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International Business The Challenges of Globalization Ninth Edition

John J. Wild University of Wisconsin, Madison

Kenneth L. Wild University of London, England

New York NY

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Preface xviii

PART 1 Global Business Environment 2 Chapter 1 Globalization 2

PART 2 National Business Environments 40 Chapter 2 Cross-Cultural Business 40 Chapter 3 Political Economy and Ethics 70 Chapter 4 Economic Development of Nations 102

PART 3 International Trade and Investment 128 Chapter 5 International Trade Theory 128 Chapter 6 Political Economy of Trade 152 Chapter 7 Foreign Direct Investment 174 Chapter 8 Regional Economic Integration 196

PART 4 The International Financial System 220 Chapter 9 International Financial Markets 220 Chapter 10 International Monetary System 244

PART 5 International Business Management 268 Chapter 11 International Strategy and Organization 268 Chapter 12 Analyzing International Opportunities 290 Chapter 13 Selecting and Managing Entry Modes 314 Chapter 14 Developing and Marketing Products 340 Chapter 15 Managing International Operations 360 Chapter 16 Hiring and Managing Employees 380

Endnotes 398 Glossary 403 Name Index 411 Subject Index 413

Brief Contents

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Contents

Preface xviii

PART 1 Global Business Environment 2 Chapter 1 Globalization 2

Apple’s Global iMpact 3

1.1 Key Players in International Business 4 Multinational Corporations 5

Entrepreneurs and Small Businesses 6 • MANAGER’S BRIEFCASE: The Keys to Global Success 6

1.2 What is Globalization? 7 Globalization of Markets 8 • GLOBAL SUSTAINABILITY: Three Markets, Three Strategies 9 Globalization of Production 9

1.3 Forces Driving Globalization 10 Falling Barriers to Trade and Investment 10

Technological Innovation 12

Measuring Globalization 16

1.4 Debate about Jobs and Wages 17 Against Globalization 17

For Globalization 17

Summary of the Jobs and Wages Debate 18

1.5 Debate about Income Inequality 19 Inequality within Nations 19

Inequality between Nations 19

Global Inequality 20

1.6 Debate about Culture, Sovereignty, and the Environment 21 Globalization and Culture 21 • CULTURE MATTERS: The Culture Debate 21 Globalization and National Sovereignty 22

Globalization and the Environment 22

1.7 Developing Skills for your Career 23 The Global Business Environment 24

The Road Ahead for International Business 25 • BOTTOM LINE FOR BUSINESS 26

Chapter Summary 27 • Key Terms 28 • Talk About It 1 28 • Talk About It 2 28 • Ethical Challenge 29 • Teaming Up 29 • Market Entry Strategy Project 29

• PRACTICING INTERNATIONAL MANAGEMENT CASE 30

Appendix World Atlas 31

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CONTENTS vii

PART 2 National Business Environments 40 Chapter 2 Cross-Cultural Business 40

Hold the Pork, Please! 41 2.1 What is Culture? 42

National Culture 42

Subcultures 43

Physical Environment 43

Need for Cultural Knowledge 44 • CULTURE MATTERS: Creating a Global Mindset 44

2.2 Values and Behavior 45 Values 45

Attitudes 46

Aesthetics 46

Appropriate Behavior 46 • MANAGER’S BRIEFCASE: A Globetrotter’s Guide to Meetings 47

2.3 Social Structure and Education 48 Social Group Associations 48

Social Status 48

Social Mobility 49

Education 50

2.4 Religion 51 Christianity 51

Islam 51

Hinduism 54

Buddhism 54

Confucianism 55

Judaism 55

Shinto 56

2.5 Personal Communication 56 Spoken and Written Language 56 • GLOBAL SUSTAINABILITY: Speaking in Fewer Tongues 57 Body Language 58

2.6 Culture in the Global Workplace 59 Perception of Time 59

View of Work 60

Material Culture 60

Cultural Change 61

Studying Culture in the Workplace 62 • BOTTOM LINE FOR BUSINESS 65

Chapter Summary 66 • Key Terms 67 • Talk About It 1 67 • Talk About It 2 68 • Ethical Challenge 68 • Teaming Up 68 • Market Entry Strategy Project 68

• PRACTICING INTERNATIONAL MANAGEMENT CASE 69

Chapter 3 Political Economy and Ethics 70 PepsiCo’s Global Challenge 71

3.1 Political Systems 73 Totalitarianism 73 • GLOBAL SUSTAINABILITY: From Civil War to Civil Society 75 Democracy 75 • MANAGER’S BRIEFCASE: Your Global Security Checklist 77

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viii CONTENTS

3.2 Economic Systems 78 Centrally Planned Economy 78

Mixed Economy 80

Market Economy 81

3.3 Legal Systems 83 • CULTURE MATTERS: Playing by the Rules 83 Common Law 86

Civil Law 86

Theocratic Law 87

3.4 Global Legal Issues 87 Intellectual Property 87

Product Safety and Liability 89

Taxation 89

Antitrust Regulations 90

3.5 Ethics and Social Responsibility 91 Philosophies of Ethics and Social Responsibility 91

Bribery and Corruption 92

Labor Conditions and Human Rights 92

Fair Trade Practices 93

Environment 93 • BOTTOM LINE FOR BUSINESS 97

Chapter Summary 98 • Key Terms 99 • Talk About It 1 99 • Talk About It 2 99 • Ethical Challenge 99 • Teaming Up 100 • Market Entry Strategy Project 100

• PRACTICING INTERNATIONAL MANAGEMENT CASE 101

Chapter 4 Economic Development of Nations 102 India’s Tech King 103

4.1 Economic Development 104 Classifying Countries 104

National Production 105

Purchasing Power Parity 108

Human Development 109

4.2 Economic Transition 110 Managerial Expertise 110

Shortage of Capital 110

Cultural Differences 111

Sustainability 111

4.3 Political Risk 111 • GLOBAL SUSTAINABILITY: Public Health Goes Global 114 Conflict and Violence 114

Terrorism and Kidnapping 115

Property Seizure 115

Policy Changes 116

Local Content Requirements 116

4.4 Managing Political Risk 117 Adaptation 117

Information Gathering 117

Political Influence 118

International Relations 118

The United Nations 118

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CONTENTS ix

4.5 Emerging Markets and Economic Transition 119 China’s Profile 119

Chinese Patience and Guanxi 120 China’s Challenges 121 • CULTURE MATTERS: Guidelines for Good Guanxi 121 Russia’s Profile 122

Russia’s Challenges 122 • MANAGER’S BRIEFCASE: Russian Rules of the Game 123 • BOTTOM LINE FOR BUSINESS 124

Chapter Summary 124 • Key Terms 125 • Talk About It 1 125 • Talk About It 2 126 • Ethical Challenge 126 • Teaming Up 126 • Market Entry Strategy Project 126

