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nternational Business
SIXTH EDITION
Ricky W. GriffinTexas A&M University
Michael W. PustayTexas A&M University
Prentice HallUpper Saddle River, NJ 07458
Contents
Maps xxPreface xxiAcknowledgments xxiiiAbout the Authors xxv
PART 1 The World's Marketplaces 2
Chapter 1 An Overview of International Business 2• CASE: The Business of the Olympics 3
What Is International Business? 5
Why Study International Business? 5
• BRINGING THE WORLD INTO FOCUS: A Rose by Any OtherName... 7
International Business Activities 7
Exporting and Importing 7
• BRINGING THE WORLD INTO FOCUS: The Early Era of InternationalBusiness 8
International Investments 9
Other Forms of International Business Activity 10
The Era of Globalization 11
The Contemporary Causes of Globalization 13
Strategic Imperatives 13
The Environmental Causes of Globalization 14
Globalization and Emerging Markets 14
• EMERGING OPPORTUNITIES: Is Globalization Good for Us? 15
An Overview of the Contents of This Book 17
Chapter Review 18 • Summary 18 • Questions for Discussion 19Building Global Skills 19
• CLOSING CASE: A Boom in Bangalore 19
Chapter 2 Global Marketplaces and Business Centers 22• CASE: Mining the Boom 23
The Marketplaces of North America 25
The United States 26
Canada 26
• EMERGING OPPORTUNITIES: Classifying Countries by IncomeLevels 28
Mexico 29
Central America and the Caribbean 29
The Marketplaces of Western Europe 30
The Marketplaces of Eastern Europe and Central Asia 32
The Marketplaces of Asia 34
vi i i
CONTENTS i x
Japan 34
Australia and New Zealand 36
The Four Tigers 37
China 39
India 40
Southeast Asian Countries 41
The Marketplaces of Africa and the Middle East 41
Africa 41
Middle East 43
The Marketplaces of South America 43B VENTURING ABROAD: The New Player in Global Capital Markets:
Sovereign Wealth Funds 44
Chapter Review 47 • Summary 47 • Questions for Discussion 48 •Building Global Skills 48
• CLOSING CASE: Demography Is Destiny 49
Chapter 3 Legal, Technological, Accounting, and PoliticalEnvironments 52
• CASE: Harry Potter Goes to China 53
The Legal Environment 54
Differences in Legal Systems 54 j
M E-WORLD: Law and the Internet 56
Domestically Oriented Laws 57
Laws Directly Affecting International Business Transactions 58
H VENTURING ABROAD: Where Do Old Toyotas Go? Siberia, of
Course 58
Laws Directed Against Foreign Firms 60
The Impacts of MNCs on Host Countries 61
Dispute Resolution in International Business 62
The Technological Environment 63
• BRINGING THE WORLD INTO FOCUS: The Real Problem withCounterfeiting 66
The Accounting Environment 67
The Roots of National Differences 67
• BRINGING THE WORLD INTO FOCUS: The Sarbanes-Oxley Act 69
Differences in Accounting Practices 70
Impact on Capital Markets 72
The Political Environment 73
Political Risk 73
• EMERGING OPPORTUNITIES: Piracy on the High Seas 75
Chapter Review 78 • Summary 78 • Questions for Discussion 79 •Building Global Skills 79
• CLOSING CASE; Sour Oil, Soured Deal 79
Chapter 4 The Role of Culture 82• CASE: Hollywood Abroad 83
Characteristics of Culture 84
• E-WORLD: The Internet, National Competitiveness,and Culture 85
Elements of Culture 85
Social Structure 86
CONTENTS
• BRINGING THE WORLD INTO FOCUS: The Impact of Japanese Cultureon Business 87
Language 89
Communication 93
Religion 95
• BRINGING THE WORLD INTO FOCUS: When Interest Is Forbidden byReligion 97
Values and Attitudes 99
Seeing the Forest, Not the Trees 100
Hall's Low-Context-High-Context Approach 100
The Cultural Cluster Approach 101
Hofstede's Five Dimensions 102
Social Orientation 102
Power Orientation 106
Uncertainty Orientation 107
• EMERGING OPPORTUNITIES: Pulling Rank Gets Harder at One KoreanCompany 108
Goal Orientation 111
Time Orientation 113
International Management and Cultural Differences 113
Understanding New Cultures 113
Chapter Review 114 • Summary 114 • Questions for Discussion 114 •Building Global Skills 115
• CLOSING CASE: Quacking Up a Storm of Business 115
Chapter 5 Ethics and Social Responsibility in InternationalBusiness 118
• CASE: The Power of Microfinance: The Grameen Bank 119
• EMERGING OPPORTUNITIES: The Outsourcing Dilemma 120
The Nature of Ethics and Social Responsibility in International
