TWELFTH EDITION

O.OOMOOO##0OOO
NTERNATIONAL BUSINESS
THE CHALLENGE OF GLOBAL COMPETITION

Donald A. Ball

J. Michael Geringer

Michael S. Minor

Jeanne M. McNett

McGraw-Hill
Irwin
Boston Burr Ridge, IL Dubuque, IA New York San Francisco St. Louis
Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City
Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto
 Table of Contents

Research Task globalEDGE.msu.edu 31

MINICASE 1.1: OWNERSHIP OF COMPANIES AND BRANDS 31

The Rapid Change of fintenrnatioinia! International Trade and Foreign Direct Investment 32
Business 4 Large International Firms Invest Overseas, and They Also
Export 33
Why You Need International Business Experience and
MINI MNE
How to Get It 5 How Important Are Small and Medium-Sized Enterprises
International Business Terminology 7 in Generating Export Sales? 35
WORLDVIEW International Trade 36
Are You Really Buying American? 8 Volume of Trade 36
Global, Multinational, International, and Transnational Direction of Trade 38
CompaniesMany Different Terms, Many Different Major Trading Partners: Their Relevance for Managers 41
Meanings 8 Foreign Investment 44
Definitions Used in This Text 10 Portfolio Investment 44
A Brief History of International Business 10 Foreign Direct Investment 44
U.S. Foreign Direct Investment Abroad 49
GlobalizationWhat Is It? 12
Drivers of Globalization 12 WORLOVIEW
Growth of International Firms and International How Do Trade and Investment Affect Economic
Business 15 and Social Development? 50
The Globalization Debate and You 18 Foreign Direct Investment in the United States 51
MINI MNE Why Enter Foreign Markets? 53
A Little Guy Makes Global Business Easier Increase Profits and Sales 53
for the Little Guys 19 WORLDViEW
Arguments Supporting Globalization 19 Why Doesn't More FDI Flow to Africa? 54
Concerns with Globalization 20 Protect Markets, Profits, and Sales 57
Why Is International Business Different? 23 How to Enter Foreign Markets 60
Influence of External and Internal Environmental Forces 23
The Domestic Environment 24 Multidomestic or Global Strategy? 60
The Foreign Environment 24 The World Environment Is Changing 60
The International Environment 25 Seven Global Dimensions 60
Understand the International Business Model Used in BUILDING YOUR GLOBAL RESUME
This Book 26 Tips from Your Personal Global Mentor 61
Organization of This Book 27 Summary 63
BUILDING YOUR GLOBAL RESUME Key Words 63
Finding International Positions 27 Questions 64
Research Task globalEDGE.msu.edu 64
Summary 29^
Keywords 30 MINICASE 2 . 1 : FRONTIER MARKETS: AN ATTRACTIVE OPPORTUNITY
Questions 30 FOR INTERNATIONAL INVESTMENT? 6 5

XXI
 Regional-Level Institutions 110
Cooperative Military and Security Agreements 110
Regional and Sector Economic Institutions 111
Theories of International Trade and Investment 66
Economic Integration Agreements 115
Free-Market Reforms Revived Chile's Economy 67 Levels of Economic Integration 115
International Trade Theory 69 MINI MNE
Mercantilism 69 See You at Dinner at the Baghdad Restaurant in
Theory of Absolute Advantage 70 Yiwu 116
Theory of Comparative Advantage 71 Intellectual Property Rights and Recent Free Trade
Heckscher-Ohlin Theory of Factor Endowment 73 Agreements 117
WORLDVIEW North American Free Trade Agreement 117
Comparative Advantage and Offshoring of Service Jobs European Free Trade Agreement 119
to India 74 African Trade Agreements 119
How Money Can Change the Direction of Trade 76 Mercosur (Mercosul) 120
Some Newer Explanations for the Direction of Trade 78 Central American Free Trade Agreement 122
Summary of International Trade Theory 84 Other Central and South American Trade Agreements 122
Asia-Pacific Economic Cooperation 122
International Investment Theories 84
Monopolistic Advantage Theory 85 The European Union 123
Market Imperfections 85 EU Background and Growth 123
Financial Factors 85 What Distinguishes the EU as an Institution? 123
International Product Life Cycle 85 Institutions of the EU 125
Follow the Leader 85 EU Achievements 126
Cross Investment 86 The EU's Impact 126
Internalization Theory 86 BUILDING YOUR GLOBAL RESUME
Dynamic Capabilities 86 Tips from Your Personal Global Mentor 127
Dunning's Eclectic Theory of International Production 86
Summary 129
BUILDING YOUR GLOBAL RESUME Keywords 130
Know FDI Opportunities in the BRICs (Brazil, Russia, Questions 131
India and China) 87 Research Task globalEDGE.msu.edu 131
Summary 90 MINICASE 4 . 1 : USE OF INTERNATIONAL INSTITUTIONSSETTING UP A
Key Words 90 100 PERCENT-OWNED SUBSIDIARY 132
Questions 91
Research Task globalEDGE.msu.edu 91
MINICASE 3 . 1 : CAN BRAZIL BECOME A GLOBAL COMPETITOR IN THE
INFORMATION TECHNOLOGY OUTSOURCING BUSINESS? 92
ir@(F<SC

