A Framework for International. Business. S. Tamer Cavusgil. Gary Knight. John R.
Riesenberger. PEARSON. Boston Columbus Indianapolis New York San ...
A Framework for International Business S. Tamer Cavusgil Gary Knight John R. Riesenberger
PEARSON Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
CONTENTS Preface
xvii
PART 1 F o u n d a t i o n C o n c e p t s
1
Chapter 1 What Is International Business?
2
What Is International Business?
2
What Are the Key Concepts in International Trade and Investment? 3 The Nature of International Trade 4 The Nature of International Investment 5 Services as Well as Products 6 How Does International Business Differ from Domestic Business?
7
The Four Risks in Internationalization
7
Who Participates in International Business? 9 Nongovernmental Organizations (NGOs) 10 What Motivates Firms to Go International?
10
Market Globalization: An Organizing Framework
11
Drivers of Market Globalization 12 Societal Consequences of Market Globalization 13 Loss OF NATIONAL SOVEREIGNTY
13
OFFSHORING AND THE FLIGHT OF JOBS EFFECT ON THE POOR
14
14
EFFECT ON THE NATURAL ENVIRONMENT EFFECT ON NATIONAL CULTURE
14
15
Regional Integration and Economic Blocs 15 Levels of Regional Integration 16 The Leading Economic Blocs 18 Management Implications of Regional Integration 20 Summary
21 • Key Terms 22 • Endnotes 22
Chapter 2 Theories of International Trade and Investment 24 What Theories Explain International Trade and Investment? 24 Why Do Nations Trade? 26 MERCANTILISM
26
ABSOLUTE ADVANTAGE PRINCIPLE
27
COMPARATIVE ADVANTAGE PRINCIPLE
28
LIMITATIONS OF EARLY TRADE THEORIES
29
vi
Contents FACTOR PROPORTIONS THEORY
30
INTERNATIONAL PRODUCT LIFE CYCLE THEORY
30
How Can Nations Enhance Their Competitive Advantage? The Competitive Advantage of Nations The Diamond Model
32
32
National Industrial Policy
33
Why and How Do Firms Internationalize? 1
31
33
Internationalization Process of the Firm
34
BORN GLOBALS AND INTERNATIONAL ENTREPRENEURSHIP
34
How Can Internationalizing Firms Gain and Sustain Competitive Advantage? 34 FDI-Based Explanations
34
MONOPOLISTIC ADVANTAGE THEORY INTERNALIZATION THEORY
34
35
DUNNING'S ECLECTIC PARADIGM
Non-FDI-Based Explanations
36
38
INTERNATIONAL COLLABORATIVE VENTURES NETWORKS AND RELATIONAL ASSETS
38
38
Summary. 38 • Key Terms 39 • Endnotes 39 Chapter 3 Organizational Participants That Make International Business Happen 41 Four Types of Participants in International Business Participants Arranged by Value-Chain Activity
41
42
ILLUSTRATING THE INTERNATIONAL VALUE CHAIN USING DELL INC.
Focal Firms in International Business The Multinational Enterprise
43
43
Small and Medium-Sized Enterprises Born Global Firms
42
43
44
International Entry Strategies of Focal Firms
45
A Framework for Classifying International Entry Strategies Entry Modes Other than Trade and Investment
46
Distribution Channel Intermediaries in International Business 48 Intermediaries Based in the Foreign Market
48
Intermediaries Based in the Home Country
49
Online Intermediaries
49
Facilitators in International Business
50
Governments in International Business 51 Summary 52 • Key Terms 53 • Endnotes 53
45
Contents Chapter 4 Culture and Ethics in International Business 55 Culture and Cross-Cultural Risk 55 Key Concepts of Culture 57 SOCIALIZATION AND ACCULTURATION
57
THE M A N Y DIMENSIONS OF CULTURE
57
NATIONAL, PROFESSIONAL, AND CORPORATE CULTURE
57
Cultural Metaphors and Idioms 57 The Role of Culture in International Business 58 Interpretations of Culture 59 Low- and High-Context Cultures 59 Hofstede's Research on National Culture 60 INDIVIDUALISM VERSUS COLLECTIVISM POWER DISTANCE
60
60
UNCERTAINTY AVOIDANCE
60
MASCULINITY VERSUS FEMININITY
61
THE FIFTH DIMENSION: LONG-TERM VERSUS SHORT-TERM ORIENTATION
61
Subjective versus Objective Dimensions of Culture 61 THE SUBJECTIVE DIMENSION OBJECTIVE DIMENSION
61
63
Language 63 Overcoming Cross-Cultural Risk: Managerial Guidelines 63 Ethics in International Business 65 The Value of Ethical Behavior 67 Variation in Ethical Standards among Countries 67 An Ethical Dilemma 68 Linking Ethics, Corruptipn,'and Responsible Behavior 68 Corporate Social Responsibility 68 The Value of CSR 69 The Role of Sustainability in International Operations 70 Corporate Governance and Its Implications for Managers 70 A Framework for Making Ethical Decisions 71 Embracing CSR and Sustainability 72 Summary 73 • Key Terms 74 • Endnotes 74
