Global business today multiple choice questions

Global Business Today

9e

Global Business Today

9e

Charles W. L. Hill University of Washington

G. Tomas M. Hult Michigan State University

GLOBAL BUSINESS TODAY, NINTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2016 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2014, 2011, 2009 and 2008. 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.

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Library of Congress Cataloging-in-Publication Data

Hill, Charles W. L. Global business today / Charles W. L. Hill, University of Washington, G. Tomas M. Hult, Michigan State University.—9e [edition]. pages cm ISBN 978-0-07-811291-1 (alk. paper)—ISBN 0-07-811291-5 (alk. paper) 1. International business enterprises—Management. 2. International trade. 3. Investments, Foreign. 4. Capital market. I. Hult, G. Tomas M. II. Title. HD62.4.H548 2016 658’.049—dc23

2014037047

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.

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about the authors Charles W. L. Hill is the Hughes M. Blake Professor of International Business at the Foster School of Business, University of Washington. Professor Hill received his Ph.D. in industrial organi- zation economics in 1983 from the University of Manchester’s Institute of Science and Technology (UMIST) in Great Britain. In addition to his position at the University of Washington, he has served on the faculties of UMIST, Texas A&M University, and Michigan State University.

Professor Hill has published some 50 articles in peer-reviewed academic journals. He has also published four college textbooks, one on strategic management, one on principles of management, and the other two on international business (one of which you are now holding). He serves on the editorial boards of several academic journals and previously served as consulting editor at the Academy of Management Review.

Professor Hill teaches in the MBA and executive MBA programs at the University of Washington and has received awards for teaching excellence in both programs. He has also taught on several customized executive programs. He lives in Seattle with his wife, Lane, and his children.

G. Tomas M. Hult is the John W. Byington Endowed Chair, Professor of Marketing and Interna- tional Business, and Director of the International Business Center in the Eli Broad College of Business at Michigan State University. Dr. Hult is an Elected Fellow of the Academy of International Business (AIB) and serves as the Executive Director and Foundation President of AIB. He also serves on the U.S. District Export Council and holds board member positions of the International Trade Center of Mid-Michigan and the Sheth Foundation.

Several studies have ranked Professor Hult as one of the most cited scholars in the world in business and management (e.g., Thomson Reuters’ Essential Science Indicators). He has served as editor of Journal of the Academy of Marketing Science and has published 50 articles in premier business journals—Journal of International Business Studies, Academy of Management Journal, Strategic Management Journal, Journal of Management, Journal of Marketing, Journal of the Acad- emy of Marketing Science, Journal of Retailing, Journal of Operations Management, and Decision Sciences. Dr. Hult has also published several books, e.g., Global Supply Chain Management (2014), Total Global Strategy (2012), and Extending the Supply Chain (2005).

Professor Hult is a well-known keynote speaker on global supply chain management, global strategy, and marketing strategy. He teaches in doctoral, master’s, and undergraduate programs at Michigan State University, plus he is a visiting professor at Leeds University (United Kingdom) and Uppsala University (Sweden). He also teaches frequently in executive development programs and has developed a large clientele of the world’s top multinational corporations. Tomas Hult is a dual citizen of the United States and Sweden and lives in Okemos, Michigan, with his wife, Laurie, and their children, Daniel and Isabelle.

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brief contents

THE PROVEN CHOICE FOR INTERNATIONAL BUSINESS xiii

PART ONE Introduction and Overview 2 Chapter One Globalization 3

PART TWO National Differences 36 Chapter Two National Differences in Political, Economic, and Legal Systems 37 Chapter Three National Differences in Economic Development 61 Chapter Four Differences in Culture 89 Chapter Five Ethics, Corporate Social Responsibility, and Sustainability 127

PART THREE The Global Trade and Investment Environment 158 Chapter Six International Trade Theory 159 Chapter Seven Government Policy and International Trade 195 Chapter Eight Foreign Direct Investment 223 Chapter Nine Regional Economic Integration 253

PART FOUR The Global Monetary System 284 Chapter Ten The Foreign Exchange Market 285 Chapter Eleven The International Monetary System 311

