International Management maps to a specific chapter learning objective listed in the text. Instructors can use our test bank software, EZ Test and EZ Test Online, to easily query for learning objectives that directly relate to the learning outcomes for their course. Instructors can then use the reporting features of EZ Test to aggregate student results in similar fashion, making the collection and presentation of assurance of learning data simple and easy. Continues to Set the Standard. . . AACSB Tagging McGraw-Hill Education is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, International Management recognizes the curriculum guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in the text and the test bank to the six general knowledge and skill guidelines in the AACSB standards. The statements contained in International Management are provided only as a guide for the users of this textbook. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While the International Management teaching package makes no claim of any specific AACSB qualification or evaluation, we have within International Management labeled selected questions according to the six general knowledge and skills areas. xiii About the Authors © Villanova University, John Shetron Courtesy of University of NebraskaLincoln College of Business Administration xiv JONATHAN P. DOH is the Herbert G. Rammrath Chair in International Business, founding Director of the Center for Global Leadership, and Professor of Management at the Villanova School of Business, ranked in 2016 as the #1 undergraduate program in the United States by Bloomberg Businessweek. He is also an occasional executive educator for the Wharton School of Business. Jonathan teaches, does research, and serves as an executive instructor and consultant in the areas of international strategy and corporate responsibility. Previously, he was on the faculty of American and Georgetown Universities and a trade official with the U.S. government. Jonathan is author or co-author of more than 70 refereed articles published in leading international business and management journals, more than 30 chapters in scholarly edited volumes, and more than 90 conference papers. Recent articles have appeared in journals such as Academy of Management Review, California Management Review, Journal of International Business Studies, Journal of Management, Journal of Management Studies, Journal of World Business, Organization Science, Sloan Management Review, and Strategic Management Journal. He is co-editor and contributing author of Globalization and NGOs (Praeger, 2003) and Handbook on Responsible Leadership and Governance in Global Business (Elgar, 2005) and co-author of the previous edition of International Management: Culture, Strategy, and Behavior (9th ed., McGraw-Hill/Irwin, 2015), the best-selling international management text. His current research focus is on strategy for and in emerging markets, global corporate responsibility, and offshore outsourcing of services. His most recent scholarly books are Multinationals and Development (with Alan Rugman, Yale University Press, 2008), NGOs and Corporations: Conflict and Collaboration (with Michael Yaziji, Cambridge University Press, 2009) and Aligning for Advantage: Competitive Strategy for the Social and Political ­Arenas (with Tom Lawton and Tazeeb Rajwani, Oxford University Press, 2014). He has been an associate, consulting, or senior editor for numerous journals, and is currently the editorin-chief of Journal of World Business. Jonathan has also developed more than a dozen original cases and simulations published in books, journals, and case databases and used at many leading global universities. He has been a consultant or executive instructor for ABB, Anglo American, Bodycote, Bosch, China Minsheng Bank, Hana Financial, HSBC, Ingersoll Rand, Medtronic, Shanghai Municipal Government, Siam Cement, the World Economic Forum, among others. He is an external adviser to the Global Energy Resource Group of Deloitte Touche. Jonathan is part of the Executive Committee of the Academy of Management Organizations and Natural Environment Division, a role that culminated in service as chair of the division in 2016. He was ranked among the top 15 most prolific international business scholars in the world for the period 2001–2009 (Lahiri and Kumar, 2012) and in 2015 was elected a fellow of the Academy of International Business. He is a frequent keynote speaker to academic and professional groups in Europe, Asia, and Latin America. He holds a PhD in strategic and international management from George Washington University. FRED LUTHANS is University and the George Holmes Distinguished Professor of