Business 122
Ethics in Cross-Cultural and International Contexts 124
How an Organization Treats Its Employees 124
How Employees Treat the Organization 125
How Employees and the Organization Treat Other Economic Agents 126
Managing Ethical Behavior Across Borders 127
Guidelines and Codes of Ethics 127
Ethics Training 127
Organizational Practices and the Corporate Culture 127
Social Responsibility in Cross-Cultural and International
Contexts 128
• VENTURING ABROAD: Siemen Pays-and Pays and Pays 129
Areas of Social Responsibility 130
Organizational Stakeholders 130
The Natural Environment 130
General Social Welfare 131
Managing Social Responsibility Across Borders 131• BRINGING THE WORLD INTO FOCUS: Should Firms Practice Corporate
Social Responsibility? 133
Approaches to Social Responsibility 133
Managing Compliance 135
Informal Dimensions of Social Responsibility 136
Evaluating Social Responsibility 137
CONTENTS Xi
Difficulties of Managing CSR Across Borders 137
The Anglo-Saxon Approach 137
The Asian Approach 138
The Continental European Approach 138
Regulating International Ethics and Social Responsibility 138
• EMERGING OPPORTUNITIES: Conflict Diamonds 139
Chapter Review 140 • Summary 140 • Questions for Discussion 141 •Building Global Skills 141
• CLOSING CASE: A Pipeline of Good Intentions 142
• PART 1: Closing Cases 144
• PART 1 : Market Entry Strategy Project Exercises 147
PART 2 The International Environment 148
Chapter 6 International Trade and Investment 1480 CASE: Caterpillar: Making Money by Moving Mountains 149
International Trade and the World Economy 150
Classical Country-Based Trade Theories 152
Mercantilism 152
Absolute Advantage 153
Comparative Advantage 154
• BRINGING THE WORLD INTO FOCUS: The Lincoln Fallacy 155
Comparative Advantage with Money 156
Relative Factor Endowments 158
Modern Firm-Based Trade Theories 159
Country Similarity Theory 159
' Product Life Cycle Theory 160
Global Strategic Rivalry Theory 162
• E-WORLD: Blossoming E-Commerce 163
Porter's Theory of National Competitive Advantage 164
• E-WORLD: Nokia's Incredible Transformation 167
An Overview of International Investment 168
Types of International Investments 168The Growth of Foreign Direct Investment 168
Foreign Direct Investment and the United States 169
International Investment Theories 170
Ownership Advantages 170
Internalization Theory 172
Dunning's Eclectic Theory 172
Factors Influencing Foreign Direct Investment 172
Supply Factors 173
Demand Factors 174
Political Factors 175
Chapter Review 176 • Summary 176 • Questions for Discussion 177 •Building Global Skills 177
D CLOSING CASE: Twenty-First Century Pirates 177
Chapter 7 The International Monetary System and the Balance ofPayments 180
• CASE: Will the Stars Shine on Astra Again? 181
History of the International Monetary System 183
The Gold Standard 183
The Collapse of the Gold Standard 184
Xii CONTENTS
The Bretton Woods Era 186
B EMERGING OPPORTUNITIES: Frog Ranching in Peru 189
The End of the Bretton Woods System 191
Performance of the International Monetary System Since 1971 192
• BRINGING THE WORLD INTO FOCUS: Fixed Versus Flexible ExchangeRates 193
M BRINGING THE WORLD INTO FOCUS: Should Bretton Woods BeRestored? 197
The Balance of Payments Accounting System 198
The Major Components of the Balance of Payments Accounting System 199
• BRINGING THE WORLD INTO FOCUS: Ben Franklin, WorldTraveler 204
The U.S. Balance of Payments in 2007 204
Defining Balance of Payments Surpluses and Deficits 207
Chapter Review 208 • Summary 208 • Questions for Discussion 209 •Building Global Skills 209
• CLOSING CASE: Recent U.S. BOP Performance: Is the Sky Falling? 211
Chapter 8 Foreign Exchange and International FinancialMarkets 212
• CASE: The Loonie Takes Flight 213
The Economics of Foreign Exchange 215
The Structure of the Foreign-Exchange Market 217
B BRINGING THE WORLD INTO FOCUS: A Brief Hint 217
The Role of Banks 218
m E-WORLD: The Biggest Online Market 220
Spot and Forward Markets 221
Arbitrage and the Currency Market 223
B BRINGING THE WORLD INTO FOCUS: The Big Mac Index:Sandwiched 225
B VENTURING ABROAD: The Carry Trade 230
The International Capital Market 231
Major International Banks 231
The Eurocurrency Market 233
The International Bond Market 234
