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International Management TENTH EDITION Culture, Strategy, and Behavior Fred Luthans | Jonathan P. Doh International Management Culture, Strategy, and Behavior Tenth Edition Jonathan P. Doh Villanova University Fred Luthans University of Nebraska–Lincoln INTERNATIONAL MANAGEMENT: CULTURE, STRATEGY, AND BEHAVIOR, TENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGrawHill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2012, and 2009. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 LMN 21 20 19 18 17 16 ISBN 978-1-259-70507-6 MHID 1-259-70507-2 Chief Product Officer, SVP Products & Markets: G. 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Library of Congress Cataloging-in-Publication Data Names: Luthans, Fred, author. | Doh, Jonathan P., author. Title: International management : culture, strategy, and behavior / Fred Luthans, University of Nebraska-Lincoln, Jonathan P. Doh, Villanova University. Description: Tenth Edition. | Dubuque: McGraw-Hill Education, [2018] | Revised edition of the authors’ International management, [2015] Identifiers: LCCN 2016055609| ISBN 9781259705076 (alk. paper) | ISBN 1259705072 (alk. paper) Subjects: LCSH: International business enterprises—Management. | International business enterprises—Management—Case studies. Classification: LCC HD62.4 .H63 2018 | DDC 658/.049—dc23 LC record available at https://lccn.loc.gov/2016055609 The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. mheducation.com/highered Dedicated in Memory of Rafael Lucea, A Passionate Advocate for Global Business Education and Experience. iii Preface C hanges in the global business environment continue unabated and at an accelerated pace. Many surprising and difficult-to-predict developments have rocked global peace and economic security. Terrorism, mass migration, the United Kingdom’s exit from the European Union, and the rise of anti-immigration political movements in Europe, the United States, and elsewhere have called into question assumptions about the direction of the global political economy. In addition, rapid advances in social media have not only accelerated globalization but also provided a means for those who seek political and economic changes to organize and influence their leaders for more responsible governance, or, in some cases, advance a more narrow ideological agenda (see opening articles in Chapters 1 and 2). In addition, concerns about climate change and other environmental issues have prompted companies, in conjunction with governments and nongovernmental organizations, to consider alternate approaches to business and governance (see Chapter 3 opening article). Some of these developments have challenged longstanding beliefs about the power and benefits of globalization and economic integration, but they also underscore the interconnected nature of global economies. Although many countries and regions around the world are closely linked, important differences in institutional and cultural environments persist, and some of these differences have become even more pronounced in recent years. The challenges for international management reflect this dynamism and the increasing unpredictability of global economic and political events. Continued growth of the emerging markets is reshaping the global balance of economic power, even though differences exist between and among regions and countries. Although many emerging markets continued to experience growth during a period when developed countries’ economies stagnated or declined, others, like Russia and Brazil, have faced major setbacks. Further, some developed economies, such as Greece, Italy, Spain, and Portugal, continue to face formidable challenges that stem from the European debt crisis that began in 2009. Low or negative interest rates reflect a “new normal” of slower-than-average growth among many global economies. The global political and security environment remains unpredictable and volatile, with ongoing conflicts in the Middle East and Africa and continuing tensions in Iran, North Korea, Iraq, and Afghanistan and elsewhere. Another crisis stemming from conflict in Syria and elsewhere has resulted in mass migration—and broad dislocations— across North Africa and Southern, even Northern, Europe (see Chapters 1 and 2 for further discussion). On the economic front, the global trade and integration agenda seems stalled, largely due to domestic political pressures in Europe and North America. Although the Trans-Pacific Partnership (TPP), a proposed free-trade agreement including 12 countries in the Americas and Asia, was concluded, its ratification in the United States is uncertain. Similarly, the fate of the Transatlantic Trade and Investment Partnership, which was still under negotiation at the time of this writing, is also unclear. As noted above, the advent of social networking has transformed the way citizens interact; how businesses market, promote, and distribute their products globally; and how civil society expresses its concerns that governments provide greater freedoms and accountability. Concurrently, companies, individuals, and even students can now engage in broad “mass” collaboration