International Institutions from an International Business Sociocultural Forces 136

Perspective 94
Six Rules of Thumb for Doing Business across
The Global Compact: Socially Responsible Business 95 Cultures 137

Institutions 96 What Is Culture? 138

What Are Institutions? 96 Culture Affects All Business Functions 139
Types of Institutions 97 Marketing 139
Institutional Theory and International Business 98
WORLDVIEW
Global-Level Institutions 99 Cultural Success and Failure in Disneyland 140
The United Nations 99 Human Resource Management 141
International Monetary Institutions 102 Production and Finance 141

WORLDVIEW Sociocultural Components 141

Call for a New Institution: World Education Bank 105 Aesthetics 142
World Trade Organization 105 Art 142

XXII Contents
Music and Folklore 143 WORLDVIEW

Attitudes and Beliefs 143 U.S. Inland Ports Offer Global Shippers a New
Attitudes toward Time 143 Advantage 187

MINI MNE Climate 187

The GLOBE Studies 144 Climate and Development 188
Attitudes toward Achievement and Work 145 Climate Implications 188
Religion 146 Natural Resources 189
Work Ethic 146 Energy 189
Asian Religions 146 MINI MNE
Islam 149
Small Business: Innovation in Ocean Mining
Animism 150
forMinerals 197
Material Culture 150 Nonfuel Minerals 197
Technology 150 Innovation and Factor Conditions 198
The Information Technology Era 152
Environmental Sustainability 198
Material Culture and Consumption 152
WORLDVIEW
Language 152
Spoken Language 152 Why Europe Leads the Way, The Environment
Unspoken Language 156 and Business 199
The Language of Gift Giving 158 Characteristics of Environmentally Sustainable
Business 200
Societal Organization 160 The Stakeholder Model for Sustainable Business 201
Kinship 160 Examples of Sustainable in Business Practice 203
Associations 160
Entrepreneurial Spirit 161 BUILDING YOUR GLOBAL RESUME
Become Geo-Savvy: Know about the World in Which You
Understanding National Cultures 161
Live and Will Work 206
Individualism versus Collectivism 161
Large versus Small Power Distance 162 Summary 207
Strong versus Weak Uncertainty Avoidance 162 Keywords 207
Masculinity versus Femininity 162; Questions 208
The Four Dimensions and Management Implications 162 Research Task globalEDGE.msu.edu 208
BUILDING YOUR GLOBAL RESUME
MINICASE 6.1: SUSTAINABILITY AND COLLABORATION: A NEW WAY
Tips from Your Personal Global Mentor 164 OF THINKING 208
Summary 166
MINICASE 6.2: IS THE TANK HALF EMPTY? 209
Keywords 166
Questions 167
Research Task globalEDGE.msu.edu 167
! (KI A P T life II
MINICASE 5 . 1 : BE ATTUNED TO BUSINESS ETIQUETTE 168