Management, Emeritus at the University of Nebraska–Lincoln. He is also a Senior Research Scientist for HUMANeX Ventures Inc. He received his BA, MBA, and PhD from the University of Iowa, where he received the Distinguished Alumni Award in 2002. While serving as an officer in the U.S. Army from 1965–1967, he taught leadership at the U.S. Military Academy at West Point. He has been a visiting scholar at a number of colleges and universities and has lectured in numerous European and Pacific Rim countries. He About the Authors has taught international management as a visiting faculty member at the universities of Bangkok, Hawaii, Henley in England, Norwegian Management School, Monash in Australia, Macau, Chemnitz in Germany, and Tirana in Albania. A past president of the Academy of Management, in 1997 he received the Academy’s Distinguished Educator Award. In 2000 he became an inaugural member of the Academy’s Hall of Fame for being one of the “Top Five” all-time published authors in the prestigious Academy journals. For many years he was co-editor-in-chief of the Journal of World Business and editor of Organizational Dynamics and is currently co-editor of Journal of Leadership and Organizational Studies. The author of numerous books, his seminal Organizational Behavior is now in its 13th edition and the 2007 groundbreaking book Psychological Capital (Oxford University Press) with Carolyn Youssef and Bruce Avolio came out in a new version in 2015. He is one of very few management scholars who is a Fellow of the Academy of Management, the Decision Sciences Institute, and the Pan Pacific Business Association. He received the Global Leadership Award from the Pan Pacific Association and has been a member of its Executive Committee since it was founded over 30 years ago. This committee helps to organize the annual meeting held in Pacific Rim countries. He has been involved with some of the first empirical studies on motivation and behavioral management techniques and the analysis of managerial activities in Russia; these articles were published in the Academy of Management Journal, Journal of International Business Studies, Journal of World Business, and ­European Management Journal. Since the very beginning of the transition to market economies after the fall of communism in Eastern Europe, he has been actively involved in management education programs sponsored by the U.S. Agency for International Development in Albania and Macedonia, and in U.S. Information Agency programs involving the Central Asian countries of Kazakhstan, Kyrgyzstan, and Tajikistan. Professor Luthans’s recent international research involves his construct of positive psychological capital (PsyCap). For example, he and colleagues have published their research demonstrating the impact of Chinese workers’ PsyCap on their performance in the International Journal of Human Resource Management and Management and Organization Review. He is applying his positive approach to positive organizational behavior (POB), PsyCap, and authentic leadership to effective global management and has been the keynote at programs in China (numerous times), Malaysia, South Korea, Indonesia, Philippines, Singapore, Taiwan, Japan, Vietnam, Costa Rica, Mexico, Chile, Fiji, Germany, France, England, Spain, Norway, Finland, Denmark, Netherlands, Italy, Russia, Macedonia, Albania, Morocco, South Africa, New Zealand, and Australia. xv Brief Contents Part One Environmental Foundation 1 Globalization and International Linkages 2 The Political, Legal, and Technological Environment 3 Ethics, Social Responsibility, and Sustainability Brief Integrative Case 1.1: Advertising or Free Speech? The Case of Nike and Human Rights Brief Integrative Case 1.2: TOMS Puts Its Right Foot Forward In-Depth Integrative Case 1.1: Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletic In-Depth Integrative Case 1.2: The Ethics of Global Drug Pricing Part Two The Meanings and Dimensions of Culture Managing Across Cultures Organizational Cultures and Diversity Cross-Cultural Communication and Negotiation Brief Integrative Case 2.1: Coca-Cola in India Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha In-Depth Integrative Case 2.1a: Euro Disneyland In-Depth Integrative Case 2.1b: Disney in Asia In-Depth Integrative Case 2.2: Walmart’s Global Strategies 107 113 122 156 182 208 248 255 262 273 279 International Strategic Management 8 Strategy Formulation and Implementation 9 Entry Strategies and Organizational Structures 10 Managing Political Risk, Government Relations, and Alliances 11 Management Decision and Control Brief Integrative Case 3.1: Google in China: Protecting Property and Rights In-Depth Integrative Case 3.1: Tata “Nano”: The People’s