through digital, online technology for the development of new and innovative systems, products, and ideas. Both social networking and mass collaboration bring new power and influence to individuals across borders and transform v vi Preface the nature of their relationships with global organizations. Although globalization and technology continue to link nations, businesses, and individuals, these linkages also highlight the importance of understanding different cultures, national systems, and corporate management practices around the world. The world is now interconnected geographically, but also electronically and psychologically; as such, nearly all businesses have been touched in some way by globalization. Yet, as cultural, political, and economic differences persist, astute international managers must be in a position to adapt and adjust to the vagaries of different contexts and environments. In this new tenth edition of International Management, we have retained the strong and effective foundations gained from research and practice over the past decades while incorporating the important latest research and contemporary insights that have changed the context and environment for international management. Several trends have emerged that pose both challenges and opportunities for international managers. First, more nationalistically oriented governments and/or political movements have emerged in many regions of the world, challenging previous assumptions about the benefits and inevitability of globalization and integration. Second, while emerging markets continue to rise in importance, some—such as China and India—have fared much better economically than others—such as Brazil and Russia. Third, aging populations and concerns about migration have challenged many developed country governments as they wrestle with these dual pressures. Fourth, social media and other forms of electronic connectivity continue to facilitate international business of all sorts; however, these connection go only so far, with many barriers and limitations imposed by governments. Although we have extensive new, evidence-based material in this edition, we continue to strive to make the book even more user-friendly and applicable to practice. We continue to take a balanced approach in the tenth edition of International Management: Culture, Strategy, and Behavior. Whereas other texts stress culture, strategy, or behavior, our emphasis on all three critical dimensions—and the interactions among them—has been a primary reason why the previous editions have been the market-leading international management text. Specifically, this edition has the following chapter distribution: environment (three chapters), culture (four chapters), strategy (four chapters), and organizational behavior/human resource management (three chapters). Because the context of international management changes rapidly, all the chapters have been updated and improved. New real-world examples and research results are integrated throughout the book, accentuating the experiential relevance of the straightforward content. As always, we emphasize a balance of research and application. For the new tenth edition we have incorporated important new content in the areas of the emergence and role of social media as a means of transacting business and mobilizing social movements, the global pressures around migration, the role of the “sharing” economy as represented by companies such as Uber, and other important global themes. We have incorporated the latest research and practical insights on pressure for MNCs to adopt more sustainable practices, and the strategies many companies are using to differentiate their products through such “green” management practices. We have updated discussion of a range of contemporary topics, including continued exploration of the role of the comprehensive GLOBE study on cross-cultural leadership. A continuing and relevant end-of-chapter feature in this edition is the “Internet Exercise.” The purpose of each exercise is to encourage students to use the Internet to find information from the websites of prominent MNCs to answer relevant questions about the chapter topic. An end-of-book feature is a series of Skill-Building and Experiential Exercises for aspiring international managers. These in-class exercises represent the various parts of the text (culture, strategy, and behavior) and provide hands-on experience. Preface We have extended from the ninth edition of International Management the chapter-opening discussions called “The World of International Management” (WIM), based on very recent, relevant news stories to grab readers’ interest and attention. Many of these opening articles are new to this edition and all have been updated. These timely opening discussions transition the reader into the chapter topic. At the end of each chapter, there is a pedagogical feature that revisits the chapter’s subject matter: “The World of International Management—Revisited.” Here we pose several discussion questions based on the topic of the opening feature in light of the student’s entire reading of the chapter. Answering these questions requires readers to reconsider and to draw from