Global Equity Markets 234
Offshore Financial Centers 235
Chapter Review 235 • Summary 235 • Questions for Discussion 236 •Building Global Skills 236
• CLOSING CASE: The Subprime Meltdown 237
Chapter 9 Formulation of National Trade Policies 240• CASE: Jumbo Battle over Jumbo Jets 241
Rationales for Trade Intervention 242
Industry-Level Arguments 243
National Trade Policies 246
B VENTURING ABROAD: Toyota's Politics Is Local 249
Barriers to International Trade 250
Tariffs 250
B BRINGING THE WORLD INTO FOCUS: X-Men: Men
or Beasts? 251
Nontariff Barriers 252
CONTENTS xi i i
Promotion of International Trade 258
Subsidies 258
• EMERGING OPPORTUNITIES: Cotton Subsidies and WorldPoverty 259
Foreign Trade Zones 260
Export Financing Programs 261
Controlling Unfair Trade Practices 262
Countervailing Duties 262
Antidumping Regulations 263
Should Countries Enforce Their Unfair Trade Practice Laws? 263
Safeguards 264
Chapter Review 264 • Summary 264 • Questions for Discussion 265 •Building Global Skills 265
• CLOSING CASE: The Long and Winding Road to Free Trade 265
Chapter 10 International Cooperation Among Nations 268D CASE: Trade and Prosperity: The Case of Mexico 269
The General Agreement on Tariffs and Trade and the World Trade
Organization 270
The Role of the General Agreement on Tariffs and Trade 271
• BRINGING THE WORLD INTO FOCUS: Most Nations Are Favored 272
The World Trade Organization 273
Regional Economic Integration 275
Forms of Economic Integration 275
The Impact of Economic Integration on Firms 276
The European Union 277
Governing the European Union 278
• BRINGING THE WORLD INTO FOCUS: Three Majorities Are BetterThan One 281
The Struggle to Create a Common Market 283
• VENTURING ABROAD: Lobbying the European Union 283
From Common Market to European Union 285
Other Regional Trading Blocs 288The North American Free Trade Agreement 288
Other Free Trade Agreements in the Americas 289
Trade Arrangements in the Asia-Pacific Region 292
African Initiatives 293
Chapter Review 295 • Summary 295 • Questions for Discussion 295 •Building Global Skills 296
D CLOSING CASE: Will Whirlpool Clean Up in Europe? 296
@ PART 2: Closing Cases 298
H PART 2: Market Entry Strategy Project 301
PART 3 Managing International Business 302
Chapter 11 International Strategic Management 302D CASE: Global Mickey 303
The Challenges of International Strategic Management 306
• EMERGING OPPORTUNITIES: How Does a Japanese Firm Competein China?... Act More American 308
Strategic Alternatives 310
m BRINGING THE WORLD INTO FOCUS: Master of the FurnitureUniverse 311
Xiv CONTENTS
Components of an International Strategy 314
Distinctive Competence 314
Scope of Operations 314
B EMERGING OPPORTUNITIES: The Bottom of the Pyramid 315
Resource Deployment 316
Synergy 316
Developing International Strategies 317
Mission Statement 317
Environmental Scanning and the SWOT Analysis 317
Strategic Goals 320
Tactics 320
Control Framework 320
Levels of International Strategy 321
Corporate Strategy 321
Business Strategy 323
Functional Strategies 325Chapter Review 325 • Summary 325 • Questions for Discussion 326 •Building Global Skills 326
• CLOSING CASE: The New Conquistador 327
Chapter 12 Strategies for Analyzing and Entering ForeignMarkets 330
D CASE: Starbucks Brews Up a Global Strategy 331
Foreign Market Analysis 332
Assessing Alternative Foreign Markets 333
Evaluating Costs, Benefits, and Risks 336
Choosing a Mode of Entry 337
Exporting to Foreign Markets 340
Forms of Exporting 342
B EMERGING OPPORTUNITIES: Internet Turns Firms into OverseasBusinesses 343
Additional Considerations 345
Export Intermediaries 347
International Licensing 348
Basic Issues in International Licensing 350
Advantages and Disadvantages of International Licensing 351
International Franchising 352
Basic Issues in International Franchising 352
Advantages and Disadvantages of International Franchising 353
Specialized Entry Modes for International Business 353Contract Manufacturing 353
Management Contract 354
Turnkey Project 355
fl EMERGING OPPORTUNITIES: Business Process Outsourcing 355
Foreign Direct Investment 356
The Greenfield Strategy 357
The Acquisition Strategy 357
Joint Ventures 358
B EMERGING OPPORTUNITIES: Merger, Indian Style: Buy a Brand, LeaveIt Alone 359
