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Case Analysis Assignment

International Management Culture, Strategy, and Behavior

Ninth Edition

Fred Luthans University of Nebraska–Lincoln

Jonathan P. Doh Villanova University

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INTERNATIONAL MANAGEMENT: CULTURE, STRATEGY, AND BEHAVIOR, NINTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2015 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2012, 2009, and 2006. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

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ISBN 978-0-07-786244-2 MHID 0-07-786244-9

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Library of Congress Cataloging-in-Publication Data

Luthans, Fred. International management : culture, strategy, and behavior / Fred Luthans, University

of Nebraska-Lincoln, Jonathan P. Doh, Villanova University.—Ninth edition. pages cm

ISBN-13: 978-0-07-786244-2 (alk. paper) ISBN-10: 0-07-786244-9 1. International business enterprises—Management. 2. International business

enterprises—Management—Case studies. I. Doh, Jonathan P. II. Title. HD62.4.H63 2014 658'.049—dc23

2013039863

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

www.mhhe.com

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iii

Dedicated in Memory of

Richard M. Hodgetts A Pioneer in International Management Education

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v

Preface

C hanges in the global business environment continue at a rapid and often unpredict-able pace. The global financial crisis and economic recession of 2008–2010 have given way to destabilizing political changes in many regions of the world, especially North Africa and the Middle East (see Chapter 2 opening article). In addition, rapid advances in social media have not only accelerated globalization but also provided a means for those who seek political and economic changes to organize and influence their leaders for more responsible governance (see Chapter 1 opening article). In addition, concerns about the exhaustion of finite resources and the need to pursue more sustainable growth have prompted governments, companies, and NGOs to consider alternate approaches to business and gov- ernance (see Chapter 3 opening article).

Some of these developments have challenged assumptions about globalization and economic integration, but they also underscore the inexorably interconnected nature of global economies. Although many countries and regions around the world are closely and inextricably linked, important differences in institutional and cultural environments persist, and some of these differences have become even starker in recent years. The challenges for international management reflect this dynamism and the increasing unpre- dictability of global economic and political events. Continued growth of the emerging markets is reshaping the global balance of economic power, even though differences exist between and among regions and countries. Although many emerging markets continued to experience growth during a period when developed countries’ economies stagnated or declined, some developed economies bucked this trend and some developing countries did not share in what was otherwise a dynamic period for the emerging world.

The global political and security environment remains unpredictable and volatile, with ongoing conflicts in the Middle East and Africa and continuing tensions in Iran, North Korea, Iraq, and Afghanistan. On the economic front, although little progress was made in the efforts to conclude a global multilateral agreement under the World Trade Organization (WTO), regional and bilateral agreements have proliferated, including the Trans-Pacific Partnership (TPP), a proposed free-trade agreement that would involve more than a dozen countries in the Americas and Asia. In addition, the tragic fire, building collapse, and other industrial accidents in India, Bangladesh, and China have renewed calls for corporations to do more to protect workers and for governments to get tougher with companies in terms of oversight and accountability. (See Chapter 3 for additional discussion.)

As noted above, the advent of social networking has transformed the way citizens interact, how businesses market, promote, and distribute their products globally, and how civil society expresses its concerns that governments provide greater freedoms and accountability. Concurrently, companies, individuals, and even students can now engage in broad “mass” collaboration through digital, online technology for the development of new and innovative systems, products, and ideas. Both social networking and mass col- laboration bring new power and influence to individuals across borders and transform the nature of their relationships with global organizations. Although globalization and tech- nology continue to link nations, businesses, and individuals, these connections also high- light the importance of understanding different cultures, national systems, and corporate management practices around the world. The world is now interconnected geographically, but also electronically and psychologically; as such, nearly all businesses have been touched in some way by globalization. Yet, as cultural, political, and economic differences persist, astute international managers must be in a position to adapt and adjust to the vagaries of different contexts and environments.

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vi Preface

In this new ninth edition of International Management , we have retained the strong and effective foundations gained from research and practice over the past decades while incorporating the important latest research and contemporary insights that have changed the context and environment for international management. Several trends have emerged that pose both challenges and opportunities for international managers. First, emerging markets continue to rise in importance, with dynamic growth and development in many emerging regions and countries. This includes the emergence of multinationals from emerging markets that are becoming globally competitive. Second, pressure for greater social and environmental responsibility among multinational organi- zations has increased, especially in light of rising pollution and the exposure of poor working conditions in many factories around the world. Third, the importance of cultural differences continues to be an omnipresent reality for international managers. And social media and other forms of electronic connectivity continue to facilitate international busi- ness of all sorts. Although we have extensive new, evidence-based material in this edition, we con- tinue to strive to make the book even more user-friendly and applicable to practice. We continue to take a balanced approach in the ninth edition of International Management: Culture, Stra t egy, and Behavior . Whereas other texts stress culture, strategy, or behavior, our emphasis on all three critical dimensions—and the interactions among them—has been a primary reason why the previous editions have been the market-leading international management text. Specifically, this edition has the following chapter distribution: environ- ment (three chapters), culture (four chapters), strategy (four chapters), and organizational behavior/human resource management (three chapters). Because the context of interna- tional management changes rapidly, all the chapters have been updated and improved. New real-world examples and research results are integrated throughout the book, accentuating the experiential relevance of the straightforward content. As always, we emphasize a bal- ance of research and application. For the new ninth edition we have incorporated important new content in the areas of sustainability and sustainable management practices, the emergence and role of social media as a means of transacting business around the world, the rise of emerging market multinationals and the challenges they pose for developed country MNCs, and other important developments in the international management field. Many of these topics— such as social media—are integrated throughout the book, as they touch on—and influence—many aspects of international management. We have incorporated the latest research and practical insights on pressure for MNCs to adopt more sustainable practices, and the strategies many companies are using to differentiate their products through such “green” management practices. We have updated discussion of a range of contemporary topics, including continued exploration of the role of the comprehensive GLOBE study on cross-cultural leadership. A continuing and relevant end-of-chapter feature in this edition is the “Internet Exercise.” The purpose of each exercise is to encourage students to use the Internet to find information from the websites of prominent MNCs to answer relevant questions about the chapter topic. An end-of-book feature is a series of Skill-Building and Experi- ential Exercises for aspiring international managers. These in-class exercises represent the various parts of the text (culture, strategy, and behavior) and provide hands-on experience. We have extended from the eighth edition of International Management the chapter- opening discussions called “The World of International Management” (WIM) based on very recent, relevant news stories to grab readers’ interest and attention. Many of these opening articles are new to this edition and all have been updated. These timely opening discussions transition the reader into the chapter topic. At the end of each chapter, there is a pedagogical feature that recapitulates the chapter’s subject matter: “The World of International Management—Revisited.” Here we pose several discussion questions based on the topic of the opening feature in light of the student’s entire reading of the chapter. Answering these questions requires readers to reconsider and to draw from the chapter material. Suggested answers to these “WIM—Revisited” discussion questions appear in