• PRACTICING INTERNATIONAL MANAGEMENT CASE 127

PART 3 International Trade and Investment 128 Chapter 5 International Trade Theory 128

From Bentonville to Beijing 129

5.1 Benefits, Volume, and Patterns of International Trade 130 Benefits of International Trade 130

Volume of International Trade 130

International Trade Patterns 131 • CULTURE MATTERS: Business Culture in the Pacific Rim 134

5.2 Mercantilism 135 How Mercantilism Worked 135

Flaws of Mercantilism 136

5.3 Theories of Absolute and Comparative Advantage 136 Absolute Advantage 137

Comparative Advantage 138

5.4 Factor Proportions Theory 140 Labor Versus Land and Capital Equipment 141

Evidence on Factor Proportions Theory: The Leontief Paradox 141

5.5 International Product Life Cycle 142 Stages of the Product Life Cycle 142

Limitations of the Theory 142 • MANAGER’S BRIEFCASE: Five Fulfillment Mistakes 143

5.6 New Trade Theory 144 First-Mover Advantage 144

5.7 National Competitive Advantage 144 Factor Conditions 145 • GLOBAL SUSTAINABILITY: Foundations of Development 145 Demand Conditions 146

Related and Supporting Industries 146

Firm Strategy, Structure, and Rivalry 146

Government and Chance 146 • BOTTOM LINE FOR BUSINESS 147

Chapter Summary 148 • Key Terms 149 • Talk About It 1 149 • Talk About It 2 149 • Ethical Challenge 150 • Teaming Up 150 • Market Entry Strategy Project 150

• PRACTICING INTERNATIONAL MANAGEMENT CASE 151

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x CONTENTS

Chapter 6 Political Economy of Trade 152 Lord of the Movies 153

6.1 Why do Governments Intervene in Trade? 154 Political Motives 154 • GLOBAL SUSTAINABILITY: Managing Security in the Age of

Globalization 155 Economic Motives 156

Cultural Motives 157 • CULTURE MATTERS: Myths of Small Business Exporting 158

6.2 Instruments of Trade Promotion 159 Subsidies 159

Export Financing 159

Foreign Trade Zones 160 • MANAGER’S BRIEFCASE: Experts in Export Financing 160 Special Government Agencies 161

6.3 Instruments of Trade Restriction 161 Tariffs 161

Quotas 162

Embargoes 164

Local Content Requirements 164

Administrative Delays 164

Currency Controls 165

6.4 Global Trading System 165 General Agreement on Tariffs and Trade (GATT) 165

World Trade Organization (WTO) 167 • BOTTOM LINE FOR BUSINESS 169

Chapter Summary 170 • Key Terms 171 • Talk About It 1 171 • Talk About It 2 171 • Ethical Challenge 171 • Teaming Up 172 • Market Entry Strategy Project 172

• PRACTICING INTERNATIONAL MANAGEMENT CASE 173

Chapter 7 Foreign Direct Investment 174 Das Auto 175

7.1 Pattern of Foreign Direct Investment 176 Ups and Downs of FDI 176 • CULTURE MATTERS: The Cowboy of Manchuria 178 Worldwide Flows of FDI 178

7.2 Theories of Foreign Direct Investment 179 International Product Life Cycle 179

Market Imperfections (Internalization) 179

Eclectic Theory 180

Market Power 180

7.3 Management Issues and Foreign Direct Investment 181 Control 181

Purchase-or-Build Decision 182

Production Costs 182 • MANAGER’S BRIEFCASE: Surprises of Investing Abroad 182 Customer Knowledge 184

Following Clients 184

Following Rivals 184 • GLOBAL SUSTAINABILITY: Greening the Supply Chain 184

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CONTENTS xi

7.4 Why Governments Intervene in FDI 185 Balance of Payments 185

Reasons for Intervention by the Host Country 186

Reasons for Intervention by the Home Country 187

7.5 Government Policy Instruments and FDI 189 Host Countries: Promotion 189

Host Countries: Restriction 190

Home Countries: Promotion 190

Home Countries: Restriction 190 • BOTTOM LINE FOR BUSINESS 191

Chapter Summary 191 • Key Terms 192 • Talk About It 1 193 • Talk About It 2 193 • Ethical Challenge 193 • Teaming Up 193 • Market Entry Strategy Project 194

• PRACTICING INTERNATIONAL MANAGEMENT CASE 195

Chapter 8 Regional Economic Integration 196 Nestlé’s Global Recipe 197

8.1 Levels of Integration and the Debate 198 Free Trade Area 198

Customs Union 199

Common Market 199

Economic Union 199

Political Union 199

The Case for Regional Integration 199

The Case Against Regional Integration 201

8.2 Integration in Europe 202 European Union 203 • CULTURE MATTERS: Czech List 208 European Free Trade Association (EFTA) 209

8.3 Integration in the Americas 209 North American Free Trade Agreement 209

Central American Free Trade Agreement (CAFTA-DR) 211

Andean Community (CAN) 211

Southern Common Market (MERCOSUR) 212

Central America and the Caribbean 212

Free Trade Area of the Americas (FTAA) 213

8.4 Integration in Asia and Elsewhere 213 Association of Southeast Asian Nations (ASEAN) 213

Asia Pacific Economic Cooperation (APEC) 213 • MANAGER’S BRIEFCASE: The Ins and Outs of ASEAN 214 Closer Economic Relations (CER) Agreement 214

Gulf Cooperation Council (GCC) 214

Economic Community of West African States (ECOWAS) 215

African Union (AU) 215 • BOTTOM LINE FOR BUSINESS 216

Chapter Summary 216 • Key Terms 217 • Talk About It 1 217 • Talk About It 2 218 • Ethical Challenge 218 • Teaming Up 218 • Market Entry Strategy Project 218

• PRACTICING INTERNATIONAL MANAGEMENT CASE 219

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xii CONTENTS

PART 4 The International Financial System 220 Chapter 9 International Financial Markets 220

Wii Is the Champion 221

9.1 Importance of the International Capital Market 222 Purposes of National Capital Markets 223

Purposes of the International Capital Market 223 • GLOBAL SUSTAINABILITY: Big Results from Microfinance 224 Forces Expanding the International Capital Market 224

World Financial Centers 225

9.2 International Capital Market Components 226 International Bond Market 226

International Equity Market 227

Eurocurrency Market 227

9.3 The Foreign Exchange Market 228 Functions of the Foreign Exchange Market 228

9.4 Currency Quotes and Rates 230 Quoting Currencies 230

Spot Rates 233

Forward Rates 233

Swaps, Options, and Futures 234

9.5 Market Instruments and Institutions 235 Trading Centers 235

Important Currencies 235

Interbank Market 236

Securities Exchanges 236

Over-the-Counter Market 237 • MANAGER’S BRIEFCASE: Managing Foreign Exchange 237 Instruments for Restricting Currencies 238 • BOTTOM LINE FOR BUSINESS 238

