The espresso lane to global markets cage analysis

International Management Managing Across Borders and Cultures T e x T a n d C a s e s N i N t h E d i t i o N

helen deresky Professor Emerita, State University of New York-Plattsburgh

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Library of Congress Cataloging-in-Publication Data

Names: Deresky, Helen, author. Title: International management : managing across borders and cultures : text and cases / Helen Deresky. Description: Ninth edition. | Hoboken : Pearson Higher Education, [2017] Identifiers: LCCN 2015036084 | ISBN 9780134376042 | ISBN 0134376048 Subjects: LCSH: International business enterprises—Management. | International business enterprises— Management—Case studies. | Industrial management. Classification: LCC HD62.4 .D47 2017 | DDC 658/.049—dc23 LC record available at http://lccn.loc.gov/2015036084

ISBN 10: 0-13-437604-8 ISBN 13: 978-0-13-437604-2

10 9 8 7 6 5 4 3 2 1

http://lccn.loc.gov/2015036084
To my husband, John, for his love and support, and to my family members, who always inspire me: John J. and his wife Alyssa: John Rock, Helena, Max

Mark and his wife Sherry: Jacob, Sarah, Rachel Lara and her husband Thomas: Thomas (TJ), Luke.

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Brief Contents

Preface xiii

Part 1 The Global Manager’s environment 1 Chapter 1 Assessing the Environment: Political, Economic, Legal,

Technological 2 Chapter 2 Managing Interdependence: Social Responsibility, Ethics,

Sustainability 42

Comprehensive Cases PC1-1 NEw: Case 1 Facebook’s Internet.org Initiative: Serving the Bottom

of the Pyramid? (several countries) PC1-1 Case 2 an Ethics role-Playing Case: Stockholders versus Stakeholders

(Global/Sri Lanka) PC1-11

Part 2 The Cultural Context of Global Management 73 Chapter 3 Understanding the Role of Culture 74 Chapter 4 Communicating Across Cultures 116 Chapter 5 Cross-Cultural Negotiation and Decision Making 150

Comprehensive Cases PC2-1 NEw: Case 3 Vodafone in Egypt: National Crises and their Implications

for Multinational Corporations (Egypt) PC2-1 NEw: Case 4 Hailing a New Era: Haier in Japan (China/Japan) PC2-11

Part 3 Formulating and Implementing strategy for International and Global Operations 181

Chapter 6 Formulating Strategy 182 Chapter 7 Implementing Strategy: Strategic Alliances, Small Businesses,

Emerging Economy Firms 227 Chapter 8 Organization Structure and Control Systems 254

Comprehensive Cases PC3-1 NEw: Case 5 alibaba versus tencent: the Battle for China’s M-Commerce Space

(China/Global) PC3-1 NEw: Case 6 Business Model and Competitive Strategy of IKEa

in India (India) PC3-9 NEw: Case 7 Wal-Mart in africa (africa) PC3-21 NEw: Case 8 Fiat Chrysler automobiles N.V. (2015): From an alliance

to a Cross-Border Merger (Global) PC3-31

v

vi BrIEF CoNtENtS

Part 4 Global Human Resources Management 283 Chapter 9 Staffing, Training, and Compensation for Global Operations 284 Chapter 10 Developing a Global Management Cadre 316 Chapter 11 Motivating and Leading 348

Comprehensive Cases PC4-1 NEw: Case 9 Leading across Cultures at Michelin (France/US) PC4-1 NEw: Case 10 Ethical Leadership: ratan tata and India’s tata

Group (Global) PC4-5

Integrative section iC-1 Integrative Term Project iC-1 NEw: integrative Case: Case 11 IKEa in russia: Emerging Market Strategies

and Ethical Dilemmas (russia) PC5-1

Glossary 377

Index 383

Contents

Preface xiii

Part 1 The Global Manager’s environment 1

Chapter 1 assessing the environment: Political, economic, Legal, Technological 2 opening Profile: western Businesses Scramble to Assess their Risks in Russia as Geopolitical tensions Escalate 3 the Global Business Environment 5

Globalization 5 Global trends 6 Globality and Emerging Markets 6 Backlash against Globalization 9 Effects of Institutions on Global trade 10 Effects of Globalization on Corporations 10 Small and Medium-Sized Enterprises (SMEs) 11 the Globalization of Human Capital 12 the Globalization of Information technology 13

Management in action: Global Cybertheft of Corporate Secrets an Increasing Risk 13

regional trading Blocs 14 the European Union 14 asia 16

Comparative Management in Focus: China Loses its Allure 17

the americas 19 other regions in the World 20

the russian Federation 21 the Middle East 21 Developing Economies 21 the african Union (aU) 21

the Global Manager’s role 22

the Political and Economic Environment 22

Political risk 24 Political risk assessment 25 Managing Political risk 25 Managing terrorism risk 26 Economic risk 26

the Legal Environment 27 Contract Law 28 other regulatory Issues 28

the technological Environment 29 Under the Lens: The Global Role of Information Technology (IT) 31

Global E-Business 32

Conclusion 33 Summary of Key Points 34 • Discussion Questions 35 • Application Exercises 35 • Experiential Exercise 35

CASE Study: Apple’s iPhones—Not “Made in America” 36

Endnotes 38

Chapter 2 Managing Interdependence: social Responsibility, ethics, sustainability 42 opening Profile: the Bangladesh disaster: Can Companies outsource Responsibility for workers in its Supply Chain? 43 the Social Responsibility of MNCs 44

CSr: Global Consensus or regional Variation? 47 From CSr to Shared Value? 47

Under the Lens: Nestlé Company Creates Shared Value Globally 48

MNC responsibility toward Human rights 49

Comparative Management in Focus: doing Business in China—CSR and the human Rights Challenge 50 Ethics in Global Management 52

Ethics in Uses of technology 55 Bribery 56

Under the Lens: Rolls-Royce Accused of Bribery to Obtain $100m Petrobras Contract 58

Making the right Decision 59

Managing interdependence 60 Foreign Subsidiaries in the United States 60 Managing Subsidiary–Host Country Interdependence 61 Managing Environmental Interdependence and Sustainability 63

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viii CoNtENtS

Culture and Management Styles around the world 102 Under the Lens: Doing Business in Brazil—Language, Culture, Customs, and Etiquette 102

Saudi arabia 106 Chinese Family Small Businesses 108

Conclusion 108 Summary of Key Points 109 • Discussion Questions 109 • Application Exercises 109 • Experiential Exercises 110

CASE Study: An Australian Manager in an American Company 110

Endnotes 113

Chapter 4 Communicating across Cultures 116 opening Profile: the impact of Social Media on Global Business 117 the Communication Process 118

Cultural Noise in the Communication Process 119

the Culture–Communication Link 120 trust in Communication 120 the GLoBE Project 121 Cultural Variables in the Communication Process 121

Under the Lens: Communicating in India—Language, Culture, Customs, and Etiquette 122 Nonverbal Communication 129 Under the Lens: Communicating Italian Style 130 Under the Lens: How Feng Shui Affects Business 131

Context 133

Management in action: Oriental Poker Face: Eastern Deception or Western Inscrutability? 135 Comparative Management in Focus: Communicating with Arabs 136