PART FIVE The Strategy of International Business 336 Chapter Twelve The Strategy of International Business 337 Chapter Thirteen Entering Foreign Markets 371

PART SIX International Business Functions 396 Chapter Fourteen Exporting, Importing, and Countertrade 397 Chapter Fifteen Global Production and Supply Chain Management 419 Chapter Sixteen Global Marketing and Research and Development 449 Chapter Seventeen Global Human Resource Management 487

GLOSSARY 512

PHOTO CREDITS 520

NAME INDEX 521

SUBJECT INDEX 522

ACRONYMS

COUNTRIES AND THEIR CAPITALS

WORLD MAP

Looking for a briefer text? Consider some of these alternate combined chapters to create a 14 chapter text with Hill and Hult’s marketleading content.

• Country Difference in Political Systems, Economic Systems and Development (Chapter 2 & 3 combined)

• International Trade Theory and Policy (Chapter 6 & 7 combined)

• Entering Foreign Markets (Chapter 13 & 14 combined) To preview this content and build your custom text, please visit www.mcgrawhillcreate.com/hill.

vi

contents THE PROVEN CHOICE FOR INTERNATIONAL BUSINESS xiii

PART ONE Introduction and Overview 2

Chapter One Globalization 3 Opening Case: The Globalization of Production at Boeing 3 Introduction 4 What Is Globalization? 6

The Globalization of Markets 6

The Globalization of Production 7

The Emergence of Global Institutions 9 Drivers of Globalization 11

Declining Trade and Investment Barriers 11

The Role of Technological Change 13

The Changing Demographics of the Global Economy 15

The Changing World Output and World Trade Picture 15

The Changing Foreign Direct Investment Picture 16

The Changing Nature of the Multinational Enterprise 19

The Changing World Order 20

The Global Economy of the Twenty-First Century 22

The Globalization Debate 22 Antiglobalization Protests 22

Globalization, Jobs, and Income 23

Globalization, Labor Policies, and the Environment 26

Globalization and National Sovereignty 27

Globalization and the World’s Poor 28

Managing in the Global Marketplace 29 Key Terms 31 Summary 31 Critical Thinking and Discussion Questions 32 Research Task 32

Closing Case: Who Makes the Apple iPhone? 32 Endnotes 33

PART TWO National Differences 36

Chapter Two National Differences in Political, Economic, and Legal Systems 37

Opening Case: Putin’s Russia 37 Introduction 39 Political Systems 40

Collectivism and Individualism 40

Democracy and Totalitarianism 43

Economic Systems 44 Market Economy 45

Command Economy 46

Mixed Economy 46

Legal Systems 47 Different Legal Systems 47

Differences in Contract Law 48

Property Rights and Corruption 49

The Protection of Intellectual Property 52

Product Safety and Product Liability 54

Focus on Managerial Implications 55 Key Terms 55 Summary 56 Critical Thinking and Discussion Questions 56 Research Task 57

Closing Case: Ghana: An African Dynamo 57 Endnotes 58

Chapter Three National Differences in Economic Development 61

Opening Case: Political and Economic Reform in Myanmar 61 Introduction 62 Differences in Economic Development 63

Broader Conceptions of Development: Amartya Sen 66

Political Economy and Economic Progress 68

Innovation and Entrepreneurship Are the Engines of Growth 68

Innovation and Entrepreneurship Require a Market Economy 68

Innovation and Entrepreneurship Require Strong Property Rights 69

The Required Political System 69

Economic Progress Begets Democracy 70

Geography, Education, and Economic Development 71

States in Transition 72 The Spread of Democracy 72

The New World Order and Global Terrorism 74

The Spread of Market-Based Systems 75

The Nature of Economic Transformation 77 Deregulation 77

Privatization 77

Legal Systems 79

Implications of Changing Political Economy 79 Focus on Managerial Implications 80 Key Terms 84 Summary 84 Critical Thinking and Discussion Questions 85 Research Task 85

Closing Case: Revolution in Egypt 86 Endnotes 87

Chapter Four Differences in Culture 89 Opening Case: Best Buy and eBay in China 89 Introduction 91 What Is Culture? 92

