International Management
Culture, Strategy, and Behavior
Ninth Edition
Fred Luthans
University of Nebraska–Lincoln
Jonathan P. Doh
Villanova University
INTERNATIONAL MANAGEMENT: CULTURE, STRATEGY, AND BEHAVIOR, NINTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2015 by McGraw-Hill
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Library of Congress Cataloging-in-Publication Data
Luthans, Fred.
International management : culture, strategy, and behavior / Fred Luthans, University
of Nebraska-Lincoln, Jonathan P. Doh, Villanova University.—Ninth edition.
pages cm
ISBN-13: 978-0-07-786244-2 (alk. paper)
ISBN-10: 0-07-786244-9
1. International business enterprises—Management. 2. International business
enterprises—Management—Case studies. I. Doh, Jonathan P. II. Title.
HD62.4.H63 2014
658'.049—dc23
2013039863
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.
www.mhhe.com
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Dedicated in Memory of
Richard M. Hodgetts
A Pioneer in International Management Education
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Preface
C
hanges in the global business environment continue at a rapid and often unpredictable pace. The global financial crisis and economic recession of 2008–2010 have
given way to destabilizing political changes in many regions of the world, especially
North Africa and the Middle East (see Chapter 2 opening article). 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 (see Chapter 1 opening article). In addition, concerns about the
exhaustion of finite resources and the need to pursue more sustainable growth have prompted
governments, companies, and NGOs to consider alternate approaches to business and governance (see Chapter 3 opening article).
Some of these developments have challenged assumptions about globalization and
economic integration, but they also underscore the inexorably interconnected nature of
global economies. Although many countries and regions around the world are closely
and inextricably linked, important differences in institutional and cultural environments
persist, and some of these differences have become even starker 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, some developed economies bucked this trend and some developing countries
did not share in what was otherwise a dynamic period for the emerging world.
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. On the economic front, although little progress was made in
the efforts to conclude a global multilateral agreement under the World Trade Organization
(WTO), regional and bilateral agreements have proliferated, including the Trans-Pacific
Partnership (TPP), a proposed free-trade agreement that would involve more than a dozen
countries in the Americas and Asia. In addition, the tragic fire, building collapse, and other
industrial accidents in India, Bangladesh, and China have renewed calls for corporations
to do more to protect workers and for governments to get tougher with companies in terms
of oversight and accountability. (See Chapter 3 for additional discussion.)
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 the
nature of their relationships with global organizations. Although globalization and technology continue to link nations, businesses, and individuals, these connections 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.
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Preface
In this new ninth 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, emerging markets continue to rise in importance, with dynamic growth and
development in many emerging regions and countries. This includes the emergence of
multinationals from emerging markets that are becoming globally competitive. Second,
pressure for greater social and environmental responsibility among multinational organizations has increased, especially in light of rising pollution and the exposure of poor
working conditions in many factories around the world. Third, the importance of cultural
differences continues to be an omnipresent reality for international managers. And social
media and other forms of electronic connectivity continue to facilitate international business of all sorts.
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 ninth 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 ninth edition we have incorporated important new content in the areas
of sustainability and sustainable management practices, the emergence and role of social
media as a means of transacting business around the world, the rise of emerging market
multinationals and the challenges they pose for developed country MNCs, and other
important developments in the international management field. Many of these topics—
such as social media—are integrated throughout the book, as they touch on—and
influence—many aspects of international management. 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.
We have extended from the eighth edition of International Management the chapteropening 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 recapitulates 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
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Preface
vii
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 is 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 two have been added—Turkey and Indonesia. 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
global AIDS epidemic, Dansko, Russell Athletics/Fruit of the Loom, Euro Disneyland
and Disney Asia, Google in China, IKEA, HSBC, Nike, Walmart, Tata, AirAsia, Sony,
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 on the Online
Learning Center complete the package.
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 available password protected on the Online Learning Center at www.
mhhe.com/luthans9e.
Another important innovation is carried over and updated from the 8th edition: we
have provided instructors with a guide to online publicly available videos, many available
on YouTube, that link directly to chapter themes. These short clips give instructors an
opportunity to use online visual media in conjunction with traditional lecture, discussion,
and PowerPoint presentations. Our guide includes the name, short description, and link
for the videos, which we will keep updated on the book website.
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 ninth edition continues the tradition and remains
the “world-class” text for the study of international management.
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, Fred Luthans would
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viii
Preface
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. Jonathan Doh would like to thank the Villanova School of Business and its
leadership, especially Dean Pat Maggitti, Vice Dean Daniel Wright, and Herb Rammrath
who generously endowed the Chair in International Business Jonathan now holds. Also,
for this new ninth edition we would like to thank Ben Littell, who did much of the
research and drafting of the chapter opening World of International Management features
and provided extensive research assistance for other revisions to the book.
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 ninth edition
of the text. These include:
Thomas M. Abbott, Post University
David Elloy, Gonzaga University
James Gran, Buena Vista University
Julie Huang, Rio Hondo College
Jae C. Jung, University of Missouri–
Kansas City
Emeric Solymossy, Western Illinois
University.
Our thanks, too, to the reviewers of previous editions of the text:
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)
Val Finnigan, Leeds Metropolitan University
David M. Flynn, Hofstra University
Jan Flynn, Georgia College and State
University
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Joseph Richard Goldman, University of
Minnesota
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
Steve Jenner, California State
University–Dominguez Hills
James P. Johnson, Rollins College
Marjorie Jones, Nova Southeastern
University
Ann Langlois, Palm Beach Atlantic
University
Curtis Matherne III, East Tennessee State
University
Alan N. Miller, University of Nevada,
Las Vegas
Mohd Nazari Ismail, University of Malaya
Robert Kuhne, Hofstra University
Christine Lentz, Rider University
Ben Lever III, College of Charleston
Robert C. Maddox, University of Tennessee
Preface
Douglas M. McCabe, Georgetown
University
Jeanne M. McNett, Assumption College
Lauryn Migenes, University of Central
Florida
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
Mansour Sharif-Zadeh, California State
Polytechnic University–Pomona
ix
Owen Sevier, University of Central
Oklahoma
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
Timothy Wilkinson, University of Akron
Marion M. White, James Madison
University
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: Paul Ducham,
Managing Director; Anke Weekes, Senior Brand Manager; Kelly Delso, Senior Developmental Editor; Lori Bradshaw, Managing Developmental Editor; Michael Gedatus,
Marketing Manager; and Jessica Portz, 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
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LUTHANS
DOH
Doh
The ninth
edition of
International
Management:
Culture, Strategy, and
Behavior is still
setting the standard.
New and Enhanced Themes
•
•
•
Current authors Fred
Luthans and
•
Jonathan P. Doh have
taken care to retain
the effective
•
•
foundation gained
from research and
practice over the
past decades. At the
Thoroughly Revised and Updated
Chapter Content
•
same time, they have
fully incorporated
important new and
emerging
developments that
have changed what
international managers
•
•
•
are currently facing and
likely to face in the
coming years.
Thoroughly revised and updated chapters to reflect the
most critical issues for international managers.
Greater attention to and focus on global sustainability
and sustainable management practices and their impact
on international management.
New or revised opening World of International Management 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 impact of the global economic recession
on international management in the opening chapter and
throughout the book, and the aftermath and ongoing challenges associated with the “Arab Spring” (in Chapter 2).
New and updated discussions of project GLOBE and its
importance for international management.
Greater emphasis on emerging markets and developing
countries, and the increasing influence of emerging
markets multinationals on global competition.
•
New or revised opening WIM discussions on topics including the global influences of social media, the role of social
networking in the Arab Spring, sustainability as a global
competitive advantage, Apple vs. Samsung, Amazon vs.