Communication Channels 138

information technology: Going Global and Acting Local 141 Managing Cross-Cultural Communication 142

Developing Cultural Sensitivity 142 Careful Encoding 142 Selective transmission 143 Careful Decoding of Feedback 143 Follow-up actions 143

Conclusion 144 Summary of Key Points 145 • Discussion Questions 145 • Application Exercises 145 • Experiential Exercise 145

Under the Lens: BP’s Sustainability Systems Under Fire 65 Management in action: TerraCycle— Social Entrepreneurship Goes Global 66

Implementing Sustainability Strategies 67

Conclusion 68 Summary of Key Points 68 • Discussion Questions 69 • Application Exercise 69 • Experiential Exercise 69

CASE Study: Levi Looks to Cut Its Cloth Differently by Rewarding Responsible Suppliers 70

Endnotes 70

Comprehensive Cases PC1-1 NEw: Case 1 Facebook’s Internet.org Initiative:

Serving the Bottom of the Pyramid? (several countries) PC1-1

Case 2 an Ethics role-Playing Case: Stockholders versus Stakeholders (Global/ Sri Lanka) PC1-11

Part 2 The Cultural Context of Global Management 73

Chapter 3 Understanding the Role of Culture 74 opening Profile: Social Media Bring Changes to Saudi Arabian Culture 75 Culture and its Effects on organizations 77

Societal Culture 77 organizational Culture 77 Culture’s Effects on Management 78 Influences on National Culture 82

Under the Lens: Religion and the Workplace 82 Cultural Value dimensions 84

Project GLoBE Cultural Dimensions 84 Cultural Clusters 86 Hofstede’s Value Dimensions 86 trompenaars’s Value Dimensions 90 Consequence or Cause? 91 Critical operational Value Differences 92

the internet and Culture 93 Management in action: Google’s Street View Makes Friends in Japan but Clashes with European Culture 95 developing Cultural Profiles 96 Comparative Management in Focus: Profiles in Culture—Japan, Germany, Latin America 97

CoNtENtS ix

Part 3 Formulating and Implementing strategy for International and Global Operations 181

Chapter 6 Formulating strategy 182 opening Profile: Amazon, eBay, and Flipkart Bet Big on india 183 Reasons for Going international 185

reactive reasons 185 Proactive reasons 186

Comparative Management in Focus: Global Companies take Advantage of Growth opportunities in South Africa 187 Strategic Formulation Process 190 Steps in developing international and Global Strategies 191

Step 1. Establish Mission and objectives 192 Step 2. assess External Environment 193

Under the Lens: McDonald’s in Russia: A Political Pawn? 194

Step 3. analyze Internal Factors 196 Competitive analysis 197 Step 4. Evaluate Global and International Strategic alternatives 199 approaches to World Markets 200 Global Integrative Strategies 202 Using E-Business for Global Expansion 203 Step 5. Evaluate Entry Strategy alternatives 205

Under the Lens: Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive 208 Strategic Planning for Emerging Markets 213 Management in action: Strategic Planning for Emerging Markets 214

Step 6. Decide on Strategy 219 timing Entry and Scheduling Expansions 220 the Influence of Culture on Strategic Choices 220

Conclusion 221 Summary of Key Points 221 • Discussion Questions 222 • Application Exercises 222 • Experiential Exercise 222

CASE Study: “Foreign Businesses Tread Carefully as Cuba Opens Up,” 222

Endnotes 224

CASE Study: Miscommunications with a Brazilian Auto Parts Manufacturer 146

Endnotes 148

Chapter 5 Cross-Cultural negotiation and decision Making 150 opening Profile: Facebook’s Continued Negotiations in China 151 Negotiation 152 the Negotiation Process 153

Stage one: Preparation 153 Negotiating teams 154 Variables in the Negotiation Process 154 Stage two: relationship Building 154 Nontask Sounding 155 Stage three: Exchanging task-related Information 156 Stage Four: Persuasion 156 Stage Five: Concessions and agreement 157

understanding Negotiation Styles 157 Successful Negotiators around the World 159 Comparing Profiles 160

Managing Negotiation 160 Using the Internet to Support Negotiations 162 Managing Conflict resolution 162 Context in Negotiations 162

Comparative Management in Focus: Negotiating with the Chinese 163 decision Making 167

the Influence of Culture on Decision Making 168

Under the Lens: Negotiations and Decisions to Save the Eurozone System 168 Management in action: Target: Frozen Out 170

approaches to Decision Making 171

Comparative Management in Focus: decision Making in Japanese Companies 172 Conclusion 174 Summary of Key Points 174 • Discussion Questions 174 • Experiential Exercises 175

CASE Study: Search Engines Aid Decision Making and Negotiation 176

Endnotes 177

Comprehensive Cases PC2-1 NEw: Case 3 Vodafone in Egypt: National Crises

and their Implications for Multinational Corporations (Egypt) PC2-1

NEw: Case 4 Hailing a New Era: Haier in Japan (China/Japan) PC2-11

x CoNtENtS

Evolution and Change in MNC organizational Structures 256

Integrated Global Structures 258

organizing for Globalization 260 organizing to Be Global, act Local 262

Under the Lens: Amazon of India Uses Curry-Carrying Dabawallas to Spice Up Parcel Delivery 262 Management in action: Procter & Gamble’s Think Globally–Act Locally Structure 263 Emergent Structural Forms 265

teams as a Global–Local Structure 265

Comparative Management in Focus: Changing organizational Structures of Emerging Market Companies 266

Interorganizational Networks 266 the Global E-Corporation Network Structure 267 the transnational Corporation (tNC) Network Structure 268

Choice of organizational Form 269 organizational Change and Design Variables 270

Control Systems for Global operations 271 Under the Lens: FIFA—Restructuring for Governance Oversight of Ethics 272

Direct Coordinating Mechanisms 273 Indirect Coordinating Mechanisms 274

Managing Effective Monitoring Systems 275

the appropriateness of Monitoring and reporting Systems 275 the role of Information Systems 275 Evaluation Variables across Countries 276

Conclusion 276 Summary of Key Points 277 • Discussion Questions 277 • Application Exercises 277 • Experiential Exercise 278

CASE Study: HSBC in 2015: Complex Global Operations and Downsizing 278

Endnotes 280

Comprehensive Cases PC3-1 NEw: Case 5 alibaba versus tencent: the Battle

for China’s M-Commerce Space (China/ Global) PC3-1

NEw: Case 6 Business Model and Competitive Strategy of IKEa in India (India) PC3-9

NEw: Case 7 Wal-Mart in africa (africa) PC3-21 NEw: Case 8 Fiat Chrysler automobiles N.V.

