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This week we learned about motivational strategies and why to use different strategies with different cultures. For this discussion, choose a country other than your own, and then decide which of the Motivation Theories described in the chapter would be the best to use with employees in that country. Then give an example of a motivational technique you would use as a manager to motivate your employees.

International
Management
TENTH EDITION
Culture, Strategy, and Behavior
Fred Luthans | Jonathan P. Doh
International Management
Culture, Strategy, and Behavior
Tenth Edition
Jonathan P. Doh
Villanova University
Fred Luthans
University of Nebraska–Lincoln
INTERNATIONAL MANAGEMENT: CULTURE, STRATEGY, AND BEHAVIOR, TENTH EDITION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGrawHill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015,
2012, and 2009. No part of this publication may be reproduced or distributed in any form or by any means,
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United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 LMN 21 20 19 18 17 16
ISBN 978-1-259-70507-6
MHID 1-259-70507-2
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Library of Congress Cataloging-in-Publication Data
Names: Luthans, Fred, author. | Doh, Jonathan P., author.
Title: International management : culture, strategy, and behavior / Fred
Luthans, University of Nebraska-Lincoln, Jonathan P. Doh, Villanova
University.
Description: Tenth Edition. | Dubuque: McGraw-Hill Education, [2018] |
Revised edition of the authors’ International management, [2015]
Identifiers: LCCN 2016055609| ISBN 9781259705076 (alk. paper) | ISBN
1259705072 (alk. paper)
Subjects: LCSH: International business enterprises—Management. |
International business enterprises—Management—Case studies.
Classification: LCC HD62.4 .H63 2018 | DDC 658/.049—dc23 LC record
available at https://lccn.loc.gov/2016055609
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website
does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education
does not guarantee the accuracy of the information presented at these sites.
mheducation.com/highered
Dedicated in Memory of
Rafael Lucea,
A Passionate Advocate for Global Business Education and Experience.
iii
Preface
C
hanges in the global business environment continue unabated and at an accelerated
pace. Many surprising and difficult-to-predict developments have rocked global
peace and economic security. Terrorism, mass migration, the United Kingdom’s exit from
the European Union, and the rise of anti-immigration political movements in Europe, the
United States, and elsewhere have called into question assumptions about the direction
of the global political economy. In addition, rapid advances in social media have not only
accelerated globalization but also provided a means for those who seek political and
economic changes to organize and influence their leaders for more responsible governance, or, in some cases, advance a more narrow ideological agenda (see opening articles
in Chapters 1 and 2). In addition, concerns about climate change and other environmental issues have prompted companies, in conjunction with governments and nongovernmental organizations, to consider alternate approaches to business and governance (see
Chapter 3 opening article).
Some of these developments have challenged longstanding beliefs about the power
and benefits of globalization and economic integration, but they also underscore the
interconnected nature of global economies. Although many countries and regions around
the world are closely linked, important differences in institutional and cultural environments persist, and some of these differences have become even more pronounced in
recent years. The challenges for international management reflect this dynamism and the
increasing unpredictability of global economic and political events. Continued growth of
the emerging markets is reshaping the global balance of economic power, even though
differences exist between and among regions and countries. Although many emerging
markets continued to experience growth during a period when developed countries’
economies stagnated or declined, others, like Russia and Brazil, have faced major setbacks. Further, some developed economies, such as Greece, Italy, Spain, and Portugal,
continue to face formidable challenges that stem from the European debt crisis that began
in 2009. Low or negative interest rates reflect a “new normal” of slower-than-average
growth among many global economies.
The global political and security environment remains unpredictable and volatile,
with ongoing conflicts in the Middle East and Africa and continuing tensions in Iran,
North Korea, Iraq, and Afghanistan and elsewhere. Another crisis stemming from conflict in Syria and elsewhere has resulted in mass migration—and broad dislocations—
across North Africa and Southern, even Northern, Europe (see Chapters 1 and 2 for
further discussion). On the economic front, the global trade and integration agenda seems
stalled, largely due to domestic political pressures in Europe and North America. Although
the Trans-Pacific Partnership (TPP), a proposed free-trade agreement including 12 countries in the Americas and Asia, was concluded, its ratification in the United States is
uncertain. Similarly, the fate of the Transatlantic Trade and Investment Partnership, which
was still under negotiation at the time of this writing, is also unclear.
As noted above, the advent of social networking has transformed the way citizens
interact; how businesses market, promote, and distribute their products globally; and how
civil society expresses its concerns that governments provide greater freedoms and
accountability. Concurrently, companies, individuals, and even students can now engage
in broad “mass” collaboration through digital, online technology for the development of
new and innovative systems, products, and ideas. Both social networking and mass collaboration bring new power and influence to individuals across borders and transform
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Preface
the nature of their relationships with global organizations. Although globalization and
technology continue to link nations, businesses, and individuals, these linkages also highlight the importance of understanding different cultures, national systems, and corporate
management practices around the world. The world is now interconnected geographically,
but also electronically and psychologically; as such, nearly all businesses have been
touched in some way by globalization. Yet, as cultural, political, and economic differences persist, astute international managers must be in a position to adapt and adjust to
the vagaries of different contexts and environments.
In this new tenth edition of International Management, we have retained the
strong and effective foundations gained from research and practice over the past
decades while incorporating the important latest research and contemporary insights
that have changed the context and environment for international management. Several
trends have emerged that pose both challenges and opportunities for international
managers.
First, more nationalistically oriented governments and/or political movements
have emerged in many regions of the world, challenging previous assumptions about
the benefits and inevitability of globalization and integration. Second, while emerging
markets continue to rise in importance, some—such as China and India—have fared
much better economically than others—such as Brazil and Russia. Third, aging populations and concerns about migration have challenged many developed country governments as they wrestle with these dual pressures. Fourth, social media and other forms
of electronic connectivity continue to facilitate international business of all sorts; however, these connection go only so far, with many barriers and limitations imposed by
governments.
Although we have extensive new, evidence-based material in this edition, we
continue to strive to make the book even more user-friendly and applicable to practice. We continue to take a balanced approach in the tenth edition of International
Management: Culture, Strategy, and Behavior. Whereas other texts stress culture,
strategy, or behavior, our emphasis on all three critical dimensions—and the interactions among them—has been a primary reason why the previous editions have been
the market-leading international management text. Specifically, this edition has the
following chapter distribution: environment (three chapters), culture (four chapters),
strategy (four chapters), and organizational behavior/human resource management
(three chapters). Because the context of international management changes rapidly,
all the chapters have been updated and improved. New real-world examples and
research results are integrated throughout the book, accentuating the experiential
relevance of the straightforward content. As always, we emphasize a balance of
research and application.
For the new tenth edition we have incorporated important new content in the areas
of the emergence and role of social media as a means of transacting business and mobilizing social movements, the global pressures around migration, the role of the “sharing”
economy as represented by companies such as Uber, and other important global themes.
We have incorporated the latest research and practical insights on pressure for MNCs to
adopt more sustainable practices, and the strategies many companies are using to differentiate their products through such “green” management practices. We have updated
discussion of a range of contemporary topics, including continued exploration of the role
of the comprehensive GLOBE study on cross-cultural leadership.
A continuing and relevant end-of-chapter feature in this edition is the “Internet
Exercise.” The purpose of each exercise is to encourage students to use the Internet
to find information from the websites of prominent MNCs to answer relevant questions about the chapter topic. An end-of-book feature is a series of Skill-Building and
Experiential Exercises for aspiring international managers. These in-class exercises
represent the various parts of the text (culture, strategy, and behavior) and provide
hands-on experience.
Preface
We have extended from the ninth edition of International Management the chapter-opening discussions called “The World of International Management” (WIM),
based on very recent, relevant news stories to grab readers’ interest and attention. Many
of these opening articles are new to this edition and all have been updated. These
timely opening discussions transition the reader into the chapter topic. At the end of
each chapter, there is a pedagogical feature that revisits the chapter’s subject matter:
“The World of International Management—Revisited.” Here we pose several discussion
questions based on the topic of the opening feature in light of the student’s entire
reading of the chapter. Answering these questions requires readers to reconsider and
to draw from the chapter material. Suggested answers to these “WIM—Revisited”
discussion questions appear in the completely updated Instructor’s Manual, where we
also provide some multiple-choice and true-false questions that draw directly from the
chapters’ World of International Management topic matter for instructors who want to
include this material in their tests.