Values and Norms 92

Culture, Society, and the Nation-State 94

The Determinants of Culture 95

Social Structure 95 Individuals and Groups 95

Social Stratification 97

Religious and Ethical Systems 100 Christianity 102

Islam 103

Hinduism 106

Buddhism 107

Confucianism 108

Language 109 Spoken Language 110

Unspoken Language 111

Education 111 Culture and Business 112 Cultural Change 115

Focus on Managerial Implications 117 Key Terms 120 Summary 120 Critical Thinking and Discussion Questions 121 Research Task 121

Closing Case: World Expo 2020 in Dubai, UAE 122 Endnotes 123

Chapter Five Ethics, Corporate Social Responsibility, and Sustainability 127

Opening Case: Making Toys Globally 127 Introduction 128 Ethical Issues in International Business 129

Employment Practices 130

Human Rights 130

Environmental Pollution 132

Corruption 134

Ethical Dilemmas 136 The Roots of Unethical Behavior 137

Personal Ethics 137

Decision-Making Processes 138

Organization Culture 139

Unrealistic Performance Goals 139

Leadership 139

Societal Culture 139

Philosophical Approaches to Ethics 140 Straw Men 140

Utilitarian and Kantian Ethics 142

Rights Theories 143

Justice Theories 144

Focus on Managerial Implications 145 Key Terms 152 Summary 153 Critical Thinking and Discussion Questions 153 Research Task 154

Closing Case: Bitcoin as an Ethical Dilemma 154 Endnotes 155

PART THREE The Global Trade and Investment Environment 158

Chapter Six International Trade Theory 159 Opening Case: Creating the World’s Biggest Free Trade Zone 159 Introduction 160 An Overview of Trade Theory 160

The Benefits of Trade 161

The Pattern of International Trade 162

Trade Theory and Government Policy 162

Contents vii

viii Contents

Mercantilism 163 Absolute Advantage 163 Comparative Advantage 166

The Gains from Trade 167

Qualifications and Assumptions 168

Extensions of the Ricardian Model 169

Heckscher-Ohlin Theory 174 The Leontief Paradox 174

The Product Life-Cycle Theory 175 Product Life-Cycle Theory in the Twenty-First Century 176

New Trade Theory 176 Increasing Product Variety and Reducing Costs 178

Economies of Scale, First-Mover Advantages, and the Pattern of Trade 179

Implications of New Trade Theory 179

National Competitive Advantage: Porter’s Diamond 180

Factor Endowments 181

Demand Conditions 182

Related and Supporting Industries 182

Firm Strategy, Structure, and Rivalry 182

Evaluating Porter’s Theory 183

Focus on Managerial Implications 183 Key Terms 185 Summary 185 Critical Thinking and Discussion Questions 186 Research Task 187

Closing Case: The Rise of India’s Drug Industry 187 Appendix A International Trade and the Balance of Payments 189 Endnotes 192

Chapter Seven Government Policy and International Trade 195

Opening Case: Sugar Subsidies Drive Candy Makers Abroad 195 Introduction 196 Instruments of Trade Policy 197

Tariffs 197

Subsidies 198

Import Quotas and Voluntary Export Restraints 199

Local Content Requirements 200

Administration Policies 201

Antidumping Policies 201

The Case for Government Intervention 202

Political Arguments for Intervention 203

Economic Arguments for Intervention 205

The Revised Case for Free Trade 207 Retaliation and Trade War 207

Domestic Policies 208

Development of the World Trading System 208 From Smith to the Great Depression 209

1947–1979: GATT, Trade Liberalization, and Economic Growth 209

1980–1993: Protectionist Trends 209

The Uruguay Round and the World Trade Organization 210

WTO: Experience to Date 211

The Future of the WTO: Unresolved Issues and the Doha Round 212

Focus on Managerial Implications 216 Key Terms 217 Summary 218 Critical Thinking and Discussion Questions 218 Research Task 219

Closing Case: China Limits Exports of Rare Earth Materials 219 Endnotes 220

Chapter Eight Foreign Direct Investment 223 Opening Case: Foreign Direct Investment in Nigeria 223 Introduction 224 Foreign Direct Investment in the World Economy 224