(2015): From an alliance to a Cross-Border Merger (Global) PC3-31

Chapter 7 Implementing strategy: strategic alliances, small Businesses, emerging economy Firms 227 opening Profile: tAG heuer in Smartwatch Alliance with Google and intel 228 Strategic Alliances 228

Joint Ventures 229 Equity Strategic alliances 230 Non-equity Strategic alliances 230 Global Strategic alliances 230 Global and Cross-Border alliances: Motivations and Benefits 231 Challenges in Implementing Global alliances 232 Implementing alliances between SMEs and MNCs 233 Guidelines for Successful alliances 233

implementing Strategy 234 Comparative Management in Focus: Joint Ventures in the Russian Federation 235

Implementing Strategies for SMEs 237

Under the Lens: Breaking Down Barriers for Small-Business Exports 238

Implementing a Global Sourcing Strategy: From offshoring to Next-Shoring? 239

Under the Lens: Global Supply Chain Risks—The Japanese Disaster 240

Implementing Strategies for Emerging Economy Firms 241

Management in action: Infosys’s Path From Emerging Start-up to EMNE 242

Challenges in Implementing Strategies in Emerging Markets 243 Managing Performance in International Joint Ventures 243 Knowledge Management in IJVs 245 Government Influences on Strategic Implementation 245 Cultural Influences on Strategic Implementation 246 E-Commerce Impact on Strategy Implementation 248

Conclusion 249 Summary of Key Points 249 • Discussion Questions 249 • Application Exercise 250

CASE Study: Foreign Companies in China Under Attack 250

Endnotes 251

Chapter 8 Organization structure and Control systems 254 opening Profile: BMG Signs distribution deal with Alibaba 255 organizational Structure 256

CoNtENtS xi

the Role of Repatriation in developing a Global Management Cadre 322

Knowledge transfer 322

Under the Lens: Expatriates’ Careers Add to Knowledge Transfer 324 Global Management teams 325

Virtual transnational teams 325 Managing transnational teams 328

the Role of women in international Management 329 Management in action: Women in Management Around the World 330 working within Local Labor Relations Systems 331

the Impact of Unions on Businesses 332

Under the Lens: Ford’s Bitter Struggle to Close a Plant in Belgium 332

organized Labor around the World 333 Convergence versus Divergence in Labor Systems 335

Under the Lens: Vietnam: The Union Role in Achieving Manufacturing Sustainability and Global Competitiveness 336

adapting to Local Industrial relations Systems 338 NaFta and Labor relations in Mexico 339

Comparative Management in Focus: Labor Relations in Germany 339 Conclusion 342 Summary of Key Points 342 • Discussion Questions 342 • Application Exercise 342 • Experiential Exercise 343

CASE Study: Expatriate Management at AstraZeneca Plc 343

Endnotes 345

Chapter 11 Motivating and Leading 348 opening Profile: the Eu Business Leader—Myth or Reality? 349 MotiVAtiNG 350 Cross-Cultural Research on Motivation 350

the Meaning of Work 352 the Needs Hierarchy in the International Context 354

Comparative Management in Focus: Motivation in Mexico 355 Under the Lens: Managing in Russia—Motivation and Leadership Challenges 358

reward Systems 359

LEAdiNG 360 the Global Leader’s Role And Environment 361

Part 4 Global Human Resources Management 283

Chapter 9 staffing, Training, and Compensation for Global Operations 284 opening Profile: Staffing Company operations in Emerging Markets 285 the Role of ihRM in Global Strategy implementation 286 Staffing for Global operations 288 Under the Lens: Tata’s Staffing Challenges in the United States 290 Managing Expatriates 294

Expatriate Selection 295 Expatriate Performance Management 295

Under the Lens: Tales from Trailing Husbands 296

Global team Performance Management 298

Expatriate training and development 298 Comparative Management in Focus: Expatriate Performance Management Practices: Samples from Five Countries 298

Cross-Cultural training 300 training techniques 302 Compensating Expatriates 304

training and Compensating host-Country Nationals 306

training HCNs 306

Management in action: Success! Starbucks’ Java Style Helps to Recruit, Train, and Retain Local Managers in Beijing 307

training Priorities for E-Business Development 309 Compensating HCNs 309

Conclusion 310 Summary of Key Points 310 • Discussion Questions 310 • Application Exercises 311 • Experiential Exercise 311

CASE Study: Kelly’s Assignment in Japan 311

Endnotes 314

Chapter 10 developing a Global Management Cadre 316 opening Profile: the Expat Life 317 Expatriate Career Management 319

Preparation, adaptation, and repatriation 319 the role of the Expatriate Spouse 320 Expatriate retention 321

xii CoNtENtS

CASE Study: Interview: Carlo D’Asaro Biondo, Google’s Europe Strategy Chief in Charm Offensive 373

Endnotes 375

Comprehensive Cases PC4-1 NEw: Case 9 Leading across Cultures at Michelin

(France/US) PC4-1 NEw: Case 10 Ethical Leadership: ratan tata and

India’s tata Group (Global) PC4-5

Integrative section iC-1 Integrative Term Project IC-1 NEw: integrative Case: Case 11 IKEa in russia:

Emerging Market Strategies and Ethical Dilemmas (russia) PC5-1

Glossary 377 Index 383

Under the Lens: Interview: Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational 363

Women in Global Leadership roles 364 Global team Leadership 364 the role of technology in Leadership 364

Under the Lens: Women in Business Leadership 365 Cross-Cultural Research on Leadership 366 Management in action: Leadership in a Digital World 367 Contingency Leadership: the Culture Variable 368

the GLoBE Project 368 Earlier Leadership research 370

Conclusion 372 Summary of Key Points 372 • Discussion Questions 373 • Application Exercises 373 • Experiential Exercise 373

Preface

nInTH edITIOn CHanGes • Comprehensive cases: Ten of the 11 comprehensive cases are new and current; one is a

popular one from the eighth edition. Three of the new cases have won awards: Vodafone in Egypt; Leading Across Cultures at Michelin; Ethical Leadership: Ratan Tata and India’s Tata Group. The case selection provides increased coverage of emerging markets and high-technology companies. A range of topics and geographic locations is included as well as the interactive “Ethics Role-Playing” case.

• Integrative section: The new comprehensive case in the Integrative section—“IKEA in Russia: Emerging Market Strategies and Ethical Dilemmas”—is especially informative and challenging because it covers a range of topics from throughout the book. In addition, the popular Integrative Term Project has been retained.

• The feature box called “Under the Lens” has been expanded with a total of 19 boxes. This feature gives an in-depth look at important aspects of the chapter subjects, including, for example, “Nestlé Company Creates Shared Value,” “The Global Role of Information Technology (IT),” “Doing Business in Brazil—Language, Culture, Customs, and Eti- quette,” “Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive,” “Communicating Italian Style,” “Breaking Down Barriers for Small-Business Exports,” “Amazon of India Uses Curry-Carrying Dabawallas to Spice up Parcel Delivery,” “Tales from Trailing Husbands,” “Women in Business Leadership,” and “Interview: Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational.”

• Maps added throughout.

• Chapter-opening profiles: There are seven new opening profiles, such as “BMG Signs Dis- tribution Deal with Alibaba,” “Social Media Bring Changes to Saudi Arabian Culture,” and “TAG Hueur in Smartwatch Alliance with Google and Intel.” The rest are updated favorites.

• Chapter-ending cases: There are seven new chapter-ending cases (keeping four favorites, such as, “Kelly’s Assignment in Japan”). New examples are, “Foreign Companies in China Under Attack,” “Foreign Businesses Tread Carefully as Cuba Opens Up,” and “An Australian Manager in an American Company.”

• All of the “Comparative Management in Focus” sections have been revised and updated. These provide in-depth comparative applications of chapter topics in a broad range of specific countries or regions.