Car xvi 99 102 The Role of Culture 4 5 6 7 Part Three 2 44 74 290 328 360 388 415 421 xvii Brief Contents Organizational Behavior and Human Resource Management 12 Motivation Across Cultures 13 Leadership Across Cultures 14 Human Resource Selection and Development Across Cultures Brief Integrative Case 4.1: IKEA’s Global Renovations In-Depth Integrative Case 4.1: HSBC in China In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround Skill-Building and Experiential Exercises Glossary Indexes Part Four 432 468 508 555 563 575 583 599 605 Table of Contents Part One Environmental Foundation 1 Globalization and International Linkages 2 The World of International Management: An Interconnected World 2 Introduction 5 Globalization and Internationalization 7 Globalization, Antiglobalization, and Global Pressures for Change Global and Regional Integration 10 Changing Global Demographics 14 The Shifting Balance of Economic Power in the Global Economy 15 Global Economic Systems 22 Market Economy 22 Command Economy 23 Mixed Economy 23 Economic Performance and Issues of Major Regions 2 23 Established Economies 24 Emerging and Developing Economies 26 Developing Economies on the Verge 30 The World of International Management—Revisited 35 Summary of Key Points 37 Key Terms 37 Review and Discussion Questions 37 Answers to the In-Chapter Quiz 38 Internet Exercise: Global Competition in Fast Food 38 Endnotes 38 In the International Spotlight: India 42 The Political, Legal, and Technological Environment 44 The World of International Management: Social Media and Political Change 44 Political Environment 46 Ideologies 47 Political Systems 50 Legal and Regulatory Environment xviii 7 52 Basic Principles of International Law 53 Examples of Legal and Regulatory Issues 54 xix Table of Contents Privatization 57 Regulation of Trade and Investment 60 Technological Environment and Global Shifts in Production 3 60 Trends in Technology, Communication, and Innovation 60 Biotechnology 62 E-Business 63 Telecommunications 64 Technological Advancements, Outsourcing, and Offshoring 65 The World of International Management—Revisited 67 Summary of Key Points 68 Key Terms 68 Review and Discussion Questions 69 Internet Exercise: Hitachi Goes Worldwide 69 Endnotes 69 In the International Spotlight: Greece 73 Ethics, Social Responsibility, and Sustainability 74 The World of International Management: Sustaining Sustainable Companies 74 Ethics and Social Responsibility 77 Ethics and Social Responsibility in International Management 77 Ethics Theories and Philosophy 77 Human Rights 79 Labor, Employment, and Business Practices 80 Environmental Protection and Development 81 Globalization and Ethical Obligations of MNCs 83 Reconciling Ethical Differences across Cultures 85 Corporate Social Responsibility and Sustainability 85 Corporate Governance 89 Corruption 90 International Assistance 92 The World of International Management—Revisited 93 Summary of Key points 94 Key Terms 94 Review and Discussion Questions 94 Endnotes 94 In the International Spotlight: Cuba 98 Brief Integrative Case 1.1: Advertising or Free Speech? The Case of Nike and Human Rights 99 Endnotes 101 Brief Integrative Case 1.2: TOMS Puts Its Right Foot Forward 102 Endnotes 105 xx Part Two Table of Contents In-Depth Integrative Case 1.1: Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletic 107 Endnotes 111 In-Depth Integrative Case 1.2: The Ethics of Global Drug Pricing 113 Endnotes 120 The Role of Culture 4 The Meanings and Dimensions of Culture 122 The World of International Management: Culture Clashes in Cross-Border Mergers and Acquisitions 122 The Nature of Culture 124 Cultural Diversity 125 Values in Culture 128 Values in Transition Cultural Dimensions 129 Hofstede 129 Trompenaars 139 Integrating Culture and Management: The GLOBE Project 5 128 145 Culture and Management 146 GLOBE’s Cultural Dimensions 146 GLOBE Country Analysis 147 The World of International Management—Revisited 148 Summary of Key Points 150 Key Terms 150 Review and Discussion Questions 151 Internet Exercise: Renault-Nissan in South Africa 151 Endnotes 151 In the International Spotlight: South Africa 154 Managing Across Cultures 156 The World of International Management: Taking a Bite Out of Apple: Corporate Culture and an Unlikely Chinese Start-Up 156 The Strategy for Managing across Cultures 158 Strategic Predispositions 159 Meeting the Challenge 160 Cross-Cultural Differences and Similarities 162 Parochialism and Simplification 162 Similarities across Cultures 164 Many Differences across Cultures 165 Cultural Differences in Selected Countries and Regions 168 Using the GLOBE Project to Compare Managerial Differences 169 Managing Culture in Selected