Trends in FDI 224

The Direction of FDI 225

The Source of FDI 226

The Form of FDI: Acquisitions versus Greenfield Investments 228

Theories of Foreign Direct Investment 228 Why Foreign Direct Investment? 228

The Pattern of Foreign Direct Investment 232

The Eclectic Paradigm 232

Political Ideology and Foreign Direct Investment 234

The Radical View 234

The Free Market View 234

Pragmatic Nationalism 235

Shifting Ideology 236

Benefits and Costs of FDI 237 Host-Country Benefits 237

Host-Country Costs 239

Home-Country Benefits 241

Contents ix

Home-Country Costs 241

International Trade Theory and FDI 241

Government Policy Instruments and FDI 242 Home-Country Policies 242

Host-Country Policies 243

International Institutions and the Liberalization of FDI 244

Focus on Managerial Implications 244 Key Terms 247 Summary 247 Critical Thinking and Discussion Questions 247 Research Task 248

Closing Case: Foreign Retailers in India 248 Endnotes 249

Chapter Nine Regional Economic Integration 253

Opening Case: Tomato Wars 253 Introduction 254 Levels of Economic Integration 256 The Case for Regional Integration 257

The Economic Case for Integration 258

The Political Case for Integration 258

Impediments to Integration 258

The Case against Regional Integration 259 Regional Economic Integration in Europe 260

Evolution of the European Union 260

Political Structure of the European Union 260

The Single European Act 263

The Establishment of the Euro 265

Enlargement of the European Union 269

Regional Economic Integration in the Americas 270

The North American Free Trade Agreement 270

The Andean Community 273

Mercosur 274

Central American Common Market, CAFTA, and CARICOM 274

Free Trade Area of the Americas 275

Regional Economic Integration Elsewhere 275 Association of Southeast Asian Nations 276

Asia-Pacific Economic Cooperation 277

Regional Trade Blocs in Africa 278

Focus on Managerial Implications 278 Key Terms 280 Summary 280 Critical Thinking and Discussion Questions 281 Research Task 281

Closing Case: I Want My Greek TV! 282 Endnotes 283

PART FOUR The Global Monetary System 284

Chapter Ten The Foreign Exchange Market 285 Opening Case: Embraer and the Wild Ride of the Brazilian Real 285 Introduction 286 The Functions of the Foreign Exchange Market 287

Currency Conversion 287

Insuring against Foreign Exchange Risk 289

The Nature of the Foreign Exchange Market 291 Economic Theories of Exchange Rate Determination 292

Prices and Exchange Rates 293

Interest Rates and Exchange Rates 298

Investor Psychology and Bandwagon Effects 299

Summary of Exchange Rate Theories 300

Exchange Rate Forecasting 300 The Efficient Market School 300

The Inefficient Market School 301

Approaches to Forecasting 301

Currency Convertibility 302 Focus on Managerial Implications 303 Key Terms 306 Summary 306 Critical Thinking and Discussion Questions 307 Research Task 307

Closing Case: The Rise (and Fall) of the Japanese Yen 308 Endnotes 309

Chapter Eleven The International Monetary System 311

Opening Case: The IMF and Iceland’s Economic Recovery 311 Introduction 312 The Gold Standard 313

Mechanics of the Gold Standard 313

Strength of the Gold Standard 314

The Period between the Wars, 1918–1939 314

The Bretton Woods System 315 The Role of the IMF 315

The Role of the World Bank 316

The Collapse of the Fixed Exchange Rate System 317

The Floating Exchange Rate Regime 318 The Jamaica Agreement 318

Exchange Rates since 1973 318

Fixed versus Floating Exchange Rates 322 The Case for Floating Exchange Rates 322

The Case for Fixed Exchange Rates 323

Who Is Right? 324

Exchange Rate Regimes in Practice 324 Pegged Exchange Rates 324

Currency Boards 325

Crisis Management by the IMF 326 Financial Crises in the Post–Bretton Woods Era 326

Evaluating the IMF’s Policy Prescriptions 328

Focus on Managerial Implications 330 Key Terms 333 Summary 333 Critical Thinking and Discussion Questions 334 Research Task 334