Chapter Review 360 • Summary 360 • Questions for Discussion 361 •Building Global Skills 361
D CLOSING CASE: Heineken's Global Reach 362
CONTENTS XV
Chapter 13 International Strategic Alliances 364• CASE: Slimline; Marching to a Different Drummer 365
International Corporate Cooperation 367
Benefits of Strategic Alliances 369
Ease of Market Entry 369
Shared Risk 370
fl EMERGING OPPORTUNITIES: The Ups and Downs of Market Entry 371
Shared Knowledge and Expertise 372
Synergy and Competitive Advantage 373
• VENTURING ABROAD: Sea Launch: A Match Made in the
Heavens 373
Scope of Strategic Alliances 374
Comprehensive Alliances 375
Functional Alliances 375
B VENTURING ABROAD: Alliances in the Sky 376
Implementation of Strategic Alliances 378
Selection of Partners 378
Form of Ownership 379
Joint Management Considerations 381
Pitfalls of Strategic Alliances 382
Incompatibility of Partners 382
Access to Information 383
Conflicts over Distributing Earnings 383
Loss of Autonomy 382
Changing Circumstances 384
Chapter Review 384 • Summary 384 • Questions for Discussion 385 •Building Global Skills 385
• CLOSING CASE: Look Before You Leap 386
Chapter 14 International Organization Design and Control 388• CASE: Unilever Matches Strategy and Structure 389
The Nature of International Organizational Design 391
Global Organization Designs 392
Global Product Design 393
Global Area Design 394
B EMERGING OPPORTUNITIES: Flying Solo in China 395
Global Functional Design 395
Global Customer Design 396
Global Matrix Design 398
Hybrid Global Designs 399
Related Issues in Global Organization Design 400Centralization Versus Decentralization 400
Role of Subsidiary Boards of Directors 400
Coordination in the Global Organization 402
The Control Function in International Business 403Strategic Control 403
Organizational Control 405
Operations Control 407
Managing the Control Function in International Business 408
Establishing International Control Systems 409
B E-WORLD: Reel Time Information 410
Essential Control Techniques 412
XVi CONTENTS
B BRINGING THE WORLD INTO FOCUS: Getting Back to Basics 413
Behavioral Aspects of International Control 415
Chapter Review 416 • Summary 416 • Questions for Discussion 417
Building Global Skills 417
• CLOSING CASE: Daimler and Chrysler: The Dream and the
Nightmare 418
Chapter 15 Leadership and Employee Behavior in InternationalBusiness 420
• CASE: Making Risky Decisions at Porsche 421
Individual Behavior in International Business 422
Personality Differences across Cultures 423
Attitudes across Cultures 425
Perception across Cultures 427
• EMERGING OPPORTUNITIES: The U.S. Is Crowded with Liars WhoPrefer Pets to Kids 427
Stress across Cultures 429
Motivation in International Business 430
Needs and Values across Cultures 430
Motivational Processes across Cultures 430
Need-Based Models across Cultures 430
• BRINGING THE WORLD INTO FOCUS: Mixing and Matching in a JointVenture 431 ,
Process-Based Models across Cultures 433
The Reinforcement Model across Cultures 433
Leadership in International Business 433
Decision Making in International Business 437
Models of Decision Making 437
The Normative Model across Cultures 438
The Descriptive Model across Cultures 440
Groups and Teams in International Business 440
The Nature of Group Dynamics 440
Managing Cross-Cultural Teams 441
• BRINGING THE WORLD INTO FOCUS: They May Speak the SameLanguage, but . . . 441
Chapter Review 442 • Summary 442 • Questions for Discussion 443Building Global Skills 443
O CLOSING CASE: IKEA's Transformational Leader 444
B PART 3: Closing Cases 445
• PART 3: Market Entry Strategy Project 454
PART 4 Managing International Business Operations 456
Chapter 16 International Marketing 456• CASE: Novica Opens Doors Across National Boundaries 457
International Marketing Management 459
International Marketing and Business Strategies 459
• EMERGING OPPORTUNITIES: Pretty Garlic 461
The Marketing Mix 462
Standardization versus Customization 462
Product Policy 465
Standardized Products or Customized Products? 465
Legal Forces 466
CONTENTS xvi i
Cultural Influences 466
m E-WORLD: E-Translation 467
Economic Factors 468
Brand Names 468
Pricing Issues and Decisions 469
Pricing Policies 468
Market Pricing 470