PART 2 The International Business Environment Chapter 5 Political and Legal Systems in International Business 78 The Nature of Country Risk 78 How Prevalent Is Country Risk? 79 Political and Legal Environments in International Business 80
77
vii
viii
Contents Political Systems
81
Totalitarianism
82
Socialism
82
Democracy
82
Democracy's Link to Economic Freedom and Openness
83
The Relationship between Political Systems and Economic Systems 83 COMMAND ECONOMY MIXED ECONOMY MARKET ECONOMY
Legal Systems
84
85
Common Law Civil Law
83
84
85
85
Religious Law
86
Mixed Systems
86
Types of Country Risk Produced by Political and Legal Systems 87 Types of Country Risk Produced by Political Systems "" 87 GOVERNMENT TAKEOVER OF CORPORATE ASSETS EMBARGOES AND SANCTIONS
BOYCOTTS AGAINST FIRMS OR NATIONS WAR, INSURRECTION, AND VIOLENCE TERRORISM
87
87 87 88
88
Types of Country Risk Produced by Legal Systems
88
COUNTRY RISK ARISING FROM THE HOST COUNTRY LEGAL ENVIRONMENT COUNTRY RISK ARISING FROM THE HOME COUNTRY LEGAL ENVIRONMENT
Managing Country Risk
90
PROACTIVE ENVIRONMENTAL SCANNING
90
STRICT ADHERENCE TO ETHICAL STANDARDS
90
ALLIANCES WITH QUALIFIED LOCAL PARTNERS PROTECTION THROUGH LEGAL CONTRACTS
90
91
The Nature of Government Intervention
91
Rationale for Government Intervention
92
DEFENSIVE RATIONALE
92
OFFENSIVE RATIONALE
93
Instruments of Government Intervention Tariffs
93
95
Nontariff Trade Barriers Investment Barriers
96
96
Subsidies and Other Government Support Programs Consequences of Government Intervention
98
97
88 89
Contents How Firms Can Respond to Government Intervention Strategies for Managers 99 RESEARCH TO GATHER KNOWLEDGE AND INTELLIGENCE CHOOSE THE M O S T APPROPRIATE ENTRY STRATEGIES TAKE ADVANTAGE OF FOREIGN TRADE ZONES
99
99 99
99
SEEK FAVORABLE CUSTOMS CLASSIFICATIONS FOR EXPORTED PRODUCTS TAKE ADVANTAGE OF INVESTMENT INCENTIVES AND OTHER GOVERNMENT SUPPORT PROGRAMS
100
LOBBY FOR FREER TRADE AND INVESTMENT
100
Summary 100 • Key Terms 101 • Endnotes 101 Chapter 6 The International Monetary Environment and Financial Management in the Global Firm 103 Exchange Rates and Currencies 103 How Exchange Rates are Determined 106 The Contemporary Exchange Rate System 107 The Monetary and Financial Systems 108 Financial Management in the Global Firm 110 Raising Funds for the Firm's International Activities Managing Cash Flow 112 Capital Budgeting 113 Managing Currency Risk 114 Foreign Exchange Trading 114 Hedging, Speculation, and Arbitrage
111
115
Hedging Instruments 116 Managing Accounting and Tax Practices
117
International Taxation / 118 Summary 119 • Key Terms 121 • Endnotes 121 Chapter 7 Emerging Markets, Developing Economies, and Advanced Economies 123 Advanced Economies, Developing Economies, and Emerging Markets 123 Advanced Economies Developing Economies
124 125
Emerging Market Economies 125 What Makes Emerging Markets Attractive for International Business 128 Emerging Markets as Target Markets 128 Emerging Markets as Manufacturing Bases 129 Emerging Markets as Sourcing Destinations
129
100
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Contents Assessing the True Potential of Emerging Markets 129 Per-Capita Income as an Indicator of Market Potential 129 Middle Class as an Indicator of Market Potential 130 Risks and Challenges of Emerging Markets 131 Strategies for Doing Business in Emerging Markets 132 Customize Offerings to Unique Emerging Market Needs 132 Partner with Family Conglomerates 133 Target Governments in Emerging Markets 134 Summary 134 • Key Terms 135 • Endnotes 135
PART 3
International Business Strategy and Implementation 137
Chapter 8 Strategy and Organization in the International Firm 138 Strategy in International Business 138 EFFICIENCY 139 FLEXIBILITY 139 LEARNING 139
Building the GJobal Firm 140 Visionary Leadership 140 Organizational Culture 141 Organizational Processes 141 The Distinction between Multidomestic and Global Industries 142 The Integration-Responsiveness Framework 143 Pressures for Global Integration 144 Pressures for LocaJ.,Responsiveness 144 Strategies Based on the Integration-Responsiveness Framework 145 HOME REPLICATION STRATEGY 146 MULTIDOMESTIC STRATEGY 146 GLOBAL STRATEGY 146 TRANSNATIONAL STRATEGY 147