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Preface vii

the completely updated Instructor’s Manual, where we also provide some multiple-choice and true-false questions that draw directly from the chapters’ World of International Management topic matter for instructors who want to include this material in their tests. The use and application of cases is further enhanced in this edition. All cases have been updated and several new ones have been added. The short within-chapter country case illustrations—“In the International Spotlight”—can be read and discussed in class. These have all been revised and two have been added—Turkey and Indonesia. The revised or newly added “Integrative Cases” positioned at the end of each main part of the text were created exclusively for this edition and provide opportunities for reading and anal- ysis outside of class. Review questions provided for each case are intended to facilitate lively and productive written analysis or in-class discussion. Our “Brief Integrative Cases” typically explore a specific situation or challenge facing an individual or team. Our lon- ger and more detailed “In-Depth Integrative Cases” provide a broader discussion of the challenges facing a company. These two formats allow maximum flexibility so that instructors can use the cases in a tailored and customized fashion. Accompanying many of the in-depth cases are short exercises that can be used in class to reinforce both the substantive topic and students’ skills in negotiation, presentation, and analysis. The cases have been extensively updated and several are new to this edition. Cases concerning the global AIDS epidemic, Dansko, Russell Athletics/Fruit of the Loom, Euro Disneyland and Disney Asia, Google in China, IKEA, HSBC, Nike, Walmart, Tata, AirAsia, Sony, Danone, Chiquita, Coca-Cola, and others are unique to this book and specific to this edition. Of course, instructors also have access to Create (www.mcgraw-hillcreate.com), McGraw-Hill’s extensive content database, which includes thousands of cases from major sources such as Harvard Business School, Ivey, Darden, and NACRA case databases. Along with the new or updated “International Management in Action” boxed appli- cation examples within each chapter and other pedagogical features at the end of each chapter (i.e., “Key Terms,” “Review and Discussion Questions,” “The World of Interna- tional Management—Revisited,” and “Internet Exercise”), the end-of-part brief and in- depth cases and the end-of-book skill-building exercises and simulations on the Online Learning Center complete the package. To help instructors teach international management, this text is accompanied by a revised and expanded Instructor’s Resource Manual, Test Bank, and PowerPoint Slides, all of which are available password protected on the Online Learning Center at www. mhhe.com/luthans9e. Another important innovation is carried over and updated from the 8th edition: we have provided instructors with a guide to online publicly available videos, many available on YouTube, that link directly to chapter themes. These short clips give instructors an opportunity to use online visual media in conjunction with traditional lecture, discussion, and PowerPoint presentations. Our guide includes the name, short description, and link for the videos, which we will keep updated on the book website. International Management is generally recognized to be the first “mainstream” text of its kind. Strategy casebooks and specialized books in organizational behavior, human resources, and, of course, international business, finance, marketing, and economics pre- ceded it, but there were no international management texts before this one, and it remains the market leader. We have had sustainability because of the effort and care put into the revisions. We hope you agree that this ninth edition continues the tradition and remains the “world-class” text for the study of international management.

Acknowledgments

We would like to acknowledge those who have helped to make this book a reality. We will never forget the legacy of international management education in general and for this text in particular provided by our departed colleague Richard M. Hodgetts. Special thanks also go to our growing number of colleagues throughout the world who have given us many ideas and inspired us to think internationally. Closer to home, Fred Luthans would

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viii Preface

like to give special recognition to two international management scholars: Henry H. Albers, former Chair of the Management Department at the University of Nebraska and former Dean at the University of Petroleum and Minerals, Saudi Arabia, to whom previ- ous editions of this book were dedicated; and Sang M. Lee, former Chair of the Manage- ment Department at Nebraska, founding and current President of the Pan Pacific Business Association, and close colleague on many ventures around the world over the past 30 years. Jonathan Doh would like to thank the Villanova School of Business and its leadership, especially Dean Pat Maggitti, Vice Dean Daniel Wright, and Herb Rammrath who generously endowed the Chair in International Business Jonathan now holds. Also, for this new ninth edition we would like to thank Ben Littell, who did much of the research and drafting of the chapter opening World of International Management features and provided extensive research assistance for other revisions to the book. In addition, we would like to acknowledge the help that we received from the many reviewers from around the globe, whose feedback guided us in preparing the ninth edition of the text. These include:

Thomas M. Abbott, Post University

David Elloy, Gonzaga University

James Gran, Buena Vista University

Julie Huang, Rio Hondo College

Jae C. Jung, University of Missouri– Kansas City

Emeric Solymossy, Western Illinois University .