Closing Case: Currency Trouble in Malawi 334 Endnotes 335

PART FIVE The Strategy of International Business 336

Chapter Twelve The Strategy of International Business 337

Opening Case: IKEA 337 Introduction 338 Strategy and the Firm 339

Value Creation 339

Strategic Positioning 341

Operations: The Firm as a Value Chain 342

Global Expansion, Profitability, and Profit Growth 346

Expanding the Market: Leveraging Products and Competencies 347

Location Economies 348

Experience Effects 350

Leveraging Subsidiary Skills 352

Profitability and Profit Growth Summary 352

Cost Pressures and Pressures for Local Responsiveness 353 Pressures for Cost Reductions 353

Pressures for Local Responsiveness 354

Choosing a Strategy 357 Global Standardization Strategy 357

Localization Strategy 359

Transnational Strategy 359

International Strategy 360

The Evolution of Strategy 361

Strategic Alliances 362 The Advantages of Strategic Alliances 362

The Disadvantages of Strategic Alliances 363

Making Alliances Work 364 Key Terms 366 Summary 366 Critical Thinking and Discussion Questions 367 Research Task 367

Closing Case: Ford’s Global Strategy 367 Endnotes 368

Chapter Thirteen Entering Foreign Markets 371

Opening Case: Market Entry at Starbucks 371 Introduction 372 Basic Entry Decisions 373

Which Foreign Markets? 373

Timing of Entry 374

Scale of Entry and Strategic Commitments 376

Market Entry Summary 377

Entry Modes 377 Exporting 378

Turnkey Projects 379

Licensing 380

Franchising 382

Joint Ventures 383

Wholly Owned Subsidiaries 384

Selecting an Entry Mode 385 Core Competencies and Entry Mode 386

Pressures for Cost Reductions and Entry Mode 386

Greenfield Venture or Acquisition? 387 Pros and Cons of Acquisition 387

Pros and Cons of Greenfield Ventures 389

Greenfield Venture or Acquisition? 390 Key Terms 390 Summary 390 Critical Thinking and Discussion Questions 391 Research Task 392

Closing Case: JCB in India 392 Endnotes 393

PART SIX International Business Functions 396

Chapter Fourteen Exporting, Importing, and Countertrade 397

x Contents

Opening Case: Growing Through Exports 397 Introduction 398 The Promise and Pitfalls of Exporting 398 Improving Export Performance 401

An International Comparison 401

Information Sources 401

Utilizing Export Management Companies 402

Export Strategy 403

Export and Import Financing 405 Lack of Trust 405

Letter of Credit 406

Draft 407

Bill of Lading 408

A Typical International Trade Transaction 408

Export Assistance 409 Export–Import Bank 409

Export Credit Insurance 410

Countertrade 410 The Popularity of Countertrade 411

Types of Countertrade 411

Pros and Cons of Countertrade 413 Key Terms 413 Summary 414 Critical Thinking and Discussion Questions 414 Research Task 415

Closing Case: MD International 415 Endnotes 416

Chapter Fifteen Global Production and Supply Chain Management 419

Opening Case: Apple: The Best Supply Chain in the World? 419 Introduction 421 Strategy, Production, and Supply Chain Management 421 Where to Produce 424

Country Factors 424

Technological Factors 426

Production Factors 428

The Hidden Costs of Foreign Locations 431

Make-or-Buy Decisions 433 Global Supply Chain Functions 436

Global Logistics 436

Global Purchasing 438

Managing a Global Supply Chain 439 Role of Just-in-Time Inventory 440

Role of Information Technology 440

Coordination in Global Supply Chains 441

Interorganizational Relationships 441

Key Terms 443 Summary 443 Critical Thinking and Discussion Questions 444 Research Task 445

Closing Case: H&M: The Retail–Clothing Giant 445 Endnotes 446

Chapter Sixteen Global Marketing and Research and Development 449

Opening Case: Global Branding of Avengers and Iron Man 449 Introduction 450 Globalization of Markets and Brands 452 Market Segmentation 453 Product Attributes 455