Alibaba, global trends in the automotive and pharmaceutical industries, managing global teams, offshoring and culture, and many other subjects. 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
which profile the key economic and political issues relevant to managers in specific countries, including new
spotlights on Turkey and Indonesia.
Greater coverage of the challenges and opportunities for
international strategy targeted to the developing “base of
the pyramid” economies (Chapter 8, and Tata cases).
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CONTINUES TO SET THE STANDARD. . .
Thoroughly Updated and/or New Cases,
Inserts, and Exercises
•
•
•
New and/or updated country spotlights, “International Management
in Action” features.
Thoroughly updated cases (not available elsewhere): Pharmaceutical
Companies, Intellectual Property, and the Global AIDS Epidemic;
Advertising or Free Speech? The Case of Nike and Human Rights;
Beyond Tokyo: Disney’s Expansion In Asia; HSBC in China; Coca
Cola in India; Walmart’s Global Strategies; Can Sony Regain its
Innovative Edge? The OLED Project; Tata “Nano”: The People’s
Car; The Ascendance of AirAsia: Building a Successful Budget
Airline; and Chiquita’s Global Turnaround.
Brand new end-of-part cases developed exclusively for this edition
(not available elsewhere): Dansko puts its Right Foot Forward, Google
in China: Protecting Property and Rights; IKEA’s Global Renovations.
Totally Revised Instructor and Student Support
The following instructor and student support materials can be found on the
Online Learning Center (OLC) for the Ninth Edition. You can access the
OLC at www.mhhe.com/luthans9e.
•
•
•
•
•
•
The Instructor’s Manual offers a summary of Learning Objectives
and 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 TestBank 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 testbank questions.
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.
Student Quizzes are provided for each chapter and give students
feedback to help them understand where additional study is required.
A guide to videos available online, with title, short description, and url.
Create: Instructors can now tailor their teaching resources to match the
way they teach! With McGraw-Hill Create, www.mcgrawhillcreate.
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
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Continues to Set the Standard. . .
days or a complimentary electronic review copy (echo) via e-mail within one
hour. Go to www.mcgrawhillcreate.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 award-winning
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
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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 Business is designed
specifically to support instructors’ assurance of learning initiatives with a simple yet
powerful solution. Each test bank question for International Business 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.
AACSB Tagging
McGraw-Hill Education is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, International Business recognizes the curricula 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 Business 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 Business teaching
package makes no claim of any specific AACSB qualification or evaluation, we have
within International Business labeled selected questions according to the six general
knowledge and skills areas.
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About the Authors
FRED LUTHANS is University and the George Holmes Distinguished Professor of Management at the University of Nebraska–Lincoln. He is also Chair of the Master Research
Council for HUMANeX, 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 most European and Pacific Rim countries. He 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
the former East 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. Currently, he is coeditor-in-chief of the Journal of World Business, editor of Organizational Dynamics, coeditor of Journal of Leadership and Organization Studies, and the author of numerous
books. His book Organizational Behavior (Irwin/McGraw-Hill) is now in its 12th edition
and the groundbreaking book Psychological Capital (Oxford University Press) with Carolyn
Youssef and Bruce Avolio will be out in its second edition in 2014. 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, and he has been a member
of the Executive Committee for the Pan Pacific Conference since its beginning 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
have been 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. For example, Professor Luthans’ recent international research
involves his construct of positive psychological capital (PsyCap). 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 recently been the keynote at programs in China (several times), Malaysia, Korea,
Indonesia, England, Norway, Finland, South Africa, and soon Italy.
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. Jonathan teaches, does research, and serves as an executive
instructor and consultant in the areas of international strategy and corporate responsibility and serves as an occasional executive educator for the Aresty Institute of Executive
Education at the Wharton Business School. Previously, he was on the faculty of American
and Georgetown Universities and a senior trade official with the U.S. government. Jonathan
is author or co-author of more than 75 refereed articles published in the top international
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xiv
About the Authors
business and management journals, 30 chapters in scholarly edited volumes, and more
than 75 conference papers. Recent articles have appeared in journals such as Academy
of Management Review, California Management Review, Journal of International Business 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 (8th ed., McGraw-Hill/Irwin,
2012), the best-selling international management text. His current research focus is on
strategy for 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 is co-Editor-in-Chief of MRN
International Environment of Global Business (SSRN Journal), Senior Editor of Journal
of World Business, Associate Editor of Business & Society, and Consulting Editor of
Long Range Planning. Beginning in January of 2015 he will assume the position of
Editor-in-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, and Deloitte Touche, where he served as senior
external adviser to the Global Energy Resource Group. Jonathan is part of the Executive
Committee of the Academy of Management Organizations and Natural Environment
Division with increasing responsibilities culminating in the 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). He holds a PhD in strategic
and international management from George Washington University.
www.MyEbookNiche.eCrater.com
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: Dansko 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: Pharmaceutical Companies,
Intellectual Property, and the Global AIDS Epidemic
2
36
62
87
89
92
97
Part Two
The Role of Culture
4
5
6
7
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: Beyond Tokyo:
Disney’s Expansion in Asia
In-Depth Integrative Case 2.2: Walmart’s Global Strategies
110
146
174
200
238
244
250
260
264
Part Three
International Strategic Management
8
9
10
11
Strategy Formulation and Implementation
Entry Strategies and Organizational Structures
Managing Political Risk, Government Relations, and Alliances
Management Decision and Control
Brief Integrative Case 3.1: Google in China: Protecting
Property and Rights
274
306
342
366
392
xv
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Brief Contents
Brief Integrative Case 3.2: Can Sony Regain Its Innovative
Edge? The OLED Project
In-Depth Integrative Case 3.1: Tata “Nano”: The People’s Car
In-Depth Integrative Case 3.2: The Ascendance of AirAsia:
Building a Successful Budget Airline in Asia
Part Four
397
402
411
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
422
454
492
537
544
560
Skill-Building and Experiential Exercises
References
Endnotes
Glossary
Indexes
587
591
631
637
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Table of Contents
Environmental Foundation
1
Part One
Globalization and International Linkages
2
The World of International Management: An Interconnected World
Introduction
Globalization and Internationalization
2
4
6
Globalization, Antiglobalization, and Global Pressures
6
Global and Regional Integration
9
The Shifting Balance of Economic Power in the Global Economy
Global Economic Systems
19
Market Economy
19
Command Economy
19
Mixed Economy
20
Economic Performance and Issues of Major Regions
2
12
20
Established Economies
20
Emerging Economies
22
Developing Economies on the Verge
26
The World of International Management—Revisited
30
Summary of Key Points
32
Key Terms
32
Review and Discussion Questions
32
Answers to the In-Chapter Quiz
33
Internet Exercise: Global Competition in Fast Food
33
In the International Spotlight: India
34
The Political, Legal, and Technological Environment
36
The World of International Management:
Social Media and the Pace of Change
36
Political Environment
38
Ideologies
39
Political Systems
41
Legal and Regulatory Environment
44
Basic Principles of International Law
44
Examples of Legal and Regulatory Issues
45
Privatization
48
Regulation of Trade and Investment
50
Technological Environment and Global Shifts in Production
51
Trends in Technology, Communication, and Innovation
51
xvii
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Table of Contents
3
Biotechnology
53
E-Business
54
Telecommunications
55
Technological Advancements, Outsourcing, and Offshoring
56
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Hitachi Goes Worldwide
In the International Spotlight: Vietnam
58
59
59
59
60
61
Ethics, Social Responsibility, and Sustainability
62
The World of International Management:
Sustaining Sustainable Companies
62
Ethics and Social Responsibility
64
Ethics and Social Responsibility in International Management
65
Ethics Theories and Philosophy
65
Human Rights
66
Labor, Employment, and Business Practices
68
Environmental Protection and Development
69
Globalization and Ethical Obligations of MNCs
71
Reconciling Ethical Differences across Cultures
73
Corporate Social Responsibility and Sustainability
74
Corporate Governance
78
Corruption
79
International Assistance
81
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Social Responsibility at Johnson & Johnson and HP
In the International Spotlight: Saudi Arabia
Brief Integrative Case 1.1: Advertising or Free Speech?