Organizational Structure 147 Centralized or Decentralized Structure? 148 Organizational Structures for International Operations 149 Export Department 150 International Division Structure 151 Geographic Area Structure (Decentralized Structure) 151 Product Structure (Centralized Structure) 152 Functional Structure (Centralized Structure) 153 Global Matrix Structure 154 Summary 155 • Key Terms 156 • Endnotes
156
Contents Chapter 9 Global Market Opportunity Assessment
158
Assessing Global Market Opportunities
158
Task One: Analyzing Organizational Readiness to Internationalize 161 Task Two: Assessing the Suitability of Products and Services for Foreign Markets 162 Factors Contributing to Product Suitability for International Markets 163 Key Issues to Resolve in Measuring Product Potential
163
Task Three: Screening Countries to Identify Target Markets Screening Countries for Exporting
164
SCREENING METHODOLOGY FOR POTENTIAL COUNTRY MARKETS ASSESSING THE EXPORT'POTENTIAL OF EMERGING MARKETS
Country Screening for Foreign Direct Investment Country Screening for Sourcing
164
165
165
166
167
Task Four: Assessing Industry Market Potential
168
Practical Methods for Managers to Assess Industry Market Potential 169 Data Sources for Estimating Industry Market Potential Task Five: Choosing Foreign Business Partners Criteria for Choosing a Partner
169
170
171
r Searching for Prospective Partners
171
Task Six: Estimating Company Sales Potential Determinants of Company Sales Potential
172
172
Practical Approaches to Estimating Company Sales Potential OTHER TECHNIQUES
1.74 '
ASSESSING THE MARKET
In Conclusion 175 Summary 176 •
175
Key Terms 176 • Endnotes 177
Chapter 10 Exporting and Countertrade 178 An Overview of Foreign Market Entry Strategies Internationalization of the Firm
178
181
Diverse Motives for Pursuing Internationalization Characteristics of Firm Internationalization Exporting as a Foreign Market Entry Strategy Exporting and the Global Economy
183
Exporting: A Popular Entry Strategy
183
Services Sector Exports Advantages of Exporting
184 185
181 183
181
173
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Contents Limitations of Exporting 185 A Systematic Approach to Exporting
186
STEP ONE: ASSESS GLOBAL MARKET OPPORTUNITY 186 STEP TWO: ORGANIZE FOR EXPORTING 187 STEP THREE: ACQUIRE NEEDED SKILLS AND COMPETENCIES STEP FOUR: EXPORT MANAGEMENT 188
Importing
188
188
Managing Export-Import Transactions Documentation 189 Shipping and Incoterms 189
188
Payment Methods in Exporting and Importing
189
CASH IN ADVANCE 190 LETTER OF CREDIT 191 OPEN ACCOUNT 191
Export-Import Financing 192 Commercial Banks 192 Factoring, Forfaiting, and Confirming 192 Distribution Channel Intermediaries 193 Buyers and Suppliers 193 Intracorporate Financing 193 Government Assistance Programs 193 Multilateral Development Banks 194 Identifying and Working with Foreign Intermediaries Working with Foreign Intermediaries 194 When Intermediary Relations Go Bad 195
194
Countertrade: A Popular Approach for Emerging Markets and Developing Economies 197 Magnitude and Drivers of Countertrade 197 Types of Countertrade
197
Risks of Countertrade 198 Why Consider Countertrade? 198 Summary 199 • Key Terms 200 • Endnotes 200 Chapter 11 Foreign Direct Investment and Collaborative Ventures International Investment and Collaboration 201 Trends in FDI and Collaborative Ventures 202 Motives for FDI and Collaborative Ventures Market-Seeking Motives 202 Resource or Asset-Seeking Motives 203 Efficiency-Seeking Motives 204
202
201
Contents Characteristics of Foreign Direct Investment 204 Key Features of Foreign Direct Investment 205 Corporate Social Responsibility and FDI 205 Most Active Firms in FDI 206 Service Firms and FDI 207 Leading Destinations for FDI 207 Factors to Consider in Choosing FDI Locations 208 Types of Foreign Direct Investment 209 Greenfield Investment versus Mergers and Acquisitions 209 The Nature of Ownership in FDI 209 Vertical versus Horizontal Integration 210 International Collaborative Ventures 210 Equity Joint Ventures 211 Project-Based Nonequity Ventures 211 Differences between Equity and Project-Based Nonequity Ventures 211 Consortium 211 Cross-Licensing Agreements 212 Managing Collaborative Ventures 212 Understand Potential Risks in Collaboration 213 - Pursue a Systematic Process for Partnering 213 Ensure Success with Collaborative Ventures 213 The Experience of Retailers in Foreign Markets 215 Challenges of International Retailing 216 International Retailing Success Factors 216 Summary 217 • Key Terms 217 • Endnotes 218 Chapter 12 Licensing, Franchising, and Other Contractual Strategies Contractual Entry Strategies