the chapter material. Suggested answers to these “WIM—Revisited” discussion questions appear in the completely updated Instructor’s Manual, where we also provide some multiple-choice and true-false questions that draw directly from the chapters’ World of International Management topic matter for instructors who want to include this material in their tests. The use and application of cases are further enhanced in this edition. All cases have been updated and several new ones have been added. The short within-chapter country case illustrations—“In the International Spotlight”—can be read and discussed in class. These have all been revised and three have been added—Cuba, Greece, and Nigeria. In addition, we have added an additional exercise, “You Be the International Management Consultant,” that presents a challenge or dilemma facing a company in the subject country of the “Spotlight.” Students are invited to respond to a question related to this challenge. The revised or newly added “Integrative Cases” positioned at the end of each main part of the text were created exclusively for this edition and provide opportunities for reading and analysis outside of class. Review questions provided for each case are intended to facilitate lively and productive written analysis or in-class discussion. Our “Brief Integrative Cases” typically explore a specific situation or challenge facing an individual or team. Our longer and more detailed “In-Depth Integrative Cases” provide a broader discussion of the challenges facing a company. These two formats allow maximum flexibility so that instructors can use the cases in a tailored and customized fashion. Accompanying many of the in-depth cases are short exercises that can be used in class to reinforce both the substantive topic and students’ skills in negotiation, presentation, and analysis. The cases have been extensively updated and several are new to this edition. Cases concerning the controversies over drug pricing, TOMS shoes, Russell Athletics/Fruit of the Loom, Euro Disneyland and Disney Asia, Google in China, IKEA, HSBC, Nike, Walmart, Tata, Danone, Chiquita, Coca-Cola, and others are unique to this book and specific to this edition. Of course, instructors also have access to Create (www.mcgraw-hillcreate.com), McGraw-Hill’s extensive content database, which includes thousands of cases from major sources such as Harvard Business School, Ivey, Darden, and NACRA case databases. Along with the new or updated “International Management in Action” boxed application examples within each chapter and other pedagogical features at the end of each chapter (i.e., “Key Terms,” “Review and Discussion Questions,” “The World of International Management—Revisited,” and “Internet Exercise”), the end-of-part brief and indepth cases and the end-of-book skill-building exercises and simulations in the Connect resources complete the package. International Management is generally recognized to be the first “mainstream” text of its kind. Strategy casebooks and specialized books in organizational behavior, human resources, and, of course, international business, finance, marketing, and economics preceded it, but there were no international management texts before this one, and it remains the market leader. We have had sustainability because of the effort and care put into the revisions. We hope you agree that this tenth edition continues the tradition and remains the “world-class” text for the study of international management. vii viii Preface McGraw-Hill Connect®: connect.mheducation.com Continually evolving, McGraw-Hill Connect® has been redesigned to provide the only true adaptive learning experience delivered within a simple and easy-to-navigate environment, placing students at the very center. ∙ ∙ Performance Analytics—Now available for both instructors and students, easy-to-decipher data illuminate course performance. Students always know how they’re doing in class, while instructors can view student and section performance at a glance. Personalized Learning—Squeezing the most out of study time, the adaptive engine within Connect creates a highly personalized learning path for each student by identifying areas of weakness and providing learning resources to assist in the moment of need. This seamless integration of reading, practice, and assessment ensures that the focus is on the most important content for that individual. Instructor Library The Connect Management Instructor Library is your repository for additional resources to improve student engagement in and out of class. You can select and use any asset that enhances your lecture. To help instructors teach international management, this text is accompanied by a revised and expanded Instructor’s Resource Manual, Test Bank, and PowerPoint slides, all of which are in the Connect Library. Acknowledgments We would like to acknowledge those who have helped to make this book a reality. We will never forget the legacy of international management education in general and for this text in particular provided by our departed colleague Richard M. Hodgetts. Special thanks also go to our growing number of colleagues throughout the world who have given us many ideas and