Chapter Summary 239 • Key Terms 240 • Talk About It 1 240 • Talk About It 2 241 • Ethical Challenge 241 • Teaming Up 241 • Market Entry Strategy Project 241

• PRACTICING INTERNATIONAL MANAGEMENT CASE 242

Appendix Calculating Percent Change in Exchange Rates 243

Chapter 10 International Monetary System 244 Euro Rollercoaster 245

10.1 Importance of Exchange Rates 246 Desire for Predictability and Stability 247

Efficient versus Inefficient Market View 247

Forecasting Techniques 248

Difficulties of Forecasting 248 • CULTURE MATTERS: The Long Arm of the Law 249

10.2 What Factors Determine Exchange Rates? 249 Law of One Price 249

Purchasing Power Parity 250

10.3 Fixed Exchange Rate Systems 254 The Gold Standard 254

Bretton Woods Agreement 255

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CONTENTS xiii

10.4 System of Floating Exchange Rates 257 Today’s Exchange-Rate Arrangements 258 • MANAGER’S BRIEFCASE: Adjusting to Currency Swings 259 European Monetary System 259

Recent Financial Crises 260

Future of the International Monetary System 262 • BOTTOM LINE FOR BUSINESS 263

Chapter Summary 264 • Key Terms 265 • Talk About It 1 265 • Talk About It 2 265 • Ethical Challenge 265 • Teaming Up 266 • Market Entry Strategy Project 266

• PRACTICING INTERNATIONAL MANAGEMENT CASE 267

PART 5 International Business Management 268 Chapter 11 International Strategy and Organization 268

Flying High with Low Fares 269

11.1 Company Analysis 270 Company Mission and Goals 270

Core Competency and Value-Creation 271 • MANAGER’S BRIEFCASE: Ask Questions before Going Global 273

11.2 Strategy Formulation 274 Two International Strategies 274

Corporate-Level Strategies 276

Business-Level Strategies 276

Department-Level Strategies 278

11.3 Issues of Organizational Structure 279 Centralization versus Decentralization 279

Coordination and Flexibility 280

11.4 Types of Organizational Structure 281 International Division Structure 281

International Area Structure 282

Global Product Structure 282

Global Matrix Structure 283

Work Teams 283

A Final Word 285 Chapter Summary 286 • Key Terms 287 • Talk About It 1 287 • Talk About It 2 287 • Ethical Challenge 287 • Teaming Up 288

• PRACTICING INTERNATIONAL MANAGEMENT CASE 289

Chapter 12 Analyzing International Opportunities 290 Starbucks Causes Global Jitters 291

12.1 Basic Appeal and National Factors 292 Step 1: Identify Basic Appeal 292

Step 2: Assess the National Business Environment 294 • MANAGER’S BRIEFCASE: Conducting Global e-Business 298

12.2 Measure and Select the Market or Site 298 Step 3: Measure Market or Site Potential 298

Step 4: Select the Market or Site 301

12.3 Secondary Market Research 304 International Organizations 304

Government Agencies 305

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xiv CONTENTS

Industry and Trade Associations 306

Service Organizations 306

Internet 306

Problems with Secondary Research 307

12.4 Primary Market Research 308 Trade Shows and Trade Missions 308 • CULTURE MATTERS: Is the World Your Oyster? 309 Interviews and Focus Groups 309

Surveys 309

Environmental Scanning 310

Problems with Primary Research 310

A Final Word 311 Chapter Summary 311 • Key Terms 312 • Talk About It 1 312 • Talk About It 2 312 • Ethical Challenge 312 • Teaming Up 312

• PRACTICING INTERNATIONAL MANAGEMENT CASE 313

Chapter 13 Selecting and Managing Entry Modes 314 License to Thrill 315

13.1 Exporting, Importing, and Countertrade 316 Why Companies Export 316

Developing an Export Strategy: A Four-Step Model 317

Degree of Export Involvement 318

Avoiding Export and Import Blunders 320

Countertrade 320

13.2 Export/Import Financing 321 Advance Payment 322

Documentary Collection 322

Letter of Credit 323

Open Account 324 • MANAGER’S BRIEFCASE: Collecting International Debts 324

13.3 Contractual Entry Modes 325 Licensing 325

Franchising 326

Management Contracts 328

Turnkey Projects 328

13.4 Investment Entry Modes 329 Wholly Owned Subsidiaries 329

Joint Ventures 330

Strategic Alliances 332

13.5 Strategic Factors in Selecting an Entry Mode 333 Selecting Partners for Cooperation 333 • CULTURE MATTERS: Negotiating Market Entry 334 Cultural Environment 334

Political and Legal Environments 334

Market Size 334

Production and Shipping Costs 335

International Experience 335

A Final Word 335 Chapter Summary 335 • Key Terms 337 • Talk About It 1 337 • Talk About It 2 337 • Ethical Challenge 337 • Teaming Up 338

• PRACTICING INTERNATIONAL MANAGEMENT CASE 339

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CONTENTS xv

Chapter 14 Developing and Marketing Products 340 Wings for Life 341

14.1 Developing Product Strategies 342 Laws and Regulations 342

Cultural Differences 343

Brand and Product Names 343

National Image 344

Counterfeit Goods and Black Markets 345

Shortened Product Life Cycles 345

14.2 Creating Promotional Strategies 346 Push and Pull Strategies 346 • MANAGER’S BRIEFCASE: Managing an International Sales Force 347 International Advertising 347

Blending Product and Promotional Strategies 349 • CULTURE MATTERS: Localizing Websites 351

14.3 Designing Distribution Strategies 352 Designing Distribution Channels 352

Influence of Product Characteristics 353

Special Distribution Problems 353

14.4 Developing Pricing Strategies 354 Worldwide Pricing 354

Dual Pricing 355

Factors That Affect Pricing Decisions 355

A Final Word 356 Chapter Summary 357 • Key Terms 357 • Talk About It 1 358 • Talk About It 2 358 • Ethical Challenge 358 • Teaming Up 358

• PRACTICING INTERNATIONAL MANAGEMENT CASE 359

Chapter 15 Managing International Operations 360 Toyota Races Ahead 361

15.1 Production Strategy 362 Capacity Planning 362

Facilities Location Planning 362

Process Planning 364

Facilities Layout Planning 365

15.2 Acquiring Physical Resources 365 Make-or-Buy Decision 365

Raw Materials 368

Fixed Assets 368

15.3 Key Production Concerns 369 Quality Improvement Efforts 369

Shipping and Inventory Costs 370 • MANAGER’S BRIEFCASE: World-Class Standards 370 Reinvestment versus Divestment 371