Economic and Sociooconomic Forces 210

(S Of Zippies and the China-India Development Race 211
International Economic Analyses 213
Natural Resources and Environmental Sustainability 170
Levels of Economic Development 214
Switzerland, Where Geography Drives Competitive
Advantage: Geography, Watches, Chocolate, WORLDVIEW
and Cheese 171 Characteristics of Economically Developing
and Developed Nations 215
Competitive Advantage: Porter's Diamond 172
Location 173 Dimensions of the Economy and Their Relevance
Political Relationships 173 for International Business 216
Trade Relationships 174 Economic Dimensions 216
Socioeconomic Dimensions 226
Topography 175
Mountains and Plains 175 WORLDVIEW
Deserts and Tropical Forests 179 New Approaches to Economic Development 227
Bodies of Water 181 Industry Dimensions 232

Contents XXIII
MINI MNE Nontariff Barriers 269
Using the Internet for Economic Research 236 Costs of Barriers to Trade 271
BUILDING YOUR GLOBAL RESUME MINI MNE
Tips from Your Personal Global Mentor 236 Terrorism in Second Life 272
Summary 238 BUILDING YOUR GLOBAL RESUME
Keywords 239 Your Understanding of the Impact of Political Risk and
Questions 239 Geopolitics on International Business 272 '
Research Task globalEDGE.msu.edu 240
Summary 273
MINICASE 7 . 1 : THE IMPACT OF GALAWl'S DEVELOPMENT
Key Words 274
POLICY 240
Questions 275
Research Task globalEDGE.msu.edu 275
MINICASE 8 . 1 : IS YOUR CHOCOLATE THE RESULT OF UNFAIR
C IHi A ip f I If) @
EXPLOITATION OF CHILD LABOR? 2 7 6

Political Forces 242

Branding and Re-Branding a Country 243
Ideological Forces 244
| (Hi
Z]
Communism 244 Intellectual Property and Other Legal Forces 278
Capitalism 245
Socialism 246 When a Local Issue Can Have International
Conservative or Liberal 246 Ramifications 279
Government Ownership of Business 247 International Legal Forces 280
Why Firms Are Nationalized 247 Rule of Law 280
Unfair Competition? 247 What Is International Law? 280
Government-Private Firm Collaboration Difficult 248 Sources of International Law 280
Extraterritoriality 281
Privatization 248
Airports, Garbage, Postal Services, and ... ? 248 International Dispute Settlement 281
Private Buyers Do Well, but an American Needs Litigation 281
a Passport 250 Performance of Contracts 282
Privatization Anywhere and Any Way 250 Despite Legal Uncertainties, International Business
The Super Bowl: Government versus Private 250 Grows 283
Government Protection 251 Intellectual Property 283
Terrorism 251 Patents 283
Security in the Future 255 Trademarks 284
Government Stability 255 Trade Names 284
Stability and Instability: Examples and Results 256 Copyrights 284
Traditional Hostilities 256 Common Law or Civil Law? 284
Hutus and Tutsis in Burundi and Rwanda 256 MINI MNE
Tamils and Sinhalese in Sri Lanka 256 A New Understanding of Patent Theory 285
International Companies 257 European Practice 285
U.S. Practice 285
Country Risk Assessment 257
Types of Country Risks 257 Standardizing Laws around the World 286
Information Content for CRA 258 Some Specific National Legal Forces 286
Who Does Country Risk Assessing? 258 Taxation 286
Trade Restrictions 260 Antitrust Laws 289
Arguments for Trade Restrictions and Their Rebuttal 260 Tariffs, Quotas, and Other Trade Obstacles 291
Torts 291
WORLDVIEW
Miscellaneous Laws 292
Sugar Subsidies: Sweet for Producers, Not for
Consumers 266 WORLDVIEW
Tariff Barriers 267 Virtually Ripped Off? 293

