Edition. INTERNATIONAL BUSINESS. Environments and Operations. John D.
Daniels ... I 13. Communications. I 15. Dealing with Cultural Differences. 118.
Tw elfth
Edition
INTERNATIONAL BUSINESS Environments and Operations
John D. Daniels University of Miami
Lee H. Radebaugh Brigham Young University
Daniel P. Sullivan University of Delaware
Pearson Education International
Contents Preface 29 About the Authors •
1
PART ONE
39 BACKGROUND FOR INTERNATIONAL BUSINESS 44
Globalization and International Business
CASE: The Global Playground Introduction 48 W h a t Is International Business7.
44
45 49
The Forces Driving Globalization 50 Factors in Increased Globalization 51 What's Wrong with Globalization? 56 Threats to National Sovereignty 56 Economic Growth and Environmental Stress
57
Growing Income Inequality 57 s | Point ^J3ffi^S^^3 ' Offshoring Good Strategy? 58 Why Companies Engage in InternationaLBusiness
Modes of Operations in International Business Merchandise Exports and Imports 62 Service Exports and Imports 62 Investments 63 Types of International Organizations 63
61
Why International Business Differs from Domestic Business 64 Physical and Social Factors 65 The Competitive Environment 67 Looking to the Future:
Three Ways of Looking at Globalization
C A S E : Carnival Cruise Lines: Exploiting a Sea of Global Opportunity 69
74 Summary Key Terms 75 Endnotes 75 An Atlas 78 Map Index 86
68
Contents
• 2
PART TWO
COMPARATIVE ENVIRONMENTAL FRAMEWORKS
The Cultural Environments Facing Business
90
C A S E : The Java Lounge—Adjusting to Saudi Arabian Culture Introduction
90
91
94
The People Factor
Cultural Awareness
95
96
A Little Learning Goes a Long Way
97
The Idea of a "Nation": Delineating Cultures The Nation as a Point of Reference How Cultures Form and Change
98
98 99
Language as Both a Diffuser and Stabilizer of Culture
100
Does Geography Matter? Where Birds of a Feather Flock Together Religion as a Cultural Stabilizer 104
103
Behavioral Practices Affecting Business 106 Issues in Social Stratification 106 Work Motivation 109 Relationship Preferences I II Risk-Taking Behavior I 12 Information and Task Processing I 13 Communications I 15
Dealing with Cultural Differences Accommodation I 18
118
Cultural Distance: Usefulness and Limitations I 19 Culture Shock 119 Company and Management Orientations 121 [ P o j n t B f f l J H ^ f f l Does International Business Lead to Cultural Imperialism? Strategies for Instituting Change
125
Looking to the Future: What Will Happen to National Cultures? C A S E : Charles Martin in Uganda: What to Do When a Manager Goes Native 128
Summary Key Terms Endnotes
3
123
127
132 133 133
The Political and Legal Environments Facing Business
C A S E : China—Legal Growing Pains in a Land of Opportunity Introduction 141
The Political Environment
142
Individualism Versus Collectivism Political Ideology 144 Trends in Political Systems
150
143
137
136
Contents Looking to the Future: What Might Become of Democracy? Political Risk 154
153
| Point | g ^ | ^ ^ ^ j 3 Should Political Risk Management Be an Active Strategy?
156
The Legal Environment 157 Legal Systems 158 Types of Legal Systems 158 The Diffusion of Legal Systems 159 Trends in Legal Systems 160 Understanding Bases of Rule 161 Implications for Managers 162
Legal Issues in International Business
164
Operational Concerns 164 Strategic Concerns 166 Intellectual Property Rights
168
C A S E : Crime That Pays (and Pretty Well, Too) Summary Key Terms Endnotes
4
172
177 178 178
The Economic Environments Facing Businesses
180
C A S E : Economic Conundrums and the Comeback of Emerging Economies Introduction
184
International Economic Analysis
186
Elements of the Economic Environment Gross National Income 187 Features of an Economy 196 Inflation
187
196
Unemployment
197
Debt 198 Income Distribution Poverty 200 Labor Costs
201
Productivity
202
199
The Balance of Payments
202
| Point |gj@flfl§3^^fl Is a Trade Deficit an Advantage? Integrating Economic Analysis 206 Types of Economic Systems 206 Economic Freedom and Market Transitions Making the Transition to a Market Economy Looking to the Future: C A S E : Meet the BRICs Summary
222
204
209 21 I
Is There a Move to Push Back Economic Freedom? 216 218
181
J
Contents
Key Terms Endnotes
5
223 223
Globalization and Society
226
C A S E : Ecomagination and the Global Greening of GE Introduction
227
230
Evaluating the Impact of FDI
231
Considering the Logic of FDI
232
The Economic Impact of the M N E 234 Balance-of-Payments Effects 234 Growth and Employment Effects 236
The Foundations of Ethical Behavior
237
Why Do Companies Care About Ethical Behavior? 237 The Cultural Foundations of Ethical Behavior 238 The Legal Foundations of Ethical Behavior 240 Ethics and Corporate Bribery 241 Corruption and Bribery 241 | Point | j E B 5 E ^ f f l Are Top Managers Responsible When Corruption Is Afoot? 244
Ethics and the Environment What Is "Sustainability"?