15.4 Financing Business Operations 371 Borrowing 372

Issuing Equity 372

Internal Funding 373 • CULTURE MATTERS: Financing Business from Abroad 374 Capital Structure 374

A Final Word 375 Chapter Summary 376 • Key Terms 377 • Talk About It 1 377 • Talk About It 2 377 • Ethical Challenge 377 • Teaming Up 378

• PRACTICING INTERNATIONAL MANAGEMENT CASE 379

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xvi CONTENTS

Chapter 16 Hiring and Managing Employees 380 Leaping Cultures 381

16.1 International Staffing Policies 382 Ethnocentric Staffing 382

Polycentric Staffing 384

Geocentric Staffing 384

16.2 Recruiting and Selecting Human Resources 385 Human Resource Planning 385 • MANAGER’S BRIEFCASE: Growing Global 385 Recruiting Human Resources 386

Selecting Human Resources 386

Culture Shock 387

Reverse Culture Shock 387 • CULTURE MATTERS: A Shocking Ordeal 388

16.3 Training and Development 388 Methods of Cultural Training 389

Compiling a Cultural Profile 390

Nonmanagerial Worker Training 391

16.4 Employee Compensation 391 Managerial Employees 391

Nonmanagerial Workers 392

16.5 Labor–Management Relations 393 Importance of Labor Unions 393

A Final Word 394 Chapter Summary 394 • Key Terms 395 • Talk About It 1 395 • Talk About It 2 396 • Ethical Challenge 396 • Teaming Up 396

• PRACTICING INTERNATIONAL MANAGEMENT CASE 397

Endnotes 398 Glossary 403 Name Index 411 Subject Index 413

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xvii

Dear Friends and Colleagues,

As we roll out the new edition of International Business: The Challenges of Globalization, we thank each of you who provided suggestions to enrich this textbook. This edition reflects the advice and wisdom of many dedicated review- ers and instructors. Together, we have created the most readable, concise, and innovative international business book available today.

As teachers, we know it is important to select the right book for your course. Instructors say this book’s clear and lively writing style helps students learn international business. The book’s streamlined and clutter-free design is a competitive advantage that will never be sacrificed.

The accompanying cutting-edge technology package also helps students to better understand international business. MyLab Management is an innova- tive set of course-management tools for delivering all or part of your course online, which makes it easy to add meaningful assessment to your course. Whether you’re interested in testing your students on simple recall of concepts and theories or you’d like to gauge how well they can apply their new knowl- edge to real-world scenarios, MyLab Management offers a variety of activi- ties that are applied and personalized with immediate feedback. You and your students will find these and other components of this book’s learning system fun and easy to use.

We owe the success of this book to our colleagues and our students who keep us focused on their changing educational needs. In this time of rapid global change, we must continue to instill in our students a passion for international business and to equip them with the skills and knowledge they need to com- pete. Please accept our heartfelt thanks and know that your input is reflected in everything we write.

John J. Wild

Kenneth L. Wild

A01_WILD9220_09_SE_FM.indd 17 11/1/17 11:23 PM

xviii

Preface

Welcome to the ninth edition of International Business: The Challenges of Globalization. As in previous editions, this book resulted from extensive market surveys, chapter reviews, and correspondence with scores of instructors and students. We are delighted that an overwhelm- ing number of instructors and students agree with our approach to international business. The reception of this textbook in the United States and across the world has exceeded all expectations.

This book is our means of traveling on an exciting tour through the study of international business. It motivates the reader by making international business challenging yet fun. It also embraces the central role of people and their cultures in international business. Each chapter is infused with real-world discussion, while underlying theory appears in the background where it belongs. Terminology is used consistently, and theories are explained in direct and concise terms. This book’s visual style is innovative yet subtle and uses photos, illustrations, and features spar- ingly. The result is an easy-to-read and clutter-free design.

New to This Edition • Learning Objectives for each chapter now appear in the margins of the text right next to

where the corresponding material begins. This allows the reader to better follow the mate- rial presented in each chapter and increases student comprehension.

• New material in Chapter 1 includes coverage of highly useful capabilities we call employ- ability skills. Where appropriate, the book presents material that helps students to develop critical thinking skills, refine their sense of business ethics and social responsibility, develop their communication skills, and expand their ability to apply and analyze knowledge.

• Chapter 1 topic of the world’s largest companies and its accompanying Figure 1.1 has been updated, as is material on the most globalized nations and the timely and important topic of global inequality.

• The Manager’s Briefcase feature in Chapter 1 appears earlier to emphasize the textbook’s applied and managerial treatment of material.

• Presentation of national illiteracy rates and its accompanying Table 2.1 are updated to pres- ent the most recent data available.

• Figure 3.2 and its discussion reflect recent data on business software piracy rates around the world.

• The most recently available Human Development Index is presented in Table 4.1 along with its updated in-text explanation.

• Table 5.1 presents most recently available data on the world’s top exporters and importers, by both US dollar value and share of the world total.

• Chapter 5 discussion of regional merchandise trade has been removed to present the mate- rial in a more streamlined and less complicated fashion.

• Chapter 6 contains an update to the discussion of the WTO Doha Round of negotiations. • Figures 7.1 and 7.2 and their explanations update the annual value of foreign direct invest-

ment inflows and cross-border mergers and acquisitions, respectively. • Chapter 8 presentation of regional trading blocs contains the latest available information on

Britain’s exit (Brexit) from the European Union, Venezuela’s suspension from the Southern Common Market, and other events.

• Chapter 10 updates the discussion of exchange rates among major world currencies, value of the US dollar over time, and the addition of China’s currency to the IMF’s special draw- ing right (SDR).

• Table 12.1 updates the ranking of the world’s top market research firms.

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PREFACE xix

• Chapter 13 discussion of letter-of-credit financing and its related Figure 13.4 have been revised for precision and a smoother presentation.

• All chapter-opening company profiles and chapter-closing mini-cases are updated to reflect the most recent data and facts available at the time of publication.

Solving Teaching and Learning Challenges Students who take the international business course can have difficulty seeing the relevance of certain key concepts to their lives and future careers. These topics can include political economy, trade theory, foreign exchange rates, and the international financial system. This can reduce the willingness of a student to prepare for class and be engaged in class.

We use the ever-present and salient subject of culture to present real-world examples and engaging features to bring international business to life and pique student interest. We pres- ent complex material in concrete, straightforward terms and illustrate it appropriately to make international business accessible for all students. This approach makes the material interesting and relevant and shows students the importance of these concepts to their future employability and careers. We use the following additional methods and resources to engage students with the content of international business:

interactive Approach to international Business Pearson’s MyLab Management is now fully integrated into the text. These features are outlined below. The online assessment activities enable you to quiz your students before class so you have more time in class to focus on areas that students find most challenging. Watch It Cases expose students to life in other cultures by asking them to view a video clip on a key topic. Each video corresponds to the chapter material and is accompanied by multiple choice questions that reinforce student comprehension. Try It Simulations ask students to apply what they have learned in a textbook section and provide immediate feedback. Students make choices based on realistic business scenarios, which reinforces student comprehension of key concepts. Quick Study Concept Checks appear at the end of each textbook section to verify that students have learned key terms and concepts before moving on. Students obtain immediate feedback on answers they provide in an online environment.