• All of the “Management in Action” boxes have been replaced or updated; examples consider global cybertheft, Infosys, Target, and emerging markets.

• New coverage of geopolitical developments, such as in Ukraine, and their effects on strategy have been added throughout the ninth edition.

• Updated coverage of developments in globalization and its growing nationalist backlash.

• Expanded coverage on sustainability and creating shared value.

• Expanded and updated coverage of management issues regarding emerging market economies—in particular China, India, Brazil, Africa, and Russia.

• Expanded section on strategies for emerging markets.

• Added and expanded sections on small businesses and strategies for SMEs.

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xiv PrEFaCE

• Expanded sections on e-businesses, on born-global companies, and on strategy models.

• Expanded sections on the role of technology on business planning and operations.

• New sections throughout the chapters on global management teams and virtual teams.

• New research data and examples added throughout.

The ninth edition of International Management: Managing Across Borders and Cultures prepares students and practicing managers around the world for careers in a dynamic global environ- ment wherein they will be responsible for effective strategic, organizational, and interpersonal management with a focus on sustainability. Although managing within international and cross- cultural contexts has been the focus of this text since the first edition, the ninth edition portrays the burgeoning level, scope, and complexity of international business facing managers in the twenty-first century. The ninth edition explores how recent developments and trends within a hypercompetitive global arena present managers with challenging situations; it guides the reader in what actions to take and how to develop the skills necessary to design and implement global strategies, to conduct effective cross-national interactions, and to manage daily operations in and with foreign subsidiaries and with global allies and partners. Emphasis is also placed on the con- siderable cross-border management that takes place among teams—often virtually. Companies of all sizes wishing to operate overseas are faced with varied and dynamic environments in which they must accurately assess the political, legal, technological, competitive, and cultural factors that shape their strategies and operations. The fate of overseas operations depends greatly on the international manager’s cultural skills and sensitivity as well as on the ability to carry out the company’s strategy within the context of the host country’s business practices. Although much of the research has originated in the United States and Europe, we stress that there is no one best way to manage and no cultural behaviors that are viewed as preferred. We take the perspective of managers around the world so that they can learn about and from one another, how to work effectively in cross-national teams, and how to combine best practices for the local environment in which the firm is operating.

In the ninth edition, cross-cultural management and competitive strategy are evaluated in the context of global changes—the pervasive influence of technology, e-business, and social media on business strategy and operations, including on born globals; the eurozone crisis; the increasing trade between the two Americas; the emerging markets and rapidly growing economies in Asia and Africa—that require new management applications; and the challenges posed by the global war for talent. These developments take place in the context and influence of continuing political and economic problems in the eurozone, in ongoing geopolitical and security crises around the world, and in an era of cybertheft—all of which provide threats and opportunities for businesses, their supply chains, and their personnel. Importantly, the ninth edition includes increased emphasis on small- and medium-sized businesses and their strate- gies. Throughout, the text emphasizes how the variable of culture interacts with other national and international factors to affect managerial processes and behaviors. Concerns about corpo- rate social responsibility (CSR), sustainability, and ethics while operating in global locations are addressed at length.

This textbook is designed for undergraduate and graduate students majoring in international business or general management. Graduate students might be asked to focus more heavily on the comprehensive cases that conclude each part of the book and to complete the term project in greater detail. It is assumed, though not essential, that most students using International Manage- ment: Managing Across Borders and Cultures, Ninth Edition, will have taken a basic principles of management course. Although this text is primarily intended for business students, it is also useful for practicing managers and for students majoring in other areas, such as political science or international relations, who would benefit from a background in international management.

nInTH edITIOn FeaTURes This edition has streamlined text in 11 chapters, with particular focus on global strategic positioning, entry strategies and alliances, effective cross-cultural understanding and manage- ment, and developing and retaining an effective global management cadre. It has been revised

PrEFaCE xv

to reflect current research, current events, and global developments and includes examples of companies around the world from the popular business press. The following section summarizes specific features and changes.

new COMPReHensIve Cases In nInTH edITIOn 1. Facebook’s Internet.org Initiative: Serving the Bottom of the Pyramid? (several

countries) 2. An Ethics Role-Playing Case: Stockholders versus Stakeholders (Global/Sri Lanka)

(requested favorite from 8ed) 3. Vodafone in Egypt: National Crises and Their Implications for Multinational

Corporations (Egypt) 4. Hailing a New Era: Haier in Japan (China/Japan) 5. Alibaba versus Tencent: The Battle for China’s M-Commerce Space (China/Global) 6. Business Model and Competitive Strategy of IKEA in India (India) 7. Wal-Mart in Africa (Africa) 8. Fiat Chrysler Automobiles N.V. (2015): From an Alliance to a Cross-Border

Merger (Global) 9. Leading Across Cultures at Michelin (France/US)

10. Ethical Leadership: Ratan Tata and India’s Tata (India/Global) 11. IKEA in Russia: Emerging Market Strategies and Ethical Dilemmas (Russia)

COveRaGe and FeaTURes By PaRT and CHaPTeR

Part 1: the Global Manager’s Environment

ChAPtER 1: ASSESSiNG thE ENViRoNMENt: PoLitiCAL, ECoNoMiC, LEGAL, tEChNoLoGiCAL

New Opening Profile: Western Businesses Scramble to Assess Their Risks in Russia as Geopolitical Tensions Escalate

New Management in Action (MA): “Global Cybertheft of Corporate Secrets an Increasing Risk”

Revised Comparative Management in Focus (CMF): China Loses Its Allure

Updated Box Feature—Under the Lens: The Global Role of Information Technology (IT)

Updated Case: Apple’s iPhones—Not “Made in America”

Chapter 1 has been revised and updated to reflect developments and events in global business, in particular as it is affected by political developments. In Chapter 1, we introduce trends and developments facing international managers and then expand those topics in the context of the subsequent chapters. For example, we discuss the status of attitudes that suggest a retreat from globalization toward protectionism resulting from economic problems, in particular in the eurozone, as well as from political crises, cybertheft, terrorism, and trade barriers. In addition, we have reorganized the chapter to focus specifically on various aspects of global- ization, including some retrenching in the globalization of human capital toward regionaliza- tion and nearshoring or reshoring as well as the globalization of information technology. We discuss the effects on global business of the rapidly growing economies of China and India and other developing economies such as Brazil, Russia, Mexico, and those in Africa; the in- creasing number of maturing and now global companies from those areas; the escalating role of information technology and social media; and the global spread of e-business. In addition, we have added material and focus on small and medium-sized companies here and throughout the book. We follow these trends and their effects on the role of the international manager throughout the book.

xvi PrEFaCE

ChAPtER 2: MANAGiNG iNtERdEPENdENCE: SoCiAL RESPoNSiBiLity, EthiCS, SuStAiNABiLity

New Opening Profile: The Bangladesh Disaster: Can Companies Outsource Responsibility for Workers in Its Supply Chain?