The use and application of cases are further enhanced in this edition. All cases
have been updated and several new ones have been added. The short within-chapter
country case illustrations—“In the International Spotlight”—can be read and discussed in class. These have all been revised and three have been added—Cuba, Greece,
and Nigeria. In addition, we have added an additional exercise, “You Be the International Management Consultant,” that presents a challenge or dilemma facing a company in the subject country of the “Spotlight.” Students are invited to respond to a
question related to this challenge. The revised or newly added “Integrative Cases”
positioned at the end of each main part of the text were created exclusively for this
edition and provide opportunities for reading and analysis outside of class. Review
questions provided for each case are intended to facilitate lively and productive written analysis or in-class discussion. Our “Brief Integrative Cases” typically explore a
specific situation or challenge facing an individual or team. Our longer and more
detailed “In-Depth Integrative Cases” provide a broader discussion of the challenges
facing a company. These two formats allow maximum flexibility so that instructors
can use the cases in a tailored and customized fashion. Accompanying many of the
in-depth cases are short exercises that can be used in class to reinforce both the substantive topic and students’ skills in negotiation, presentation, and analysis. The cases
have been extensively updated and several are new to this edition. Cases concerning
the controversies over drug pricing, TOMS shoes, Russell Athletics/Fruit of the Loom,
Euro Disneyland and Disney Asia, Google in China, IKEA, HSBC, Nike, Walmart,
Tata, Danone, Chiquita, Coca-Cola, and others are unique to this book and specific
to this edition. Of course, instructors also have access to Create (www.mcgraw-hillcreate.com), McGraw-Hill’s extensive content database, which includes thousands of
cases from major sources such as Harvard Business School, Ivey, Darden, and NACRA
case databases.
Along with the new or updated “International Management in Action” boxed application examples within each chapter and other pedagogical features at the end of each
chapter (i.e., “Key Terms,” “Review and Discussion Questions,” “The World of International Management—Revisited,” and “Internet Exercise”), the end-of-part brief and indepth cases and the end-of-book skill-building exercises and simulations in the Connect
resources complete the package.
International Management is generally recognized to be the first “mainstream”
text of its kind. Strategy casebooks and specialized books in organizational behavior,
human resources, and, of course, international business, finance, marketing, and economics preceded it, but there were no international management texts before this
one, and it remains the market leader. We have had sustainability because of the
effort and care put into the revisions. We hope you agree that this tenth edition
continues the tradition and remains the “world-class” text for the study of international management.
vii
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Preface
McGraw-Hill Connect®: connect.mheducation.com
Continually evolving, McGraw-Hill Connect® has been redesigned to provide the only
true adaptive learning experience delivered within a simple and easy-to-navigate environment, placing students at the very center.
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Performance Analytics—Now available for both instructors and students,
easy-to-decipher data illuminate course performance. Students always know
how they’re doing in class, while instructors can view student and section
performance at a glance.
Personalized Learning—Squeezing the most out of study time, the adaptive
engine within Connect creates a highly personalized learning path for each
student by identifying areas of weakness and providing learning resources to
assist in the moment of need.
This seamless integration of reading, practice, and assessment ensures that the focus is
on the most important content for that individual.
Instructor Library The Connect Management Instructor Library is your repository
for additional resources to improve student engagement in and out of class. You can
select and use any asset that enhances your lecture.
To help instructors teach international management, this text is accompanied by a
revised and expanded Instructor’s Resource Manual, Test Bank, and PowerPoint slides,
all of which are in the Connect Library.
Acknowledgments
We would like to acknowledge those who have helped to make this book a reality. We
will never forget the legacy of international management education in general and for this
text in particular provided by our departed colleague Richard M. Hodgetts. Special thanks
also go to our growing number of colleagues throughout the world who have given us
many ideas and inspired us to think internationally. Closer to home, Jonathan Doh would
like to thank the Villanova School of Business and its leadership, especially Provost Pat
Maggitti, Interim Dean Daniel Wright, Dean Joyce Russell, Interim Vice Dean Wen Mao,
and Herb Rammrath, who generously endowed the Chair in International Business
­Jonathan now holds. Also, for this new tenth edition we would like to thank Ben Littell,
who did comprehensive research, graphical design, and writing to update chapter material
and cases. Specifically, Ben researched and drafted chapter opening World of International
Management features, developed a number of original graphics, and provided extensive
research assistance for other revisions to the book. Allison Meade researched and drafted
the Chapter 4 World of International Management feature on “Culture Clashes in CrossBorder Mergers and Acquisitions.” Fred Luthans would like to give special recognition
to two international management scholars: Henry H. Albers, former Chair of the Management Department at the University of Nebraska and former Dean at the University of
Petroleum and Minerals, Saudi Arabia, to whom previous editions of this book were
dedicated; and Sang M. Lee, former Chair of the Management Department at Nebraska,
founding and current president of the Pan Pacific Business Association, and close colleague on many ventures around the world over the past 30 years.
In addition, we would like to acknowledge the help that we received from the many
reviewers from around the globe, whose feedback guided us in preparing the tenth edition
of the text. These include
Joseph S. Anderson, Northern Arizona
University
Chi Anyansi-Archibong, North Carolina
A&T State University
Koren Borges, University of North
Florida
Lauryn De George, University of Central
Florida
Jae Jung, University of Missouri at Kansas
City
Manjula S. Salimath, University of North
Texas
ix
Preface
Our thanks, too, to the reviewers of previous editions of the text:
Thomas M. Abbott, Post University
Yohannan T. Abraham, Southwest Missouri State
University
Janet S. Adams, Kennesaw State University
Irfan Ahmed, Sam Houston State University
Chi Anyansi-Archibong, North Carolina A&T State
University
Kibok Baik, James Madison University
R. B. Barton, Murray State University
Lawrence A. Beer, Arizona State University
Koren Borges, University of North Florida
Tope A. Bello, East Carolina University
Mauritz Blonder, Hofstra University
Gunther S. Boroschek, University of Massachusetts–Boston
Charles M. Byles, Virginia Commonwealth University
Constance Campbell, Georgia Southern University
Scott Kenneth Campbell, Georgia College & State
University
M. Suzanne Clinton, University of Central Oklahoma
Helen Deresky, SUNY Plattsburgh
Dr. Dharma deSilva, Center for International Business
Advancement (CIBA)
David Elloy, Gonzaga University
Val Finnigan, Leeds Metropolitan University
David M. Flynn, Hofstra University
Jan Flynn, Georgia College and State University
Joseph Richard Goldman, University of Minnesota
James Gran, Buena Vista University
Robert T. Green, University of Texas at Austin
Annette Gunter, University of Central Oklahoma
Jerry Haar, Florida International University–Miami
Jean M. Hanebury, Salisbury State University
Richard C. Hoffman, Salisbury State University
Johan Hough, University of South Africa
Julie Huang, Rio Hondo College
Mohd Nazari Ismail, University of Malaya
Steve Jenner, California State University–Dominguez Hills
James P. Johnson, Rollins College
Marjorie Jones, Nova Southeastern University
Jae C. Jung, University of Missouri–Kansas City
Ann Langlois, Palm Beach Atlantic University
Robert Kuhne, Hofstra University
Christine Lentz, Rider University
Ben Lever III, College of Charleston
Robert C. Maddox, University of Tennessee
Curtis Matherne III, East Tennessee State University
Douglas M. McCabe, Georgetown University
Jeanne M. McNett, Assumption College
Lauryn Migenes, University of Central Florida
Alan N. Miller, University of Nevada, Las Vegas
Ray Montagno, Ball State University
Rebecca J. Morris, University of Nebraska–Omaha
Ernst W. Neuland, University of Pretoria
William Newburry, Rutgers Business School
Yongsun Paik, Loyola Marymount University
Valerie S. Perotti, Rochester Institute of Technology
Richard B. Peterson, University of Washington
Suzanne J. Peterson, University of Nebraska–Lincoln
Joseph A. Petrick, Wright State University
Juan F. Ramirez, Nova Southeastern University
Richard David Ramsey, Southeastern Louisiana University
Owen Sevier, University of Central Oklahoma
Mansour Sharif-Zadeh, California State Polytechnic
University–Pomona
Emeric Solymossy, Western Illinois University.