Making international Business Relevant This textbook captures the real-world characteristics of international business today by empha- sizing the importance of cultural inf luences, sustainable business practices, and managerial implications. Culture Matters boxes present the relation between culture and a key chapter topic. For example, Chapter 2 presents the importance of businesspeople developing a global mindset and avoiding cultural bias. Another chapter presents the debate over globalization’s influence on cul- ture, and another box shows how entrepreneurs succeed by exploiting their knowledge of local cultures. Global Sustainability boxes present special top- ics related to economic, social, and environmen- tal sustainability. Today, businesses know that f lourishing markets rely on strong economies, thriving societies, and healthy environments.

MyLab Management IMPROVE YOUR GRADE!

When you see this icon , visit www.pearson.com/mylab/management for activities that are applied, personalized, and offer immediate feedback.

16.1 Explain the three types of staffing policies that companies use.

16.2 Describe the key human resource recruitment and selection issues.

16.3 Summarize the main training and development programs that firms use.

16.4 Explain how companies compensate managers and workers.

16.5 Describe the importance of labor–management relations.

Learning Objectives

After studying this chapter, you should be able to

Hiring and Managing Employees

Chapter Sixteen

A Look Back

Chapter 15 examined how compa- nies launch and manage their inter- national production efforts. We also briefly explored how companies finance their various international business operations.

A Look at This Chapter

This final chapter examines how a company acquires and manages its most important resource—its employees. The topics we explore include international staffing poli- cies, recruitment and selection,

training and development, compensa- tion, and labor–management relations. We also learn about culture shock and how employees can deal with its effects.

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CHAPTER 1 • GlobAlizATion 13

THE INTERNET Companies use the Internet to quickly and inexpensively contact managers in distant locations—for example, to inquire about production runs, revise sales strategies, and check on distribution bottlenecks. They also use the Internet to achieve longer-term goals, such as sharpen their forecasting, lower their inventories, and improve communication with suppliers. The lower cost of reaching an international customer base especially benefits small firms, which were among the first to use the Internet as a global marketing tool. Additional gains arise from the ability of the Internet to cut postproduction costs by decreasing the number of intermediaries a product passes through on its way to the customer. Eliminating intermediaries greatly benefits online sellers of all sorts of products, including books, music, travel services, and software.

Some innovative companies use online competitions to attract fresh ideas from the brightest minds worldwide. InnoCentive (www.innocentive.com) connects companies and institutions seek- ing solutions to difficult problems by using a global network of 300,000 creative thinkers. These engineers, scientists, inventors, and businesspeople with expertise in life sciences, engineering, chemistry, math, computer science, and entrepreneurship compete to solve some of the world’s toughest problems in return for significant financial awards. InnoCentive is open to anyone, is avail- able in seven languages, and pays cash awards that range from $5,000 to more than $1 million.14

COMPANY INTRANETS AND EXTRANETS Internal company websites and information net- works (intranets) give employees access to company data using personal computers. A particularly effective marketing tool on Volvo Car Corporation’s (www.volvocars.com) intranet is a quarter- by-quarter database of marketing and sales information. The cycle begins when headquarters sub- mits its corporate-wide marketing plan to Volvo’s intranet. Marketing managers at each subsidiary worldwide then select those activities that apply to their own market, develop their marketing plan, and submit it to the database. This allows managers in every market to view every other subsidiary’s marketing plan and to adapt relevant aspects to their own plan. In essence, the entire system acts as a tool for the sharing of best practices across all of Volvo’s markets.

Extranets give distributors and suppliers access to a company’s database so they can place orders or restock inventories electronically and automatically. These networks permit international companies (along with their suppliers and buyers) to respond to internal and external conditions more quickly and more appropriately.

ADVANCEMENTS IN TRANSPORTATION TECHNOLOGIES Retailers worldwide rely on imports to stock their storerooms with finished goods and to supply factories with raw materials and intermediate products. Innovation in the shipping industry is helping globalize markets and production by making shipping more efficient and dependable. In the past, a cargo ship would sit in port up to 10 days while it was unloaded one pallet at a time. But because cargo today is loaded onto a ship in 20- and 40-foot containers that are unloaded quickly at the destination onto railcars or truck chassis, a 700-foot cargo ship is routinely unloaded in just 15 hours.

Operation of cargo ships is now simpler and safer because of computerized charts that pin- point a ship’s movements on the high seas using Global Positioning System (GPS) satellites. Com- bining GPS with radio frequency identification (RFID) technology allows continuous monitoring of individual containers from port of departure to destination. RFID can tell whether a container’s doors are opened and closed on its journey and can send an alert if a container deviates from its planned route.

These types of advancements allowed Hewlett-Packard (www.hp.com) to seize the rewards of globalization when it built a new low-cost computer server for businesses. HP dispersed its design and production activities throughout a specialized manufacturing system across five Pacific Rim nations and India. This helped the company minimize labor costs, taxes, and shipping delays yet maximize productivity when designing, building, and distributing its new product. Companies use such innovative production and distribution techniques to squeeze inefficiencies out of their international operations and boost their competitiveness.

MyLab Management Watch It Save the Children Social Networking Apply what you have learned about the use of technology in management. If your instructor has assigned this, go to www.pearson.com/mylab/management to watch a video case about how a not-for-profit enterprise uses social media to achieve its goals and answer questions.

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CHAPTER 1 • GlobAlizATion 23

Most international firms today support reasonable environmental laws because (if for no other reason) they want to expand future local markets for their goods and services. They recognize that healthy future markets require a sustainable approach to business expansion. Companies today often examine a location for its potential as a future market as well as a production base.

MyLab Management Try It Apply what you have learned about the effects of globalization. If your instructor has assigned this, go to www.pearson.com/mylab/management to perform a simulation on the potential positive and negative outcomes of globalization.

QUiCK STUDY 6

1. People opposed to globalization say that it does what to national cultures? 2. Regarding national sovereignty, opponents of globalization say that it does what? 3. Regarding the physical environment, what do globalization supporters argue?

1.7 Developing Skills for your Career Some of you taking this course are majoring in international business or a related business area, such as marketing, business administration, or accounting. Others are majoring in political sci- ence, economics, history, psychology, and so forth, and are taking this course to gain insight into how businesses operate in the global economy. But as we read at the beginning of this chapter, and regardless of your chosen field of study, international business activities touch all aspects of our lives today. So, although you might not one day become a manager with direct international business responsibilities, this course will help you develop highly useful capabilities we call employability skills, regardless of your chosen career.