New Under the Lens: Nestlé Company Creates Shared Value Globally

Revised CMF: Doing Business in China: CSR and the Human Rights Challenge

New Under the Lens: Rolls-Royce Accused of Bribery to Obtain $100m Petrobras Contract

Under the Lens: BP’s Sustainability Systems Under Fire

MA: TerraCycle—Social Entrepreneurship Goes Global

New End Case: Levi Looks to Cut Its Cloth Differently by Rewarding Responsible Suppliers

Chapter 2, as indicated by the title, takes a long-term view of the company’s global stakehold- ers and its strategy. It includes an expanded section on sustainability strategies, including a new model and feature on Nestlé’s leadership in sustainability by creating shared value. The chapter is updated throughout, with new examples, and has a new section on ethics in uses of technology as well as coverage of China’s clampdown on social media. In addition, the Corruption Percep- tion Index has been updated and its results discussed.

Part 2: the Cultural Context of Global Management

ChAPtER 3: uNdERStANdiNG thE RoLE oF CuLtuRE

New Opening Profile: Social Media Bring Changes to Saudi Arabian Culture

Under the Lens: Religion and the Workplace

New MA: Google’s Street View Makes Friends in Japan but Clashes with European Culture

CMF: Expanded Profiles in Culture: Japan, Germany, Latin America

Under the Lens: Doing Business in Brazil—Language, Customs, Culture, and Etiquette

New End Case: An Australian Manager in an American Company

Chapter 3 examines the pervasive effect of culture on the manager’s role. It includes a new section, “Consequence or Cause?”; expanded coverage of culture’s effects on management; increased emphasis on CQ (cultural quotient); and new coverage of the connection between social media and culture. In particular, this chapter presents ways for managers around the world to anticipate, understand, and therefore adjust to working with people in other countries; those ways include understanding the variables of culture through research and recognizing how to develop a descriptive basis for a cultural profile. Several countries are represented, including an in-depth look at Brazil.

ChAPtER 4: CoMMuNiCAtiNG ACRoSS CuLtuRES

Updated Opening Profile: The Impact of Social Media on Global Business

Under the Lens: Communicating in India—Language, Culture, Customs, and Etiquette

New Under the Lens: Communicating Italian Style

Under the Lens: How Feng Shui Affects Business

MA: Oriental Poker Face: Eastern Deception or Western Inscrutability?

CMF: Communicating with Arabs

End Case: Miscommunications with a Brazilian Auto Parts Manufacturer

Chapter 4 links culture and communication in its various forms and focuses on how that affects business transactions and how managers should act in other cultural settings. In particular, the section on nonverbal communication has been expanded in the ninth edition, along with the addition of three illustrative “Under the Lens” sections and an in-depth look at communicating with Arabs.

PrEFaCE xvii

ChAPtER 5: CRoSS-CuLtuRAL NEGotiAtioN ANd dECiSioN MAkiNG

New Opening Profile: Facebook’s Continued Negotiations in China

Updated and Expanded CMF—Negotiating with the Chinese

Updated Under the Lens: Negotiations and Decisions to Save the Eurozone System

MA: Target: Frozen Out

CMF: Decision Making in Japanese Companies

New End Case: Search Engines Aid Decision Making and Negotiation

Chapter 5 continues the link among the variables of culture, communication, negotiation, and decision making—they are all intertwined. New examples, features, and cases are introduced to explain and illustrate the effects on the manager’s role. A new section focuses on negotiating teams, and the feature on “Negotiating with the Chinese” has been updated and expanded.

Part 3: Formulating and implementing Strategy for international and Global Operations

ChAPtER 6: FoRMuLAtiNG StRAtEGy

New Opening Profile: Amazon, eBay, and Flipkart Bet Big on India

New CMF: Global Companies Take Advantage of Growth Opportunities in South Africa

New Under the Lens: McDonald’s in Russia: A Political Pawn?

New Under the Lens: Modern Mexico: Reshoring—Location and Young Workforce Prove Attractive

Updated and Revised MA: Strategic Planning for Emerging Markets

New End Case: Foreign Businesses Tread Carefully as Cuba Opens Up

Chapter 6 explains the reasons that firms choose to do business abroad and the various means for them to do so. The steps in developing those strategies, for firms of all sizes, are examined along with the explanatory models and the pros and cons of those options, including the move toward reshoring and nearshoring. The ninth edition expands on e-business and born globals and includes an expanded, revised section on strategic planning for emerging markets, including an extensive discussion of a study of 247 executives by Deloitte Review regarding their strategies in emerging markets. Data and charts on global Internet usage and global services are updated. Discussion of cultural distance relative to strategic planning has been added. Throughout, there are new features and updated examples focusing, among others, on Cuba, South Africa, Mexico, and the political effects on McDonald’s in Russia.

ChAPtER 7: iMPLEMENtiNG StRAtEGy: StRAtEGiC ALLiANCES, SMALL BuSiNESSES, EMERGiNG ECoNoMy FiRMS

New Opening Profile: TAG Hueur in Smartwatch Alliance with Google and Intel

Updated and Revised CMF: Joint Ventures in the Russian Federation

Under the Lens: Breaking Down Barriers for Small-Business Exports

Under the Lens: Global Supply Chain Risks—The Japanese Disaster

New MA: Infosys’ Path From Emerging Start-up to EMNE

New End Case: Foreign Companies in China Under Attack

Chapter 7, as indicated by the new title and the new features noted here, includes new sections regarding implementing strategies for small businesses and emerging economy firms as well as expanded coverage of implementing alliances, including those among high-tech firms. New examples and discussion of alliances around the world are included. The revised CMF on IJVs in the Russian Federation reflects the effects of recent geopolitical events. In addition, we discuss new trends regarding labor and supply chain sourcing, which provide further updates on issues facing managers. We expand the discussion on challenges in implementing strategies in emerging markets.

xviii PrEFaCE

ChAPtER 8: oRGANizAtioN StRuCtuRE ANd CoNtRoL SyStEMS

New Opening Profile: BMG Signs Distribution Deal with Alibaba

New Under the Lens: Amazon of India Uses Curry-Carrying Dabbawallas to Spice Up Parcel Delivery

Updated MA: Procter & Gamble’s Think Globally–Act Locally Structure

CMF: Changing Organizational Structures of Emerging Market Companies

Updated Under the Lens: FIFA—Restructuring for Governance Oversight of Ethics

New End Case: HSBC in 2015: Complex Global Operations and Downsizing

Chapter 8 further examines how to implement strategy effectively by setting up appropriate structural and control systems. The ninth edition gives updated text and organizational examples and includes a new section, “Teams as a Global–Local Structure.” Included are new features and cases to explain why and how the way the firm organizes must change to reflect strategic change, which in turn responds to competitive and other environmental factors affecting the industry and the firm. Features include e-businesses such as Alibaba and Flipkart. Issues of monitoring, con- trolling, and evaluating the firm’s ongoing performance are discussed. The end case details the radical changes HSBC is undergoing in 2015.

Part 4 : Global Human resources Management

ChAPtER 9: StAFFiNG, tRAiNiNG, ANd CoMPENSAtioN FoR GLoBAL oPERAtioNS

Opening Profile: Staffing Company Operations in Emerging Markets

Under the Lens: Tata’s Staffing Challenges in the United States

New Under the Lens: Tales from Trailing Husbands

CMF: Expatriate Performance Management Practices: Samples from Five Countries

Updated MA: Success! Starbucks’ Java Style Helps to Recruit, Train, and Retain Local Managers in Beijing

End Case: Kelly’s Assignment in Japan

Chapter 9 continues strategy implementation by focusing on the IHRM issues of prepar- ing and placing managers in overseas locations as well as hiring, training, and compensat- ing local managers. The ninth edition includes updated research information and focuses on the “war for talent” around the world, in particular the competition for talent in emerging markets. We have expanded the coverage in the sections under “Managing Expatriates” and about their performance management, and there is a new section, “Global Team Performance Management.”