inspired us to think internationally. Closer to home, Jonathan Doh would like to thank the Villanova School of Business and its leadership, especially Provost Pat Maggitti, Interim Dean Daniel Wright, Dean Joyce Russell, Interim Vice Dean Wen Mao, and Herb Rammrath, who generously endowed the Chair in International Business ­Jonathan now holds. Also, for this new tenth edition we would like to thank Ben Littell, who did comprehensive research, graphical design, and writing to update chapter material and cases. Specifically, Ben researched and drafted chapter opening World of International Management features, developed a number of original graphics, and provided extensive research assistance for other revisions to the book. Allison Meade researched and drafted the Chapter 4 World of International Management feature on “Culture Clashes in CrossBorder Mergers and Acquisitions.” Fred Luthans would like to give special recognition to two international management scholars: Henry H. Albers, former Chair of the Management Department at the University of Nebraska and former Dean at the University of Petroleum and Minerals, Saudi Arabia, to whom previous editions of this book were dedicated; and Sang M. Lee, former Chair of the Management Department at Nebraska, founding and current president of the Pan Pacific Business Association, and close colleague on many ventures around the world over the past 30 years. In addition, we would like to acknowledge the help that we received from the many reviewers from around the globe, whose feedback guided us in preparing the tenth edition of the text. These include Joseph S. Anderson, Northern Arizona University Chi Anyansi-Archibong, North Carolina A&T State University Koren Borges, University of North Florida Lauryn De George, University of Central Florida Jae Jung, University of Missouri at Kansas City Manjula S. Salimath, University of North Texas ix Preface Our thanks, too, to the reviewers of previous editions of the text: Thomas M. Abbott, Post University Yohannan T. Abraham, Southwest Missouri State University Janet S. Adams, Kennesaw State University Irfan Ahmed, Sam Houston State University Chi Anyansi-Archibong, North Carolina A&T State University Kibok Baik, James Madison University R. B. Barton, Murray State University Lawrence A. Beer, Arizona State University Koren Borges, University of North Florida Tope A. Bello, East Carolina University Mauritz Blonder, Hofstra University Gunther S. Boroschek, University of Massachusetts–Boston Charles M. Byles, Virginia Commonwealth University Constance Campbell, Georgia Southern University Scott Kenneth Campbell, Georgia College & State University M. Suzanne Clinton, University of Central Oklahoma Helen Deresky, SUNY Plattsburgh Dr. Dharma deSilva, Center for International Business Advancement (CIBA) David Elloy, Gonzaga University Val Finnigan, Leeds Metropolitan University David M. Flynn, Hofstra University Jan Flynn, Georgia College and State University Joseph Richard Goldman, University of Minnesota James Gran, Buena Vista University Robert T. Green, University of Texas at Austin Annette Gunter, University of Central Oklahoma Jerry Haar, Florida International University–Miami Jean M. Hanebury, Salisbury State University Richard C. Hoffman, Salisbury State University Johan Hough, University of South Africa Julie Huang, Rio Hondo College Mohd Nazari Ismail, University of Malaya Steve Jenner, California State University–Dominguez Hills James P. Johnson, Rollins College Marjorie Jones, Nova Southeastern University Jae C. Jung, University of Missouri–Kansas City Ann Langlois, Palm Beach Atlantic University Robert Kuhne, Hofstra University Christine Lentz, Rider University Ben Lever III, College of Charleston Robert C. Maddox, University of Tennessee Curtis Matherne III, East Tennessee State University Douglas M. McCabe, Georgetown University Jeanne M. McNett, Assumption College Lauryn Migenes, University of Central Florida Alan N. Miller, University of Nevada, Las Vegas Ray Montagno, Ball State University Rebecca J. Morris, University of Nebraska–Omaha Ernst W. Neuland, University of Pretoria William Newburry, Rutgers Business School Yongsun Paik, Loyola Marymount University Valerie S. Perotti, Rochester Institute of Technology Richard B. Peterson, University of Washington Suzanne J. Peterson, University of Nebraska–Lincoln Joseph A. Petrick, Wright State University Juan F. Ramirez, Nova Southeastern University Richard David Ramsey, Southeastern Louisiana University Owen Sevier, University of Central Oklahoma Mansour Sharif-Zadeh, California State Polytechnic University–Pomona Emeric Solymossy, Western Illinois University. Jane H. Standford, Texas A&M University–Kingsville Dale V. Steinmann, San Francisco State University Randall Stross, San Jose State University George Sutija, Florida International University Deanna Teel, Houston Community College David Turnipseed, University of South Alabama–Mobile Katheryn H. Ward, Chicago State University Li Weixing, University of Nebraska–Lincoln Aimee Wheaton, Regis College Marion M. White, James Madison University Timothy Wilkinson, University of Akron George Yacus, Old Dominion University Corinne Young, University of