Jane H. Standford, Texas A&M University–Kingsville
Dale V. Steinmann, San Francisco State University
Randall Stross, San Jose State University
George Sutija, Florida International University
Deanna Teel, Houston Community College
David Turnipseed, University of South Alabama–Mobile
Katheryn H. Ward, Chicago State University
Li Weixing, University of Nebraska–Lincoln
Aimee Wheaton, Regis College
Marion M. White, James Madison University
Timothy Wilkinson, University of Akron
George Yacus, Old Dominion University
Corinne Young, University of Tampa
Zhe Zhang, University of Central Florida–Orlando
Anatoly Zhuplev, Loyola Marymount University
Finally, thanks to the team at McGraw-Hill who worked on this book: Susan Gouijnstook,
Managing Director; Anke Weekes, Executive Brand Manager; Laura Hurst Spell, Senior
Product Developer; Erin Guendelsberger, Development Editor; Michael Gedatus, Marketing Manager; and Danielle Clement, Content Project Manager. Last but by no means
least, we greatly appreciate the love and support provided by our families.
Fred Luthans and Jonathan P. Doh
Luthans
The tenth
edition of International
Management: Culture,
Strategy, and Behavior
is still setting the
standard. Authors
Jonathan Doh and
Fred Luthans have
Doh
New and Enhanced Themes
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taken care to retain
the effective
foundation gained
from research and
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practice over the past
decades. At the same
time, they have fully
Thoroughly Revised and Updated Chapter Content
∙
incorporated important
new and emerging
developments that
have changed what
international managers
are currently facing
and likely to face in
the coming years.
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x
Thoroughly revised and updated chapters to reflect the most
critical issues for international managers.
Greater attention to demographic trends and human mobility,
underscoring the importance of aging work forces, migration,
culture, and global talent management.
Focus on global sustainability and sustainable management
practices and their impact on international management.
New or revised opening World of International Management
(WIM) features written by the authors on current international
management challenges; these mini-cases were prepared
expressly for this edition and are not available elsewhere.
Discussions of the rise of global terrorism, the migrant crisis,
the growing role of social media in international transactions,
and many other contemporary topics presented in the opening
chapter and throughout the book.
New and updated discussions of major issues in global ethics,
sustainability, and insights from project GLOBE and other
cutting-edge research.
Greater emphasis on major emerging regions, economic challenges
in major countries such as Brazil and Russia, and specific case
illustrations on how companies are managing these challenges.
New or revised opening WIM discussions on topics including
the global influences of social media using the case of Snapchat; the role of social networking in political change in the
Middle East; sustainability as a global competitive advantage
using examples of Patagonia, Tesla, and Nestlé; and cultural
challenges in global mergers and acquisitions. Others address
the competitive dynamics between Apple and Xiaomi and
Amazon and Alibaba, the emergence of Haier as the largest
global appliance company, Netflix’s challenges in China and
Russia, and many others. These features were written expressly
for this edition and are not available elsewhere.
Updated and strengthened emphasis on ethics, social
responsibility, and sustainability.
Extensive coverage of Project GLOBE, its relationship to other
cultural frameworks, and its application to international management practice (Chapters 4, 13).
Revised or new “In the International Spotlight” inserts that
profile the key economic and political issues relevant to
managers in specific countries.
Greater coverage of the challenges and opportunities for international strategy targeted to the developing “base of the
pyramid” economies (Chapter 8 and Tata cases).
Continues to Set the Standard. . .
Thoroughly Updated and/or New Cases,
Inserts, and Exercises
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Completely new “In the International Spotlight” country profiles at
the end of every chapter including the addition of profiles on Cuba,
Greece, and Nigeria.
“You Be the International Management Consultant” exercises presenting an actual company’s challenge in that country and inviting
students to recommend a course of action.
New “International Management in Action” features, including
discussions on timely topics such as the rise of Bitcoin, the
Volkswagen emissions scandal, and the political risks facing Uber,
to name a few.
Thoroughly updated cases (not available elsewhere): TOMS shoes,
Russell Athletics/Fruit of the Loom, Euro Disneyland and Disney
Asia, Google in China, IKEA, HSBC, Nike, Walmart, Tata, Danone,
Chiquita, Coca-Cola, and others are unique to this book and specific
to this edition.
Brand new end-of-part cases developed exclusively for this edition
(not available elsewhere): TOMS Puts Its Right Foot Forward; The
Ethics of Global Drug Pricing.
Brand new “World of International Management” chapter opening
discussions, including topics such as Netflix’s expansion to emerging markets, the merger of ABInBev and SABMiller, the battle
brewing between Apple’s iPhone and Chinese cell phone startups,
the impact of Russian sanctions on international businesses, and the
growth of Chinese brand Haier, to name a few.
New and revised graphics throughout.
Timely updates throughout, based on the latest research, including
an extended discussion of the GLOBE project, the continued impact
of global terrorism on international business, and the push towards a
sustainable future, to name a few.
Totally Revised Instructor and Student Support
The following instructor and student support materials can be found in
Connect® at connect.mheducation.com for the Tenth Edition.
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The Instructor’s Manual offers a summary of Learning Objectives
and a teaching outline with lecture notes and teaching tips, as
well as suggested answers to questions found throughout and at
the conclusion of each chapter. Suggested answers are also provided for all the cases found in the book.
The test bank is offered in both Word and EZ Test formats and
offers over 1,000 test items consisting of true/false, multiple choice,
and essay. Answers are provided for all test bank questions.
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Continues to Set the Standard. . .
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PowerPoint Presentations consisting of 30 slides per chapter give instructors
talking points, feature exhibits from the text, and are summarized with a
review and discussion slide.
LearnSmart®: The Tenth Edition of International Management is available with LearnSmart, the most widely used adaptive learning resource,
which is proven to improve grades. To improve your understanding of
this subject and improve your grades, go to McGraw-Hill Connect® at
connect.mheducation.com and find out more about LearnSmart. By
helping students focus on the most important information they need to
learn, LearnSmart personalizes the learning experience so they can study
as efficiently as possible.
SmartBook®: An extension of LearnSmart, SmartBook is an adaptive eBook
that helps students focus their study time more effectively. As students read,
SmartBook assesses comprehension and dynamically highlights where they
need to study more.
Create: Instructors can now tailor their teaching resources to match the way
they teach! With McGraw-Hill Create, create.mheducation.com, instructors
can easily rearrange chapters, combine material from other content sources,
and quickly upload and integrate their own content, like course syllabi or
teaching notes. Find the right content in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange the material to fit your
teaching style. Order a Create book and receive a complimentary print
review copy in 3–5 business days or a complimentary electronic review
copy (echo) via e-mail within one hour. Go to create.mheducation.com
today and register.
McGraw-Hill Campusâ„¢
McGraw-Hill Campus is a new one-stop teaching and learning experience available to
users of any learning management system.
This institutional service allows faculty and students to enjoy single sign-on
(SSO) access to all McGraw-Hill Higher Education materials, including the awardwinning McGraw-Hill Connect platform, from directly within the institution’s website. With McGraw-Hill Campus, faculty receive instant access to teaching materials
(e.g., eTextbooks, test banks, PowerPoint slides, learning objectives, etc.), allowing
them to browse, search, and use any instructor ancillary content in our vast library
at no additional cost to instructor or students. In addition, students enjoy SSO access
to a variety of free content and subscription-based products (e.g., McGraw-Hill Connect). With McGraw-Hill Campus enabled, faculty and students will never need to
create another account to access McGraw-Hill products and services. Learn more at
www.mhcampus.com.
Assurance of Learning Ready
Many educational institutions today focus on the notion of assurance of learning, an
important element of some accreditation standards. International Management is designed
specifically to support instructors’ assurance of learning initiatives with a simple yet
powerful solution. Each test bank question for International Management maps to a
specific chapter learning objective listed in the text. Instructors can use our test bank
software, EZ Test and EZ Test Online, to easily query for learning objectives that directly
relate to the learning outcomes for their course. Instructors can then use the reporting
features of EZ Test to aggregate student results in similar fashion, making the collection
and presentation of assurance of learning data simple and easy.