ChAPtER 10: dEVELoPiNG A GLoBAL MANAGEMENt CAdRE

Updated Opening Profile: The Expat Life

Under the Lens: Expatriates’ Careers Add to Knowledge Transfer

Expanded and Updated MA: Women in Management Around the World

New Under the Lens: Ford’s Bitter Struggle to Close a Plant in Belgium

Under the Lens: Vietnam: The Union Role in Achieving Manufacturing Sustainability and Global Competitiveness

Updated CMF: Labor Relations in Germany

End Case: Expatriate Management at AstraZeneca Plc

Chapter 10 focuses on ways to maximize the long-term value to the firm of its expatriates, maximize the opportunities of its women in management, and effectively manage its knowl- edge transfer and global management teams and virtual teams. The “Global Management Teams” and “The Role of Women in International Management” sections have been expanded and updated. In addition, this chapter brings new focus to understanding the role of organized labor around the world and its impact on strategy and human resources management. New

PrEFaCE xix

survey results regarding expatriate retention and the roles of their families are examined, and a new feature examining the role of expatriates’ careers in knowledge transfer to the firm is included.

ChAPtER 11: MotiVAtiNG ANd LEAdiNG

Updated Opening Profile: The EU Business Leader—Myth or Reality?

Updated CMF: Motivation in Mexico

Updated Under the Lens: Managing in Russia—Motivation and Leadership Challenges

New Under the Lens: Interview, Yoshiaki Fujimori: Lixil Builds a New Style of Japanese Multinational

New Under the Lens: Women in Business Leadership

Updated MA: Leadership in a Digital World

New End Case: Interview: Carlo D’Asaro Biondo, Google’s Europe Strategy Chief in Charm Offensive

Chapter 11 of the ninth edition has been updated with new examples and research. We have updated and expanded the research on motivation and added new sections, “Women in Business Leadership,” “Global Team Leadership,” and “The Role of Technology in Leadership,” as well as a new end case. The chapter focuses on both classical and modern research on motivation and leadership in the global arena; specific attention is paid to global mindset characteristics and behaviors that are typical of successful cross-cultural leaders. Finally, an integrative model is presented that illustrates the complexities of the leader’s role in various contextual, stakeholder, and cross-border environments.

additional Ninth Edition Features

• Experiential exercises at the end of each chapter, challenging students on topics such as ethics in decision making, cross-cultural negotiations, and strategic planning.

• Integrative section A new case (case 11) incorporates a range of topics and locations covered in the text. The case challenges students to consider the relationships among the topics and steps in this text and to use a systems approach to problem solving for the global manager’s role; it also illustrates the complexity of that role.

• An integrative term project outlined at the end of the text provides a vehicle for research and application of the course content.

InsTRUCTOR ResOURCes At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user-support phone numbers.

The following supplements are available with this text:

• Instructor’s Resource Manual

• Test Bank

• TestGen® Computerized Test Bank

• PowerPoint Presentation

aCknOwLedGMenTs The author would like to acknowledge, with thanks, the individuals who made this text pos- sible. For the ninth edition, these people include John Capella, who updated both the Instructor’s Manual and the Test Bank, and Susan Leshnower, who updated the PowerPoint slides.

http://247.pearsoned.com
http://www.pearsonhighered.com/irc
xx PrEFaCE

The author would also like to thank the following reviewers from previous editions:

Gary Falcone, Rider University Lawrenceville, NJ William Wardrope, University of Central Oklahoma, Edmond, OK Eric Rodriguez, Everest College, Los Angeles, CA Paul Melendez, University of Arizona, Tucson, AZ Kathy Wood, University of Tennessee, Knoxville, TN Daniel Zisk, James Madison University, Harrisonburg, VA Dinah Payne, University of New Orleans, New Orleans, LA Marion White, James Madison University, Harrisonburg, VA Gary Tucker, Northwestern Oklahoma State University, Alva, OK David Turnspeed, University of South Alabama, Mobile, AL Lauren Migenes, University of Central Florida, Orlando, FL Steven Jenner, California State University, Dominguez Hills, CA Arthur De George, University of Central Florida, Orlando, FL

—Helen Deresky

P a r t O u t l i n e

C h a P t e r 1 Assessing the Environment—Political, Economic, Legal, Technological

World Map

C h a P t e r 2 Managing Interdependence: Social Responsibility, Ethics, Sustainability

The Global Manager’s Environment1

P a r t

2

Opening Profile: Western Businesses Scramble to Assess Their Risks in Russia as Geopolitical Tensions Escalate

The Global Business Environment Globalization Global Trends Globality and Emerging Markets Backlash against Globalization Effects of Institutions on Global Trade Effects of Globalization on Corporations Small and Medium-Sized Enterprises The Globalization of Human Capital The Globalization of Information Technology

Management in Action: Global Cybertheft of Corporate Secrets an Increasing Risk

Regional Trading Blocs The European Union Asia

Comparative Management in Focus: China Loses Its Allure

The Americas Other Regions in the World

The Russian Federation The Middle East

Developing Economies The African Union (AU)

The Global Manager’s Role The Political and Economic Environment

Political Risk Political Risk Assessment Managing Political Risk Managing Terrorism Risk Economic Risk

The Legal Environment Contract Law Other Regulatory Issues

The Technological Environment Under the Lens: The Global Role

of Information Technology Global E-Business

Conclusion Summary of Key Points Discussion Questions Application Exercises Experiential Exercise Case Study: Apple’s iPhones—Not

“Made in America”

Assessing the Environment Political, Economic, Legal, Technological

O b j e C t i v e s 1-1. To understand the global business environment and how it affects the strategic and

operational decisions that managers must make

1-2. To develop an appreciation for the ways in which political and economic factors and changes influence the opportunities that companies face

1-3. To recognize the role of the legal environment in international business

1-4. To review the technological environment around the world and how it affects the international manager’s decisions and operations.

O u t l i n e

1 C h a P t e r

ChaPter 1 • assessing the environment 3

Opening Profile: Western Businesses Scramble to Assess Their Risks in Russia as Geopolitical Tensions Escalate1

You don’t want to be a dedicated Russia guy anymore … I am trying to learn Turkey.

American banker who lost his job in Moscow quoted in the New York Times, November 6, 2014

GM says it will shut Russian plant; wind down Opel brand.

www.nytimes.com March 18, 2015

S tarting in spring 2014 and through 2015, it was clear that doing business in or with Russia had become unpredictable for most Western businesses and perilous for many. How did it get to this point for companies that had placed large bets and considerable resources on their future in Russia? In March 2014, Russian President Vladimir Putin annexed Crimea—the southern province of

Ukraine—after Ukraine’s then President Yanukovych rejected the free trade agreement with the EU in November 2013 under pressure from Putin. This led to the pro-Western protests in Ukraine and caused Yanukovych’s downfall and escape to Russia. The move was so swift and unexpected that managers around the world who had business in or with Russia and Ukraine scrambled to assess the potential risks to their operations in those areas. Their concern was magnified as increasing sanctions were imposed on Russia by President Obama and Europe. In particular, managers of Western businesses in Russia were afraid that the turmoil would escalate and that their operations there would be subject to retaliatory measures. In Moscow, offices at the American Chamber of Commerce and at the Association of European Businesses were inun- dated with calls to try to assess their exposure to risks under different scenarios. In addition, for Western multinationals in Russia, in particular European companies such as Renault and Carlsberg, the fear was that sanctions would adversely affect an already weak economy there and so drive down their businesses.