Critical thinking involves purposeful and goal-directed thinking used to define and solve problems, make decisions, or form judgments related to a set of circumstances. This course will help you to develop this key employability skill. For example, you will use critical thinking skills in this course to study how a country designs its political, economic, and legal systems into a complex arrangement to achieve a specific set of priorities for the nation and its people. Through- out the book, you will be able to put yourself in the position of a business manager and make a decision or solve a dilemma that commonly occurs in business today.

A keener sense of business ethics and social responsibility is another employability skill that this course will help you to improve. We define these concepts simply as sets of guiding principles that influence the way individuals and organizations behave within society. You will encounter the issues of personal ethical responsibility and reasoning throughout this course as you read how managers made ethical decisions under specific circumstances and how they fared. You will also read about the social responsibilities that companies face regarding topics such as human rights, fair trade, and sustainable development.

This course also will help to improve your communication skills, which is another key employability skill. Communication is the use of oral, written, and nonverbal language, and tech- nology to communicate ideas effectively and to listen effectively. International business means doing business across national borders, across languages, and across cultures. Articulating one’s thoughts and ideas in another language and culture must be done in a considerate and mindful way so as to not offend another person’s values and beliefs. You will read about many situations in which appropriate communication resulted in successful dealings, and thoughtless communica- tion meant failure of one kind or another. You will see how managers who are posted abroad for the first time on international assignment must work effectively with others, remain flexible, and make cultural compromises to succeed.

1.7 Identify how this course will help you to develop skills for your career.

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CHAPTER 1 • GlobAlizATion 19

1.5 Debate about Income Inequality Perhaps no controversy swirling around globalization is more complex than the debate about its effect on income inequality. Here, we focus on three main aspects of the debate: inequality within nations, inequality between nations, and global inequality.

Inequality within Nations The first aspect of the inequality debate is whether globalization increases income inequality among people within nations. Opponents of globalization argue that freer trade and investment allows international companies to close factories in high-wage, developed nations and to move them to low-wage, developing nations. They argue that this increases the wage gap between white- collar and blue-collar occupations in rich nations.

Two studies of developed and developing nations find contradictory evidence about this argu- ment. The first study, of 38 countries for almost 30 years, supports the increasing inequality argument. The study found that as a nation increases its openness to trade, income growth among the poorest 40 percent of its population declines, whereas income growth among other groups increases.18 The second study, of 80 countries for 40 years, failed to support the increasing inequality argument. It found that incomes of the poor rise one-for-one with overall economic growth and concluded that the poor benefit from international trade along with the rest of a nation.19

Two studies of developing nations only are more consistent in their findings. One study found that an increase in the ratio of trade to national output of 1 percent raised average income levels by 0.5 to 2 percent. Another study showed that incomes of the poor kept pace with growth in average incomes in economies (and periods) of fast trade integration, but that the poor fell behind during periods of declining openness.20 Results of these two studies suggest that, by integrating their economies into the global economy, developing nations (by far the nations with the most to gain) can boost the incomes of their poorest residents.

Another approach takes a multidimensional view of poverty and deprivation. Proponents of this approach say that the problem with focusing on income alone is that higher income does not necessarily translate into better health or nutrition. The new approach examines 10 basic factors, including whether the family home has a decent toilet and electricity service; whether children are enrolled in school; and whether family members are malnourished or must walk more than 30 minutes to obtain clean drinking water. A household is considered poor if it is “deprived” on more than 30 percent of the indicators. This new approach reveals important differences among poor regions. For example, whereas material measures contribute more to poverty in sub-Saharan Africa, malnutrition is a bigger factor in South Asia.21

Inequality between Nations The second aspect of the inequality debate is whether globalization widens the gap in average incomes between rich and poor nations. If we compare average incomes in high-income countries with average incomes in middle- and low-income nations, we do find a widening gap. But aver- ages conceal differences between nations.

On closer inspection, it appears the gap between rich and poor nations does not occur every- where: One group of poor nations is closing the gap with rich economies, while a second group of poor countries is falling further behind. For example, China is narrowing the income gap between itself and the United States as measured by GDP per capita, but the gap between Africa and the United States is widening. China’s progress is no doubt a result of its integration with the world economy and annual economic growth rates of between 7 percent and 9 percent. Another emerging market, India, also is narrowing its income gap with the United States by embracing globalization.22

Developing countries that embrace globalization are increasing personal incomes, extending life expectancies, and improving education systems. In addition, post-communist countries that

1.5 Summarize the debate about income inequality.

QUiCK STUDY 4

1. In the debate about jobs and wages, opponents of globalization say that it does what? 2. In the debate about jobs and wages, supporters of globalization say that it does what?

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CHAPTER 1 • GlobAlizATion 21

1.6 Debate about Culture, Sovereignty, and the Environment Coverage of the globalization debate would be incomplete without examining several additional topics in the globalization debate. Let’s now look at globalization’s effect on a nation’s culture, sovereignty, and physical environment.

Globalization and Culture National culture is a strong shaper of a people’s values, attitudes, customs, beliefs, and com- munication. Whether globalization eradicates cultural differences between groups of people or reinforces cultural uniqueness is a hotly debated topic.

Globalization’s detractors say that it homogenizes our world and destroys our rich diversity of cultures. They say that in some drab, new world we all will wear the same clothes bought at the same brand-name shops, eat the same foods at the same brand-name restaurants, and watch the same movies made by the same production companies. Blame is usually placed squarely on the largest multinational companies in consumer goods, which typically are based in the United States.

Supporters argue that globalization allows us all to profit from our differing circumstances and skills. Trade allows countries to specialize in producing the goods and services they can produce most efficiently. Nations then can trade with each other to obtain goods and services they desire but do not produce. In this way, France still produces many of the world’s finest wines, South Africa yields much of the world’s diamonds, and Japan continues to design some of the world’s finest-engineered automobiles. Other nations then trade their goods and services with these countries to enjoy the wines, diamonds, and automobiles that they do not, or cannot, produce. To learn more about the interplay between culture and globalization, see the Culture Matters feature, titled, “The Culture Debate.”

1.6 Outline the debate about culture, sovereignty, and the environment.

QUiCK STUDY 5

1. Evidence suggests that globalization can help developing nations boost incomes for their poorest people in what part of the debate about inequality?

2. In the debate about inequality between nations, evidence suggests that developing nations that are open to trade and investment do what?

3. Regarding the debate about global inequality, experts tend to agree about what?

The debate about globalization’s influence on culture evokes strong opinions. Here are a few main arguments in this debate:

• Material Desire. Critics say globalization fosters the “Coca- Colanization” of nations through advertising campaigns that promote material desire. They also argue that global consumer-goods companies destroy cultural diversity (especially in developing nations) by putting local compa- nies out of business.