246 246
Global Warming and the Kyoto Protocol Looking to the Future:
246
How to See the Trees in the Rain Forest
Ethical Dilemmas and Business Practices
248
249
Ethical Dilemmas and the Pharmaceutical Industry 249 Ethical Dimensions of Labor Conditions 251 Corporate Codes of Ethics: How Should a Company Behave?
254
C A S E : Anglo American PLC in South Africa: What Do You Do When Costs Reach Epidemic Proportions? 256
Summary Key Terms Endnotes •
6
260 261 261
PART THREE
THEORIES AND INSTITUTIONS: TRADE AND INVESTMENT 264
International Trade and Factor-Mobility Theory
C A S E : Costa Rica: Using Foreign Trade to Trade-Up Economically Introduction
268
Laissez-Faire Versus Interventionist Approaches to Exports and Imports 269 Theories of Trade Patterns
Theory of Absolute Advantage 272 Theory of Comparative Advantage 274 Theories of Specialization: Some Assumptions and Limitations
Trade Patterns Theories
278
How Much Does a Country Trade? 278 What Types of Products Does a Country Trade? With Whom Do Countries Trade? Does Geography Matter?
279
282
Variety Is the Spice of Life
The Statics and Dynamics of Trade Product Life Cycle (PLC) Theory The Porter Diamond
284
285 285
287
| Point |g^^^J35flfl Should Nations Use Strategic Trade Policies?
Factor-Mobility Theory
Effects of Factor Movements
292 293
The Relationship Between Trade and Factor Mobility
302
Key Terms Endnotes
7
295
In What Direction Will Trade Winds Blow?
C A S E : LUKOIL: Trade Strategy atja Privatized Exporter Summary
289
291
Why Production Factors Move
Looking to the Future:
276
299
J
304 304
Governmental Influence on Trade
306
C A S E : Making the Emperor's (and Everyone Else's) New Clothes:
Textile and Clothing Trade 307 Introduction 310 Conflicting Results of Trade Policies 311 The Role of Stakeholders 31 I Economic Rationales for Governmental Intervention Fighting Unemployment 312 Protecting "Infant Industries" 313 Developing an Industrial Base 314 Economic Relationships with Other Countries 316
311
Noneconomic Rationales for Government Intervention Maintaining Essential Industries 319 Preventing Shipments to "Unfriendly" Countries 319 ^ § j t ^ ^ 3 Should Governments Forgo Trade Sanctions? Maintaining or Extending Spheres of Influence Preserving National Identity
Dealing with Governmental Trade Influences Tactics for Dealing with Import Competition Looking to the Future:
328 329
Dynamics and Complexity
330
C A S E : U.S.-Cuban Trade: When Does a Cold War Strategy Become a Cold War Relic? 330
Summary Key Terms Endnotes
8
333 334 334
Cross-National Cooperation and Agreements
C A S E : Toyota's European Drive Introduction
336
337
339
The World Trade Organization (WTO) GATT: The Predecessor to the W T O What Does the W T O Do? 341
340 340
The Rise of Bilateral Agreements 342 Regional Economic Integration 343 The Effects of Integration 344 Major Regional Trading Groups 345 The European Union
346
The NorthAmerican Free Trade Agreement (NAFTA) Regional Economic Integration in the Americas
351
356
| Point U B I I H H B I Is CAFTA-DR a Good Idea? 359 Regional Economic Integration in Asia 360 Regional Economic Integration in Africa
362
Looking to the Future:
Will the WTO Overcome Bilateral and Regional Integration Efforts? 363 Other Forms of International Cooperation 364
Commodity Agreements
365
Commodities and the World Economy Consumers and Producers
366
366
The Organization of Petroleum Exporting Countries (OPEC) C A S E : Wal-Mart Goes South Summary
370
Key Terms Endnotes
371 371
367
366
Contents
• 9
PART FOUR
WORLD FINANCIAL ENVIRONMENT
Global Foreign-Exchange Markets
374
CASE: Going Down to the Wire in the Money-Transfer Market Introduction 377 W h a t Is Foreign Exchange?