Europe is Russia’s largest trading partner, and Germany has great ties to Russia and so was reluctant to go along with sanctions that would backfire on its businesses. About a third of the exports to Russia from the EU come from Germany, in particular from the auto industry. More than 6,000 German companies, employing about 300,000 people in Germany, have business interests in Russia. In addition, Germany gets about a third of its oil and gas from Russia. There seemed to be a rift between business- people and the German Chancellor, Angela Merkl, about the approach toward sanctions.

A number of U.S. companies that manufacture in Russia, such as John Deere, were concerned about the risk to their employees and enacted security measures to protect them. Pepsi and McDonald’s are among many that have a sizeable presence in Russia and were keeping a careful watch on developments.

Russian firms, too, especially those with joint ventures with European or U.S. companies, were wondering how events might affect them. Some Russian banks, in particular, soon became vulnerable as President Obama passed measures to freeze their assets abroad; these measures also affected any banks in the world that do business with those Russian banks, resulting in the flight of capital out of Russia due to the suspension of assets and travel privileges of people close to President Putin.

As the weeks passed and tensions escalated over sporadic fighting in eastern Ukraine, the United States and the EU stepped up sanctions against select Russian businesspeople and politicians and widened the program to freeze their assets held abroad. As a result, a number of Western companies expressed con- cern about their sales in Russia and their rising costs of importing supplies for their businesses there. In addition, a threat was growing about a possible backlash in Russia against Western products. Caterpillar, for example, which has been in Russia for longer than 100 years, and McDonald’s, with more than 400 restau- rants in Russia, both regard Russia as a key market and wondered about the general instability spreading in the region. Putin, meanwhile, was hinting at retaliatory action against Western firms in Russia, in particular energy companies. The general feeling was that it was perilous to do business with or in Russia.

Many of the sanctions were against the energy and technology industries in Russia. The largest source of investment in Russia comes from U.S. firms, in particular technology and financial compa- nies. Those companies felt that further sanctions would result in losing business to firms from other countries who were not being restricted in doing business in Russia. They felt also that business rela- tionships with customers in Russia would be severed for the future, that export sales would decline, and that deals involving transfer of technology would be jeopardized.

http://www.nytimes.com
4 Part 1 • the global manager’s environment

Among the European countries, firms in the U.K, for example, were concerned about financial services, and those in France were mostly worried about losing military sales. However, in spite of an estimated $60 billion of capital outflow from Russia in the first quarter of 2014, the conflict continued; the Ukrainian government maintained that Russia continued to support the rebels in Ukraine by sending tanks and other military supplies.

The standoff continued as Ukraine’s President Petro Poroshenko signed a trade and political policies pact with the EU on June 27, along with Georgia and Moldova, and extended a cease-fire with Russian separatists. Meanwhile, the EU, with the support of the United States, announced that Russia had 72 hours to settle conflicts in Ukraine or face further sanctions.

In late July 2014, U.S. and European leaders agreed to escalate sanctions dramatically on Russia’s financial, energy, and defense sectors, crippling the state banking sector and curbing the ability for Russia to develop new oil resources. These moves followed a global outcry after a civilian airplane, Malaysia Airlines Flight 17, was shot down over Ukraine by suspected pro-Kremlin separatists, killing all 298 people on board. Now there was an abrupt change in attitude from European leaders and company heads. Total, for example, France’s oil giant, severely curtailed its stake in its Russian partner Novatek after the air disaster. Quick to retaliate, on August 7, Putin ordered a ban on imports of all beef, pork, fruit, vegetable, and dairy products from the European Union, the United States, Canada, Australia, and Norway. Clearly, the escalat- ing economic warfare and geopolitical tensions were having drastic effects. Firms and farmers in countries such as the Netherlands, Poland, and Lithuania, heavily dependent on agricultural exports to Russia, were severely hurt; many were scrambling to diversify their exports to other regions such as Asia. It was difficult for farmers to understand that geopolitical conflict far removed from them could put them out of business. EU food exports to Russia amount to about $10 billion euro ($13 billion) a year.

In meetings, German Chancellor Angela Merkel made it clear that Russia was no longer consid- ered a reliable partner and that Germany would continue to impose strict sanctions even though they would hurt German businesses, which had spent decades developing ties and opportunities in Russia, but that trust was now lost. Although the German people supported the sanctions, those with small businesses that exported to Russia were hit especially hard, losing more than 20 percent of business in the first half of 2014, and feared losing future opportunities to firms in Asia. Meanwhile, as the lack of Western foods in the stores drove up food prices for the Russian people and the ruble was hit hard, many Russians were questioning Putin’s decisions.

As the fighting escalated, the EU announced broader financial penalties on Russia’s banks, arms manufacturers, and its biggest oil company, Rosneft, 19.75 percent of which is owned by Britain’s BP. Included were increased restrictions to Europe’s capital markets, further restricting the ability to raise capital for major oil and defense companies. The Russian economy and the ruble were considerably pressured at this point; in addition, oil prices were falling, inflation was rising, and Western capital markets were estimating that more than $100 billion of capital would flee Russia in the near future. It was apparent that Putin was scaring away both foreign and Russian businesses. Russian Finance Minister Anton Siluanov estimated that Russia was losing $40 billion a year because of the geopolitical sanctions. By March 2015, even Putin’s inner circle was showing considerable concern; the ruble had lost about 60 percent of its value against the dollar since the annexation of Crimea. Tourist businesses in London were upset because they were not getting the usual flood of Russian tourists, who could no longer afford to travel abroad. Foreign companies in Russia such as IKEA and Apple raised their prices to make up for the ruble’s drop in value, making them unaffordable for the Russians to purchase. In addition, President Putin was trying to bail out the banks by using government reserves, which was per- ceived as a desperate move. Added to this, the drastic drop in oil prices—a major revenue source—was hitting the Russian economy hard.

In spite of several failed peace agreements, the fighting continued as of March 2015, with the death toll estimated at 6,000, the Russian-controlled zone in the Ukraine continuing to grow, and President Putin pursuing his apparent endgame to gain autonomy for the eastern regions and so deter Ukraine from aligning further with Europe.

Meanwhile, it is the European and U.S. companies that are held hostage in this geopolitical battle. Many firms, such as Carlsberg and Adidas, were blaming Russia for considerable losses in global revenue. Others such as Schlumberger simply withdrew their American and European employees from Russia. All industries seem to have been affected either by the sanctions or by retaliation from Russia. As of March 2015, the 500 firms researched by the consultant firm A. T. Kearney noted that Russia is simply not a viable investment choice due to the continued uncertainty about whether and when the situation in Ukraine would be resolved and the sanctions lifted; however, most planned to increase investments if it is resolved. As of this writing, this appeared doubtful because the Russian economy was predicted to shrink by 6 percent in 2015. Moreover, in

ChaPter 1 • assessing the environment 5

March 2015, GM announced that it is shutting down its plant in St. Petersburg, anticipating a further decline of 24 to 35 percent in sales because the severely depressed value of the ruble meant that people were not buying cars.