Continues to Set the Standard. . .
AACSB Tagging
McGraw-Hill Education is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, International Management
recognizes the curriculum guidelines detailed in the AACSB standards for business
accreditation by connecting selected questions in the text and the test bank to the six
general knowledge and skill guidelines in the AACSB standards. The statements contained in International Management are provided only as a guide for the users of this
textbook. The AACSB leaves content coverage and assessment within the purview of
individual schools, the mission of the school, and the faculty. While the International
Management teaching package makes no claim of any specific AACSB qualification or
evaluation, we have within International Management labeled selected questions according to the six general knowledge and skills areas.
xiii
About the Authors
© Villanova University, John Shetron
Courtesy of University of NebraskaLincoln College of Business
Administration
xiv
JONATHAN P. DOH is the Herbert G. Rammrath Chair in International Business, founding Director of the Center for Global Leadership, and Professor of Management at the
Villanova School of Business, ranked in 2016 as the #1 undergraduate program in the
United States by Bloomberg Businessweek. He is also an occasional executive educator
for the Wharton School of Business. Jonathan teaches, does research, and serves as an
executive instructor and consultant in the areas of international strategy and corporate
responsibility. Previously, he was on the faculty of American and Georgetown Universities and a trade official with the U.S. government. Jonathan is author or co-author of more
than 70 refereed articles published in leading international business and management
journals, more than 30 chapters in scholarly edited volumes, and more than 90 conference
papers. Recent articles have appeared in journals such as Academy of Management Review,
California Management Review, Journal of International Business Studies, Journal of
Management, Journal of Management Studies, Journal of World Business, Organization
Science, Sloan Management Review, and Strategic Management Journal. He is co-editor
and contributing author of Globalization and NGOs (Praeger, 2003) and Handbook on
Responsible Leadership and Governance in Global Business (Elgar, 2005) and co-author
of the previous edition of International Management: Culture, Strategy, and Behavior (9th
ed., McGraw-Hill/Irwin, 2015), the best-selling international management text. His current
research focus is on strategy for and in emerging markets, global corporate responsibility,
and offshore outsourcing of services. His most recent scholarly books are Multinationals
and Development (with Alan Rugman, Yale University Press, 2008), NGOs and Corporations: Conflict and Collaboration (with Michael Yaziji, Cambridge University Press,
2009) and Aligning for Advantage: Competitive Strategy for the Social and Political ­Arenas
(with Tom Lawton and Tazeeb Rajwani, Oxford University Press, 2014). He has been an
associate, consulting, or senior editor for numerous journals, and is currently the editorin-chief of Journal of World Business. Jonathan has also developed more than a dozen
original cases and simulations published in books, journals, and case databases and used
at many leading global universities. He has been a consultant or executive instructor for
ABB, Anglo American, Bodycote, Bosch, China Minsheng Bank, Hana Financial, HSBC,
Ingersoll Rand, Medtronic, Shanghai Municipal Government, Siam Cement, the World
Economic Forum, among others. He is an external adviser to the Global Energy Resource
Group of Deloitte Touche. Jonathan is part of the Executive Committee of the Academy
of Management Organizations and Natural Environment Division, a role that culminated
in service as chair of the division in 2016. He was ranked among the top 15 most prolific
international business scholars in the world for the period 2001–2009 (Lahiri and Kumar,
2012) and in 2015 was elected a fellow of the Academy of International Business. He
is a frequent keynote speaker to academic and professional groups in Europe, Asia, and
Latin America. He holds a PhD in strategic and international management from George
Washington University.
FRED LUTHANS is University and the George Holmes Distinguished Professor of Management, Emeritus at the University of Nebraska–Lincoln. He is also a Senior Research
Scientist for HUMANeX Ventures Inc. He received his BA, MBA, and PhD from the
University of Iowa, where he received the Distinguished Alumni Award in 2002. While
serving as an officer in the U.S. Army from 1965–1967, he taught leadership at the U.S.
Military Academy at West Point. He has been a visiting scholar at a number of colleges
and universities and has lectured in numerous European and Pacific Rim countries. He
About the Authors
has taught international management as a visiting faculty member at the universities
of Bangkok, Hawaii, Henley in England, Norwegian Management School, Monash in
Australia, Macau, Chemnitz in Germany, and Tirana in Albania. A past president of the
Academy of Management, in 1997 he received the Academy’s Distinguished Educator
Award. In 2000 he became an inaugural member of the Academy’s Hall of Fame for
being one of the “Top Five” all-time published authors in the prestigious Academy
journals. For many years he was co-editor-in-chief of the Journal of World Business and editor of Organizational Dynamics and is currently co-editor of Journal of
Leadership and Organizational Studies. The author of numerous books, his seminal Organizational Behavior is now in its 13th edition and the 2007 groundbreaking book Psychological Capital (Oxford University Press) with Carolyn Youssef and Bruce
Avolio came out in a new version in 2015. He is one of very few management scholars
who is a Fellow of the Academy of Management, the Decision Sciences Institute, and
the Pan Pacific Business Association. He received the Global Leadership Award from
the Pan Pacific Association and has been a member of its Executive Committee since it
was founded over 30 years ago. This committee helps to organize the annual meeting
held in Pacific Rim countries. He has been involved with some of the first empirical
studies on motivation and behavioral management techniques and the analysis of managerial activities in Russia; these articles were published in the Academy of Management
Journal, Journal of International Business Studies, Journal of World Business, and
­European Management Journal. Since the very beginning of the transition to market
economies after the fall of communism in Eastern Europe, he has been actively involved
in management education programs sponsored by the U.S. Agency for International
Development in Albania and Macedonia, and in U.S. Information Agency programs
involving the Central Asian countries of Kazakhstan, Kyrgyzstan, and Tajikistan. Professor Luthans’s recent international research involves his construct of positive psychological capital (PsyCap). For example, he and colleagues have published their research
demonstrating the impact of Chinese workers’ PsyCap on their performance in the International Journal of Human Resource Management and Management and Organization
Review. He is applying his positive approach to positive organizational behavior (POB),
PsyCap, and authentic leadership to effective global management and has been the
keynote at programs in China (numerous times), Malaysia, South Korea, Indonesia, Philippines, Singapore, Taiwan, Japan, Vietnam, Costa Rica, Mexico, Chile, Fiji, Germany,
France, England, Spain, Norway, Finland, Denmark, Netherlands, Italy, Russia, Macedonia,
Albania, Morocco, South Africa, New Zealand, and Australia.
xv
Brief Contents
Part One
Environmental Foundation
1 Globalization and International Linkages
2 The Political, Legal, and Technological Environment
3 Ethics, Social Responsibility, and Sustainability
Brief Integrative Case 1.1: Advertising or Free Speech?