Our thanks, too, to the reviewers of previous editions of the text:

Yohannan T. Abraham, Southwest Missouri State University Janet S. Adams, Kennesaw State University Irfan Ahmed, Sam Houston State University Chi Anyansi-Archibong, North Carolina A&T State University Kibok Baik, James Madison University R. B. Barton, Murray State University Lawrence A. Beer, Arizona State University Koren Borges, University of North Florida Tope A. Bello, East Carolina University Mauritz Blonder, Hofstra University Gunther S. Boroschek, University of Massachusetts–Boston Charles M. Byles, Virginia Commonwealth University Constance Campbell, Georgia Southern University Scott Kenneth Campbell, Georgia College & State University M. Suzanne Clinton, University of Central Oklahoma Helen Deresky, SUNY Plattsburgh Dr. Dharma deSilva, Center for Interna- tional Business Advancement (CIBA) Val Finnigan, Leeds Metropolitan University David M. Flynn, Hofstra University Jan Flynn, Georgia College and State University

Joseph Richard Goldman, University of Minnesota

Robert T. Green, University of Texas at Austin

Annette Gunter, University of Central Oklahoma

Jerry Haar, Florida International University–Miami

Jean M. Hanebury, Salisbury State University

Richard C. Hoffman, Salisbury State University

Johan Hough, University of South Africa

Steve Jenner, California State University–Dominguez Hills

James P. Johnson, Rollins College

Marjorie Jones, Nova Southeastern University

Ann Langlois, Palm Beach Atlantic University

Curtis Matherne III, East Tennessee State University

Alan N. Miller, University of Nevada, Las Vegas

Mohd Nazari Ismail, University of Malaya

Robert Kuhne, Hofstra University

Christine Lentz, Rider University

Ben Lever III, College of Charleston

Robert C. Maddox, University of Tennessee

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Preface ix

Douglas M. McCabe, Georgetown University

Jeanne M. McNett, Assumption College

Lauryn Migenes, University of Central Florida

Ray Montagno, Ball State University

Rebecca J. Morris, University of Nebraska–Omaha

Ernst W. Neuland, University of Pretoria

William Newburry, Rutgers Business School

Yongsun Paik, Loyola Marymount University

Valerie S. Perotti, Rochester Institute of Technology

Richard B. Peterson, University of Washington

Suzanne J. Peterson, University of Nebraska–Lincoln

Joseph A. Petrick, Wright State University

Juan F. Ramirez, Nova Southeastern University

Richard David Ramsey, Southeastern Louisiana University

Mansour Sharif-Zadeh, California State Polytechnic University–Pomona

Owen Sevier, University of Central Oklahoma

Jane H. Standford, Texas A&M University– Kingsville

Dale V. Steinmann, San Francisco State University

Randall Stross, San Jose State University

George Sutija, Florida International University

Deanna Teel, Houston Community College

David Turnipseed, University of South Alabama–Mobile

Katheryn H. Ward, Chicago State University

Li Weixing, University of Nebraska– Lincoln

Aimee Wheaton, Regis College

Timothy Wilkinson, University of Akron

Marion M. White, James Madison University

George Yacus, Old Dominion University

Corinne Young, University of Tampa

Zhe Zhang, University of Central Florida–Orlando

Anatoly Zhuplev, Loyola Marymount University

Finally, thanks to the team at McGraw-Hill who worked on this book: Paul Ducham, Managing Director; Anke Weekes, Senior Brand Manager; Kelly Delso, Senior Devel- opmental Editor; Lori Bradshaw, Managing Developmental Editor; Michael Gedatus, Marketing Manager; and Jessica Portz, Project Manager. Last but by no means least, we greatly appreciate the love and support provided by our families.

Fred Luthans and Jonathan P. Doh

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New and Enhanced Themes

• Thoroughly revised and updated chapters to reflect the most critical issues for international managers.

• Greater attention to and focus on global sustainability and sus tainable management practices and their impact on international management.

• New or revised opening World of International Manage- ment features written by the authors on current international management challenges; these mini-cases were prepared expressly for this edition and are not available elsewhere.

• Discussions of the impact of the global economic recession on international management in the opening chapter and throughout the book, and the aftermath and ongoing chal- lenges associated with the “Arab Spring” (in Chapter 2).

• New and updated discussions of project GLOBE and its importance for international management.

• Greater emphasis on emerging markets and developing countries, and the increasing influence of emerging markets multinationals on global competition.

Thoroughly Revised and Updated Chapter Content

• New or revised opening WIM discussions on topics includ- ing the global influences of social media, the role of social networking in the Arab Spring, sustainability as a global competitive advantage, Apple vs. Samsung, Amazon vs. Alibaba, global trends in the automotive and pharmaceuti- cal industries, managing global teams, offshoring and cul- ture, and many other subjects. These features were written expressly for this edition and are not available elsewhere.

• Updated and strengthened emphasis on ethics, social responsibility, and sustainability.

• Extensive coverage of Project GLOBE, its relationship to other cultural frameworks, and its application to inter- national management practice (Chapters 4, 13).

• Revised or new “In the International Spotlight” inserts which profile the key economic and political issues rel- evant to managers in specific countries, including new spotlights on Turkey and Indonesia.

• Greater coverage of the challenges and opportunities for international strategy targeted to the developing “base of the pyramid” economies (Chapter 8, and Tata cases).

LUTHANS Doh

x

DOH

The ninth

edition of

International

Management:

Culture, Strategy, and

Behavior is still

setting the standard.

Current authors Fred

Luthans and

Jonathan P. Doh have

taken care to retain

the effective

foundation gained

from research and

practice over the

past decades. At the

same time, they have

fully incorporated

important new and

emerging

developments that

have changed what

international managers

are currently facing and

likely to face in the

coming years.

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Thoroughly Updated and/or New Cases, Inserts, and Exercises

• New and/or updated country spotlights, “International Management in Action” features.

• Thoroughly updated cases (not available elsewhere): Pharmaceutical Companies, Intellectual Property, and the Global AIDS Epidemic ; Advertising or Free Speech ? The Case of Nike and Human Rights ; Beyond Tokyo: Disney’s Expansion In Asia ; HSBC in China ; Coca Cola in India ; Wa l mart’s Global Strategies ; Can Sony Regain its Innovative Edge? The OLED Project; Tata “ Nano ”: The People’s Car ; The A s cendance of AirAsia : Building a Successful Budget Airline; and Chiquita’s Global Turnaround .

• Brand new end-of-part cases developed exclusively for this edition (not available elsewhere): Dansko puts its Right Foot Forward , Google in China: Protecting Property and Rights; IKEA’s Global Renovations .