375
377
Players on the Foreign-Exchange Market
378
Some Aspects of the Foreign-Exchange Market Does Geography Matter?
374
378
Foreign-Exchange Trades
Major Foreign-Exchange Markets
382
383
The Spot Market 383 The Forward Market 387 Options 388 Futures 388
The Foreign-Exchange Trading Process Banks and Exchanges Looking to the Future:
388
390 Where Are Foreign-Exchange Markets Headed?
How Companies Use Foreign Exchange 393 Business Purposes (I): Cash Flow Aspects of Imports and Exports Business Purposes (II): Other Financial Flows
395
| Point | { | j f l j ^ ; g f i 3 Is It Ok to Speculate on Currency? C A S E : Banking on Argentina Summary Key Terms Endnotes
396
398
402 403 404
10 The Determination of Exchange Rates C A S E : El Salvador Adopts the U.S. Dollar Introduction
406
407
409
The International Monetary Fund 410 Origin and Objectives 410 The IMF Today 410 Evolution to Floating Exchange Rates 41 I
Exchange-Rate Arrangements Fixed Versus Flexible Currencies
412 414
Exchange Arrangements with No Separate Legal Tender Currency Board Arrangements 416 Conventional Fixed-Peg Arrangements
416
Pegged Exchanges Rates Within Horizontal Bands More Flexible Arrangements 417
416
416
394
392
11
12
Contents Exchange Rates: The Bottom Line The Euro 419
417
^^3fflB Should Africa Develop a Common Currency? Determining Exchange Rates
421
423
Nonintervention: Currency in a Floating-Rate World 423 Intervention: Currency in a Fixed-Rate or Managed-Floating-Rate World The Role of Central Banks 424 Black Markets 428 Foreign-Exchange Convertibility and Controls 428 Exchange Rates and Purchasing Power Parity 429 Exchange Rates and Interest Rates 432 Other Factors in Exchange-Rate Determination 432 Forecasting Exchange-Rate Movements Fundamental and Technical Forecasting Factors to Monitor 435
433 433
Business Implications of Exchange-Rate Changes Marketing Decisions 436 Production Decisions 436 Financial Decisions 436 Looking to the Future:
436
In Which Direction Is Exchange-Rate Flexibility Headed? 437
C A S E : The Chinese Yuan: Be Careful of the Dragon's Tail Summary Key Terms Endnotes
•
438
442 443 444
PART FIVE
GLOBAL STRATEGY, STRUCTURE, A N D IMPLEMENTATION 446
11 The Strategy of International Business
446
CASE: Value Creation in the Global Apparel Industry Introduction 451
447
Industry, Strategy, and Firm Performance
452
Industry Organization Paradigm Leading Strategy Perspectives The Idea of Industry Structure: The Five-Forces Model 454 Industry Change 455 Strategy and Value 456 CreatingValue 457 The Firm as Value Chain 457 What Is the Value Chain? 458 Using the Value Chain 459 Change and the Value Chain 468
453
424
Contents
Are Value Chains Real?
469
Global Integration Versus Local Responsiveness Pressures for Global Integration 470 Pressures for Local Responsiveness 472 When Pressures Interact 473
Types of Strategy
474
International Strategy
474
Multidomestic Strategy Global Strategy 476
475
Transnational Strategy Looking to the Future:
477
What's New in the World of Strategy Types?
C A S E : The Globalization of eBay Summary Key Terms Endnotes
470
481
484 485 485
12 Country Evaluation and Selection
488
C A S E : Carrefour: Finding Retail Space in All the Right Places Introduction
479
489
493
How Does Scanning Work?
494
Managing the Alternatives
494
Scanning Versus Detailed Analysis
494
What Information Is Important in Scanning? Opportunities Risks 501
496
Does Geography Matter?