The Case of Nike and Human Rights
Brief Integrative Case 1.2: Dansko 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: Pharmaceutical Companies,
Intellectual Property, and the Global AIDS Epidemic
Part Two
83
84
84
84
85
86
87
89
92
97
The Role of Culture
4
The Meanings and Dimensions of Culture
110
The World of International Management: The Cultural
Roots of Toyota’s Quality Crisis
110
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The Nature of Culture
112
Cultural Diversity
113
Values in Culture
117
Value Differences and Similarities across Cultures
117
Values in Transition
118
Cultural Dimensions
120
Hofstede
120
Trompenaars
127
Integrating Culture and Management: The GLOBE Project
136
Culture and Management
137
GLOBE’s Cultural Dimensions
138
GLOBE Country Analysis
138
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Renault-Nissan in South Africa
In the International Spotlight: South Africa
5 Managing Across Cultures
141
141
142
142
143
144
146
The World of International Management: Apple v. Samsung:
Comparing Corporate Culture
146
The Strategy for Managing across Cultures
148
Strategic Predispositions
149
Meeting the Challenge
150
Cross-Cultural Differences and Similarities
153
Parochialism and Simplification
153
Similarities across Cultures
156
Many Differences across Cultures
156
Cultural Differences in Selected Countries and Regions
160
Doing Business in China
161
Doing Business in Russia
163
Doing Business in India
165
Doing Business in France
166
Doing Business in Brazil
167
Doing Business in Arab Countries
168
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Haier’s Approach
In the International Spotlight: Mexico
6 Organizational Cultures and Diversity
The World of International Management: Managing
Culture and Diversity in Global Teams
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171
171
171
171
172
174
174
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The Nature of Organizational Culture
176
Definition and Characteristics
177
Interaction between National and Organizational Cultures
178
Organizational Cultures in MNCs
182
Family Culture
184
Eiffel Tower Culture
184
Guided Missile Culture
185
Incubator Culture
186
Managing Multiculturalism and Diversity
188
Types of Multiculturalism
190
Potential Problems Associated with Diversity
192
Advantages of Diversity
193
Building Multicultural Team Effectiveness
194
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Lenovo’s International Focus
In the International Spotlight: Japan
7
188
Phases of Multicultural Development
196
196
197
197
197
199
Cross-Cultural Communication and Negotiation
200
The World of International Management:
Offshoring Culture and Communication
The Overall Communication Process
200
203
Verbal Communication Styles
203
Interpretation of Communications
206
Communication Flows
207
Downward Communication
207
Upward Communication
209
Communication Barriers
210
Language Barriers
210
Perceptual Barriers
213
The Impact of Culture
215
Nonverbal Communication
217
Achieving Communication Effectiveness
220
Improve Feedback Systems
220
Provide Language Training
220
Provide Cultural Training
221
Increase Flexibility and Cooperation
221
Managing Cross-Cultural Negotiations
Types of Negotiation
223
223
The Negotiation Process
224
Cultural Differences Affecting Negotiations
225
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Negotiation Tactics
228
Negotiating for Mutual Benefit
229
Bargaining Behaviors
231
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Working Effectively at Toyota
In the International Spotlight: China
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: Beyond Tokyo: Disney’s Expansion in Asia
In-Depth Integrative Case 2.2: Walmart’s Global Strategies
234
235
235
236
236
237
238
244
250
260
264
Part Three
International Strategic Management
8 Strategy Formulation and Implementation
The World of International Management:
Big Pharma Goes Global
Strategic Management
274
274
277
The Growing Need for Strategic Management
278
Benefits of Strategic Planning
279
Approaches to Formulating and Implementing Strategy
279
Global and Regional Strategies
283
The Basic Steps in Formulating Strategy
286
Environmental Scanning
286
Internal Resource Analysis
288
Goal Setting for Strategy Formulation
288
Strategy Implementation
290
Location Considerations for Implementation
290
Combining Country and Firm-Specific Factors in
International Strategy
292
The Role of the Functional Areas in Implementation
293
Specialized Strategies
295
Strategies for Emerging Markets
295
Entrepreneurial Strategy and New Ventures
301
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Infosys’s Global Strategy
302
303
303
303
304
In the International Spotlight: Poland
305
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9
Entry Strategies and Organizational Structures
306
The World of International Management: Volkswagen’s
Comeback: Aligning Strategy and Structure
Entry Strategies and Ownership Structures
306
308
Export/Import
308
Wholly Owned Subsidiary
309
Mergers/Acquisitions
309
Alliances and Joint Ventures
314
Alliances, Joint Ventures, and M&A: The Case of the
Automotive Industry
316
Licensing
317
Franchising
320
The Organization Challenge
Basic Organizational Structures
320
321
Initial Division Structure
321
International Division Structure
322
Global Structural Arrangements
324
Transnational Network Structures
328
Nontraditional Organizational Arrangements
330
Organizational Arrangements from Mergers,
Acquisitions, Joint Ventures, and Alliances
330
The Emergence of the Network Organizational Forms
Organizing for Product Integration
Organizational Characteristics of MNCs
332
332
334
Formalization
334
Specialization
335
Centralization
336
Putting Organizational Characteristics in Perspective
336
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Organizing for Effectiveness
In the International Spotlight: Australia
10 Managing Political Risk, Government Relations,
and Alliances
The World of International Management:
Shell’s Russian Roulette
The Nature and Analysis of Political Risk
338
338
339
339
339
340
342
342
344
Macro and Micro Analysis of Political Risk
345
Terrorism and Its Overseas Expansion
349
Analyzing the Expropriation Risk
349
Managing Political Risk and Government Relations
Developing a Comprehensive Framework or
Quantitative Analysis
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350
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Techniques for Responding to Political Risk
352
Relative Bargaining Power Analysis
352
Managing Alliances
357
The Alliance Challenge
357
The Role of Host Governments in Alliances
359
Examples of Challenges and Opportunities in
Alliance Management
360
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Nokia in China
In the International Spotlight: Brazil
11 Management Decision and Control
361
362
362
362
363
364
366
The World of International Management:
Global Online Retail: Amazon v. Alibaba
366
Decision-Making Process and Challenges
368
Factors Affecting Decision-Making Authority
369
Cultural Differences and Comparative Examples of
Decision Making
372
Total Quality Management Decisions
373
Decisions for Attacking the Competition
375
Decision and Control Linkages
The Controlling Process
376
377
Types of Control
378
Approaches to Control
380
Performance Evaluation as a Mechanism of Control
382
Financial Performance
382
Quality Performance
383
Personnel Performance
386
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Looking at the Best
In the International Spotlight: Turkey
Brief Integrative Case 3.1: Google in China:
Protecting Property and Rights
Brief Integrative Case 3.2: Can Sony Regain Its Innovative Edge?