The Case of Nike and Human Rights
Brief Integrative Case 1.2: TOMS Puts Its Right Foot Forward
In-Depth Integrative Case 1.1: Student Advocacy and
“Sweatshop” Labor: The Case of Russell Athletic
In-Depth Integrative Case 1.2: The Ethics of Global Drug
Pricing
Part Two
The Meanings and Dimensions of Culture
Managing Across Cultures
Organizational Cultures and Diversity
Cross-Cultural Communication and Negotiation
Brief Integrative Case 2.1: Coca-Cola in India
Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha
In-Depth Integrative Case 2.1a: Euro Disneyland
In-Depth Integrative Case 2.1b: Disney in Asia
In-Depth Integrative Case 2.2: Walmart’s Global Strategies
107
113
122
156
182
208
248
255
262
273
279
International Strategic Management
8 Strategy Formulation and Implementation
9 Entry Strategies and Organizational Structures
10 Managing Political Risk, Government Relations, and
Alliances
11 Management Decision and Control
Brief Integrative Case 3.1: Google in China: Protecting
Property and Rights
In-Depth Integrative Case 3.1: Tata “Nano”:
The People’s Car
xvi
99
102
The Role of Culture
4
5
6
7
Part Three
2
44
74
290
328
360
388
415
421
xvii
Brief Contents
Organizational Behavior and Human Resource Management
12 Motivation Across Cultures
13 Leadership Across Cultures
14 Human Resource Selection and Development Across Cultures
Brief Integrative Case 4.1: IKEA’s Global Renovations
In-Depth Integrative Case 4.1: HSBC in China
In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround
Skill-Building and Experiential Exercises
Glossary
Indexes
Part Four
432
468
508
555
563
575
583
599
605
Table of Contents
Part One
Environmental Foundation
1
Globalization and International Linkages
2
The World of International Management: An Interconnected World
2
Introduction
5
Globalization and Internationalization
7
Globalization, Antiglobalization, and Global Pressures for Change
Global and Regional Integration
10
Changing Global Demographics
14
The Shifting Balance of Economic Power in the Global Economy
15
Global Economic Systems
22
Market Economy
22
Command Economy
23
Mixed Economy
23
Economic Performance and Issues of Major Regions
2
23
Established Economies
24
Emerging and Developing Economies
26
Developing Economies on the Verge
30
The World of International Management—Revisited
35
Summary of Key Points
37
Key Terms
37
Review and Discussion Questions
37
Answers to the In-Chapter Quiz
38
Internet Exercise: Global Competition in Fast Food
38
Endnotes
38
In the International Spotlight: India
42
The Political, Legal, and Technological Environment
44
The World of International Management: Social Media and
Political Change
44
Political Environment
46
Ideologies
47
Political Systems
50
Legal and Regulatory Environment
xviii
7
52
Basic Principles of International Law
53
Examples of Legal and Regulatory Issues
54
xix
Table of Contents
Privatization
57
Regulation of Trade and Investment
60
Technological Environment and Global Shifts in Production
3
60
Trends in Technology, Communication, and Innovation
60
Biotechnology
62
E-Business
63
Telecommunications
64
Technological Advancements, Outsourcing, and Offshoring
65
The World of International Management—Revisited
67
Summary of Key Points
68
Key Terms
68
Review and Discussion Questions
69
Internet Exercise: Hitachi Goes Worldwide
69
Endnotes
69
In the International Spotlight: Greece
73
Ethics, Social Responsibility, and Sustainability
74
The World of International Management: Sustaining
Sustainable Companies
74
Ethics and Social Responsibility
77
Ethics and Social Responsibility in International Management
77
Ethics Theories and Philosophy
77
Human Rights
79
Labor, Employment, and Business Practices
80
Environmental Protection and Development
81
Globalization and Ethical Obligations of MNCs
83
Reconciling Ethical Differences across Cultures
85
Corporate Social Responsibility and Sustainability
85
Corporate Governance
89
Corruption
90
International Assistance
92
The World of International Management—Revisited
93
Summary of Key points
94
Key Terms
94
Review and Discussion Questions
94
Endnotes
94
In the International Spotlight: Cuba
98
Brief Integrative Case 1.1: Advertising or Free Speech? The Case
of Nike and Human Rights
99
Endnotes
101
Brief Integrative Case 1.2: TOMS Puts Its Right Foot Forward
102
Endnotes
105
xx
Part Two
Table of Contents
In-Depth Integrative Case 1.1: Student Advocacy and “Sweatshop” Labor:
The Case of Russell Athletic
107
Endnotes
111
In-Depth Integrative Case 1.2: The Ethics of Global Drug Pricing
113
Endnotes
120
The Role of Culture
4
The Meanings and Dimensions of Culture
122
The World of International Management: Culture Clashes
in Cross-Border Mergers and Acquisitions
122
The Nature of Culture
124
Cultural Diversity
125
Values in Culture
128
Values in Transition
Cultural Dimensions
129
Hofstede
129
Trompenaars
139
Integrating Culture and Management: The GLOBE Project
5
128
145
Culture and Management
146
GLOBE’s Cultural Dimensions
146
GLOBE Country Analysis
147
The World of International Management—Revisited
148
Summary of Key Points
150
Key Terms
150
Review and Discussion Questions
151
Internet Exercise: Renault-Nissan in South Africa
151
Endnotes
151
In the International Spotlight: South Africa
154
Managing Across Cultures
156
The World of International Management: Taking a Bite Out
of Apple: Corporate Culture and an Unlikely Chinese Start-Up
156
The Strategy for Managing across Cultures
158
Strategic Predispositions
159
Meeting the Challenge
160
Cross-Cultural Differences and Similarities
162
Parochialism and Simplification
162
Similarities across Cultures
164
Many Differences across Cultures
165
Cultural Differences in Selected Countries and Regions
168
Using the GLOBE Project to Compare Managerial Differences
169
Managing Culture in Selected Countries and Regions
170
xxi
Table of Contents
6
The World of International Management—Revisited
175
Summary of Key Points
176
Key Terms
176
Review and Discussion Questions
176
Internet Exercise: Haier’s Approach
176
Endnotes
177
In the International Spotlight: Poland
180
Organizational Cultures and Diversity
182
The World of International Management: Managing Culture
and Diversity in Global Teams
182
The Nature of Organizational Culture
184
Definition and Characteristics
Interaction between National and Organizational Cultures
186
Organizational Cultures in MNCs
190
Family Culture
192
Eiffel Tower Culture
192
Guided Missile Culture
193
Incubator Culture
194
Managing Multiculturalism and Diversity
7
185
196
Phases of Multicultural Development
196
Types of Multiculturalism
198
Potential Problems Associated with Diversity
199
Advantages of Diversity
200
Building Multicultural Team Effectiveness
201
The World of International Management—Revisited
203
Summary of Key Points
203
Key Terms
204
Review and Discussion Questions
204
Internet Exercise: Lenovo’s International Focus
205
Endnotes
205
In the International Spotlight: Nigeria
207
Cross-Cultural Communication and Negotiation
208
The World of International Management: Netflix’s
Negotiations: China and Russia
208
The Overall Communication Process
210
Verbal Communication Styles
210
Interpretation of Communications
213
Communication Flows
214
Downward Communication
214
Upward Communication
215
xxii
Table of Contents
Communication Barriers
Language Barriers
216
Perceptual Barriers
219
The Impact of Culture
221
Nonverbal Communication
223
Achieving Communication Effectiveness
226
Improve Feedback Systems
226
Provide Language Training
226
Provide Cultural Training
227
Increase Flexibility and Cooperation
229
Managing Cross-Cultural Negotiations
Part Three
216
229
Types of Negotiation
229
The Negotiation Process
230
Cultural Differences Affecting Negotiations
231
Negotiation Tactics
234
Negotiating for Mutual Benefit
235
Bargaining Behaviors
237
The World of International Management—Revisited
240
Summary of Key Points
241
Key Terms
241
Review and Discussion Questions
241
Internet Exercise: Working Effectively at Toyota
242
Endnotes
242
In the International Spotlight: China
246
Brief Integrative Case 2.1: Coca-Cola in India
248
Endnotes
253
Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha
255
Endnotes
260
In-Depth Integrative Case 2.1a: Euro Disneyland
262
Endnotes
272
In-Depth Integrative Case 2.1b: Disney in Asia
273
Endnotes
277
In-Depth Integrative Case 2.2: Walmart’s Global Strategies
279
Endnotes
286
International Strategic Management
8
Strategy Formulation and Implementation
290
The World of International Management: GSK’s Prescription
for Global Growth
290
Strategic Management
293
The Growing Need for Strategic Management
294
Benefits of Strategic Planning
295
xxiii
Table of Contents
Approaches to Formulating and Implementing Strategy
295
Global and Regional Strategies
299