Countries and Regions 170 xxi Table of Contents 6 The World of International Management—Revisited 175 Summary of Key Points 176 Key Terms 176 Review and Discussion Questions 176 Internet Exercise: Haier’s Approach 176 Endnotes 177 In the International Spotlight: Poland 180 Organizational Cultures and Diversity 182 The World of International Management: Managing Culture and Diversity in Global Teams 182 The Nature of Organizational Culture 184 Definition and Characteristics Interaction between National and Organizational Cultures 186 Organizational Cultures in MNCs 190 Family Culture 192 Eiffel Tower Culture 192 Guided Missile Culture 193 Incubator Culture 194 Managing Multiculturalism and Diversity 7 185 196 Phases of Multicultural Development 196 Types of Multiculturalism 198 Potential Problems Associated with Diversity 199 Advantages of Diversity 200 Building Multicultural Team Effectiveness 201 The World of International Management—Revisited 203 Summary of Key Points 203 Key Terms 204 Review and Discussion Questions 204 Internet Exercise: Lenovo’s International Focus 205 Endnotes 205 In the International Spotlight: Nigeria 207 Cross-Cultural Communication and Negotiation 208 The World of International Management: Netflix’s Negotiations: China and Russia 208 The Overall Communication Process 210 Verbal Communication Styles 210 Interpretation of Communications 213 Communication Flows 214 Downward Communication 214 Upward Communication 215 xxii Table of Contents Communication Barriers Language Barriers 216 Perceptual Barriers 219 The Impact of Culture 221 Nonverbal Communication 223 Achieving Communication Effectiveness 226 Improve Feedback Systems 226 Provide Language Training 226 Provide Cultural Training 227 Increase Flexibility and Cooperation 229 Managing Cross-Cultural Negotiations Part Three 216 229 Types of Negotiation 229 The Negotiation Process 230 Cultural Differences Affecting Negotiations 231 Negotiation Tactics 234 Negotiating for Mutual Benefit 235 Bargaining Behaviors 237 The World of International Management—Revisited 240 Summary of Key Points 241 Key Terms 241 Review and Discussion Questions 241 Internet Exercise: Working Effectively at Toyota 242 Endnotes 242 In the International Spotlight: China 246 Brief Integrative Case 2.1: Coca-Cola in India 248 Endnotes 253 Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha 255 Endnotes 260 In-Depth Integrative Case 2.1a: Euro Disneyland 262 Endnotes 272 In-Depth Integrative Case 2.1b: Disney in Asia 273 Endnotes 277 In-Depth Integrative Case 2.2: Walmart’s Global Strategies 279 Endnotes 286 International Strategic Management 8 Strategy Formulation and Implementation 290 The World of International Management: GSK’s Prescription for Global Growth 290 Strategic Management 293 The Growing Need for Strategic Management 294 Benefits of Strategic Planning 295 xxiii Table of Contents Approaches to Formulating and Implementing Strategy 295 Global and Regional Strategies 299 The Basic Steps in Formulating Strategy Environmental Scanning 302 Internal Resource Analysis 304 Goal Setting for Strategy Formulation 304 Strategy Implementation 306 Location Considerations for Implementation 306 Combining Country and Firm-Specific Factors in International Strategy 308 The Role of the Functional Areas in Implementation 310 Specialized Strategies 9 302 311 Strategies for Emerging Markets 311 Entrepreneurial Strategy and New Ventures 317 The World of International Management—Revisited 319 Summary of Key Points 320 Key Terms 320 Review and Discussion Questions 320 Internet Exercise: Infosys’s Global Strategy 321 Endnotes 321 In the International Spotlight: Saudi Arabia 327 Entry Strategies and Organizational Structures 328 The World of International Management: Building a Global Brand: Haier’s Alignment of Strategy and Structure 328 Entry Strategies and Ownership Structures 329 Export/Import 330 Wholly Owned Subsidiary 330 Mergers/Acquisitions 331 Alliances and Joint Ventures 332 Alliances, Joint Ventures, and M&A: The Case of the Automotive Industry 333 Licensing 335 Franchising 336 The Organization Challenge 337 Basic Organizational Structures 338 Initial Division Structure 338 International Division Structure 339 Global Structural Arrangements 340 Transnational Network Structures 344 xxiv Table of Contents Nontraditional Organizational Arrangements Organizational Arrangements from Mergers, Acquisitions, Joint Ventures, and Alliances The Emergence of the Network Organizational Forms 346 346 348 Organizing for Product Integration 349 Organizational Characteristics of MNCs 350 Formalization 350 Specialization 351 Centralization 352 Putting Organizational Characteristics in Perspective 352 The World of