The OLED Project
In-Depth Integrative Case 3.1: Tata “Nano”:
The People’s Car
In-Depth Integrative Case 3.2: The Ascendance of AirAsia: Building a
Successful Budget Airline in Asia
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389
389
389
390
391
392
397
402
411
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Part Four
Organizational Behavior and
Human Resource Management
12 Motivation Across Cultures
422
The World of International Management: Motivating Employees
in a Multicultural Context: Insights from the Emerging Markets
422
The Nature of Motivation
424
The Universalist Assumption
425
The Assumption of Content and Process
426
The Hierarchy-of-Needs Theory
427
The Maslow Theory
427
International Findings on Maslow’s Theory
427
The Two-Factor Theory of Motivation
431
The Herzberg Theory
431
International Findings on Herzberg’s Theory
433
Achievement Motivation Theory
437
The Background of Achievement Motivation Theory
437
International Findings on Achievement Motivation Theory
438
Select Process Theories
439
Equity Theory
439
Goal-Setting Theory
441
Expectancy Theory
441
Motivation Applied: Job Design, Work Centrality, and Rewards
442
Job Design
442
Sociotechnical Job Designs
443
Work Centrality
444
Incentives and Culture
448
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Motivating Potential Employees
In the International Spotlight: Indonesia
13 Leadership Across Cultures
450
450
452
452
452
453
454
The World of International Management: Global Leadership
Development: An Emerging Need
454
Foundation for Leadership
456
The Manager-Leader Paradigm
456
Philosophical Background: Theories X, Y, and Z
458
Leadership Behaviors and Styles
461
The Managerial Grid Performance: A Japanese Perspective
462
Leadership in the International Context
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Attitudes of European Managers toward Leadership Practices
465
Japanese Leadership Approaches
467
Differences between Japanese and U.S. Leadership Styles
468
Leadership in China
470
Leadership in the Middle East
471
Leadership Approaches in India
471
Leadership Approaches in Latin America
472
Recent Findings and Insights about Leadership
Transformational, Transactional, and Charismatic Leadership
473
473
Qualities for Successful Leaders
475
Culture Clusters and Leader Effectiveness
477
Leader Behavior, Leader Effectiveness, and Leading Teams
478
Cross-Cultural Leadership: Insights from the GLOBE Study
478
Positive Organizational Scholarship and Leadership
482
Authentic Leadership
482
Ethical, Responsible, and Servant Leadership
485
Entrepreneurial Leadership and Mindset
486
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Taking a Closer Look
In the International Spotlight: Germany
487
487
488
489
489
490
14 Human Resource Selection and Development
Across Cultures
492
The World of International Management: The Challenge
of Talent Retention in India
492
The Importance of International Human Resources
495
Getting the Employee Perspective
495
Employees as Critical Resources
496
Investing in International Assignments
496
Economic Pressures
496
Sources of Human Resources
498
Home-Country Nationals
498
Host-Country Nationals
498
Third-Country Nationals
499
Subcontracting and Outsourcing
500
Selection Criteria for International Assignments
503
General Criteria
503
Adaptability to Cultural Change
504
Physical and Emotional Health
505
Age, Experience, and Education
505
Language Training
506
Motivation for a Foreign Assignment
506
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Spouses and Dependents or Work-Family Issues
506
Leadership Ability
507
Other Considerations
507
Economic Pressures and Trends in Expat Assignments
509
International Human Resource Selection Procedures
510
Testing and Interviewing Procedures
510
The Adjustment Process
510
Compensation
512
Common Elements of Compensation Packages
513
Tailoring the Package
515
Individual and Host-Country Viewpoints
516
Candidate Motivations
516
Host-Country Desires
517
Repatriation of Expatriates
518
Reasons for Returning
518
Readjustment Problems
518
Transition Strategies
519
Training in International Management
520
The Impact of Overall Management Philosophy on Training
522
The Impact of Different Learning Styles on Training
and Development
523
Reasons for Training
524
Types of Training Programs
526
Standardized vs. Tailor-Made
Cultural Assimilators
Positive Organizational Behavior
Future Trends
526
529
530
531
The World of International Management—Revisited
Summary of Key Points
Key Terms
Review and Discussion Questions
Internet Exercise: Going International with Coke
In the International Spotlight: Russia
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
531
533
534
534
535
536
537
544
560
Skill-Building and Experiential Exercises
Personal Skill-Building Exercises
1. The Culture Quiz
2. Using Gung Ho to Understand Cultural Differences
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570
575
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3. “When in Bogotá . . .”
4. The International Cola Alliances
5. Whom to Hire?
577
580
584
In-Class Simulations (available on the Online Learning
Center at www.mhhe.com/luthans9e)
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
References
587
Endnotes
591
Glossary
631
Name and Organization Index
637
Subject Index
649
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PART ONE
ENVIRONMENTAL
FOUNDATION
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Chapter 1
OBJECTIVES OF THE CHAPTER
GLOBALIZATION AND
INTERNATIONAL LINKAGES
Globalization is one of the most profound forces in our
contemporary economic environment. And its practical
impact on international management is substantial. In nearly
every country, increasing numbers of large, medium, and
even small corporations are going international, and a growing percentage of company revenue is derived from overseas
markets. This is even true for U.S.-based companies that
historically have relied on the large domestic market. Yet, the
reverberations of the financial crisis and global economic
recession, and continued economic and political uncertainties in many world regions present challenges for governments, corporations, and communities around the world,
causing some to question the current system for regulating
and overseeing international trade, investments, and global
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 later in the chapter, “Tracing the Roots
of Modern Globalization”), 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. These developments both
create and influence the opportunities, challenges, and problems that managers in the international arena will face during
the years ahead. 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.
The World of International
Management
An Interconnected World
ay 18, 2012, marked one of the most highlyanticipated initial public offerings (IPOs) in
history. Facebook, which had grown from a college
dorm room to a 900-million-member social network in
just eight years, was set to offer shares to the public
for the first time. As May 18 approached, founder
Mark Zuckerberg, wearing his characteristic “hoodie”
sweatshirt, embarked on a roadshow to promote the
company. Facebook programmers celebrated with allnight “hackathons,” and huge demand for the IPO
prompted Facebook to release 25 percent more
shares than initially planned. The IPO price was set
to $38 per share, valuing Facebook at $104 billion.
Many analysts predicted the price would soar as high
as $60 on the first day alone. On the morning of May
18, Mark Zuckerberg ceremoniously rang a bell from
Facebook’s California campus to celebrate the opening of the market at 9:30 A.M. As Wall Street’s closing bell rang just a few hours later, however, the
original optimism that started the day had all but
faded. The shares were trading only $0.23 above the
IPO price—and down $3.82 from the opening bell
price. In the following weeks, Facebook’s stock continued its downward trajectory. By mid-August, Facebook stock had decreased to nearly half its original
offering price, leaving many to wonder, “Is social networking really here to stay?”
M
Social Media Has Changed
How We Connect
Though some have second-guessed the longevity of
online networks, 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. Virtually anyone on the globe is
only a few clicks away. In fact, the average number of
links separating any two random people on Facebook
is now only 4.74.1 Facebook’s statistics underscore how
2
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social media has connected people across
the globe:
•
•
•
•
•
•
•
•
More than one billion people have active
accounts on Facebook.
More than 50 percent of these active users log
onto Facebook in any given day.2
The average user has 190 friends.3
3.2 billion comments and likes are uploaded
per day.
18 percent of time spent online is dedicated to
social media.4
Over 80 percent of Facebook users are outside
the United States.
More than 70 translations are available on
Facebook.
Over 200 million people from the emerging
nations of Brazil, India, Indonesia, and Mexico
are now active Facebook users.5
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?