The Basic Steps in Formulating Strategy
Environmental Scanning
302
Internal Resource Analysis
304
Goal Setting for Strategy Formulation
304
Strategy Implementation
306
Location Considerations for Implementation
306
Combining Country and Firm-Specific Factors
in International Strategy
308
The Role of the Functional Areas in Implementation
310
Specialized Strategies
9
302
311
Strategies for Emerging Markets
311
Entrepreneurial Strategy and New Ventures
317
The World of International Management—Revisited
319
Summary of Key Points
320
Key Terms
320
Review and Discussion Questions
320
Internet Exercise: Infosys’s Global Strategy
321
Endnotes
321
In the International Spotlight: Saudi Arabia
327
Entry Strategies and Organizational Structures
328
The World of International Management: Building
a Global Brand: Haier’s Alignment of Strategy
and Structure
328
Entry Strategies and Ownership Structures
329
Export/Import
330
Wholly Owned Subsidiary
330
Mergers/Acquisitions
331
Alliances and Joint Ventures
332
Alliances, Joint Ventures, and M&A: The Case
of the Automotive Industry
333
Licensing
335
Franchising
336
The Organization Challenge
337
Basic Organizational Structures
338
Initial Division Structure
338
International Division Structure
339
Global Structural Arrangements
340
Transnational Network Structures
344
xxiv
Table of Contents
Nontraditional Organizational Arrangements
Organizational Arrangements from Mergers, Acquisitions,
Joint Ventures, and Alliances
The Emergence of the Network Organizational Forms
346
346
348
Organizing for Product Integration
349
Organizational Characteristics of MNCs
350
Formalization
350
Specialization
351
Centralization
352
Putting Organizational Characteristics in Perspective
352
The World of International Management—Revisited
354
Summary of Key points
354
Key Terms
355
Review and Discussion Questions
355
Internet Exercise: Organizing for Effectiveness
355
Endnotes
355
In the International Spotlight: Mexico
359
10 Managing Political Risk, Government Relations,
and Alliances
360
The World of International Management: Russian Roulette:
Risks and Political Uncertainty
360
The Nature and Analysis of Political Risk
362
Macro and Micro Analysis of Political Risk
364
Terrorism and Its Overseas Expansion
367
Analyzing the Expropriation Risk
368
Managing Political Risk and Government Relations
368
Developing a Comprehensive Framework or
Quantitative Analysis
368
Techniques for Responding to Political Risk
373
Relative Bargaining Power Analysis
373
Managing Alliances
377
The Alliance Challenge
377
The Role of Host Governments in Alliances
378
Examples of Challenges and Opportunities in Alliance Management
379
The World of International Management—Revisited
381
Summary of Key points
381
Key Terms
382
Review and Discussion Questions
382
Internet Exercise: Nokia in China
382
Endnotes
382
In the International Spotlight: Brazil
386
xxv
Table of Contents
11 Management Decision and Control
388
The World of International Management: Global Online Retail:
Amazon v. Alibaba
388
Decision-Making Process and Challenges
390
Factors Affecting Decision-Making Authority
391
Cultural Differences and Comparative Examples
of Decision Making
393
Total Quality Management Decisions
394
Decisions for Attacking the Competition
396
Decision and Control Linkages
397
The Controlling Process
398
Types of Control
399
Approaches to Control
401
Performance Evaluation as a Mechanism of Control
403
Financial Performance
403
Quality Performance
404
Personnel Performance
407
The World of International Management—Revisited
409
Summary of Key Points
410
Key Terms
410
Review and Discussion Questions
410
Internet Exercise: Looking at the Best
411
Endnotes
411
In the International Spotlight: Japan
414
Brief Integrative Case 3.1: Google in China: Protecting
Property and Rights
415
Endnotes
419
In-Depth Integrative Case 3.1: Tata “Nano”: The People’s Car
421
Endnotes
429
Organizational Behavior and Human
Resource Management
12 Motivation Across Cultures
Part Four
432
The World of International Management: Motivating Employees
in a Multicultural Context: Insights from Emerging Markets
432
The Nature of Motivation
434
The Universalist Assumption
435
The Assumption of Content and Process
436
The Hierarchy-of-Needs Theory
436
The Maslow Theory
436
International Findings on Maslow’s Theory
437
xxvi
Table of Contents
The Two-Factor Theory of Motivation
442
The Herzberg Theory
442
International Findings on Herzberg’s Theory
443
Achievement Motivation Theory
446
The Background of Achievement Motivation Theory
446
International Findings on Achievement Motivation Theory
447
Select Process Theories
449
Equity Theory
449
Goal-Setting Theory
450
Expectancy Theory
451
Motivation Applied: Job Design, Work Centrality,
and Rewards
451
Job Design
451
Sociotechnical Job Designs
453
Work Centrality
454
Reward Systems
458
Incentives and Culture
458
The World of International Management—Revisited
459
Summary of Key Points
460
Key Terms
461
Review and Discussion Questions
461
Internet Exercise: Motivating Potential Employees
462
Endnotes
462
In the International Spotlight: Indonesia
467
13 Leadership Across Cultures
468
The World of International Management: Global Leadership
Development: An Emerging Need
468
Foundation for Leadership
470
The Manager-Leader Paradigm
470
Philosophical Background: Theories X, Y, and Z
472
Leadership Behaviors and Styles
474
The Managerial Grid Performance:
A Japanese Perspective
476
Leadership in the International Context
479
Attitudes of European Managers toward
Leadership Practices
479
Japanese Leadership Approaches
481
Differences between Japanese and U.S.
Leadership Styles
482
Leadership in China
483
Leadership in the Middle East
485
xxvii
Table of Contents
Leadership Approaches in India
485
Leadership Approaches in Latin America
486
Recent Findings and Insights about Leadership
487
Transformational, Transactional, and Charismatic Leadership
487
Qualities for Successful Leaders
489
Culture Clusters and Leader Effectiveness
489
Leader Behavior, Leader Effectiveness, and Leading Teams
491
Cross-Cultural Leadership: Insights from the GLOBE Study
493
Positive Organizational Scholarship and Leadership
495
Authentic Leadership
496
Ethical, Responsible, and Servant Leadership
497
Entrepreneurial Leadership and Mindset
500
The World of International Management—Revisited
500
Summary of Key Points
501
Key Terms
502
Review and Discussion Questions
502
Internet Exercise: Taking a Closer Look
502
Endnotes
503
In the International Spotlight: Germany
507
14 Human Resource Selection and Development
Across Cultures
508
The World of International Management: The Challenge
of Talent Retention in India
508
The Importance of International
Human Resources
511
Getting the Employee Perspective
511
Employees as Critical Resources
511
Investing in International Assignments
512
Economic Pressures
512
Sources of Human Resources
513
Home-Country Nationals
513
Host-Country Nationals
514
Third-Country Nationals
514
Subcontracting and Outsourcing
516
Selection Criteria for International Assignments
518
General Criteria
518
Adaptability to Cultural Change
518
Physical and Emotional Health
519
Age, Experience, and Education
520
Language Training
520
xxviii
Table of Contents
Motivation for a Foreign Assignment
520
Spouses and Dependents or Work-Family Issues
521
Leadership Ability
522
Other Considerations
523
Economic Pressures and Trends in Expat Assignments
523
International Human Resource Selection Procedures
524
Testing and Interviewing Procedures
524
The Adjustment Process
525
Compensation
526
Common Elements of Compensation Packages
527
Tailoring the Package
530
Individual and Host-Country Viewpoints
531
Candidate Motivations
531
Host-Country Desires
531
Repatriation of Expatriates
533
Reasons for Returning
533
Readjustment Problems
533
Transition Strategies
534
Training in International Management
535
The Impact of Overall Management Philosophy on Training
537
The Impact of Different Learning Styles on Training
and Development
538
Reasons for Training
539
Types of Training Programs
541
Standardized vs. Tailor-Made
Cultural Assimilators
Positive Organizational Behavior
541
544
545
Future Trends
546
The World of International Management—Revisited
546
Summary of Key Points
548
Key Terms
549
Review and Discussion Questions
549
Internet Exercise: Coke Goes Worldwide
549
Endnotes
550
In the International Spotlight: Russia
554
Brief Integrative Case 4.1: IKEA’s Global Renovations
555
Endnotes
562
In-Depth Integrative Case 4.1: HSBC in China
563
Endnotes
574
In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround
575
Endnotes
582
xxix
Table of Contents
Skill-Building and Experiential Exercises
583
Personal Skill-Building Exercises
584
1. The Culture Quiz
584
2. “When in Bogotá . . .”