Don't Fool with Mother Nature
Collecting and Analyzing Data 507 Some Problems with Research Results and Data External Sources of Information Internally Generated Data | Point | g ^ ^ ^ ^ ^ 3
496
504
508
509
510
Should Companies Forgo Investment in Violent Areas?
Country Comparison Tools Grids 512 Matrices 513 Allocating Among Locations
512
515
Alternative Gradual Commitments 515 Geographic Diversification Versus Concentration Reinvestment Versus Harvesting
Noncomparative Decision Making Looking to the Future:
516
518
519
Will Prime Locations Change?
CASE: FDI in South Africa
521
520
51 I
13
14
Contents
Summary Key Terms Endnotes
524 525 525
13 Export and Import Strategies
528
C A S E : Grieve—A Small-Business Export Strategy Introduction 532 Exporting and Importing
Export Strategy
529
533
534
Advantages to Consider 534 Questions to Ask 535 Strategic Advantages of Exporting 535 Characteristics of Exporters 536 Stages of Export Development 537 Pitfalls of Exporting 538 Designing an Export Strategy 539
Import Strategy
543
Types of Importers 543 Strategic Advantages of Imports
The Import Process
543
544
Import Brokers
544
Customs Agencies
545
Looking to the Future: The Technology of Trade Import Documentation 548
The Export Process
548
Indirect Selling Direct Selling
546
548 551
| Point | g ^ ^ § f l 8 ^ ^ A Dirty Dilemma: Exporting Hazardous Waste
14 Direct Investment and Collaborative Strategies C A S E : The Fizz Biz: Coca-Cola Introduction
569
572
Why Exporting May Not Be Feasible When It's Cheaper to Produce Abroad
573 574
568
Contents When Transportation Costs Too Much 575 When Domestic Capacity Isn't Enough 575 When Products and Services Need Altering 575 When Trade Restrictions Hinder Imports 576 When Country of Origin Becomes an Issue 576 Noncollaborative Foreign Equity Arrangements Taking Control: Foreign Direct Investment How to Make FDI
576 577
578
Why Companies Collaborate
579
Alliance Types 579 General Motives for Collaborative Arrangements 580 International Motives for Collaborative Arrangements 582
- -
Types of Collaborative Arrangements
583
Some Considerations in Collaborative Arrangements
583
| Point j j f l j m ^ j ^ f f l Should Countries Limit Foreign Control of Key Industries? Licensing 586 Franchising 587 Management Contracts 588 Turnkey Operations 589 JointVentures 590 Equity Alliances 591 Problems w i t h Collaborative Arrangements Relative Importance 592 Divergent Objectives 593 Questions of Control 593 ,
592
Comparative Contributions and Appropriations Culture Clashes 595
Managing Foreign Arrangements
595
Dynamics of Collaborative Arrangements Finding Compatible Partners Negotiating the Arrangement Drawing Up the Contract Assessing Performance Looking to the Future:
596
597 598
598 599
Why Innovation Breeds Collaboration
C A S E : Getting Airline Alliances Off the Ground Summary Key Terms Endnotes
594
600
603 604 605
15 The Organization of International Business C A S E : Organizing "People.Values, and Environment" at Johnson & Johnson 609
Introduction
599
614
608
584
15
16
Contents
Change: The Critical Factor
614
Organizing Today's International Business
Organization Structure
617
617
Vertical Differentiation: Centralization Versus Decentralization Horizontal Differentiation: The Design of the Formal Structure Contemporary Structures 624 | Point IgEfl^^^Sffl Hierarchies or Hyperarchies? Coordination and Control Systems Coordination Systems 629 Control Systems 632
Organization Culture Challenges and Pitfalls
628
629
635
637
Organization Culture and Strategy
638
The Role and Rise of Corporate Universities
C A S E : Infosys: The Search for the Best and the Brightest Summary
•
639
640
644
Key Terms Endnotes
•a*
635
The Importance of Culture
Looking to the Future:
618 620
645 645
PART SIX
MANAGING INTERNATIONAL OPERATIONS
16 Marketing Globally
648
C A S E : Avon Calls on Foreign Markets Introduction 654
Marketing Strategies
649
655
Marketing Orientations 655 Segmenting and Targeting Markets
Product Policies
648
657
659
Why Firms Alter Products
659
[]PoIrTtJ3BffiHEffl Should Home Governments Regulate Their Companies' Marketing in Developing Countries? 660 Alteration Costs 663 The Product Line: Extent and Mix 664
Pricing Strategies
664
Potential Obstacles in International Pricing
664
Promotion Strategies 669 The Push-Pull Mix 669 Some Problems in International Promotion
670
Branding Strategies
672
Worldwide Brand Versus Local Brands
673
Contents
Distribution Strategies
674
Does Geography Matter? Is Necessity the Mother of Invention? Deciding Whether to Standardize 676 Choosing Distributors and Channels 676 The Challenge of Getting Distribution Hidden Costs in Distribution
677
678
E-Commerce and the Internet
Managing the Marketing Mix Gap Analysis 680 Looking to the Future:
675
679
680
Marketing to the "Haves," the "Have-Nots" (and the "Have-Somes") 682
CASE: Tommy Hilfiger: Clothes Make the Man and Vice Versa Summary 686 Key Terms 687 Endnotes 687
683
17 Global Manufacturing and Supply Chain Management C A S E : Samsonite's Global Supply Chain Introduction
691
694
What Is Supply Chain Management?