Social Media Has Changed Business Strategy
Procter & Gamble (P&G), which owns several of the most
recognizable brands on the planet, has strategically leveraged social media to improve its long-term brand image. In
2010, P&G unveiled a Billion Acts of Green™ Facebook application which allows people to “make a pledge to lessen
their environmental impact and promote environmentally
beneficial habits to friends and family via social media channels.” This social media application enables users to share
their “act of green” pledges with their Facebook network. As
of 2013, there were over one billion acts of green pledged.6
P&G has also utilized social networking to increase
revenue. After stagnant sales in 2010, P&G decided to
refocus the advertising of Pepto-Bismol online. By monitoring Facebook activity, P&G discovered that the most
social media buzz regarding Pepto-Bismol was occurring
on weekend mornings, likely after customers had overindulged the night before. To tap into this market, P&G created a Facebook initiative called “Celebrate Life.” Within
one year, Pepto-Bismol gained 11 percent market share.7
The following year, in 2011, Secret deodorant sales
began to drop. In an effort to shift its advertising toward
teenage females, P&G created a Facebook marketing campaign that addressed the issue of bullying. Titled “Mean
Stinks,” the campaign encouraged users to “like” the
Facebook page and share stories and videos. This campaign
increased activity on Secret’s Facebook page by 25 times,
and sales spiked by 9 percent over a six-month period.8
Through its use of Facebook, P&G has connected with
millions of people around the world at little cost to increase
sales and enhance its brand. Businesses have gained huge
competitive edges by seizing the opportunities inherent in
this new global society of online social networks.
Social Media Has Changed How We Do Business
In his book Socialnomics: How Social Media Transforms
the Way We Live and Do Business, Erik Qualman writes,
“Social media platforms like Facebook, YouTube, and
Twitter are fundamentally changing the way businesses
and consumers behave, connecting hundreds of millions
of people to each other via instant communication.” In
essence, social media is reshaping how “consumers and
companies communicate and interact with each other.”9
Social media has changed how consumers search for
products and services. Qualman gives the example of a
woman who wants to take a vacation to South America, but
she is not sure which country she wants to visit. In the past,
she would have typed in “South American vacation” to
Google, which would have brought her to travel websites
such as TripAdvisor. After hours of research, she would have
picked a destination. Then, after more research, she would
pick a place to stay. With social media, this woman’s vacation planning becomes streamlined. When she types “South
American vacation” into a social network, she finds that five
of her friends have taken a trip to South America in the last
year. She notices that two of her friends highly recommended their vacations to Chile with GoAhead Tours. She
clicks on a link to GoAhead Tours and books her vacation. In
a social network, online word of mouth among friends carries
great weight for consumers. With the data available from
their friends about products and services, consumers know
what they want without traditional marketing campaigns.10
This trend means that marketers must be responsive to
social networks. For example, an organization that gives
travel tours has a group on Facebook. A marketer at that
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Part 1 Environmental Foundation
organization could create a Facebook application that allows
its group members to select “places I’d like to visit.” Let’s
say that 25 percent of group members who use the application choose Victoria Falls as a place they would like to visit.
The organization could develop a tour to Victoria Falls, and
then could send a message to all of its Facebook group
members to notify them about this new tour. In this way, a
social network serves as an inexpensive, effective means of
marketing directly to a business’s target audience.
Social Media Has Impacted Diplomacy
In February 2010, Washington sent an unconventional delegation to Moscow, which included the creator of Twitter, the
chief executive of eBay, and the actor Ashton Kutcher. One
of the delegation’s goals was “to persuade Russia’s thriving
online social networks to take up social causes like fighting
corruption or human trafficking,” according to Jared Cohen
who serves on Secretary of State Hillary Clinton’s policy
planning staff. In Russia, the average adult spends 10.4 hours
a month on social networking sites, based on comScore
market research. This act of diplomacy by Washington
underscores how important social networks have become in
our world today, a world in which Twitter has helped
mobilize people to fight for freedom from corruption.
Social media networks have accelerated technological
integration among the nations of the world. People across
the globe are now linked more closely than ever before.
This social phenomenon has implications for businesses
as corporations can now leverage networks such as
Facebook to achieve greater success. Understanding the
global impact of social media is key to understanding our
global society today.
Social networks have rapidly diffused from the United States and Europe to every region
of the world, underscoring the inexorable nature of globalization. As individuals who
share interests and preferences link up, they are afforded opportunities to connect in ways
that were unimaginable just a decade ago. Facebook, Twitter, Linkedin, and others are
all providing communication platforms for individuals and groups in disparate—and
even isolated—locations around the world. Such networks also offer myriad business
opportunities for companies large and small to identify and target discrete groups of
consumers or other business partners. These networks are revolutionizing the nature of
management—including international management—by allowing producers and consumers to interact directly without the usual intermediaries. Networks and the individuals
who make them up are bringing populations of the world closer together and further
accelerating the already rapid pace of globalization and integration.
Though the disappointing Facebook IPO left many to initially question the value and
longevity of social media, the pace of interconnectivity across the globe has not slowed.
Social media has altered the way that we interact with each other, and businesses, like P&G,
have gained real advantages by leveraging online networks. In this chapter, we examine the
globalization phenomenon, the growing integration among countries and regions, the changing balance of global economic power, and examples of different economic systems. As you
read this chapter, keep in mind that although there are periodic setbacks, such as the recession
of 2008–2009, globalization is moving at a rapid pace and that all nations, including the
United States, as well as individual companies and their managers, are going to have to keep
a close watch on the current environment if they hope to be competitive in the years ahead.
management
Process of completing
activities efficiently and
effectively with and
through other people.
international management
Process of applying
management concepts and
techniques in a multinational
environment and adapting
management practices to
different economic, political,
and cultural contexts.
■ Introduction
Management is the process of completing activities with and through other people.
International management is the process of applying management concepts and
techniques in a multinational environment and adapting management practices to different economic, political, and cultural contexts. Many managers practice some level
of international management in today’s increasingly diverse organizations. International
management is distinct from other forms of management in that knowledge and
insights about global issues and specific cultures are a requisite for success. Today
more firms than ever are earning some of their revenue from international operations,
even nascent organizations as illustrated in The World of International Management
chapter opening.
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Chapter 1 Globalization and International Linkages
5
Table 1–1
The World’s Top Nonfinancial TNCs, Ranked by Foreign Assets, 2012
(in millions of dollars)
Rank
1
2
3
4
5
6
7
8
9
10
Company
Name
Home
Economy
Foreign
Assets
Total
Assets
Foreign
Sales
Total
Sales
General Electric
Royal Dutch/
Shell plc
British Petroleum
Company Plc
Toyota Motor Corporation
Total SA
Exxon Mobil Corporation
Vodafone Group Plc
GDF Suez
Chevron Corporation
Volkswagen Group
United States
Netherlands/
United Kingdom
$338,157
$685,328
$75,640
$144,796
307,938
360,325
282,930
467,153
United Kingdom
Japan
France
United States
United Kingdom
France
United States
Germany
270,247
233,193
214,507
214,349
199,003
175,057
158,865
158,046
300,193
376,841
227,107
333,795
217,031
271,607
232,982
409,257
300,216
170,486
180,440
301,840
62,065
78,555
132,743
199,129
375,580
265,770
234,287
420,714
70,224
124,711
222,580
247,624
Source: UNCTAD World Investment Report 2013, Web Table 28.
Many of these companies are multinational corporations (MNCs). An MNC is a firm
that has operations in more than one country, international sales, and a mix of nationalities
among managers and owners. In recent years such well-known American MNCs as Avon
Products, Chevron, Citicorp, Coca-Cola, Colgate Palmolive, Du Pont, ExxonMobil, Eastman
Kodak, Gillette, Hewlett-Packard, McDonald’s, Motorola, Ralston Purina, Texaco, the 3M
Company, and Xerox have all earned more annual revenue in the international arena than
they have stateside. GE, one of the world’s largest companies, with 2012 revenue of more
than $147 billion, earned 57 percent of its industrial revenue from overseas that year. Table
1–1 lists the world’s top nonfinancial companies ranked by foreign assets in 2012.