Cultural Differences 455

Economic Development 456

Product and Technical Standards 456

Distribution Strategy 457 Differences Between Countries 457

Choosing a Distribution Strategy 460

Communication Strategy 461 Barriers to International Communication 461

Push Versus Pull Strategies 462

Global Advertising 464

Pricing Strategy 466 Price Discrimination 466

Strategic Pricing 468

Regulatory Influences on Prices 469

Configuring the Marketing Mix 469 International Market Research 472 Product Development 475

The Location of R&D 476

Integrating R&D, Marketing, and Production 477

Cross-Functional Teams 478

Building Global R&D Capabilities 478 Key Terms 480 Summary 480 Critical Thinking and Discussion Questions 481 Research Task 481

Closing Case: Domino’s Pizza Worldwide 482 Endnotes 483

Chapter Seventeen Global Human Resource Management 487

Opening Case: The Strategic Role of Human Resources at IBM 487

Contents xi

Introduction 488 The Strategic Role of International HRM 489 Staffing Policy 490

Types of Staffing Policy 490

Expatriate Managers 494

The Global Mindset 497

Training and Management Development 498 Training for Expatriate Managers 498

Repatriation of Expatriates 499

Management Development and Strategy 500

Performance Appraisal 501 Performance Appraisal Problems 501

Guidelines for Performance Appraisal 502

Compensation 502 National Differences in Compensation 502

Expatriate Pay 503

International Labor Relations 505

The Concerns of Organized Labor 505

The Strategy of Organized Labor 505

Approaches to Labor Relations 506 Key Terms 507 Summary 507 Critical Thinking and Discussion Questions 508 Research Task 508

Closing Case: MMC China 508 Endnotes 509

GLOSSARY 512 PHOTO CREDITS 520 NAME INDEX 521 SUBJECT INDEX 522 ACRONYMS COUNTRIES AND THEIR CAPITALS WORLD MAP

xii Contents

xiii

the proven choice for international business

Current. Application Rich. Relevant. Integrated. Global Business Today is intended for the first international business course at either the Undergraduate or MBA level. As the market leader, the goal in creating this package has been to set a new standard for international business teaching. We have attempted to cre- ate resources that

• Are comprehensive and up-to-date. • Go beyond an uncritical presentation and shallow explanation of the body of

knowledge. • Focus on rich applications of international business concepts. • Tightly integrate progression of topics among chapters. • Are fully integrated with results-driven technology.

Over the years, and through now nine editions, Dr. Charles Hill has worked hard to adhere to these goals. The ninth edition, with Dr. Tomas Hult as a co-author, follows the same ap- proach. It has not always been easy. An enormous amount has happened over the past de- cade, both in the real world of economics, politics, and business, and in the academic world of theory and empirical research. Often, we have had to significantly rewrite chapters, scrap old examples, bring in new ones, incorporate new theory and evidence into the material, and phase out older theories that are increasingly less relevant to the modern and dynamic world of international business. As noted later, there have been significant changes in this edition—and that will no doubt continue to be the case in the future. In deciding what changes to make, we have been guided not only by our own reading, teaching, and re- search, but also by the invaluable feedback we received from professors and students around the world who use the product, from reviewers, and from the editorial staff at McGraw-Hill. Our thanks go out to all of them.

xiv The Proven Choice for International Business

Comprehensive and Up-to-Date To be comprehensive, an international business package must

• Explain how and why the world’s countries differ. • Present a thorough review of the economics and politics of international trade and

investment. • Explain the functions and form of the global monetary system. • Examine the strategies and structures of international businesses. • Assess the special roles of an international business’s various functions.

This text has always endeavored to do all of these things. Too many other products have paid insufficient attention to the strategies and structures of international businesses and to the implications of international business for firms’ various functions. This omission has been a serious deficiency. Many of the students in these international business courses will soon be working in international businesses, and they will be expected to understand the implications of international business for their organization’s strategy, structure, and func- tions. This package pays close attention to these issues.