589
3. The International Cola Alliances
592
4. Whom to Hire?
596
In-Class Simulations
(Available in Connect, connect.mheducation.com)
1.  “Frankenfoods” or Rice Bowl for the World: The U.S.-EU
Dispute over Trade in Genetically Modified Organisms
2. Cross-Cultural Conflicts in the Corning-Vitro Joint Venture
Glossary
599
Name and Organization Index
605
Subject Index
621
PART ONE
ENVIRONMENTAL
FOUNDATION
Chapter 1
OBJECTIVES OF THE CHAPTER
GLOBALIZATION AND
INTERNATIONAL LINKAGES
Globalization is one of the most profound forces in our contemporary economic environment, although support for free
trade and open borders is not universal. The practical impact
of globalization can be felt on all aspects of society, and effective management of organizations in an increasingly complex
global environment is crucial for success. In nearly every country, increasing numbers of large, medium, and even small corporations are engaging in international activities, and a
growing percentage of company revenue is derived from overseas markets. Yet, continued economic and political uncertainties in many world regions, the rise of more nationalistic
political movements, and continued concerns about the impact
of immigration have caused some to question the current system for regulating and overseeing international trade, investments, migration, and financial flows. Nonetheless,
international management—the process of applying management concepts and techniques in a multinational environment—
continues to retain importance.
Although globalization and international linkages have
been part of history for centuries (see the International Management in Action box “Tracing the Roots of Modern Globalization” later in the chapter), the principal focus of this opening
chapter is to examine the process of globalization in the contemporary world. The rapid integration of countries, advances
in information technology, and the explosion in electronic communication have created a new, more integrated world and
true global competition. Yet, the complexities of doing business in distinct markets persist. Since the environment of international management is all-encompassing, this chapter is
mostly concerned with the economic dimensions, while the following two chapters are focused on the political, legal, and
technological dimensions and ethical and social dimensions,
respectively. The specific objectives of this chapter are
1. ASSESS the implications of globalization for countries, industries, firms, and communities.
2. REVIEW the major trends in global and regional integration.
3. EXAMINE the changing balance of global economic
power and trade and investment flows among countries.
4. ANALYZE the major economic systems and recent developments among countries that reflect those systems.
2
The World of International
Management
An Interconnected World
O
nly 23 years old, Evan Spiegel faced a major business
decision: whether or not to accept a US$3 billion offer
from Facebook’s Mark Zuckerberg for his social media start-up
Snapchat. Taking the deal would make Spiegel one of the
youngest self-made billionaires in history.
Just two years prior, Spiegel was a typical college junior at
Stanford University, living in a fraternity house and working
towards graduation. As a product-design student with a knack
for computers, Spiegel was keenly aware that popular social
media applications, such as Twitter and Facebook, record a
digital “paper trail” of their users. Content uploaded to these
social media sites, such as text, comments, and photos, are
kept indefinitely on servers. For young college graduates trying to enter the workforce, this log of past activity has the
potential to be particularly harmful; employers are often able
to see this information by simply searching for a job applicant’s name online. Spiegel, however, had a clever solution:
create a social networking application that would allow users
to create and share content that “self-destructs” immediately
after viewing. For a school project, Spiegel and co-founder
Bobby Murphy programmed and developed the application,
and the social media application Snapchat was born.1
Around the same time, Facebook executives were actively
looking to expand their product line. Having just survived a
rocky IPO and finally emerging as a profitable enterprise,
Facebook began purchasing several social media applications,
including Instagram and WhatsApp in 2012 and 2014, respectively, for several billion dollars each. By mid-2013, Facebook’s
Mark Zuckerberg had taken notice of the rapidly expanding
Snapchat; to Zuckerberg, the appeal of Snapchat seemed to
align with that of the typical Facebook user. In an attempt to
grab market share from the Snapchat user base, Facebook
first introduced a copycat application, called Poke. Though
heavily promoted, Poke quickly flopped. Snapchat, meanwhile,
continued to grow exponentially. By the beginning of 2014,
Snapchat had over 30 million active users and 400 million
“snaps” were being received daily.2
Sensing defeat, Zuckerberg approached Spiegel with a
lucrative offer: US$3 billion for the application. At that time,
Snapchat had not made a single dollar in revenue. In a controversial and unexpected move, 23-year-old Spiegel gave
Zuckerberg a firm answer: “No.” If Spiegel turned down a
US$3 billion offer for a single application, just how valuable is
social media to the global community?
Instagram
∙
∙
∙
Social Media Has Changed How We Connect
Though the market value of social media applications, such as
Snapchat, are yet to be determined, one thing is certain: We
currently live in a world interconnected by social media.
Through online networking, the way we connect with others
has drastically changed. The volume of content being created
and shared is staggering, with virtually anyone on the globe
only a few clicks away. In fact, the average number of links
separating any two random people on Facebook is now only
4.74.3 Statistics from some of the most used social networking
applications underscore how social media has connected people across the globe:
Facebook
Snapchat
∙
∙
∙
∙
Social Media Has Changed Global
Business Strategy
Population in Millions
1600
1400
16%
Canada
& USA
1000
84%
of users are located
outside of the USA &
Canada
800
600
400
200
0
Facebook
China
India
Snapchat reached 100 million active members in
less than four years.5
60 percent of 13–34 year olds in the United States
are on Snapchat.
More than 5 billion videos are viewed on Snapchat
every day.
Over 60 percent of Snapchat users create and
share original content everyday.6
Certainly, social networks are a part of many people’s lives.
Yet, has the virtual world of social media networks made a
permanent impact in the world of international business?
If Facebook were a country, it would be the largest.
1200
Over 300 million people create content on Instagram every month.
Over 70 percent of Instagram users are from outside the United States.
70 million new photos are uploaded and shared
every day.4
USA
900 million users, or about 90% of the daily users, access Facebook through their
mobile devices. Globally, the average user has 338 “friends”:
Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh, based on information
from Facebook.com & Smith, Aaron, “6 New Facts About Facebook,” Pew Research Center, February 3,
2014. http://www.pewresearch.org.
General Electric (GE), a company with a longstanding legacy in multiple industries, and one
of the most recognizable brands on the planet,
has strategically leveraged social media to
improve its long-term image. By interacting daily
with customers across a variety of social networks, the 100-year-old company aims to transform the way that its brand is perceived while
simultaneously building a new generation of
consumers. A section of GE’s website, called the
“Social Hub,” serves as a central spot for this
social media activity, compiling its pictures and
videos posted to Facebook, Twitter, and
Google+ into one location online.
Since 2015, GE has strategically leveraged
social media as an advertising tool. Geo-filters,
which are graphic advertisements that Snapchat
users can add to their “snaps” depending on
their geographic location, have been utilized by
GE on multiple occasions. Advertising through
these filters provides GE with an opportunity to
3
4
Part 1 Environmental Foundation
increase brand awareness with a younger, more tech-savvy
generation while simultaneously linking their brand to specific
events and locations. GE’s first Snapchat geo-filter, which
was released for the summer solstice, was shared by nearly
5 million users.7
Through its “Ecomagination” program, GE utilizes social
media to crowdsource sustainable solutions to current environmental issues. A central component of the program is
the Open Innovation Challenges, in which teams work
together to solve a specific problem specified by GE. Intellectual property rights are shared by GE and the participants, and winners receive funding to co-develop their
ideas with GE scientists.
Social Media Has Changed How We Do
Business Globally
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.”8
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.9
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 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 International Diplomacy
The United Nations (U.N.) has increasingly embraced social
media as a tool to increase diplomacy and understanding
worldwide. The U.N. maintains official accounts on Facebook,
Twitter, YouTube, Flickr, Google+, Tumblr, Instagram, and LinkedIn,
and, as of 2016, boasts over 2 million followers on its primary
Facebook page. As part of its “2015: Time for Global Action”
campaign, the U.N. utilized various social media platforms to
spread its action plan and its new sustainable development
goals worldwide. The hashtag “#action15” was used to link
activities across various networks, while Twitter and Facebook
served as primary platforms for disseminating information to
its global audience (refer to Chapter 3, Table 3-3, for a
further discussion of the U.N.’s 2015 sustainable development
goals).10
In another pioneering move, the U.S. government sent an
unconventional delegation to Moscow that 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 served on former-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
Chapter 1 Globalization and International Linkages
5
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.