In addition, companies from developing economies, such as India, Brazil, and China,
are providing formidable competition to their North American, European, and Japanese
counterparts. Names like Cemex, Embraer, Haier, Lenovo, LG Electronics, Ping An,
Rambaxy, Telefonica, Santander, Reliance, Samsung, Grupo Televisa, Tata, and Infosys are
becoming well-known global brands. Globalization and the rise of emerging markets’
MNCs have brought prosperity to many previously underdeveloped parts of the world,
notably the emerging markets of Asia. Since 2009, sales of automobiles in China have
exceeded those in the United States. Vehicle sales in China reached a record 19.3 million
units in 2012, according to the China Association of Automobile Manufacturers, far ahead
of the 14.5 million cars and light trucks sold in the U.S.11 Moreover, a number of Chinese
auto companies are becoming global players through their exporting, foreign investment,
and international acquisitions, including the purchase by Geely of ailing Ford unit Volvo,
Fiat’s investment in Chrysler, and Tata’s purchase of Jaguar-Land Rover.
In a striking move, Cisco Systems, one of the world’s largest producers of network
equipment, such as routers, announced it would establish a “Globalization Center East” in
Bangalore, India. This center includes all the corporate and operational functions of U.S.
headquarters, which have been mirrored in India. Under this plan, which includes an investment of over $1.1 billion, one-fifth of Cisco’s senior management will move to Bangalore.12,13
In September 2012, Procter and Gamble relocated their skin care, cosmetics, and
personal care headquarters from Cincinnati to Singapore. According to P&G, Asia
accounts for roughly half of the skin care market globally, and, with the growing prosperity in Asia, is expected to continue to expand.14 Similarly, citing the massive growth
in the healthcare market in Asia, General Electric moved its X-ray business headquarters
to China in 2011, and vice chairman John Rice relocated to Hong Kong.15,16
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MNC
A firm having operations
in more than one country,
international sales, and a
nationality mix among
managers and owners.
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Table 1–2
The World’s Top Nonfinancial TNCs from Developing and Transitioning Economies,
Ranked by Foreign Assets, 2011
(in millions of dollars)
Rank
1
2
3
4
5
6
7
8
9
10
Company
Name
Home
Economy
Foreign
Assets
Total
Assets
Foreign
Sales
Total
Sales
Hutchison
Whampoa Limited
CITIC Group
Hon Hai Precision
Industries
Vale SA
China Ocean Shipping
(Group) Company
Petronas – Petroliam
Nasional BhD
Cemex S.A.B. de C.V.
America Movil SAB De CV
VimpelCom Ltd
China National
Offshore Oil Group
Hong Kong/
China
China
$77,291
71,512
$92,788
514,847
$23,477
9,923
$30,023
51,659
Taiwan
Brazil
52,198
48,045
57,451
128,728
114,285
49,475
117,992
60,389
China
40,435
52,230
19,454
29,579
Malaysia
38,907
Mexico
34,601
Mexico
32,694
Russian Federation 29,829
150,435
39,191
67,590
54,039
43,228
11,792
38,315
11,280
72,853
15,208
53,553
20,262
China
112,887
19,786
75,518
29,802
Source: UNCTAD World Investment Report 2013, Web Table 29.
IBM, another American archetype, had about 433,000 employees globally in 2012,
with only about 95,000 in the U.S. This is fewer than in India, which has about 130,000
IBM employees. In 2011, IBM drew 64 percent of its $100 billion in revenue from overseas.17 With a focus on large-scale projects in emerging markets, such as building a wireless
phone network across Africa, IBM plans to receive 30 percent of its revenue from emerging
markets by 2015.18,19 As of 2012, IBM had operations in over 20 African nations, and, in
August 2012, IBM announced the opening of a research lab in Kenya.20 More than half of
IBM’s research staff are currently located outside of the United States.
These trends reflect the reality that firms are finding they must develop international management expertise, especially expertise relevant to the increasingly
important developing and emerging markets of the world. Managers from today’s
MNCs must learn to work effectively with those from many different countries. Moreover, more and more small and medium-sized businesses will find that they are being
affected by internationalization. Many of these companies will be doing business
abroad, and those that do not will find themselves doing business with MNCs operating locally. Table 1–2 lists the world’s top nonfinancial companies from developing
countries ranked by foreign assets in 2011.
■ Globalization and Internationalization
globalization
The process of social,
political, economic,
cultural, and technological
integration among
countries around the world.
International business is not a new phenomenon; however, the volume of international
trade has increased dramatically over the last decade. Today, every nation and an increasing number of companies buy and sell goods in the international marketplace. A number
of developments around the world have helped fuel this activity.
Globalization, Antiglobalization, and Global Pressures
Globalization can be defined as the process of social, political, economic, cultural, and
technological integration among countries around the world. Globalization is distinct
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International Management in Action
Tracing the Roots of Modern Globalization
Globalization is often presented as a new phenomenon
associated with the post–World War II period. In fact,
globalization is not new. Rather, its roots extend back
to ancient times. Globalization emerged from longstanding patterns of transcontinental trade that developed over many centuries. The act of barter is the
forerunner of modern international trade. During different periods of time, nearly every civilization contributed
to the expansion of trade.
Middle Eastern Intercontinental Trade
In ancient Egypt, the King’s Highway or Royal Road
stretched across the Sinai into Jordan and Syria and
into the Euphrates Valley. These early merchants practiced their trade following one of the earliest codes of
commercial integrity: Do not move the scales, do not
change the weights, and do not diminish parts of the
bushel. Land bridges later extended to the Phoenicians,
the first middlemen of global trade. Over 2,000 years
ago, traders in silk and other rare valued goods moved
east out of the Nile basin to Baghdad and Kashmir and
linked the ancient empires of China, India, Persia, and
Rome. At its height, the Silk Road extended over 4,000
miles, providing a transcontinental conduit for the dissemination of art, religion, technology, ideas, and culture.
Commercial caravans crossing land routes in Arabian
areas were forced to pay tribute—a forerunner of custom
duties—to those who controlled such territories. In his
youth, the Prophet Muhammad traveled with traders, and
prior to his religious enlightenment the founder of Islam
himself was a trader. Accordingly, the Qur’an instructs
followers to respect private property, business agreements, and trade.
Trans-Saharan Cross-Continental Trade
Early tribes inhabiting the triad cities of Mauritania, in
ancient West Africa below the Sahara, embraced caravan trade with the Berbers of North Africa. Gold from
the sub-Saharan area was exchanged for something
even more prized—salt, a precious substance needed
for retaining body moisture, preserving meat, and flavoring food. Single caravans, stretching five miles and
including nearly 2,500 camels, earned their reputation
as ships of the desert as they ferried gold powder,
slaves, ivory, animal hides, and ostrich feathers to the
northeast and returned with salt, wool, gunpowder,
porcelain pottery, silk, dates, millet, wheat, and barley
from the East.
China as an Ancient Global Trading Initiator
In 1421, a fleet of over 3,750 vessels set sail from China
to cultivate trade around the world for the emperor. The
voyage reflected the emperor’s desire to collect tribute
in exchange for trading privileges with China and
China’s protection. The Chinese, like modern-day multinationals, sought to extend their economic reach while
recognizing principles of economic equity and fair
trade. In the course of their global trading, the Chinese
introduced uniform container measurements to enable
merchants to transact business using common weight
and dimension measurement systems. Like the early
Egyptians and later the Romans, they used coinage as
an intermediary form of value exchange or specie, thus
eliminating complicated barter transactions.