Totally Revised Instructor and Student Support

The following instructor and student support materials can be found on the Online Learning Center (OLC) for the Ninth Edition. You can access the OLC at www.mhhe.com/luthans9 e.

• The Instructor’s Manual offers a summary of Learning Objectives and teaching outline with lecture notes and teaching tips, as well as suggested answers to questions found throughout and at the conclu- sion of each chapter. Suggested answers are also provided for all the cases found in the book.

• The TestBank is offered in both Word and EZ Test formats and offers over 1,000 test items consisting of true/false, multiple choice, and essay. Answers are provided for all testbank questions.

• PowerPoint Presentations consisting of 30 slides per chapter give instructors talking points, feature exhibits from the text, and are summarized with a review and discussion slide.

• Student Quizzes are provided for each chapter and give students feedback to help them understand where additional study is required.

• A guide to videos available online, with title, short description, and url. • Create: Instructors can now tailor their teaching resources to match the

way they teach! With McGraw-Hill Create, www.mcgrawhillcreate. com , instructors can easily rearrange chapters, combine material from other content sources, and quickly upload and integrate their own con- tent, like course syllabi or teaching notes. Find the right content in Create by searching through thousands of leading McGraw-Hill text- books. Arrange the material to fit your teaching style. Order a Create book and receive a complimentary print review copy in 3–5 business

xi

CONTINUES TO SET THE STANDARD. . .

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xii Continues to Set the Standard. . .

days or a complimentary electronic review copy (echo) via e-mail within one hour. Go to www.mcgrawhillcreate.com today and register.

McGraw-Hill Campus™

McGraw-Hill Campus is a new one-stop teaching and learning experience available to users of any learning management system. This institutional service allows faculty and students to enjoy single sign-on (SSO) access to all McGraw-Hill Higher Education materials, including the award-winning McGraw-Hill Connect platform, from directly within the institution’s website. With McGraw-Hill Campus, faculty receive instant access to teaching materials (e.g., eText- books, test banks, PowerPoint slides, learning objectives, etc.), allowing them to browse, search, and use any instructor ancillary content in our vast library at no additional cost to instructor or students. In addition, students enjoy SSO access to a variety of free content and subscription-based products (e.g., McGraw-Hill Connect ). With McGraw-Hill Campus enabled, faculty and students will never need to create another account to access McGraw-Hill products and services. Learn more at www.mhcampus.com.

Assurance of Learning Ready

Many educational institutions today focus on the notion of assurance of learning, an important element of some accreditation standards. International Business is designed specifically to support instructors’ assurance of learning initiatives with a simple yet powerful solution. Each test bank question for International Business maps to a specific chapter learning objective listed in the text. Instructors can use our test bank software, EZ Test and EZ Test Online, to easily query for learning objectives that directly relate to the learning outcomes for their course. Instructors can then use the reporting features of EZ Test to aggregate student results in similar fashion, making the collection and presentation of assurance of learning data simple and easy.

AACSB Tagging

McGraw-Hill Education is a proud corporate member of AACSB International. Under- standing the importance and value of AACSB accreditation, International Business rec- ognizes the curricula guidelines detailed in the AACSB standards for business accredita- tion by connecting selected questions in the text and the test bank to the six general knowledge and skill guidelines in the AACSB standards. The statements contained in International Business are provided only as a guide for the users of this textbook. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While the International Business teaching package makes no claim of any specific AACSB qualification or evaluation, we have within International Business labeled selected questions according to the six general knowledge and skills areas.

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xiii

About the Authors

F RED LUTHANS is University and the George Holmes Distinguished Professor of Man- agement at the University of Nebraska–Lincoln. He is also Chair of the Master Research Council for HUMANeX, Inc. He received his BA, MBA, and PhD from the University of Iowa, where he received the Distinguished Alumni Award in 2002. While serving as an officer in the U.S. Army from 1965–1967, he taught leadership at the U.S. Military Acad- emy at West Point. He has been a visiting scholar at a number of colleges and universities and has lectured in most European and Pacific Rim countries. He has taught international management as a visiting faculty member at the universities of Bangkok, Hawaii, Henley in England, Norwegian Management School, Monash in Australia, Macau, Chemnitz in the former East Germany, and Tirana in Albania. A past president of the Academy of Management, in 1997 he received the Academy’s Distinguished Educator Award. In 2000 he became an inaugural member of the Academy’s Hall of Fame for being one of the “Top Five” all-time published authors in the prestigious Academy journals. Currently, he is co- editor-in-chief of the Journal of World Business, editor of Organizational Dynamics , co- editor of Journal of Leadership and Organization Studies, and the author of numerous books. His book Organizational Behavior (Irwin/McGraw-Hill) is now in its 12th edition and the groundbreaking book Psychological Capital (Oxford University Press) with Carolyn Youssef and Bruce Avolio will be out in its second edition in 2014. He is one of very few management scholars who is a Fellow of the Academy of Management, the Decision Sciences Institute, and the Pan Pacific Business Association, and he has been a member of the Executive Committee for the Pan Pacific Conference since its beginning 30 years ago. This committee helps to organize the annual meeting held in Pacific Rim countries. He has been involved with some of the first empirical studies on motivation and behavioral management techniques and the analysis of managerial activities in Russia; these articles have been published in the Academy of Management Journal , Journal of International Business Studies , Journal of World Business, and European Manag e ment Journal . Since the very beginning of the transition to market economies after the fall of communism in Eastern Europe, he has been actively involved in management education programs spon- sored by the U.S. Agency for International Development in Albania and Macedonia, and in U.S. Information Agency programs involving the Central Asian countries of Kazakhstan, Kyrgyzstan, and Tajikistan. For example, Professor Luthans’ recent international research involves his construct of positive psychological capital (PsyCap). He and colleagues have published their research demonstrating the impact of Chinese workers’ PsyCap on their performance in the International Journal of Human R e source Management and Manage- ment and Organization Review. He is applying his positive approach to positive organiza- tional behavior (POB), PsyCap, and authentic leadership to effective global management and has recently been the keynote at programs in China (several times), Malaysia, Korea, Indonesia, England, Norway, Finland, South Africa, and soon Italy.