Global Manufacturing Strategies \
695
696
Four Key Factors in Manufacturing Strategy
696
Information Technology and Global Supply Chain Management Information Technology 701 Quality 703 Zero Defects Versus Acceptable Quality Level The Deming Approach to Quality Management Total Quality Management (TQM) 704 Six Sigma 705 Quality Standards 705
Supplier Networks
703 704
707
Global Sourcing
708
Major Sourcing Configurations The Make or Buy Decision
709 710
| Point | g f f l f l 3 ^ f f l Should Firms Outsource Innovation? Supplier Relations 712 The Purchasing Function
Inventory Management
713
715
Lean Manufacturing and Just-in-Time Systems Foreign Trade Zones 716 Transportation Networks 717
715
710
700
690
17
18
Contents Looking to the Future:
Uncertainty and the Global Supply Chain
C A S E : Ventus and Business Process Outsourcing Summary Key Terms Endnotes
718
724 724 725
18 International Accounting Issues C A S E : Parmalat: Europe's Enron Introduction
717
728
729
733
The Crossroads of Accounting and Finance
Accounting for International Differences Accounting Objectives
733
736
737
Factors in International Accounting Practices
738
Cultural Differences in Accounting 739 Classifying Accounting Systems 741 International Standards and Global Convergence
744
| Point |«piffiffJHBfffil Should U.S. Companies Be Allowed to Close the GAAP?
Transactions in Foreign Currencies Recording Transactions 749
External Control Mechanisms:The Legal System Internal Control Mechanisms 759 Looking to the Future:
750
753
Performance Evaluation and Control 753 Transfer Pricing and Performance Evaluation The Balanced Scorecard 757
Corporate Governance
759
Will IFRS Become the Global Accounting Standard? 760
C A S E : Ericsson: The Challenges of Listing on Global Capital Markets and the Move to Adopt International Financial Reporting Standards Summary
766
Key Terms Endnotes
767 767
19 The Multinational Finance Function
770
C A S E : GPS: In the Market for an Effective Hedging Strategy? Introduction
748
774
The Finance Function 774 The Role of the CFO 775
771
761
Contents
Capital Structure
776
Leveraging Debt Financing 776 Factors Affecting the Choice of Capital Structure Debt Markets as Means of Expansion 778
Global Capital Markets
776
778
Eurocurrencies and the Eurocurrency Market International Bonds 780 Equity Securities and the Euroequity Market The Size of Global Stock Markets 782
778 781
Offshore Financing and Offshore Financial Centers What's an OFC? 784 Counterpoint
784
Should Offshore Financial Centers and Aggressive Tax Practices Be Eliminated? 786
Capital Budgeting in a Global Context 787 Methods of Capital Budgeting 788 Complications in Capital Budgeting 788 Internal Sources of Funds 789 Global Cash Management 790 Foreign-Exchange Risk Management 792 Types of Exposure 792 Exposure-Management Stratgey, 794 Taxation of Foreign-Source Income International Tax Practices
798
Taxing Branches and Subsidiaries Transfer Prices 803 Double Taxation and Tax Credit Looking to the Future:
797 800 803
Technology and Cash Flows
C A S E : Dell Mercosur: Getting Real in Brazil Summary Key Terms Endnotes
805
809 810 810
20 Human Resource Management CASE: Go Or No Go: Your Career? 813 Introduction 817 What Is HRM? 817 The Strategic Function of International HRM Strategizing HRM