How can firms that operate around the world protect themselves against this kind of geopolitical fallout on their businesses? How can they respond in this type of situation? What has happened since this writing?

As evidenced in the opening profile, managers in the twenty-first century are being challenged to operate in an increasingly complex, interdependent, networked, and changing global environment in which such developments can have repercussions around the world almost instantaneously. Clearly, those involved in international and global business have to adjust their strategies and management styles to those kinds of global developments as well as to those regions of the world in which they want to operate, whether directly or through some form of alliance.

Typical challenges that managers face involve politics, cultural differences, global competi- tion, terrorism, technology, and sustainability. In addition, the opportunities and risks of the global marketplace increasingly bring with them the societal obligations of operating in a global com- munity. An example is the dilemma Western drug manufacturers face of how to fulfill their respon- sibilities to stockholders, acquire capital for research and development (R&D), and protect their patents while also being good global citizens by responding to the cry for free or low-cost drugs for AIDS in poor countries. Managers in those companies are struggling to find ways to balance their social responsibilities, their images, and their competitive strategies.

To compete aggressively, firms must make considerable investments overseas—not only capital investment but also investment in well-trained managers with the skills essential to work- ing effectively in a multicultural environment. In any foreign environment, managers need to handle a set of dynamic and fast-changing variables, including the pervasive variable of culture that affects every facet of daily life. Added to that behavioral “software” are the challenges of the burgeoning use of technological software and the borderless Internet, which are rapidly chang- ing the dynamics of competition and operations.

International management, then, is the process of developing strategies, designing and operating systems, and working with people around the world to ensure sustained competitive advantage. Those management functions are shaped by the prevailing conditions and ongoing developments in the world, as outlined in the following sections.

ThE GlOBAl BuSinESS EnviROnMEnT Following is a summary of some of the global situations and trends that managers need to monitor and incorporate in their strategic and operational planning. We discuss the status of globalization and the debates about its effects on countries, on corporations, on human capital, and on the relationship with information technology (IT). We look briefly at some of the areas in the world in which you might find yourself doing business, with a particular focus on China (see World Map 1 after the chapter, for reference throughout this book).

Globalization Regionalization and localization are replacing unfettered globalization.

Rana Foroohar Time, April 7, 20142

. . . . [W]e’ve entered a different phase, which I call ‘guarded globalization.’ Ian Bremmer, HArvArd Business review

JAnuAry–FeBruAry 20143

The types of events described in the opening profile illustrate the interdependence of business, politics, trade, and financial links around the world. That interdependence has come to be known as globalization—global competition characterized by networks of international linkages comprising economic, financial, political, and social markets that in turn bind countries, institutions, and

6 Part 1 • the global manager’s environment

people in an interdependent global economy; these linkages have resulted in the free movement of goods, people, money, and information across borders. Economic integration results from the lessening of trade barriers and the increased flow of goods and services, capital, labor, and technology around the world. The invisible hand of global competition has been propelled by the phenomenon of an increasingly borderless world, by technological advancements, and by the rise of emerging markets such as China and India—a process that Thomas Friedman called “leveling the playing field” among countries—or the “flattening of the world.”4 That was then, but this is now—and some are now arguing that the world is no longer so flat and that it is reverting more to deglobalization. This retreat, or inversion, is resulting from political crises, cybertheft, protection- ism, and increasing trade barriers, which, in turn, have resulted from the global trade slowdown.5 As Bremmer notes in the Harvard Business Review, the governments of many developing nations have become increasingly nationalistic in protecting their own industries rather than opening them to foreign companies, in particular multinational corporations (MNCs).6

On a strategic level, Ghemawat argues that the business world is in a state of “semi- globalization”—that various metrics show that only 10 to 25 percent of economic activity is truly global. He bases this conviction on his analysis that “most types of economic activity that can be conducted either within or across borders are still quite localized by country.”7 Ghemawat poses that we are in an “unevenly globalized world” and that business opportunities and threats depend on the individual perspective of country, company, and industry.8 He observes that, as emerging market countries have gained in wealth and power and increasingly call their own shots, a reverse trend of globalization is taking place—evolving fragmentation—which he says is, ironically, a ripple effect of globalization.9

Global Trends Nevertheless, globalization is still here; it is a matter of degree and direction in the future. The rapid development of globalization over the past decades is attributable to many factors, including the burgeoning use of technology and its accompanying uses in international business; political developments that enable cross-border trade agreements; and global competition for the growing numbers of consumers around the world. From studies by Bisson et al. and others, we can also identify five key global trends that provide both challenges and opportunities for companies to incorporate into their strategic planning:10

• The changing balance of growth toward emerging markets compared with developed ones, along with the growing number of middle-class consumers in those areas

• The need for increased productivity and consumption in developed countries to stimulate their economies

• The increasing global interconnectivity—technologically and otherwise, as previously discussed—and in particular the phenomenon of an “electronically flattened earth” that gives rise to increased opportunity and fast-developing competition

• The increasing gap between demand and supply of natural resources, in particular to supply developing economies, along with the push for environmental protection

• The challenge facing governments to develop policies for economic growth and financial stability11

Globality and Emerging Markets Half of the global growth now comes from emerging markets.

Robert Zoellick, President, World Bank sepTemBer 19, 201112

It is clear that globalization—in the broader sense—has led to the narrowing of differences in regional output growth rates, driven largely by increases led by China, India, Brazil, Russia, and South Africa. There is no doubt that the global economic turmoil has curtailed investment, and com- pany executives remained wary of investment in 2015. However, global trade is increasingly includ- ing those developing nations judged to have significant growth potential (see Map 1.1, Emerging Economies). In fact, some are saying that MINT is the new BRIC (Brazil, Russia, India, and China),

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8 Part 1 • the global manager’s environment

Source: 2014–2015 FDI Confidence Index, copyright A. T. Kearney, 2014. All rights reserved. Reprinted with permission.

1 2 3 4 5 6 7 8 9

2014

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

2013 1 2 4 8 3 7 5 6

10 12 14 9

15 18 25

– 22 16 13

– – – – –

24

2012

Ranking Values calculated on a 0 to 3 scale

0.00 0.50 1.00 1.50 2.00 2.50 4 1

20 8 3 5 2 6 7

17 15

– 11 22 10

– –

24 21

– –

25 –

13 9

Low confidence

+ –Maintained ranking Moved up Moved down

High confidence 1.60 1.60 1.61 1.61 1.61 1.61 1.62 1.63 1.64 1.64 1.65 1.68 1.70 1.72 1.74 1.74 1.75 1.76

1.81 1.84

1.91 1.91 1.93 1.95

2.16

Indonesia Turkey

Denmark Netherlands

Belgium Italy

Japan Spain Chile

Sweden Malaysia

Switzerland South Africa

Mexico United Arab Emirates

France Singapore

Australia India

Germany Brazil

United Kingdom Canada

China United States