JONATHAN P. DOH is the Herbert G. Rammrath Chair in International Business, found- ing Director of the Center for Global Leadership, and Professor of Management at the Villanova School of Business. Jonathan teaches, does research, and serves as an executive instructor and consultant in the areas of international strategy and corporate responsibil- ity and serves as an occasional executive educator for the Aresty Institute of Executive Education at the Wharton Business School. Previously, he was on the faculty of American and Georgetown Universities and a senior trade official with the U.S. government. Jonathan is author or co-author of more than 75 refereed articles published in the top international

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xiv About the Authors

business and management journals, 30 chapters in scholarly edited volumes, and more than 75 conference papers. Recent articles have appeared in journals such as Academy of Management Review, California Management Review, Journal of International Busi- ness Studies, Journal of World Business, Organization Science, Sloan Management Review, and Strategic Management Journal . He is co-editor and contributing author of Globalization and NGOs (Praeger, 2003) and Handbook on Responsible Leadership and Governance in Global Business (Elgar, 2005) and co-author of the previous edition of International Management: Culture, Strategy, and Behavior (8th ed., McGraw-Hill/Irwin, 2012), the best-selling international management text. His current research focus is on strategy for emerging markets, global corporate responsibility, and offshore outsourcing of services. His most recent scholarly books are Multinationals and Development (with Alan Rugman, Yale University Press, 2008), NGOs and Corporations: Conflict and Col- laboration (with Michael Yaziji, Cambridge University Press, 2009) and Aligning for Advantage: Competitive Strategy for the Social and Political Arenas (with Tom Lawton and Tazeeb Rajwani, Oxford University Press, 2014). He is co-Editor-in-Chief of MRN International Environment of Global Business (SSRN Journal), Senior Editor of Journal of World Business , Associate Editor of Business & Society , and Consulting Editor of Long Range Planning . Beginning in January of 2015 he will assume the position of Editor-in-Chief of Journal of World Business. Jonathan has also developed more than a dozen original cases and simulations published in books, journals, and case databases and used at many leading global universities. He has been a consultant or executive instructor for ABB, Anglo American, Bodycote, Bosch, China Minsheng Bank, Hana Financial, HSBC, Ingersoll Rand, Medtronic, Shanghai Municipal Government, Siam Cement, the World Economic Forum, and Deloitte Touche, where he served as senior external adviser to the Global Energy Resource Group. Jonathan is part of the Executive Committee of the Academy of Management Organizations and Natural Environment Division with increasing responsibilities culminating in the chair of the division in 2016. He was ranked among the top 15 most prolific international business scholars in the world for the period 2001–2009 (Lahiri and Kumar, 2012). He holds a PhD in strategic and international management from George Washington University.

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xv

Environmental Foundation

1 Globalization and International Linkages 2 2 The Political, Legal, and Technological Environment 36 3 Ethics, Social Responsibility, and Sustainability 62

Brief Integrative Case 1.1: Advertising or Free Speech? The Case of Nike and Human Rights 87 Brief Integrative Case 1.2: Dansko Puts Its Right Foot Forward 89 In-Depth Integrative Case 1.1: Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletic 92 In-Depth Integrative Case 1.2: Pharmaceutical Companies, Intellectual Property, and the Global AIDS Epidemic 97

The Role of Culture

4 The Meanings and Dimensions of Culture 110 5 Managing Across Cultures 146 6 Organizational Cultures and Diversity 174 7 Cross-Cultural Communication and Negotiation 200

Brief Integrative Case 2.1: Coca-Cola in India 238 Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha 244 In-Depth Integrative Case 2.1a: Euro Disneyland 250 In-Depth Integrative Case 2.1b: Beyond Tokyo: Disney’s Expansion in Asia 260 In-Depth Integrative Case 2.2: Walmart’s Global Strategies 264

International Strategic Management

8 Strategy Formulation and Implementation 274 9 Entry Strategies and Organizational Structures 306 10 Managing Political Risk, Government Relations, and Alliances 342 11 Management Decision and Control 366

Brief Integrative Case 3.1: Google in China : Protecting Property and Rights 392

Brief Contents

Part One

Part Two

Part Three

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xvi Brief Contents

Brief Integrative Case 3.2: Can Sony Regain Its Innovative Edge? The OLED Project 397 In-Depth Integrative Case 3.1: Tata “ Nano ”: The People’s Car 402 In-Depth Integrative Case 3.2: The Ascendance of AirAsia : Building a Successful Budget Airline in Asia 411

Organizational Behavior and Human Resource Management

12 Motivation Across Cultures 422 13 Leadership Across Cultures 454 14 Human Resource Selection and Development Across Cultures 492

Brief Integrative Case 4.1: IKEA’s Global Renovations 537 In-Depth Integrative Case 4.1: HSBC in China 544 In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround 560

Skill-Building and Experiential Exercises

References 587 Endnotes 591 Glossary 631 Indexes 637

Part Four

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xvii

Environmental Foundation

1 Globalization and International Linkages 2 The World of International Management: An Interconnected World 2 Introduction 4 Globalization and Internationalization 6

Globalization, Antiglobalization , and Global Pressures 6

Global and Regional Integration 9

The Shifting Balance of Economic Power in the Global Economy 12

Global Economic Systems 19 Market Economy 19

Comm and Economy 19

Mixed Economy 20

Economic Performance and Issues of Major Regions 20 Established Economies 20

Emerging Economies 22

Developing Economies on the Verge 26

The World of International Management—Revisited 30

Summary of Key Points 32

Key Terms 32

Review and Discussion Questions 32

Answers to the In-Chapter Quiz 33

Internet Exercise: Global Competition in Fast Food 33

In the International Spotlight: India 34

2 The Political, Legal, and Technological Environment 36

The World of International Management: Social Media and the Pace of Change 36

Political Environment 38 Ideologies 39

Political Systems 41

Legal and Regulatory Environment 44 Basic Principles of International Law 44

Examples of Legal and Regulatory Issues 45

Privatization 48

Regulation of Trade and Investment 50

Technological Environment and Global Shifts in Production 51

Trends in Technology, Communication, and Innovation 51

Table of Contents

Part One

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xviii Table of Contents

Biotechnology 53

E-Business 54

Telecommunications 55

Technological Advancements, Outsourcing, and Offshoring 56

The World of International Management—Revisited 58 Summary of Key Points 59 Key Terms 59 Review and Discussion Questions 59 Internet Exercise: Hitachi Goes Worldwide 60 In the International Spotlight: Vietnam 61