• Artistic Influence. Evidence suggests, however, that the cultures of developing nations are thriving and that the influence of their music, art, and literature has grown (not shrunk) throughout the past century. African cultures, for example, have influenced the works of artists including Picasso, the beatles, and Sting.

• Western Values. international businesses reach far and wide through the internet, global media, increased busi- ness travel, and local marketing. Critics say local values and traditions are being replaced by US companies promoting “Western” values.

• A Force for Good. on the positive side, globalization tends to foster two important values: tolerance and diversity. Advocates say nations should be more tolerant of oppos- ing viewpoints and should welcome diversity among their peoples. This view interprets globalization as a potent force for good in the world.

• Deeper Values. Globalization can cause consumer pur- chases and economic ideologies to converge, but these are rather superficial aspects of culture. Deeper values that embody the essence of cultures might be more resistant to a global consumer culture.

• Want to Know More?. Visit the globalization page of the Global Policy Forum (www.globalpolicy.org), Globaliza- tion 101 (www.globalization101.org), or The Globalist (www.theglobalist.com).

Sources: “Economic Globalization and Culture: A Discussion with Dr. Francis Fukuyama,” Merrill Lynch Forum website (www.ml.com); “Globalization Issues,” The Globalization website (www.sociology.emory.edu/globalization/index.html); “Cultural Diversity in the Era of Globalization,” UNESCO Culture Sector website (www.unesco.org/culture).

CULTURE MATTERS The Culture Debate

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http://www.pearson.com/mylab/management

http://www.globalpolicy.org

http://www.globalization101.org

http://www.theglobalist.com

xx PREFACE

Topics include the factors that contribute to sus- tainable development, and how companies can make their supply chains more environmentally friendly. Manager’s Briefcase boxes address issues facing companies active in international business. Issues presented can be relevant to entrepreneurs and small businesses or to the world’s largest global companies. Topics include obtaining capital to finance international activities, getting paid for exports, and how to be mindful of personal secu- rity while abroad on business.

Uniquely integrative International business is not simply a collection of separate business functions and environmental forces. The model shown below (and detailed in Chapter 1) is a unique organizing framework that helps students to understand how the elements of international business are related. It depicts a dynamic, integrated system that weaves together national business environments, the international business environment, and international business management. It also shows that characteristics of globalization (new technologies and falling bar- riers to trade and investment) are causing greater competition.

Tools for Active Learning Carefully chosen assignment materials span the full range of complexity to test students’ knowledge and ability to apply key principles. Assignment materials are often experiential in nature to help students develop decision-making skills. Talk About It questions raise important issues currently confront- ing entrepreneurs, international managers, policy makers, consum- ers, and others. Ethical Challenge exercises ask students to assume the role of a manager, government official, or someone else and to make a decision based on the facts presented to them. Teaming Up projects go beyond the text and require students to collaborate in teams to conduct interviews, research other coun- tries, or hold in-class debates. Market Entry Strategy Project is an interactive simulation that asks students to research a country as a future market for a new video game system. Working as part of a team, students research and analyze a country, and then recommend a course of action. Practicing International Management cases ask students to analyze the responses of real-world companies to the issues, problems, and opportunities discussed in each chapter.

Developing and Marketing

Products (ch. 14)

Managing International Operations

(ch. 15)

Economic Development

of Nations (ch. 4)

International Financial Markets (ch. 9)

Political Economy of Trade (ch. 6)

Cross-Cultural Business (ch. 2)

International Monetary System

(ch. 10)

Globalization (ch. 1)

Increasing Competition

Technological Innovation

Falling Trade/FDI Barriers

International Trade Theory

(ch. 5)

Regional Economic

Integration (ch. 8)

Foreign Direct Investment

(ch. 7)

Analyzing International Opportunities

(ch. 12) Selecting

and Managing

Entry Modes (ch. 13)

Hiring and Managing Employees

(ch. 16)

International Strategy and Organization

(ch. 11)

National

Firm

International

Political Economy and

Ethics (ch. 3)

6 PART 1 • GlobAl bUSinESS EnViRonMEnT

Entrepreneurs and Small Businesses International business competition has given rise to a new entity, the born global firm—a company that adopts a global perspective and engages in international business from or near its inception. Many of these companies become international competitors in less than three years. Born global firms tend to have innovative cultures and knowledge-based organizational capabilities. In this age of globalization, companies are exporting earlier and growing faster, often with help from technology.

Small firms selling traditional products benefit from technology that lowers the costs and difficulties of global communication. Vellus Products (www.vellus.com) of Columbus, Ohio, makes and sells pet-grooming products. Some years ago, a dog breeder in Spain became Vellus’s first distributor after the breeder received a request for more information about Vellus’s products from a man in Bahrain. Sharon Kay Doherty, president of Vellus, says she was stunned that she could so easily process a transaction with someone so far away. Today Vellus has distributors in 35 countries. It is a truly born global business in that, soon after going international, Vellus earned more than half its revenues from international sales.5

Electronic distribution for firms that sell digitized products is an effective alternative to traditional distribution channels. Alessandro Naldi’s Weekend in Italy website (en.firenze.waf .it) offers visitors more authentic Florentine products than they’ll find in the scores of over- priced tourist shops in downtown Florence. A Florentine himself, Naldi established his site to sell high-quality, authentic Italian merchandise made only in the small factories of Tuscany. Weekend in Italy averages 200,000 visitors each month from places as far away as Australia, Canada, Japan, Mexico, and the United States.6 For additional insights into how small and large companies alike succeed in international markets, see the Manager’s Briefcase, titled “The Keys to Global Success.”

born global firm Company that adopts a global perspective and engages in inter- national business from or near its inception.

Making everything from 99-cent hamburgers (McDonald’s) to $150 million jumbo jets (boeing), managers of global companies must overcome obstacles when competing in unfamiliar markets. Global managers acknowledge certain common threads in their approaches to management and offer the following advice:

• Communicate Effectively Cultural differences in business relationships and etiquette are central to global business and require cross-cultural competency. Effective global managers welcome uniqueness and ambiguity while dem- onstrating flexibility, respect, and empathy.

• Know the Customer Successful managers understand how a company’s different products serve the needs of inter- national customers. Then, they ensure that the company remains flexible and capable enough to customize products that meet those needs.

• Emphasize Global Awareness Good global managers integrate foreign markets into business strategy from the outset. They ensure that products and services are designed and built with global markets in mind, and not used as dumping grounds for the home market’s outdated products.

• Market Effectively The world will beat a path to your door to buy your “better mousetrap” only if it knows about it. A poor marketing effort can cause great products to fade into obscurity while an international marketing blunder can bring unwanted media attention. Top global managers match quality products with excellent marketing.

• Monitor Global Markets Successful managers keep a watchful eye on business environments for shifting political, legal, and socioeconomic conditions. They make obtaining accurate information a top priority.