XXIV Contents
U.S. Laws That Affect the International Business of U.S.
inj &; IP ;f It
Firms 294
Foreign Corrupt Practices Act 294
Lai)or Forces 330
Accounting Law 295
Differences in Labor Conditions: Examples of Japan
BUILDING YOUR GLOBAL RESUME
and China 331
Earn a Law Degree with Specialization in International
Law 296 Worldwide Labor Conditions and Trends 333
Overall Size and Sector of the Workforce 333
Summary 298
Aging of Populations 333
Keywords 299 Urbanization of Workforce 334
Questions 299
MINI MNE
Research Task globalEDGE.msu.edu 300
Small Businesses and Jobs 335
MINICASE 9 . 1 : ITALIAN LAW 300
Unemployment 335
Immigrant Labor 337
Child Labor 339
felth \f X E Pi 0 i Forced Labor 340
Brain Drain 341
Understanding the International Monetary System
WORLDVIEW
and Financial Forces 302
Guest Workers in Japan? 343
Money Laundering, Terrorism, and International Monetary Guest Workers 344
Arrangements 303 Considerations in Employment Policies 344
The International Monetary System 304 Social Status 344
A Brief History: The Gold Standard 304 Sexism 344
Bretton Woods System 305 WORLDVIEW
Floating Currency Exchange Rate System 306 Social Status in the United Kingdom, India, and Japan 345
Current Currency Arrangements 306 Racism 348
WORLDVIEW
Minorities in Traditional Societies 349
Central Reserve/National Currency Conflict 307 Labor in Developing Nations 350
Bank for International Settlements ; 309 Employer-Employee Relationships 351
Financial Forces 309 Importance of Proper Preparation when Entering
a Market 351
Fluctuating Currency Values 309
Labor Unions: Europe, United States, and Japan 351
WORLDVIEW
Multinational Labor Activities 353
Other Countries Use the $ Symbol Too 310
BUILDING YOUR GLOBAL RESUME
Foreign Exchange 311 Tips from Your Personal Global Mentor 355
Exchange Rate Quotations 311 Summary 357
Causes of Exchange Rate Movement 312 KeyWords 358
Exchange Rate Forecasting 314 Questions 358
Research Task globalEDGE.msu.edu 359
Currency Exchange Controls 315
Taxation 316 MINICASE 1 1 . 1 : NIKE AND CHILD LABOR IN PAKISTAN 359

Inflation and Interest Rates 317

Balance of Payments 319

WORLDVIEW
Foreign Aid for Developing Countries 321

BUILDING YOUR GLOBAL RESUME

Knowing How to Follow the International

Money Trail 324
International Competitive Strategy 364
Summary 325
Keywords 326 Thinking Strategically about the Future in an Uncertain
Questions 327 World 365
Research Task globalEDGE.msu.edu 327 The Competitive Challenge Facing Managers
MINICASE 1 0 . 1 : SDR EXCHANGE RISK 328 of International Businesses 366

Contents XXV
What Is International Strategy, and Why Is It Joint Ventures and Subsidiaries Less than 100 Percent
Important? 367 Owned 418
Global Strategic Planning 367 Reporting 418
Why Plan Globally? 367 Managing in a World Out of Control 419
Global Strategic Planning Process 368 Control: Yes and No 419
WORLDVIEW BUILDING YOUR GLOBAL RESUME
Regional Strategies for Competing Globally 379 Tips from Your Personal Global Mentor 420
Strategic Plan Features and Implementation
Summary 421
Facilitators 381
KeyWords 422
Kinds of Strategic Plans 382
Questions 422
Methods of Planning 382
Research Task globalEDGE.msu.edu 423
New Directions in Planning 384
Summary of the International Planning Process 386 MINICASE 1 3 . 1 : ELECTREX INC.MUST IT REORGANIZE? 4 2 3

Analysis of the Competitive Forces 386 MINICASE 13.2: COMPETITION WITHIN THE INTERNATIONAL
Is Competitor Assessment New? 386 COMPANY 4 2 4
Sources of Information 387
WORLD VIEW
Using Industrial Espionage to Assess Competitors 04
Using Competitor Assessment to Look Forward, not
Back 390 Assessing and Analyzing Markets 426
Benchmarking 390 Marketing Research 427
BUILDING YOUR GLOBAL RESUME Market Screening 428
Tips from Your Personal Global Mentor 392 Two Types of Screening 428
Summary 393 Initial Screening 429
KeyWords 394 Second ScreeningFinancial and Economic
Questions 394 Forces 430
Research Task globalEDGE.msu.edu 395 . Third ScreeningPolitical and Legal Forces 432
Fourth ScreeningSociocultural Forces 433
MINICASE 1 2 . 1 : WAL-MART TAKES ON THE WORLD 3 9 5
Fifth ScreeningCompetitive Forces 433
Final Selection of New Markets 434
Segment Screening 436
HD MINI MNE
Some Tips on Market Research 437
Organizational Design and Control 400
WORLDVIEW
Kraft FoodsReorganizing to Become a "Best of Global
What's the Market for Motivational Speakers? 438
and Best of Local" Company 401
Two Screening Methods, Reconsidered 439
What Is Organizational Design, and Why Is It Important
BUILDING YOUR GLOBAL RESUME
for International Companies? 403
Organizational Design Concerns 404 Tips from Your Personal Global Mentor 439
Evolution of the International Company 404 Summary 442
Changes in Organizational Forms 410 KeyWords 442
Current Organizational Trends 410 Questions 443
Research Task globalEDGE.msu.edu 443
WORLDVIEW
Accenture's "Virtual" Global Structure 411 MINICASE 1 4 . 1 : THE SUGAR DADDY CHOCOLATE COMPANY 443
Corporate Survival in the 21 st Century 412
MINI MNE
Opera Software: A Small, "Born Global" Company
Competing against Microsoft 413
Entry Modes 444
Control 414
Subsidiaries 414 Entering by Net 445
Subsidiaries 100 Percent Owned: Where Are Decisions Entering Foreign Markets 447
Made? 414 Nonequity Modes of Entry 447