Tampa Zhe Zhang, University of Central Florida–Orlando Anatoly Zhuplev, Loyola Marymount University Finally, thanks to the team at McGraw-Hill who worked on this book: Susan Gouijnstook, Managing Director; Anke Weekes, Executive Brand Manager; Laura Hurst Spell, Senior Product Developer; Erin Guendelsberger, Development Editor; Michael Gedatus, Marketing Manager; and Danielle Clement, Content Project Manager. Last but by no means least, we greatly appreciate the love and support provided by our families. Fred Luthans and Jonathan P. Doh Luthans The tenth edition of International Management: Culture, Strategy, and Behavior is still setting the standard. Authors Jonathan Doh and Fred Luthans have Doh New and Enhanced Themes ∙ ∙ ∙ ∙ ∙ taken care to retain the effective foundation gained from research and ∙ ∙ practice over the past decades. At the same time, they have fully Thoroughly Revised and Updated Chapter Content ∙ incorporated important new and emerging developments that have changed what international managers are currently facing and likely to face in the coming years. ∙ ∙ ∙ ∙ x Thoroughly revised and updated chapters to reflect the most critical issues for international managers. Greater attention to demographic trends and human mobility, underscoring the importance of aging work forces, migration, culture, and global talent management. Focus on global sustainability and sustainable management practices and their impact on international management. New or revised opening World of International Management (WIM) features written by the authors on current international management challenges; these mini-cases were prepared expressly for this edition and are not available elsewhere. Discussions of the rise of global terrorism, the migrant crisis, the growing role of social media in international transactions, and many other contemporary topics presented in the opening chapter and throughout the book. New and updated discussions of major issues in global ethics, sustainability, and insights from project GLOBE and other cutting-edge research. Greater emphasis on major emerging regions, economic challenges in major countries such as Brazil and Russia, and specific case illustrations on how companies are managing these challenges. New or revised opening WIM discussions on topics including the global influences of social media using the case of Snapchat; the role of social networking in political change in the Middle East; sustainability as a global competitive advantage using examples of Patagonia, Tesla, and Nestlé; and cultural challenges in global mergers and acquisitions. Others address the competitive dynamics between Apple and Xiaomi and Amazon and Alibaba, the emergence of Haier as the largest global appliance company, Netflix’s challenges in China and Russia, and many others. These features were written expressly for this edition and are not available elsewhere. Updated and strengthened emphasis on ethics, social responsibility, and sustainability. Extensive coverage of Project GLOBE, its relationship to other cultural frameworks, and its application to international management practice (Chapters 4, 13). Revised or new “In the International Spotlight” inserts that profile the key economic and political issues relevant to managers in specific countries. Greater coverage of the challenges and opportunities for international strategy targeted to the developing “base of the pyramid” economies (Chapter 8 and Tata cases). Continues to Set the Standard. . . Thoroughly Updated and/or New Cases, Inserts, and Exercises ∙ ∙ ∙ ∙ ∙ ∙ ∙ ∙ Completely new “In the International Spotlight” country profiles at the end of every chapter including the addition of profiles on Cuba, Greece, and Nigeria. “You Be the International Management Consultant” exercises presenting an actual company’s challenge in that country and inviting students to recommend a course of action. New “International Management in Action” features, including discussions on timely topics such as the rise of Bitcoin, the Volkswagen emissions scandal, and the political risks facing Uber, to name a few. Thoroughly updated cases (not available elsewhere): TOMS shoes, Russell Athletics/Fruit of the Loom, Euro Disneyland and Disney Asia, Google in China, IKEA, HSBC, Nike, Walmart, Tata, Danone, Chiquita, Coca-Cola, and others are unique to this book and specific to this edition. Brand new end-of-part cases developed exclusively for this edition (not available elsewhere): TOMS Puts Its Right Foot Forward; The Ethics of Global Drug Pricing. Brand new “World of International Management” chapter opening discussions, including topics such as Netflix’s expansion to emerging markets, the merger of ABInBev and SABMiller, the battle brewing between Apple’s iPhone and Chinese cell phone startups, the impact of Russian sanctions on international businesses, and the growth of Chinese brand Haier, to name a few. New and revised graphics throughout. Timely updates throughout, based on the latest research, including an extended discussion of the GLOBE project, the continued impact of global terrorism on international business, and the push towards a sustainable future, to name a few. Totally Revised