Comprehensiveness and relevance also require coverage of the major theories. It has always been a goal to incorporate the insights gleaned from recent academic work into the work. Consistent with this goal, over the past nine editions, insights from the following research have been incorporated:

• The new trade theory and strategic trade policy. • The work of Nobel Prize–winning economist Amartya Sen on economic development. • The work of Hernando de Soto on the link between property rights and economic

development. • Samuel Huntington’s influential thesis on the “clash of civilizations.” • The new growth theory of economic development championed by Paul Romer and

Gene Grossman. • Empirical work by Jeffrey Sachs and others on the relationship between international

trade and economic growth. • Michael Porter’s theory of the competitive advantage of nations. • Robert Reich’s work on national competitive advantage. • The work of Nobel Prize winner Douglass North and others on national institutional

structures and the protection of property rights. • The market imperfections approach to foreign direct investment that has grown out of

Ronald Coase and Oliver Williamson’s work on transaction cost economics. • Bartlett and Ghoshal’s research on the transnational corporation. • The writings of C. K. Prahalad and Gary Hamel on core competencies, global

competition, and global strategic alliances. • Insights for international business strategy that can be derived from the resource-based

view of the firm. • Paul Samuelson’s critique of free trade theory.

In addition to including leading-edge theory, in light of the fast-changing nature of the international business environment, we have made every effort to ensure that this product was as up-to-date as possible when it went to press. A significant amount has happened in the world since we began revisions of this book. By 2014, more than $3.5 trillion per day was flowing across national borders. The size of such flows fueled concern about the ability of short-term speculative shifts in global capital markets to destabilize the world economy. The World Wide Web emerged from nowhere to become the backbone of an emerging global network for electronic commerce. The world continued to become more global. Several Asian Pacific economies, most notably China, continued to grow their economies at a rapid rate. New multinationals continued to emerge from developing nations in addi- tion to the world’s established industrial powers. Increasingly, the globalization of the world economy affected a wide range of firms of all sizes, from the very large to the very

The Proven Choice for International Business xv

small. And unfortunately, in the wake of the terrorist attacks on the United States that took place September 11, 2001, global terrorism and the attendant geopolitical risks emerged as a threat to global economic integration and activity.

New in the Ninth Edition The most obvious change to the ninth edition of Global Business Today is the addition of a co-author, G. Tomas M. Hult. Professor Hult is the John W. Byington Endowed Chair, Professor of Marketing and International Business, and Director of the International Busi- ness Center in the Eli Broad College of Business at Michigan State University. He is a notable scholar in the area of international business, marketing and management, and a well-known expert on global supply chain management, global strategy, and marketing strategy. In addition, he has played a major role in the Academy of International Business, and is currently the Executive Director and Foundation President of the Academy of Inter- national Business.

I am delighted to have Tomas on the book. Tomas has been a long-term user of the book and has contributed end-of-chapter material to the book for many editions (he is responsi- ble for the Research Tasks that use Michigan State’s globalEDGE.msu.edu knowledge re- source). I believe that his skills complement my own. His energy, enthusiasm, and knowledge base should help make an already strong book even better. Tomas has made significant new contributions to all chapters in this edition, including most notably Chapters 4 and 5 on Culture and Ethics/CSR/Sustainability and Chapters 15 and 16 on Global Production and Supply Chain Management and Marketing and R&D.

The success of the first eight editions of Global Business Today was based in part upon the incorporation of leading-edge research into the text, the use of up-to-date examples and statistics to illustrate global trends and enterprise strategy, and the discussion of current events within the context of the appropriate theory. Building on these strengths, our goals for the ninth revision have been to:

1. Incorporate new insights from recent scholarly research wherever appropriate. 2. Make sure the content of the text covers all appropriate issues. 3. Make sure the text is as up-to-date as possible with regard to current events, statistics,

and examples. 4. Add new and insightful opening and closing cases in most chapters. 5. Add question-driven boxed materials in each chapter to motivate class discussion. 6. Incorporate value-added globalEDGE features in every chapter. 7. Connect every chapter to a focus on managerial implications.

As part of the overall revision process, changes have been made to every chapter in the book. All statistics have been updated to incorporate the most recently available data, which typ- ically refers to 2013. These data were mostly released by national and international agen- cies early in 2014. For example: New examples, cases, and boxes have been added and older examples updated to reflect new developments. For example, in Chapter 2, (1) the Opening Case looks at how the policies of Russian President Vladimir Putin have shaped the eco- nomic, political, and legal systems of that nation and affect the attractiveness of Russia as a destination for international business, (2) a new Management Focus feature discusses allega- tions that Walmart violated the Foreign Corrupt Practices Act while doing business in Mexico; and (3) a new Closing Case discusses the economic growth in Ghana.