International Management—Revisited 354 Summary of Key points 354 Key Terms 355 Review and Discussion Questions 355 Internet Exercise: Organizing for Effectiveness 355 Endnotes 355 In the International Spotlight: Mexico 359 10 Managing Political Risk, Government Relations, and Alliances 360 The World of International Management: Russian Roulette: Risks and Political Uncertainty 360 The Nature and Analysis of Political Risk 362 Macro and Micro Analysis of Political Risk 364 Terrorism and Its Overseas Expansion 367 Analyzing the Expropriation Risk 368 Managing Political Risk and Government Relations 368 Developing a Comprehensive Framework or Quantitative Analysis 368 Techniques for Responding to Political Risk 373 Relative Bargaining Power Analysis 373 Managing Alliances 377 The Alliance Challenge 377 The Role of Host Governments in Alliances 378 Examples of Challenges and Opportunities in Alliance Management 379 The World of International Management—Revisited 381 Summary of Key points 381 Key Terms 382 Review and Discussion Questions 382 Internet Exercise: Nokia in China 382 Endnotes 382 In the International Spotlight: Brazil 386 xxv Table of Contents 11 Management Decision and Control 388 The World of International Management: Global Online Retail: Amazon v. Alibaba 388 Decision-Making Process and Challenges 390 Factors Affecting Decision-Making Authority 391 Cultural Differences and Comparative Examples of Decision Making 393 Total Quality Management Decisions 394 Decisions for Attacking the Competition 396 Decision and Control Linkages 397 The Controlling Process 398 Types of Control 399 Approaches to Control 401 Performance Evaluation as a Mechanism of Control 403 Financial Performance 403 Quality Performance 404 Personnel Performance 407 The World of International Management—Revisited 409 Summary of Key Points 410 Key Terms 410 Review and Discussion Questions 410 Internet Exercise: Looking at the Best 411 Endnotes 411 In the International Spotlight: Japan 414 Brief Integrative Case 3.1: Google in China: Protecting Property and Rights 415 Endnotes 419 In-Depth Integrative Case 3.1: Tata “Nano”: The People’s Car 421 Endnotes 429 Organizational Behavior and Human Resource Management 12 Motivation Across Cultures Part Four 432 The World of International Management: Motivating Employees in a Multicultural Context: Insights from Emerging Markets 432 The Nature of Motivation 434 The Universalist Assumption 435 The Assumption of Content and Process 436 The Hierarchy-of-Needs Theory 436 The Maslow Theory 436 International Findings on Maslow’s Theory 437 xxvi Table of Contents The Two-Factor Theory of Motivation 442 The Herzberg Theory 442 International Findings on Herzberg’s Theory 443 Achievement Motivation Theory 446 The Background of Achievement Motivation Theory 446 International Findings on Achievement Motivation Theory 447 Select Process Theories 449 Equity Theory 449 Goal-Setting Theory 450 Expectancy Theory 451 Motivation Applied: Job Design, Work Centrality, and Rewards 451 Job Design 451 Sociotechnical Job Designs 453 Work Centrality 454 Reward Systems 458 Incentives and Culture 458 The World of International Management—Revisited 459 Summary of Key Points 460 Key Terms 461 Review and Discussion Questions 461 Internet Exercise: Motivating Potential Employees 462 Endnotes 462 In the International Spotlight: Indonesia 467 13 Leadership Across Cultures 468 The World of International Management: Global Leadership Development: An Emerging Need 468 Foundation for Leadership 470 The Manager-Leader Paradigm 470 Philosophical Background: Theories X, Y, and Z 472 Leadership Behaviors and Styles 474 The Managerial Grid Performance: A Japanese Perspective 476 Leadership in the International Context 479 Attitudes of European Managers toward Leadership Practices 479 Japanese Leadership Approaches 481 Differences between Japanese and U.S. Leadership Styles 482 Leadership in China 483 Leadership in the Middle East 485 xxvii Table of Contents Leadership Approaches in India 485 Leadership Approaches in Latin America 486 Recent Findings and Insights about Leadership 487 Transformational, Transactional, and Charismatic Leadership 487 Qualities for Successful Leaders 489 Culture Clusters and Leader Effectiveness 489 Leader Behavior, Leader Effectiveness, and Leading Teams 491 Cross-Cultural Leadership: Insights from the GLOBE Study 493 Positive Organizational Scholarship and Leadership 495 Authentic Leadership 496 Ethical, Responsible, and Servant Leadership 497 Entrepreneurial Leadership and Mindset 500 The World of International Management—Revisited 500 Summary of Key Points 501 Key Terms 502 Review and Discussion Questions 502 Internet Exercise: Taking a Closer