3 Ethics, Social Responsibility, and Sustainability 62

The World of International Management: Sustaining Sustainable Companies 62

Ethics and Social Responsibility 64

Ethics and Social Responsibility in International Management 65

Ethics Theories and Philosophy 65

Human Rights 66

Labor, Employment, and Business Practices 68

Environmental Protection and Development 69

Globalization and Ethical Obligations of MNCs 71

Reconciling Ethical Differences across Cultures 73

Corporate Social Responsibility and Sustainability 74

Corporate Governance 78

Corruption 79

International Assistance 81

The World of International Management—Revisited 83 Summary of Key Points 84 Key Terms 84 Review and Discussion Questions 84 Internet Exercise: Social Responsibility at Johnson & Johnson and HP 85 In the International Spotlight: Saudi Arabia 86 Brief Integrative Case 1.1: Advertising or Free Speech? The Case of Nike and Human Rights 87 Brief Integrative Case 1.2: Dansko Puts its Right Foot Forward 89 In-Depth Integrative Case 1.1: Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletic 92 In-Depth Integrative Case 1.2: Pharmaceutical Companies, Intellectual Property, and the Global AIDS Epidemic 97

The Role of Culture

4 The Meanings and Dimensions of Culture 110

The World of International Management: The Cultural Roots of Toyota’s Quality Crisis 110

Part Two

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The Nature of Culture 112

Cultural Diversity 113

Values in Culture 117 Value Differences and Similarities across Cultures 117

Values in Transition 118

Cultural Dimensions 120

Hofstede 120

Trompenaars 127

Integrating Culture and Management: The GLOBE Project 136 Culture and Management 137

GLOBE’s Cultural Dimensions 138

GLOBE Country Analysis 138

The World of International Management—Revisited 141 Summary of Key Points 141 Key Terms 142 Review and Discussion Questions 142 Internet Exercise: Renault-Nissan in South Africa 143 In the International Spotlight: South Africa 144

5 Managing Across Cultures 146

The World of International Management: Apple v. Samsung: Comparing Corporate Culture 146

The Strategy for Managing across Cultures 148 Strategic Predispositions 149

Meeting the Challenge 150

Cross-Cultural Differences and Similarities 153 Parochialism and Simplification 153

Similarities across Cultures 156

Many Differences across Cultures 156

Cultural Differences in Selected Countries and Regions 160 Doing Business in China 161

Doing Business in Russia 163

Doing Business in India 165

Doing Business in France 166

Doing Business in Brazil 167

Doing Business in Arab Countries 168

The World of International Management—Revisited 170 Summary of Key Points 171 Key Terms 171 Review and Discussion Questions 171 Internet Exercise: Haier’s Approach 171 In the International Spotlight: Mexico 172

6 Organizational Cultures and Diversity 174

The World of International Management: Managing Culture and Diversity in Global Teams 174

Table of Contents xix

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The Nature of Organizational Culture 176 Definition and Characteristics 177

Interaction between National and Organizational Cultures 178

Organizational Cultures in MNCs 182 Family Culture 184

Eiffel Tower Culture 184

Guided Missile Culture 185

Incubator Culture 186

Managing Multiculturalism and Diversity 188 Phases of Multicultural Development 188

Types of Multiculturalism 190

Potential Problems Associated with Diversity 192

Advantages of Diversity 193

Building Multicultural Team Effectiveness 194

The World of International Management—Revisited 196 Summary of Key Points 196 Key Terms 197 Review and Discussion Questions 197 Internet Exercise: Lenovo’s International Focus 197 In the International Spotlight: Japan 199

7 Cross-Cultural Communication and Negotiation 200

The World of International Management: Offshoring Culture and Communication 200 The Overall Communication Process 203

Verbal Communication Styles 203

Interpretation of Communications 206

Communication Flows 207 Downward Communication 207

Upward Communication 209

Communication Barriers 210

Language Barriers 210

Perceptual Barriers 213 The Impact of Culture 215

Nonverbal Communication 217

Achieving Communication Effectiveness 220 Improve Feedback Systems 220

Provide Language Training 220

Provide Cultural Training 221

Increase Flexibility and Cooperation 221

Managing Cross-Cultural Negotiations 223 Types of Negotiation 223

The Negotiation Process 224

Cultural Differences Affecting Negotiations 225

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Negotiation Tactics 228

Negotiating for Mutual Benefit 229

Bargaining Behaviors 231

The World of International Management—Revisited 234 Summary of Key Points 235 Key Terms 235 Review and Discussion Questions 236 Internet Exercise: Working Effectively at Toyota 236 In the International Spotlight: China 237 Brief Integrative Case 2.1: Coca-Cola in India 238 Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha 244 In-Depth Integrative Case 2.1a: Euro Disneyland 250 In-Depth Integrative Case 2.1b: Beyond Tokyo: Disney’s Expansion in Asia 260 In-Depth Integrative Case 2.2: Walmart’s Global Strategies 264

International Strategic Management

8 Strategy Formulation and Implementation 274

The World of International Management: Big Pharma Goes Global 274 Strategic Management 277

The Growing Need for Strategic Management 278

Benefits of Strategic Planning 279

Approaches to Formulating and Implementing Strategy 279

Global and Regional Strategies 283

The Basic Steps in Formulating Strategy 286 Environmental Scanning 286

Internal Resource Analysis 288

Goal Setting for Strategy Formulation 288

Strategy Implementation 290 Location Considerations for Implementation 290

Combining Country and Firm-Specific Factors in International Strategy 292

The Role of the Functional Areas in Implementation 293

Specialized Strategies 295 Strategies for Emerging Markets 295

Entrepreneurial Strategy and New Ventures 301

The World of International Management—Revisited 302 Summary of Key Points 303 Key Terms 303 Review and Discussion Questions 303 Internet Exercise: Infosys’s Global Strategy 304 In the International Spotlight: Poland 305