European Trade Imperative
The concept of the alphabet came to the Greeks via
trade with the Phoenicians. During the time of Alexander
the Great, transcontinental trade was extended into
Afghanistan and India. With the rise of the Roman Empire,
global trade routes stretched from the Middle East
through central Europe, Gaul, and across the English
Channel. In 1215 King John of England signed the
Magna Carta, which stressed the importance of crossborder trade. By the time of Marco Polo’s writing of The
Description of the World, at the end of the 13th century,
the Silk Road from China to the city-states of Italy was a
well-traveled commercial highway. His tales, chronicled
journeys with his merchant uncles, gave Europeans a
taste for the exotic, further stimulating the consumer
appetite that propelled trade and globalization. Around
1340, Francisco Balducci Pegolotti, a Florentine mercantile agent, authored Practica Della Mercatura (Practice of
Marketing), the first widely distributed reference on international business and a precursor to today’s textbooks.
The search for trading routes contributed to the Age of
Discovery and encouraged Christopher Columbus to sail
west in 1492.
Globalization in U.S. History
The Declaration of Independence, which set out grievances against the English crown upon which a new
nation was founded, cites the desire to “establish Commerce” as a chief rationale for establishing an independent state. The king of England was admonished
“for cutting off our trade with all parts of the world” in
one of the earliest antiprotectionist free-trade statements from the New World.
Globalization, begun as trade between and across
territorial borders in ancient times, was historically and
is even today the key driver of world economic development. The first paths in the creation of civilization
were made in the footsteps of trade. In fact the word
meaning “footsteps” in the old Anglo-Saxon language
is trada, from which the modern English word trade is
derived. Contemporary globalization is a new branch
of a very old tree whose roots were planted in antiquity.
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8
offshoring
The process by which
companies undertake some
activities at offshore
locations instead of in their
countries of origin.
outsourcing
The subcontracting or
contracting out of activities
to external organizations
that had previously been
performed by the firm.
Part 1 Environmental Foundation
from internationalization in that internationalization is the process of a business crossing
national and cultural borders, while globalization is the vision of creating one world unit,
a single market entity. Evidence of globalization can be seen in increased levels of trade,
capital flows, and migration. Globalization has been facilitated by technological advances
in transnational communications, transport, and travel. Thomas Friedman, in his book
The World Is Flat, identified 10 “flatteners” that have hastened the globalization trend,
including the fall of the Berlin Wall, offshoring, and outsourcing, which have combined
to dramatically intensify the effects of increasing global linkages.21 Hence, in recent
years, globalization has accelerated, creating both opportunities and challenges to global
business and international management.
On the plus side, global trade and investment continue to grow, bringing wealth,
jobs, and technology to many regions around the world. While some emerging countries
have not benefited from globalization and integration, the emergence of MNCs from
developing countries reflects the increasing inclusion of all regions of the world in the
benefits of globalization. Yet, as the pace of global integration quickens, so have the cries
against globalization and the emergence of new concerns over mounting global pressures.22 These pressures can be seen in protests at the meetings of the World Trade
Organization (WTO), International Monetary Fund (IMF), and other global bodies and
in the growing calls by developing countries to make the global trading system more
responsive to their economic and social needs. These groups are especially concerned
about rising inequities between incomes, and nongovernmental organizations (NGOs)
have become more active in expressing concerns about the potential shortcomings of
economic globalization.23
Who benefits from globalization? Proponents believe that everyone benefits from
globalization, as evidenced in lower prices, greater availability of goods, better jobs, and
access to technology. Theoretically, individuals in established markets will strive for better education and training to be prepared for future positions, while citizens in emerging
markets and underdeveloped countries will reap the benefits of large amounts of capital
flowing into those countries which will stimulate growth and development. Critics disagree, noting that the high number of jobs moving abroad as a result of the offshoring
of business services jobs to lower-wage countries does not inherently create greater
opportunities at home and that the main winners of globalization are the company executives. Proponents claim that job losses are a natural consequence of economic and
technological change and that offshoring actually improves the competitiveness of American companies and increases the size of the overall economic pie.24 Critics point out
that growing trade deficits and slow wage growth are damaging economies and that
globalization may be moving too fast for some emerging markets, which could result in
economic collapse. Moreover, critics argue that when production moves to countries to
take advantage of lower labor costs or less regulated environments, it creates a “race to
the bottom” in which companies and countries place downward pressure on wages and
working conditions.25
India is one country at the center of the globalization debate. As noted above, India
has been the beneficiary of significant foreign investment, especially in services such as
software and IT. Limited clean water, power, paved roadways, and modern bridges, however, are making it increasingly difficult for companies to expand. There have even been
instances of substantial losses for companies using India as an offshore base, such as
occurred when Nokia Corp. experienced the destruction of thousands of cellular phones
due to a lack of storage space at an airport during a rainstorm. With India’s public debt
at around 70 percent of GDP, the country now stands where China did a decade ago. It
is possible that India will follow in China’s footsteps and continue rapid growth in
incomes and wealth; however, it is also possible that the challenges India faces are greater
than the country’s capacity to respond to them.26
This example illustrates just one of the ways in which globalization has raised
particular concerns over environmental and social impacts. According to antiglobalization
activists, if corporations are free to locate anywhere in the world, the world’s poorest
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A Closer Look
Outsourcing and Offshoring
The concepts of outsourcing and offshoring are not new,
but these practices are growing at an extreme rate. Offshoring refers to the process by which companies
undertake some activities at offshore locations instead
of in their countries of origin. Outsourcing is the subcontracting or contracting out of activities to external organizations that had previously been performed within the
firm and is a wholly different phenomenon. Often the two
combine to create “offshore outsourcing.” Offshoring
began with manufacturing operations. Globalization
jump-started the extension of offshore outsourcing of
services, including call centers, R&D, information services, and even legal work. During 2006, Du Pont hired
attorneys in Manila to oversee documentation in preparation for legal cases. The company hopes to save an
estimated $6 million in legal spending by moving offshore and cutting documentation by 40 to 60 percent
once everything is scanned and digitally saved. This is
a risky venture as legal practices are not the same
across countries, and the documents may be too sensi-
tive to rely on assembly-line lawyers. It also raises the
question as to whether or not there are limitations to
offshore outsourcing. Many companies, including
Deutsche Bank, spread offshore outsourcing opportunities across multiple countries such as India and Russia
for economic or political reasons. The advantages,
concerns, and issues with offshoring span a variety of
subjects. Throughout the text we will revisit the idea of
offshore outsourcing as it is relevant. Here in Chapter 1
we see how skeptics of globalization wonder if there
are benefits to offshore outsourcing, while in Chapter 2
we see how these are related to technology, and finally
in Chapter 14 we see how offshore practices affect
human resource management and the global distribution of work.
Source: Pete Engardio and Assif Shameen, “Let’s Offshore
the Lawyers,” BusinessWeek, September 18, 2006, p. 42;
and Tony Hallett and Andy McCue, “Why Deutsche Bank
Spreads Its Outsourcing,” BusinessWeek, March 15, 2007.
countries will relax or eliminate environmental standards and social services in order to
attract first-world investment and the jobs and wealth that come with it. Proponents of
globalization contend that even within the developing world, it is protectionist policies,
not trade and investment liberalization, that result in environmental and social damage.
They believe globalization will force higher-polluting countries such as China and Russia
into an integrated global community that takes responsible measures to protect the environment. However, given the significant changes required in many developing nations to
support globalization, such as better infrastructure, greater educational opportunities, and
other improvements, most supporters concede that there may be some short-term disruptions. Over the long term, globalization supporters believe industrialization will create
wealth that will enable new industries to employ more modern, environmentally friendly
technology. We discuss the social and environmental aspects of globalization in more
detail in Chapter 3.
These contending perspectives are unlikely to be resolved anytime soon. Instead,
a vigorous debate among countries, MNCs, and civil society will likely continue and
affect the context in which firms do business internationally. Business firms operating
around the world must be sensitive to different perspectives on the costs and benefits of
globalization and adapt and adjust their strategies and approaches to these differences.