As evidenced by Evan Speigel’s rejection of a US$3 billion offer for his social networking application Snapchat,
social media is, in many ways, invaluable to the global community. The pace of interconnectivity across the globe continues to increase with the new communication tools that
social networking provides. Social media has altered the
way that we interact with each other, and businesses, like
GE, 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, globalization continues to move 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.
â–  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.
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 Apple, Chevron, Johnson & Johnson, Coca-Cola, Ford Motor Company,
­ExxonMobil, Caterpillar, Walmart, Microsoft, and Google have all earned more annual
revenue in the international arena than they have in the United States. Table 1–1 lists
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 environments.
MNC
A firm having operations in
more than one country,
international sales, and a
nationality mix of managers
and owners.
Table 1–1
The World’s Top Nonfinancial MNCs, Ranked by Foreign Assets, 2015
(in millions of dollars)
Rank
Company
Name
Home
Economy
  1
  2
  3
  4
  5
  6
  7
  8
  9
10
Royal Dutch/Shell Plc
Toyota Motor Corporation
General Electric
Total SA
British Petroleum Company Plc
Exxon Mobil Corporation
Chevron Corporation
Volkswagen Group
Vodafone Group Plc
Apple Computer Inc.
United Kingdom
Japan
United States
France
United Kingdom
United States
United States
Germany
United Kingdom
United States
Foreign
Assets
Total
Assets
Foreign
Sales
Total
Sales
$288,283
273,280
257,742
236,719
216,698
193,493
191,933
181,826
166,967
143,652
$340,157
422,176
492,692
244,856
261,832
336,758
266,103
416,596
192,310
290,479
$169,737
165,195
64,146
123,995
145,640
167,304
48,183
189,817
52,150
151,983
$264,960
236,797
117,385
159,162
222,894
259,488
129,648
236,702
61,466
233,715
Source: UNCTAD, World Investment Report 2016 (June 21, 2016), Annex Table 24, http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx.
6
Part 1 Environmental Foundation
the world’s top nonfinancial companies ranked by foreign assets through 2015. General
Electric, headquartered in the United States, for example, now has more than 50% of its
assets located outside of its home market.
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,
Wipro, Telefonica, Santander, Reliance, Samsung, Grupo Televisa, Airtel, 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. Boosted by tax breaks, vehicle
sales in China reached a record 24.6 million units in 2015, according to the China
Association of Automobile Manufacturers, far ahead of the 17.5 million cars and
light trucks sold in the U.S.11 Moreover, a number of emerging market auto companies are becoming global players through their exporting, foreign investment, and
international acquisitions, including the purchase of Volvo by Chinese automaker
Geely and Tata’s acquisition of Jaguar-Land Rover (see the In-Depth Integrative Case
at the end of Part Three).
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 March 2014, Procter and Gamble celebrated the grand opening of their
­Singapore Innovation Center (SgIC), which will function as the primary research and
development center for P&G’s hair, skin, and home care products. According to P&G,
the SgIC will contain more than 250 research laboratories and 500 researchers, focusing on more than 18 different fields of study. The Asian market, with nearly two billion
customers and 25 different brands, is particularly important for P&G’s future growth
plans.14 Similarly, Unilever has opened R&D centers in Bangalore, India, and Shanghai,
China. The Shanghai Center is one of Unilever’s largest R&D buildings, covering some
30,000 square meters and housing more than 450 professionals from 22 nationalities.15 Citing the massive growth in the health care market in Asia, General Electric
moved its X-ray business headquarters to China in 2011, and vice chairman John Rice
relocated to Hong Kong.16,17
Accenture, another American archetype, had about 336,000 employees globally in
2015, with about 237,000 of those employees located outside of the United States. Originally focused on IT services within the United States, Accenture has quickly transformed
into one of the largest consulting firms worldwide. The company’s operations in India
now employ nearly 150,000 people, twice as many as in the United States.18 With offices
in 200 cities across 55 countries, Accenture has focused on providing services for both
developed and growing markets.19 In 2015, Accenture drew 47 percent of its revenue
from outsourcing.20
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. And increasingly, the
MNCs are coming from the developing world as previously domestic-oriented companies
from countries like China and India expand abroad through acquisitions or other
means. Table 1–2 lists the world’s top nonfinancial companies from developing countries
ranked by foreign assets in 2014.
Chapter 1 Globalization and International Linkages
7
Table 1–2
The World’s Top Nonfinancial TNCs from Developing and Transitioning Economies,
Ranked by Foreign Assets, 2014
(in millions of dollars)
Rank
Company
Name
Home
Economy
Foreign
Assets
Total
Assets
Foreign
Sales
Total
Sales
 1
  2
  3
  4
  5
  6
  7
  8
Hutchison
Whampoa Limited
Hon Hai Precision
Industries
China National Offshore
Oil Group
Samsung Electronics
Co., Ltd.
Vale SA
Petronas – Petroliam
Nasional Bhd
China Ocean Shipping
(Group) Company
America Movil SAB De CV
Hong Kong/China
$91,055
$113,909
$ 27,043
$ 35,098
Taiwan
73,010
77,803
138,023
139,018
China
71,090
182,282
26,084
99,557
South Korea
56,164
211,205
176,534
196,263
Brazil
Malaysia
55,448
45,572
116,598
153,770
31,667
76,726
37,608
100,602
China
44,805
57,875
18,075
27,483
Mexico
41,627
86,795
41,547
63,793
  9
10
Lukoil OAO
Tata Motors Ltd.
Russian Federation
India
32,907
30,214
111,800
38,235
119,932
37,201
144,167
43,044
Source: UNCTAD, World Investment Report 2016 (June 21, 2016), Annex Table 25, http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx.
â–  Globalization and Internationalization
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 for Change
Globalization can be defined as the process of social, political, economic, cultural, and
technological integration among countries around the world. Globalization is distinct
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 positive 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
globalization
The process of social,
political, economic,
cultural, and technological
integration among countries
around the world.
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 endogenous organizations
that had previously been
performed by the firm.
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 long-standing 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.
Source: Thomas Cahill, Sailing the Wine Dark Sea: Why Greeks Matter
(New York: Doubleday, 2003), pp. 10, 56–57; Charles W. L. Hill, International Business, 4th ed. (New York: McGraw-Hill Irwin, 2003), p. 100;
Nefertiti website, http://nefertiti.iweland.com/trade/internal_trade.htm,
2003 (ancient Egypt: domestic trade); Gavin Menzies, 1421: The Year
China Discovered America (New York: William Morrow/HarperCollins,
2003), pp. 26–27; Milton Viorst, The Great Documents of Western Civilization (New York: Barnes & Noble Books, 1994), p. 115 (Magna Carta)
and p. 168 (Declaration of Independence).
Chapter 1 Globalization and International Linkages
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 In addition, candidates in various election campaigns around
the world often find themselves pressured to criticize globalization, including migration
of people, for contributing to lost jobs and general economic insecurity even though these
problems are obviously the result of a range of factors of which globalization is just one.
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 information technology (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 several automakers, including Ford, Hyundai,
Renault-Nissan, and Daimler, experienced the destruction of inventory and a week-long
production stoppage due to flooding in southern India.26 India’s public debt has declined
to about 65 percent of GDP over the last ten years, increasing macroeconomic stability
and lowering its vulnerability to external risks. Expanding by over 7 percent in 2015,
India has eclipsed China as the fastest-growing large economy.27 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. See In the International Spotlight at the end of this chapter
for additional insights on India.
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 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
9
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. American Express, GE, Sony, and Netflix all use attorneys
from Pangea3, a Mumbai-based legal firm, to review
documents and draft contracts. These companies benefit from the lower costs and higher efficiency that
companies like Pangea3 can provide compared to
domestic legal firms.28 This is a risky venture as legal
practices are not the same across countries, and the
documents may be too sensitive to rely on assemblyline 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.
Sources: Engardio, Pete; Shameen, Assif, “Let’s Offshore the Lawyers,”
BusinessWeek, September 18, 2006, p. 42; Hallett, Tony; McCue,
Andy, “Why Deutsche Bank Spreads Its Outsourcing,” BusinessWeek,
March 15, 2007.
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
World Trade
Organization (WTO)
The global organization of
countries that oversees rules
and regulations for
international trade and
investment.
10
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
oversee the conduct of trade a…
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