Part Three

Table of Contents xxi

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9 Entry Strategies and Organizational Structures 306

The World of International Management: Volkswagen’s Comeback: Aligning Strategy and Structure 306 Entry Strategies and Ownership Structures 308

Export/Import 308

Wholly Owned Subsidiary 309

Mergers/Acquisitions 309

Alliances and Joint Ventures 314

Alliances, Joint Ventures, and M&A: The Case of the Automotive Industry 316

Licensing 317

Franchising 320

The Organization Challenge 320

Basic Organizational Structures 321 Initial Division Structure 321

International Division Structure 322

Global Structural Arrangements 324

Transnational Network Structures 328

Nontraditional Organizational Arrangements 330 Organizational Arrangements from Mergers, Acquisitions, Joint Ventures, and Alliances 330

The Emergence of the Network Organizational Forms 332 Organizing for Product Integration 332

Organizational Characteristics of MNCs 334 Formalization 334

Specialization 335

Centralization 336

Putting Organizational Characteristics in Perspective 336

The World of International Management—Revisited 338 Summary of Key Points 338 Key Terms 339 Review and Discussion Questions 339 Internet Exercise: Organizing for Effectiveness 339 In the International Spotlight: Australia 340

10 Managing Political Risk, Government Relations, and Alliances 342

The World of International Management: Shell’s Russian Roulette 342

The Nature and Analysis of Political Risk 344 Macro and Micro Analysis of Political Risk 345

Terrorism and Its Overseas Expansion 349

Analyzing the Expropriation Risk 349

Managing Political Risk and Government Relations 350 Developing a Comprehensive Framework or Quantitative Analysis 350

xxii Table of Contents

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Techniques for Responding to Political Risk 352

Relative Bargaining Power Analysis 352

Managing Alliances 357 The Alliance Challenge 357

The Role of Host Governments in Alliances 359

Examples of Challenges and Opportunities in Alliance Management 360

The World of International Management—Revisited 361 Summary of Key Points 362 Key Terms 362 Review and Discussion Questions 362 Internet Exercise: Nokia in China 363 In the International Spotlight: Brazil 364

11 Management Decision and Control 366

The World of International Management: Global Online Retail: Amazon v. Alibaba 366

Decision-Making Process and Challenges 368 Factors Affecting Decision-Making Authority 369

Cultural Differences and Comparative Examples of Decision Making 372

Total Quality Management Decisions 373

Decisions for Attacking the Competition 375

Decision and Control Linkages 376

The Controlling Process 377 Types of Control 378

Approaches to Control 380

Performance Evaluation as a Mechanism of Control 382 Financial Performance 382

Quality Performance 383

Personnel Performance 386

The World of International Management—Revisited 388 Summary of Key Points 389 Key Terms 389 Review and Discussion Questions 389 Internet Exercise: Looking at the Best 390 In the International Spotlight: Turkey 391 Brief Integrative Case 3.1: Google in China : Protecting Property and Rights 392 Brief Integrative Case 3.2: Can Sony Regain Its Innovative Edge? The OLED Project 397 In-Depth Integrative Case 3.1: Tata “ Nano ”: The People’s Car 402 In-Depth Integrative Case 3.2: The Ascendance of AirAsia : Building a Successful Budget Airline in Asia 411

Table of Contents xxiii

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Organizational Behavior and Human Resource Management

12 Motivation Across Cultures 422

The World of International Management: Motivating Employees in a Multicultural Context: Insights from the Emerging Markets 422

The Nature of Motivation 424 The Universalist Assumption 425

The Assumption of Content and Process 426

The Hierarchy-of-Needs Theory 427 The Maslow Theory 427

International Findings on Maslow’s Theory 427

The Two-Factor Theory of Motivation 431 The Herzberg Theory 431

International Findings on Herzberg’s Theory 433

Achievement Motivation Theory 437 The Background of Achievement Motivation Theory 437

International Findings on Achievement Motivation Theory 438

Select Process Theories 439 Equity Theory 439

Goal-Setting Theory 441

Expectancy Theory 441

Motivation Applied: Job Design, Work Centrality, and Rewards 442 Job Design 442

Sociotechnical Job Designs 443

Work Centrality 444

Incentives and Culture 448

The World of International Management—Revisited 450 Summary of Key Points 450 Key Terms 452 Review and Discussion Questions 452 Internet Exercise: Motivating Potential Employees 452 In the International Spotlight: Indonesia 453

13 Leadership Across Cultures 454

The World of International Management: Global Leadership Development: An Emerging Need 454

Foundation for Leadership 456 The Manager-Leader Paradigm 456

Philosophical Background: Theories X, Y, and Z 458

Leadership Behaviors and Styles 461

The Managerial Grid Performance: A Japanese Perspective 462

Leadership in the International Context 465

Part Four

xxiv Table of Contents

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Attitudes of European Managers toward Leadership Practices 465

Japanese Leadership Approaches 467

Differences between Japanese and U.S. Leadership Styles 468

Leadership in China 470

Leadership in the Middle East 471

Leadership Approaches in India 471

Leadership Approaches in Latin America 472

Recent Findings and Insights about Leadership 473 Transformational, Transactional, and Charismatic Leadership 473

Qualities for Successful Leaders 475

Culture Clusters and Leader Effectiveness 477

Leader Behavior, Leader Effectiveness, and Leading Teams 478

Cross-Cultural Leadership: Insights from the GLOBE Study 478

Positive Organizational Scholarship and Leadership 482

Authentic Leadership 482

Ethical, Responsible, and Servant Leadership 485

Entrepreneurial Leadership and Mindset 486

The World of International Management—Revisited 487 Summary of Key Points 487 Key Terms 488 Review and Discussion Questions 489 Internet Exercise: Taking a Closer Look 489 In the International Spotlight: Germany 490