XXVI Contents
MINI MNE BUILDING YOUR GLOBAL RESUME
What Happened to Starbucks? 448 Tips from Your Personal Global Mentor 486
MINI MNE Summary 489
Where Will Your Cargo End Up? 450 KeyWords 490
Equity-Based Modes of Entry 451 Questions 490
Channels of Distribution 455 Research Task globalEDGE.msu.edu 491
MINICASE 16.1: STATE MANUFACTURING EXPORT SALES PRICE 491
International Channel-of-Distribution Members 456
Indirect Exporting 456 MINICASE 16.2: MORGAN GUARANTY TRUST COMPANY CONFIRMATION
Direct Exporting 459 LETTER 492

WORLDVIEW APPENDIX: SAMPLE OUTLINE FOR THE EXPORT BUSINESS PLAN 493

Piracy as Product Diffusion 460

BUILDING YOUR GLOBAL RESUME
Tips from Your Personal Global Mentor 461
Summary 463 Marketing Internationally 496
KeyWords 464 Procter & Gamble's Path to Globalization 497
Questions 464
Research Task globalEDGE.msu.edu 464 Added Complexities of International Marketing 498

MINICASE 15.1: METHOD OF ENTRYTHE MCGREW COMPANY 465

<g M A P T U B 0(>
Export and Import Practices 466
How a Box Transformed the World
ExportWhy and Why Not? 468
WORLDVIEW
The 12 Most Common Mistakes Made by New
Exporters 469
Locating Foreign Markets and Developing a Plan
Sources of Export Information, Counseling, and
Support 470
WORLDVIEW
The Long and the Short of Exporting
Export Marketing Plan 473
Payment and Financing Procedures
Export Payment Terms 474
MINI MNE
Experts Help Small Firms Export
Export Financing 478
MINI MNE
The "Leather Liaison" 478
Export Procedures 480
Export Documents 481
Export Shipments 482
WORLDVIEW
Shoes for People with Two Left Feet
Importing 485
Sources for Imports 485
Customhouse Brokers 485
Import Duties 486
The Marketing Mix (What to Sell and How to Sell It) 499
Standardize, Adapt, or Formulate Anew? 499
Product Strategies 500
WORLDVIEW
On Global Marketing 502
WORLDVIEW
467 A Smash Hitbut Abroad? 504
Promotional Strategies 507
Pricing Strategies 516
Distribution Strategies 518
Channel Selection 519
Foreign Environmental Forces and the Marketing Mix
470 Matrix 520
BUILDING YOUR GLOBAL RESUME
Consider a Career in International Marketing 523
472 Summary 525
KeyWords 526
Questions 526
474
Research Task globalEDGE.msu.edu 526
MINICASE 1 7 . 1 : U.S. PHARMACEUTICAL OF KOREA 527
MINICASE 17.2: AN ETHICAL SITUATION 527
474
fl
Global Operations and Supply Chain Management 528
Zara: Transforming the International Fashion Industry
through Innovative Supply Chain Management 529
Managing Global Supply Chains 531
Design of Products and Services 532
Sourcing Globally 533
Reasons for Sourcing Globally 533
Global Sourcing Arrangements 534