Look 502 Endnotes 503 In the International Spotlight: Germany 507 14 Human Resource Selection and Development Across Cultures 508 The World of International Management: The Challenge of Talent Retention in India 508 The Importance of International Human Resources 511 Getting the Employee Perspective 511 Employees as Critical Resources 511 Investing in International Assignments 512 Economic Pressures 512 Sources of Human Resources 513 Home-Country Nationals 513 Host-Country Nationals 514 Third-Country Nationals 514 Subcontracting and Outsourcing 516 Selection Criteria for International Assignments 518 General Criteria 518 Adaptability to Cultural Change 518 Physical and Emotional Health 519 Age, Experience, and Education 520 Language Training 520 xxviii Table of Contents Motivation for a Foreign Assignment 520 Spouses and Dependents or Work-Family Issues 521 Leadership Ability 522 Other Considerations 523 Economic Pressures and Trends in Expat Assignments 523 International Human Resource Selection Procedures 524 Testing and Interviewing Procedures 524 The Adjustment Process 525 Compensation 526 Common Elements of Compensation Packages 527 Tailoring the Package 530 Individual and Host-Country Viewpoints 531 Candidate Motivations 531 Host-Country Desires 531 Repatriation of Expatriates 533 Reasons for Returning 533 Readjustment Problems 533 Transition Strategies 534 Training in International Management 535 The Impact of Overall Management Philosophy on Training 537 The Impact of Different Learning Styles on Training and Development 538 Reasons for Training 539 Types of Training Programs 541 Standardized vs. Tailor-Made Cultural Assimilators Positive Organizational Behavior 541 544 545 Future Trends 546 The World of International Management—Revisited 546 Summary of Key Points 548 Key Terms 549 Review and Discussion Questions 549 Internet Exercise: Coke Goes Worldwide 549 Endnotes 550 In the International Spotlight: Russia 554 Brief Integrative Case 4.1: IKEA’s Global Renovations 555 Endnotes 562 In-Depth Integrative Case 4.1: HSBC in China 563 Endnotes 574 In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround 575 Endnotes 582 xxix Table of Contents Skill-Building and Experiential Exercises 583 Personal Skill-Building Exercises 584 1. The Culture Quiz 584 2. “When in Bogotá . . .” 589 3. The International Cola Alliances 592 4. Whom to Hire? 596 In-Class Simulations (Available in Connect, connect.mheducation.com) 1. “Frankenfoods” or Rice Bowl for the World: The U.S.-EU Dispute over Trade in Genetically Modified Organisms 2. Cross-Cultural Conflicts in the Corning-Vitro Joint Venture Glossary 599 Name and Organization Index 605 Subject Index 621 PART ONE ENVIRONMENTAL FOUNDATION Chapter 1 OBJECTIVES OF THE CHAPTER GLOBALIZATION AND INTERNATIONAL LINKAGES Globalization is one of the most profound forces in our contemporary economic environment, although support for free trade and open borders is not universal. The practical impact of globalization can be felt on all aspects of society, and effective management of organizations in an increasingly complex global environment is crucial for success. In nearly every country, increasing numbers of large, medium, and even small corporations are engaging in international activities, and a growing percentage of company revenue is derived from overseas markets. Yet, continued economic and political uncertainties in many world regions, the rise of more nationalistic political movements, and continued concerns about the impact of immigration have caused some to question the current system for regulating and overseeing international trade, investments, migration, and financial flows. Nonetheless, international management—the process of applying management concepts and techniques in a multinational environment— continues to retain importance. Although globalization and international linkages have been part of history for centuries (see the International Management in Action box “Tracing the Roots of Modern Globalization” later in the chapter), the principal focus of this opening chapter is to examine the process of globalization in the contemporary world. The rapid integration of countries, advances in information technology, and the explosion in electronic communication have created a new, more integrated world and true global competition. Yet, the complexities of doing business in distinct markets persist. Since the environment of international management is all-encompassing, this chapter is mostly concerned with the economic dimensions, while the following two chapters are focused on the political, legal, and technological dimensions and ethical and social dimensions, respectively. The specific objectives of this chapter are 1. ASSESS the implications of globalization for countries, industries, firms, and communities. 