Promotion Issues and Decisions 472
Advertising 472
• BRINGING THE WORLD INTO FOCUS: Sailing for Sales 473
Personal Selling 474
Sales Promotion 475
Public Relations 476
Distribution Issues and Decisions 476
International Distribution 477
Channels of Distribution 478
Chapter Review 481 l • Summary 481 • Questions for Discussion 481 •Building Global Skills 482
• CLOSING CASE: A Call for Progress 482
Chapter 17 International Operations Management 484• CASE: Racing to Market 485
The Nature of International Operations Management 487
The Strategic Context of International Operations Management 488
Complexities of International Operations Management 488
Production Management 489
Supply Chain Management and Vertical Integration 489
• BRINGING THE WORLD INTO FOCUS: Suppliers: Friend or Foe? 492
Location Decisions 494
International Logistics and Materials Management 498
• BRINGING THE WORLD INTO FOCUS: Cutting Costs tothe Bone 499
International Service Operations 500
Characteristics of International Services 501
The Role of Government in International Services Trade 501
Managing Service Operations 502
Managing Productivity in International Business 502
Managing Quality in International Business 503
Managing Information in International Business 505
Chapter Review 507 • Summary 507 • Questions for Discussion 508 •
Building Global Skills 508
• CLOSING CASE: The Weakest Link 510
Chapter 18 International Financial Management 512D CASE: Singapore Airlines's Worldwide Financial Management 513
Financial Issues in International Trade 514
Choice of Currency 514
Credit Checking 515
Method of Payment 515
Financing Trade 522
• EMERGING OPPORTUNITIES: The Three Gorges Dam: It's Not a Feastfor U.S. Firms 524
xvi i i CONTENTS
Managing Foreign Exchange Risk 525
Transaction Exposure 525
Translation Exposure 528
Economic Exposure 528
Management of Working Capital 531
Minimizing Working Capital Balances 531
B VENTURING ABROAD: Colefax and Fowler's Cash Flow Solution 532
Minimizing Currency Conversion Costs 532
Minimizing Foreign-Exchange Risk 534
International Capital Budgeting 534
Net Present Value 534
Internal Rate of Return 536
Payback Period 536
Sources of International Investment Capital 536
External Sources of Investment Capital 536
Internal Sources of Investment Capital 537
Strategic Use of Transfer Pricing 538
Tax Havens 540
M VENTURING ABROAD: Taxation of Subsidiary Income by the U.S.Government 541
Chapter Review 542 • Summary 542 • Questions for Discussion 543 •Building Global Skills 543
• CLOSING CASE: Everything's Green in Ireland 544
Chapter 19 International Human Resource Management and LaborRelations 548
• CASE: Training for the World 549
The Nature of International Human Resource Management 550
Strategic Significance of HRM 551
International Managerial Staffing Needs 552
Scope of Internationalization 552
Centralization versus Decentralization of Control 553
Staffing Philosophy 554
• EMERGING OPPORTUNITIES: Thinking Globally but Hiring Locally 555
• BRINGING THE WORLD INTO FOCUS: Schlumberger Profits fromGeocentric Staffing 556
Recruitment and Selection 557
Recruitment of Managers 557
Selection of Managers 559
Expatriation and Repatriation Issues 560
Training and Development 562
Assessing Training Needs 562
Basic Training Methods and Procedures 563
Developing Younger International Managers 564
Performance Appraisal and Compensation 564
Assessing Performance in International Business 564
Determining Compensation in International Business 565
• BRINGING THE WORLD INTO FOCUS: Seeing Opportunity inSecurity 566
Retention and Turnover 569
Human Resource Issues for Nonmanagerial Employees 570
Recruitment and Selection 570
Training and Development 571
CONTENTS Xix
Compensation and Performance Appraisal 571
M BRINGING THE WORLD INTO FOCUS: American-Style ManagementComes to Global Dining 572
Labor Relations 573
Comparative Labor Relations 573
Collective Bargaining 573
Union Influence and Codetermination 574
Chapter Review 574 • Summary 574 • Questions for Discussion 575 •Building Global Skills 575
Q CLOSING CASE: "You Americans Work Too Hard" 576
fl PART 4: Closing Cases 577
fl PART 4: Market Entry Strategy Project 583
Endnotes 584
Glossary 601
Name Index 614
Company Index 618
Subject Index 623