Contents XXVII
 Importance of Global Sourcing 534 Recruitment and Selection of Employees 569
The Increasing Use of Electronic Purchasing for Global Ethnocentric Staffing Policy 569
Sourcing 535 Polycentric Staffing Policy 571
Problems with Global Sourcing 537 Regiocentric Staffing Policy 571
MINI MNE WORLDVIEW
Cognizant Technology Solutions: Sourcing Low-Cost Executives with the Right Stuff Are in Big Demand 572
Talent Internationally to Achieve Global Competitive Geocentric Staffing Policy 572
Advantage 538 Training and Development 572
Manufacturing Systems 539 Home- or Parent-Country National 573
Advanced Production Techniques to Enhance Quality Host-Country National 574
and Lower Costs 540 Third-Country National 574
WORLDVIEW Expatriates 575
Going to the Source 542 The Expatriate's Family 576
WORLDVIEW
WORLDVIEW
546 Are Women Appropriate for international
Is Outsouring Ending Its Run?
Assignments? 578
Logistics 546 Language Training 579
Standardization and the Management of Global WORLDVIEW
Operations 546 Culture Shock 580
Organization and Staffing 547 RepatriationThe Shock of Returning Home 580
Control 549 Expatriate Services 582
Planning 549
Compensation 582
Impediments to Standardization of Global Salaries 583
Operations 549 Allowances 584
Environmental Forces 550 Bonuses 584
Some Design Solutions 551 Compensation Packages Can Be Complicated 587
WORLDVIEW Compensation of Third-Country Nationals 587
Nestle: Standardizing Processes and Systems to Exploit International Status 588
Global Opportunity 552 Perks 588
Local Manufacturing System 552 What's Important to You? 589
Basis for Organization 552 BUILDING YOUR GLOBAL RESUME
Horizontal and Vertical Integration 553 Tips from Your Personal Global Mentor 590
Design of the Manufacturing System 554
Summary 592
Operation of the Manufacturing System 555
Key Words 592
BUILDING YOUR GLOBAL RESUME Questions 592
Tips from Your Personal Global Mentor 559 Research Task globalEDGE.msu.edu 593
Summary 561 MINICASE 1 9 . 1 : CASEY MILLER: SHOULD SHE ACCEPT
KeyWords 562 AN INTERNATIONAL ASSIGNMENT? 5 9 3
Questions 563
Research Task globalEDGE.msu.edu 563
MINICASE 18.1: BALAGNY CLOTHING COMPANY OUTSOURCES
DOMESTIC PRODUCTION 5 6 4
International Accounting and Financial Management 596
Sovereign Wealth Funds: Globalization at Work 597
International Accounting 597
Accounting and Foreign Currency 597
Human Resource Management 566 Accounting and Culture 600
Becoming an Expatriate, or Expat, As They Are Convergence of Accounting Standards 600
Sometimes Called 567 Triple-Bottom-Line Accounting 601
The International Human Resource Management WORLDVIEW
Approach 568 SOX as a Sympton, not a Cause 803

XXVIII Contents
International Financial Management 603 Swaps 613
Hedges and Swaps as "Derivatives" 614
Capital Structure of the Firm 603
Networking to Find Partners 615
Cash Flow Management 605 Sales without Money 615
Why Funds Are Moved 605 Countertrade 615
MINI MNE Industrial Cooperation 616
Microloan Bankers: Developing the Business Taxation 617
Model or...? 606 BUILDING YOUR GLOBAL RESUME
International Finance Center 608 Earn Your MBA with a Specialization in International
Multilateral Netting 608 Business 618
Leading and Lagging 608
Summary 619
Foreign Exchange Risk Management 609 Key Words 620
MINI MNE Questions 621
An Integrated Approach to Risk 610 Research Task globalEDGE.msu.edu 621
MINICASE 2 0 . 1 : DEALING WITH TRANSACTION RISK IN A YUAN
Transaction Exposure 610
CONTRACT 621
Translation Exposure 611
Economic Exposure 611
Endnotes 622
Swaps and Derivatives 612 Glossary 638
WORLDVIEW Photo Credits 647
U.S. Law Has Unintended Consequences for Overseas Company/Name Index 649
Fundinq 612 Subject Index 656

Contents XXIX