Global and Regional Integration
One important dimension of globalization is the increasing economic integration among
countries brought about by the negotiation and implementation of trade and investment
agreements. Here we provide a brief overview of some of the major developments in
global and regional integration.
Over the past six decades, succeeding rounds of global trade negotiations have
resulted in dramatically reduced tariff and nontariff barriers among countries. Table 1–3
shows the history of these negotiation rounds, their primary focus, and the number of
countries involved. These efforts reached their crest in 1994 with the conclusion of the
Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) and the creation of the World Trade Organization (WTO) to
World Trade
Organization (WTO)
The global organization of
countries that oversees
rules and regulations for
international trade and
investment.
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Table 1–3
Completed Rounds of the Negotiations under the GATT and WTO
Year
Place (name)
Subjects Covered
1947
1949
1951
1956
1960–1961
Geneva
Annecy
Torquay
Geneva
Geneva
(Dillon Round)
Geneva
(Kennedy Round)
Geneva
(Tokyo Round)
Geneva
(Uruguay Round)
Tariffs
Tariffs
Tariffs
Tariffs
Tariffs
1964–1967
1973–1979
1986–1994
Countries
23
13
38
26
26
Tariffs and antidumping
measures
Tariffs, nontariff measures,
“framework” agreements
Tariffs, nontariff measures,
services, intellectual property,
dispute settlement, textiles,
agriculture, creation of WTO
62
102
123
Source: Understanding the WTO (Geneva: World Trade Organization, 2008), http://www.
wto.org/english/thewto_e/whatis_e/tif_e/understanding_e.pdf. Reprinted with permission.
North American Free
Trade Agreement
(NAFTA)
A free-trade agreement
between the United States,
Canada, and Mexico that
has removed most barriers
to trade and investment.
oversee the conduct of trade around the world. The WTO is the global organization of
countries that oversees rules and regulations for international trade and investment,
including agriculture, intellectual property, services, competition, and subsidies. Recently,
however, the momentum of global trade agreements has slowed. In December 1999, trade
ministers from around the world met in Seattle to launch a new round of global trade
talks. In what later became known as the “Battle in Seattle,” protesters disrupted the
meeting, and representatives of developing countries who felt their views were being left
out of the discussion succeeded in ending the discussions early and postponing a new
round of trade talks. Two years later, in November 2001, the members of the WTO met
again and successfully launched a new round of negotiations at Doha, Qatar, to be known
as the “Development Round,” reflecting the recognition by members that trade agreements needed to explicitly consider the needs of and impact on developing countries.27
However, after a lack of consensus among WTO members regarding agricultural subsidies and the issues of competition and government procurement, progress slowed. At a
meeting in Cancún in September 2003, a group of 20-plus developing nations, led by
Brazil and India, united to press developed countries such as the United States, the
European Union (EU), and Japan to reduce barriers to agricultural imports. Failure to
reach agreement resulted in another setback, and although there have been attempts to
restart the negotiations, they have remained stalled, especially in light of rising protectionism in the wake of the global economic crisis.28
Partly as a result of the slow progress in multilateral trade negotiations, the United
States and many other countries have pursued bilateral and regional trade agreements.
The United States, Canada, and Mexico make up the North American Free Trade
Agreement (NAFTA), which in essence has removed all barriers to trade among these
countries and created a huge North American market. A number of economic developments have occurred because of this agreement which are designed to promote commerce
in the region. Some of the more important developments include (1) the elimination of
tariffs as well as import and export quotas; (2) the opening of government procurement
markets to companies in the other two nations; (3) an increase in the opportunity to make
investments in each other’s country; (4) an increase in the ease of travel between countries; and (5) the removal of restrictions on agricultural products, auto parts, and energy
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Chapter 1 Globalization and International Linkages
goods. Many of these provisions were implemented gradually. For example, in the case
of Mexico, quotas on Mexican products in the textile and apparel sectors were phased
out over time, and customs duties on all textile products were eliminated over 10 years.
Negotiations between NAFTA members and many Latin American countries, such as
Chile, have concluded, and others are ongoing. Moreover, other regional and bilateral
trade agreements, including the U.S.–Singapore Free Trade Agreement, concluded in
May 2003, and the U.S.–Central American Free Trade Agreement (CAFTA), later
renamed CAFTA-DR to reflect the inclusion of the Dominican Republic in the agreement
and concluded in May 2004, were negotiated in the same spirit as NAFTA. The U.S.
Congress approved the CAFTA-DR in July 2005, and the president signed it into law on
August 2, 2005. The export zone created will be the United States’ second largest freetrade zone in Latin America after Mexico. The United States is implementing the
CAFTA-DR on a rolling basis as countries make sufficient progress to complete their
commitments under the agreement. The agreement first entered into force between the
United States and El Salvador on March 1, 2006, followed by Honduras and Nicaragua
on April 1, 2006, Guatemala on July 1, 2006, and the Dominican Republic on March 1,
2007. Implementation by Costa Rica was delayed by concerns over the impact of the
opening of Costa Rica’s energy and telecommunications monopoly, and a subsequent
election and referendum; however, the agreement finally entered into force for Costa
Rica on January 1, 2009.29
Agreements like NAFTA and CAFTA not only reduce barriers to trade but also
require additional domestic legal and business reforms in developing nations to protect
property rights. Most of these agreements now include supplemental commitments on
labor and the environment to encourage countries to upgrade their working conditions
and environmental protections, although some critics believe the agreements do not go
far enough in ensuring worker rights and environmental standards. Partly due to the
stalled progress with the WTO and FTAA, the United States has pursued bilateral trade
agreements with a range of countries, including Australia, Bahrain, Chile, Colombia,
Israel, Jordan, Malaysia, Morocco, Oman, Panama, Peru, and Singapore.30
Economic activity in Latin America continues to be volatile. Despite the continuing
political and economic setbacks these countries periodically experience, economic and
export growth continue in Brazil, Chile, and Mexico. In addition, while outside MNCs
continually target this geographic area, there also is a great deal of cross-border investment between Latin American countries. Regional trade agreements are helping in this
cross-border process, including NAFTA, which ties the Mexican economy more closely
to the United States. The CAFTA agreement, signed August 5, 2006, between the United
States and Central American countries presents new opportunities for bolstering trade,
investment, services, and working conditions in the region. Within South America there
are Mercosur, a common market created by Argentina, Brazil, Paraguay, Uruguay, and
Venezuela, and the Andean Common Market, a subregional free-trade compact that is
designed to promote economic and social integration and cooperation between Bolivia,
Colombia, Ecuador, and Peru.
The European Union (EU) has made significant progress over the past decade in
becoming a unified market. In 2003 it consisted of 15 nations: Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, the Netherlands, Ireland, Italy,
Luxembourg, Portugal, Spain, and Sweden. In May 2004, 10 additional countries joined
the EU: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
Slovakia, and Slovenia. On January 1, 2007, Romania and Bulgaria acceded to the EU,
and on July 1, 2013, Croatia officially became the newest and 28th member of the EU.
Not only have most trade barriers between the members been removed, but a subset of
European countries have adopted a unified currency called the euro. As a result, it is
now possible for customers to compare prices between most countries and for business
firms to lower their costs by conducting business in one, uniform currency. With access
to the entire pan-European market, large MNCs can now achieve the operational scale
and scope necessary to reduce costs and increase efficiencies. Even though long-standing
www.MyEbookNiche.eCrater.com
11
European Union
A political and economic
community consisting of
28 member states.
12
Part 1 Environmental Foundation
cultural differences remain, and the EU has recently experienced some substantial
...
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