14 Human Resource Selection and Development Across Cultures 492

The World of International Management: The Challenge of Talent Retention in India 492

The Importance of International Human Resources 495 Getting the Employee Perspective 495

Employees as Critical Resources 496

Investing in International Assignments 496

Economic Pressures 496

Sources of Human Resources 498 Home-Country Nationals 498

Host-Country Nationals 498

Third-Country Nationals 499

Subcontracting and Outsourcing 500

Selection Criteria for International Assignments 503 General Criteria 503

Adaptability to Cultural Change 504

Physical and Emotional Health 505

Age, Experience, and Education 505

Language Training 506

Motivation for a Foreign Assignment 506

Table of Contents xxv

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Spouses and Dependents or Work-Family Issues 506

Leadership Ability 507

Other Considerations 507

Economic Pressures and Trends in Expat Assignments 509

International Human Resource Selection Procedures 510 Testing and Interviewing Procedures 510

The Adjustment Process 510

Compensation 512 Common Elements of Compensation Packages 513

Tailoring the Package 515

Individual and Host-Country Viewpoints 516 Candidate Motivations 516

Host-Country Desires 517

Repatriation of Expatriates 518 Reasons for Returning 518

Readjustment Problems 518

Transition Strategies 519

Training in International Management 520 The Impact of Overall Management Philosophy on Training 522

The Impact of Different Learning Styles on Training and Development 523

Reasons for Training 524

Types of Training Programs 526 Standardized vs. Tailor-Made 526

Cultural Assimilators 529 Positive Organizational Behavior 530

Future Trends 531

The World of International Management—Revisited 531 Summary of Key Points 533 Key Terms 534 Review and Discussion Questions 534 Internet Exercise: Going International with Coke 535 In the International Spotlight: Russia 536 Brief Integrative Case 4.1: IKEA’s Global Renovations 537 In-Depth Integrative Case 4.1: HSBC in China 544 In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround 560

Skill-Building and Experiential Exercises

Personal Skill-Building Exercises 569

1. The Culture Quiz 570 2. Using Gung Ho to Understand Cultural Differences 575

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3. “When in Bogotá . . .” 577 4. The International Cola Alliances 580 5. Whom to Hire? 584

In-Class Simulations (available on the Online Learning Center at www.mhhe.com/luthans9e) 1. “ Frankenfoods ” or Rice Bowl for the World: The U.S.–EU Dispute

over Trade in Genetically Modified Organisms 2. Cross-Cultural Conflicts in the Corning–Vitro Joint Venture

References 587

Endnotes 591

Glossary 631

Name and Organization Index 637

Subject Index 649

Table of Contents xxvii

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PART ONE ENVIRONMENTAL FOUNDATION

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2

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H A

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Chapter 1

GLOBALIZATION AND INTERNATIONAL LINKAGES Globalization is one of the most profound forces in our contemporary economic environment. And its practical impact on international management is substantial. In nearly every country, increasing numbers of large, medium, and even small corporations are going international, and a grow- ing percentage of company revenue is derived from overseas markets. This is even true for U.S.-based companies that historically have relied on the large domestic market. Yet, the reverberations of the financial crisis and global economic recession, and continued economic and political uncertain- ties in many world regions present challenges for govern- ments, corporations, and communities around the world, causing some to question the current system for regulating and overseeing international trade, investments, and global financial flows. Nonetheless, international management—the process of applying management concepts and techniques in a multinational environment—continues to retain importance. Although globalization and international linkages have been part of history for centuries (see the International Man- agement in Action box later in the chapter, “Tracing the Roots of Modern Globalization”), the principal focus of this opening chapter is to examine the process of globalization in the con- temporary world. The rapid integration of countries, advances in information technology, and the explosion in electronic communication have created a new, more integrated world and true global competition. Yet, the complexities of doing business in distinct markets persist. These developments both create and influence the opportunities, challenges, and prob- lems that managers in the international arena will face during the years ahead. Since the environment of international man- agement is all-encompassing, this chapter is mostly con- cerned with the economic dimensions, while the following two chapters are focused on the political, legal, and technological dimensions and ethical and social dimensions, respectively. The specific objectives of this chapter are:

1. ASSESS the implications of globalization for countries, industries, firms, and communities.

2. REVIEW the major trends in global and regional integration.

3. EXAMINE the changing balance of global economic power and trade and investment flows among countries.

4. ANALYZE the major economic systems and recent developments among countries that reflect those systems.

The World of International Management

An Interconnected World

May 18, 2012, marked one of the most highly-anticipated initial public offerings (IPOs) in history. Facebook, which had grown from a college dorm room to a 900-million-member social network in just eight years, was set to offer shares to the public for the first time. As May 18 approached, founder Mark Zuckerberg, wearing his characteristic “hoodie” sweatshirt, embarked on a roadshow to promote the company. Facebook programmers celebrated with all- night “hackathons,” and huge demand for the IPO prompted Facebook to release 25 percent more shares than initially planned. The IPO price was set to $38 per share, valuing Facebook at $104 billion. Many analysts predicted the price would soar as high as $60 on the first day alone. On the morning of May 18, Mark Zuckerberg ceremoniously rang a bell from Facebook’s California campus to celebrate the open- ing of the market at 9:30 A.M. As Wall Street’s clos- ing bell rang just a few hours later, however, the original optimism that started the day had all but faded. The shares were trading only $0.23 above the IPO price—and down $3.82 from the opening bell price. In the following weeks, Facebook’s stock con- tinued its downward trajectory. By mid-August, Face- book stock had decreased to nearly half its original offering price, leaving many to wonder, “Is social net- working really here to stay?”

Social Media Has Changed How We Connect Though some have second-guessed the longevity of online networks, one thing is certain: We currently live in a world interconnected by social media. Through online networking, the way we connect with others has drastically changed. Virtually anyone on the globe is only a few clicks away. In fact, the average number of links separating any two random people on Facebook is now only 4.74. 1 Facebook’s statistics underscore how