New material has been inserted wherever appropriate to reflect recent academic work or important current events. Detailed discussion of the 2008–2009 global financial crisis and its aftermath, including the 2010–2013 sovereign debt crises in the Euro Zone and its implica- tions for international business, have been included in many chapters. Similarly, further discussion of the unrest that continues to sweep across the Middle East following the Arab Spring of 2011 and the ongoing turmoil in Egypt and Syria has been added to the book.

Importantly, for every chapter, the ninth edition of Global Business Today has two new features spearheaded by Tomas. First, we added question-driven materials in each chapter to motivate class discussion. These are four “boxes” per chapter that illustrate a specific

xvi The Proven Choice for International Business

situation and then ask students to “debate” the issue. These “question boxes” are great ways to practically illustrate the chapter material and get the students engaged. Second, we incorporated value-added globalEDGE features in every chapter. The Google number-one ranked globalEDGE.msu.edu site (for “international business resources”) is used in each chapter to add value to the chapter material and provide up-to-date data and information.

In addition to updating all statistics, figures, and maps to incorporate most recent pub- lished data major chapter-by-chapter changes include the following:

CHAPTER 1: GLOBALIZATION • New Opening Case: The Globalization of Production at Boeing. • New Closing Case: Who Makes the Apple iPhone?

CHAPTER 2: NATIONAL DIFFERENCES IN POLITICAL, ECONOMIC, AND LEGAL SYSTEMS • New Opening Case: Putin’s Russia. • Discussion of pseudo democracies added to section on democracy and totalitarianism.

These are countries that are democratic in name only where authoritarian elements have captured some or much of the machinery of state and use this in an attempt to deny basic political and civil liberties (e.g., as in Russia).

• New Management Focus: Did Walmart Violate the Foreign Corrupt Practices Act? • New Closing Case: Ghana: An African Dynamo.

CHAPTER 3: NATIONAL DIFFERENCES IN ECONOMIC DEVELOPMENT • New Opening Case: Political and Economic Reform in Myanmar. • Extended discussion of the 2008–2009 global financial crisis as an example of economic

risk. • New Closing Case: Revolution in Egypt.

CHAPTER 4: DIFFERENCES IN CULTURE • New Opening Case: Best Buy and eBay in China. • Deeper treatment of culture, values, and norms. • Social media issues inserted into the culture discussion. • Added four basic principles to social stratification. • Added depth and coverage of the economic implications of Buddhism. • Updated the Hofstede culture framework with new research. • New Closing Case: World Expo 2020 in Dubai, UAE.

CHAPTER 5: ETHICS, CORPORATE SOCIAL RESPONSIBILITY, AND SUSTAINABILITY • New Opening Case: Making Toys Globally. • Deeper treatment of corruption. • New focus on corporate social responsibility (CSR). • Added Management Focus on Stora Enso to illustrate CSR. • New focus on sustainability. • Added Management Focus on Umicore to illustrate global sustainability. • New Closing Case: Bitcoins as an Ethical Dilemma.

CHAPTER 6: INTERNATIONAL TRADE THEORY • New Opening Case: Creating the World’s Biggest Free Trade Zone. • New Closing Case: The Rise of India’s Drug Industry.

CHAPTER 7: GOVERNMENT POLICY AND INTERNATIONAL TRADE • New Opening Case: Sugar Subsidies Drive Candy Makers Abroad. • New Country Focus: Are the Chinese Illegally Subsidizing Auto Exports? • New Closing Case: China Limits Exports of Rare Earth Materials.

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CHAPTER 8: FOREIGN DIRECT INVESTMENT • New Opening Case: Foreign Direct Investment in Nigeria. • New Closing Case: Foreign Retailers in India.

CHAPTER 9: REGIONAL ECONOMIC INTEGRATION • New Opening Case: Tomato Wars. • New Closing Case: I Want My Greek TV!