221
Unique Aspects of Contractual Relationships 221 Types of Intellectual Property 222 Licensing as an Entry Strategy 223 Trademark and Copyright Licensing 223 Know-How Licensing 224 The World's Top Licensing Firms 224 Advantages and Disadvantages of Licensing Advantages of Licensing 225 Disadvantages of Licensing 226
225
220
xiii
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Contents Franchising as an Entry Strategy 227 Who Are the Top Global Franchisors? 228 Advantages and Disadvantages of Franchising
229
The Franchisor Perspective 229 The Franchisee Perspective 230 Managerial Guidelines for Licensing and Franchising 230 Other Contractual Entry Strategies 231 Turnkey Contracting 231 Build-Operate-Transfer Arrangements (BOT) 232 Management Contracts 232 Leasing 232 The Special Case of Internationalization by Professional Service Firms 233 Guidelines for Protecting Intellectual Property Summary
235
Chapter 13 Global Sourcing
•
Key Terms
235
•
233
Endnotes
236
238
Outsourcing, Global Sourcing, and Offshoring Decision 1: Outsource or Not? 239
239
Decision 2: Where in the World Should Value-Adding Activities Be Located? 239 Global Sourcing 240 Offshoring
242
Scope of Global Sourcing 243 Diversity of Countries that Initiate and Receive Outsourced Work 243 Strategic Choices in Global Sourcing 245 Benefits of Global Sourcing 246 Cost Efficiency 246 Ability to Achieve Strategic Goals 247 Risks of Global Sourcing 248 Strategies for Minimizing the Risks of Global Sourcing Implementing Global Sourcing through Supply-Chain Management 250 Information and Communications Technology 251 Logistics and Transportation Transportation Modes 252
252
249
Contents
Global Sourcing and Corporate Social Responsibility 253 Potential Harm to Local and National Economy from Global Sourcing 253 Public Policy on Global Sourcing 253 Summary 254 • Key Terms 255 • Endnotes 255 Chapter 14 Marketing in the Global Firm 257 Global Marketing Strategy 257 Targeting Customer Segments and Positioning 258 Standardization and Adaptation of International Marketing 259 Standardization 260 Adaptation 261 Standardization and Adaptation: A Balancing Act 262 Global Branding and Product Development 263 Global Branding 263 Global Product Development 264 International Pricing 265 Factors That Affect International Pricing 265 A Framework for Setting International Prices 267 Managing International Price Escalation 268 Managing Pricing under Varying Currency Conditions 269 Transfer Pricing 269 Gray Market Activity (Parallel Imports) 271 International MarketingCdmmunications 272 International Advertising 272 International Promotional Activities 273 International Distribution 274 Global Account Management 275 Summary 275 • Key Terms 276 • Endnotes 276 Chapter 15 Human Resource Management in the Global Firm
278
TheStrategic Role of Human Resources in International Business 278 Three Employee Categories 279 Differences between Domestic and International HRM 279 Key Tasks in International Human Resource Management 280
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Contents International Staffing Policy 281 Cultivating Global Mindsets 283 Cultural Intelligence 284 Expatriate Assignment Failure and Culture Shock 284 Preparation and Training of International Employees 284 Preparing Employees for Repatriation 285 Charting Global Careers for Employees 286 International Performance Appraisal 286 Compensating Employees 287 International Labor Relations 287 Distinctive Features of Labor around the World 288 Cost, Quality, and Productivity of Labor 289 Workforce Reduction 289 Trends in International Labor 289 Firm Strategy in International Labor Relations 290 Diversity in the International Workforce 290 Success Strategies for Women Managers in International Business 291 Summary 292 • Key Terms 292 • Endnotes 293 Glossary
297
Author Index
307
Subject Index
310