MANAGER’S BRIEFCASE The Keys to Global Success

QUiCK STUDY 1

1. What is the value of goods and services that all nations of the world export every year? 2. A business that has direct investments (in the form of marketing or manufacturing subsid-

iaries) abroad in multiple countries is called a what? 3. A born global firm engages in international business from or near its inception and does

what else?

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CHAPTER 1 • GlobAlizATion 9

activities. The rise of social media is partly responsible for this trend. Concerned individuals and nongovernmental organizations will very quickly use Internet media to call out any firm caught harming the environment or society.

For years, forward-looking businesses have employed the motto, “reduce, reuse, and recycle.” The idea is to reduce the use of resources and waste, reuse resources with more than a single-use lifespan, and recycle what cannot be reduced or reused. The most dedicated managers and firms promote sustainable communities by adding to that motto, “redesign and reimagine.” This means redesigning products and processes for sustainability and reimagining how a product is designed and used to lessen its environmental impact.10 To read more about the call for more sustainable business practices, see the Global Sustainability feature, “Three Markets, Three Strategies.”

Globalization of Production Globalization of production refers to the dispersal of production activities to locations that help a company achieve its cost-minimization or quality-maximization objectives for a good or ser- vice. This includes the sourcing of key production inputs (such as raw materials or products for assembly) as well as the international outsourcing of services. Let’s now explore the benefits that companies obtain from the globalization of production.

ACCESS LOWER-COST WORKERS Global production activities allow companies to reduce overall production costs through access to low-cost labor. For decades, companies located their factories in low-wage nations in order to churn out all kinds of goods, including toys, small appli- ances, inexpensive electronics, and textiles. Yet whereas moving production to low-cost locales traditionally meant production of goods almost exclusively, it increasingly applies to the produc- tion of services such as accounting and research. Although most services must be produced where they are consumed, some services can be performed at remote locations where labor costs are lower. Many European and US businesses have moved their customer service and other nones- sential operations to places as far away as India to slash costs by as much as 60 percent.

ACCESS TECHNICAL EXPERTISE Companies also produce goods and services abroad to benefit from technical know-how. Film Roman (www.filmroman.com) produces the TV series The Simpsons, but it provides key poses and step-by-step frame directions to AKOM Produc- tion Company (www.akomkorea.com) in Seoul, South Korea. AKOM then fills in the remaining poses and links them into an animated whole. But there are bumps along the way, says animation

A company adapts its business strategy to the nuances of the market it enters. The world’s population of 7.5 billion people lives in three different types of markets:

• Developed Markets. These include the world’s established con- sumer markets, around one billion people. The population is solidly middle class, and people can consume almost any prod- uct desired. The infrastructure is highly developed and efficient.

• Emerging Markets. These markets, around two billion peo- ple, are racing to catch up to developed nations. The popu- lation is migrating to cities for better pay and is overloading cities’ infrastructures. Rising incomes are increasing global demand for resources and basic products.

• Traditional Markets. Globalization has bypassed these mar- kets, nearly four billion people. The population is mostly rural, the infrastructure is very poor, and there is little credit or collateral. People have almost no legal protections, and corruption prevails.

like business strategy, sustainability strategies reflect local conditions. Examples of businesses working toward sustainability in these three markets include the following:

• Toyota focused on the environment in its developed mar- kets. After extensively researching gas-electric hybrid tech- nologies, Toyota launched the Prius. As Motor Trend’s Car of the Year, the Prius drove Toyota’s profits to record highs and gave it a “green” image.

• Shree Cement faced limited access to low-cost energy in india’s emerging market, so it developed the world’s most energy-efficient process for making its products. The world’s leading cement companies now visit Shree to learn from its innovations in energy usage.

• Blommer Chocolate of the United States works closely with cocoa farmers in traditional markets. blommer received the Rainforest Alliance’s “Sustainable Standard-Setter” award for training farmers in safe farming practices, environmen- tal stewardship, and HiV awareness.

Sources: Wang Wen, “Emerging Markets are Set to Lead Globalisation,” Financial Times (www.ft.com), April 10, 2017; Jeremy Jurgens and Knut Haanæs, “Companies from Emerg- ing Markets Are the New Sustainability Champions,” The Guardian (www.guardian.co.uk), October 12, 2011; Stuart L. Hart, Capitalism at the Crossroads, Third Edition (Upper Saddle River, NJ: Wharton School Publishing, 2010); Daniel C. Esty and Andrew S. Winston, Green to Gold (New Haven, CT: Yale University Press, 2006).

GLOBAL SUSTAINABILITY Three Markets, Three Strategies

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28 PART 1 • GlobAl bUSinESS EnViRonMEnT

LO1.6 Outline the debate about culture, sovereignty, and the environment. • Evidence suggests that the cultures of developing nations are thriving in an age of glo-

balization and that deeper elements of culture are not easily abandoned, as critics say. • In terms of national sovereignty, the case can be made that globalization has not

undermined democracy, but has helped it to spread worldwide and has aided progress on many global issues.

• Regarding the environment, it seems globalization has not caused a “race to the bot- tom,” but instead has urged firms to embrace sustainability as a precondition to fos- tering healthy future markets.

LO1.7 Identify how this course will help you to develop skills for your career. • The employability skills this course can help you develop are critical thinking skills,

business ethics and social responsibility, communication, and knowledge application and analysis.

• The global business environment model in Figure 1.3 will help you to conceptualize international business today and aid in your skills development.

• The international business environment influences how firms conduct operations, while globalization further entwines the flows of trade, investment, and capital.

• Separate national business environments comprise unique cultural, political, eco- nomic, and legal characteristics that define business activity within every nation.

born global firm (p. 6) e-business (e-commerce) (p. 12) exports (p. 4) GDP or GNP per capita (p. 12) General Agreement on Tariffs and Trade

(GATT) (p. 10)

globalization (p. 7) gross domestic product

(GDP) (p. 12) gross national product (GNP) (p. 12) imports (p. 4) international business (p. 4)

International Monetary Fund (IMF) (p. 11)

multinational corporation (MNC) (p. 5) sustainability (p. 8) World Bank (p. 11) World Trade Organization (WTO) (p. 11)

Key Terms

TALK ABOUT IT 1 Today, international businesspeople must think globally about production and sales op- portunities. Many global managers will eventually find themselves living and working in other cultures, and entrepreneurs might find themselves taking flights to places they had never heard about.

1-1. What can companies do now to prepare their managers for international markets? 1-2. How can entrepreneurs and small businesses with limited resources prepare?

TALK ABOUT IT 2 In the past, national governments influenced the pace of globalization through agree- ments to lower barriers to international trade and investment.

1-3. Is rapid change now outpacing the capability of governments to manage the global economy?

1-4. Will national governments grow more or less important to international business in the future?

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