2. REVIEW the major trends in global and regional integration. 3. EXAMINE the changing balance of global economic power and trade and investment flows among countries. 4. ANALYZE the major economic systems and recent developments among countries that reflect those systems. 2 The World of International Management An Interconnected World O nly 23 years old, Evan Spiegel faced a major business decision: whether or not to accept a US$3 billion offer from Facebook’s Mark Zuckerberg for his social media start-up Snapchat. Taking the deal would make Spiegel one of the youngest self-made billionaires in history. Just two years prior, Spiegel was a typical college junior at Stanford University, living in a fraternity house and working towards graduation. As a product-design student with a knack for computers, Spiegel was keenly aware that popular social media applications, such as Twitter and Facebook, record a digital “paper trail” of their users. Content uploaded to these social media sites, such as text, comments, and photos, are kept indefinitely on servers. For young college graduates trying to enter the workforce, this log of past activity has the potential to be particularly harmful; employers are often able to see this information by simply searching for a job applicant’s name online. Spiegel, however, had a clever solution: create a social networking application that would allow users to create and share content that “self-destructs” immediately after viewing. For a school project, Spiegel and co-founder Bobby Murphy programmed and developed the application, and the social media application Snapchat was born.1 Around the same time, Facebook executives were actively looking to expand their product line. Having just survived a rocky IPO and finally emerging as a profitable enterprise, Facebook began purchasing several social media applications, including Instagram and WhatsApp in 2012 and 2014, respectively, for several billion dollars each. By mid-2013, Facebook’s Mark Zuckerberg had taken notice of the rapidly expanding Snapchat; to Zuckerberg, the appeal of Snapchat seemed to align with that of the typical Facebook user. In an attempt to grab market share from the Snapchat user base, Facebook first introduced a copycat application, called Poke. Though heavily promoted, Poke quickly flopped. Snapchat, meanwhile, continued to grow exponentially. By the beginning of 2014, Snapchat had over 30 million active users and 400 million “snaps” were being received daily.2 Sensing defeat, Zuckerberg approached Spiegel with a lucrative offer: US$3 billion for the application. At that time, Snapchat had not made a single dollar in revenue. In a controversial and unexpected move, 23-year-old Spiegel gave Zuckerberg a firm answer: “No.” If Spiegel turned down a US$3 billion offer for a single application, just how valuable is social media to the global community? Instagram ∙ ∙ ∙ Social Media Has Changed How We Connect Though the market value of social media applications, such as Snapchat, are yet to be determined, one thing is certain: We currently live in a world interconnected by social media. Through online networking, the way we connect with others has drastically changed. The volume of content being created and shared is staggering, with virtually anyone on the globe only a few clicks away. In fact, the average number of links separating any two random people on Facebook is now only 4.74.3 Statistics from some of the most used social networking applications underscore how social media has connected people across the globe: Facebook Snapchat ∙ ∙ ∙ ∙ Social Media Has Changed Global Business Strategy Population in Millions 1600 1400 16% Canada & USA 1000 84% of users are located outside of the USA & Canada 800 600 400 200 0 Facebook China India Snapchat reached 100 million active members in less than four years.5 60 percent of 13–34 year olds in the United States are on Snapchat. More than 5 billion videos are viewed on Snapchat every day. Over 60 percent of Snapchat users create and share original content everyday.6 Certainly, social networks are a part of many people’s lives. Yet, has the virtual world of social media networks made a permanent impact in the world of international business? If Facebook were a country, it would be the largest. 1200 Over 300 million people create content on Instagram every month. Over 70 percent of Instagram users are from outside the United States. 70 million new photos are uploaded and shared every day.4 USA 900 million users, or about 90% of the daily user...
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