Instructor and Student Support The following instructor and student support materials can be found in Connect® at connect.mheducation.com for the Tenth Edition. ∙ ∙ The Instructor’s Manual offers a summary of Learning Objectives and a teaching outline with lecture notes and teaching tips, as well as suggested answers to questions found throughout and at the conclusion of each chapter. Suggested answers are also provided for all the cases found in the book. The test bank is offered in both Word and EZ Test formats and offers over 1,000 test items consisting of true/false, multiple choice, and essay. Answers are provided for all test bank questions. xi xii Continues to Set the Standard. . . ∙ ∙ ∙ ∙ PowerPoint Presentations consisting of 30 slides per chapter give instructors talking points, feature exhibits from the text, and are summarized with a review and discussion slide. LearnSmart®: The Tenth Edition of International Management is available with LearnSmart, the most widely used adaptive learning resource, which is proven to improve grades. To improve your understanding of this subject and improve your grades, go to McGraw-Hill Connect® at connect.mheducation.com and find out more about LearnSmart. By helping students focus on the most important information they need to learn, LearnSmart personalizes the learning experience so they can study as efficiently as possible. SmartBook®: An extension of LearnSmart, SmartBook is an adaptive eBook that helps students focus their study time more effectively. As students read, SmartBook assesses comprehension and dynamically highlights where they need to study more. Create: Instructors can now tailor their teaching resources to match the way they teach! With McGraw-Hill Create, create.mheducation.com, instructors can easily rearrange chapters, combine material from other content sources, and quickly upload and integrate their own content, like course syllabi or teaching notes. Find the right content in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange the material to fit your teaching style. Order a Create book and receive a complimentary print review copy in 3–5 business days or a complimentary electronic review copy (echo) via e-mail within one hour. Go to create.mheducation.com today and register. McGraw-Hill Campus™ McGraw-Hill Campus is a new one-stop teaching and learning experience available to users of any learning management system. This institutional service allows faculty and students to enjoy single sign-on (SSO) access to all McGraw-Hill Higher Education materials, including the awardwinning McGraw-Hill Connect platform, from directly within the institution’s website. With McGraw-Hill Campus, faculty receive instant access to teaching materials (e.g., eTextbooks, test banks, PowerPoint slides, learning objectives, etc.), allowing them to browse, search, and use any instructor ancillary content in our vast library at no additional cost to instructor or students. In addition, students enjoy SSO access to a variety of free content and subscription-based products (e.g., McGraw-Hill Connect). With McGraw-Hill Campus enabled, faculty and students will never need to create another account to access McGraw-Hill products and services. Learn more at www.mhcampus.com. Assurance of Learning Ready Many educational institutions today focus on the notion of assurance of learning, an important element of some accreditation standards. International Management is designed specifically to support instructors’ assurance of learning initiatives with a simple yet powerful solution. Each test bank question for International Management maps to a specific chapter learning objective listed in the text. Instructors can use our test bank software, EZ Test and EZ Test Online, to easily query for learning objectives that directly relate to the learning outcomes for their course. Instructors can then use the reporting features of EZ Test to aggregate student results in similar fashion, making the collection and presentation of assurance of learning data simple and easy. Continues to Set the Standard. . . AACSB Tagging McGraw-Hill Education is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, International Management recognizes the curriculum guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in the text and the test bank to the six general knowledge and skill guidelines in the AACSB standards. The statements contained in International Management are provided only as a guide for the users of this textbook. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While the International Management teaching package makes no claim of any specific AACSB qualification or evaluation, we have within International Management labeled selected questions according to the six general knowledge and skills areas. xiii About the Authors © Villanova University, John Shetron Courtesy of University of NebraskaLincoln College of Business Administration xiv JONATHAN P. DOH is the Herbert G. Rammrath Chair in International Business, founding Director of the Center for Global Leadership, and Professor of Management at the Villanova School of Business, ranked in 2016 as the #1 undergraduate program in the United States by Bloomberg Businessweek. He is also an occasional executive educator for the Wharton School of Business. Jonathan teaches, does research, and serves as an executive instructor and consultant in the areas of international strategy and corporate responsibility. Previously, he was on the faculty of American and Georgetown Universities and a trade official with the U.S. government. Jonathan is author or co-author of more than 70 refereed articles published in leading international business and management journals, more than 30 chapters in scholarly edited volumes, and more than 90 conference papers. Recent articles have appeared in journals such as Academy of Management Review, California Management Review, Journal of International Business Studies, Journal of Management, Journal of Management Studies, Journal of World Business, Organization Science, Sloan Management Review, and Strategic Management Journal. He is co-editor and contributing author of Globalization and NGOs (Praeger, 2003) and Handbook on Responsible Leadership and Governance in Global Business (Elgar, 2005) and co-author of the previous edition of International Management: Culture, Strategy, and Behavior (9th ed., McGraw-Hill/Irwin, 2015), the best-selling international management text. His current research focus is on strategy for and in emerging markets, global corporate responsibility, and offshore outsourcing of services. His most recent scholarly books are Multinationals and Development (with Alan Rugman, Yale University Press, 2008), NGOs and Corporations: Conflict and Collaboration (with Michael Yaziji, Cambridge University Press, 2009) and Aligning for Advantage: Competitive Strategy for the Social and Political ­Arenas (with Tom Lawton and Tazeeb Rajwani, Oxford University Press, 2014). He has been an associate, consulting, or senior editor for numerous journals, and is currently the editorin-chief of Journal of World Business. Jonathan has also developed more than a dozen original cases and simulations published in books, journals, and case databases and used at many leading global universities. He has been a consultant or executive instructor for ABB, Anglo American, Bodycote, Bosch, China Minsheng Bank, Hana Financial, HSBC, Ingersoll Rand, Medtronic, Shanghai Municipal Government, Siam Cement, the World Economic Forum, among others. He is an external adviser to the Global Energy Resource Group of Deloitte Touche. Jonathan is part of the Executive Committee of the Academy of Management Organizations and Natural Environment Division, a role that culminated in service as chair of the division in 2016. He was ranked among the top 15 most prolific international business scholars in the world for the period 2001–2009 (Lahiri and Kumar, 2012) and in 2015 was elected a fellow of the Academy of International Business. He is a frequent keynote speaker to academic and professional groups in Europe, Asia, and Latin America. He holds a PhD in strategic and international management from George Washington University. FRED LUTHANS is University and the George Holmes Distinguished Professor of Management, Emeritus at the University of Nebraska–Lincoln. He is also a Senior Research Scientist for HUMANeX Ventures Inc. He received his BA, MBA, and PhD from the University of Iowa, where he received the Distinguished Alumni Award in 2002. While serving as an officer in the U.S. Army from 1965–1967, he taught leadership at the U.S. Military Academy at West Point. He has been a visiting scholar at a number of colleges and universities and has lectured in numerous European and Pacific Rim countries. He About the Authors has taught international management as a visiting faculty member at the universities of Bangkok, Hawaii, Henley in England, Norwegian Management School, Monash in Australia, Macau, Chemnitz in Germany, and Tirana in Albania. A past president of the Academy of Management, in 1997 he received the Academy’s Distinguished Educator Award. In 2000 he became an inaugural member of the Academy’s Hall of Fame for being one of the “Top Five” all-time published authors in the prestigious Academy journals. For many years he was co-editor-in-chief of the Journal of World Business and editor of Organizational Dynamics and is currently co-editor of Journal of Leadership and Organizational Studies. The author of numerous books, his seminal Organizational Behavior is now in its 13th edition and the 2007 groundbreaking book Psychological Capital (Oxford University Press) with Carolyn Youssef and Bruce Avolio came out in a new version in 2015. He is one of very few management scholars who is a Fellow of the Academy of Management, the Decision Sciences Institute, and the Pan Pacific Business Association. He received the Global Leadership Award from the Pan Pacific Association and has been a member of its Executive Committee since it was founded over 30 years ago. This committee helps to organize the annual meeting held in Pacific Rim countries. He has been involved with some of the first empirical studies on motivation and behavioral management techniques and the analysis of managerial activities in Russia; these articles were published in the Academy of Management Journal, Journal of International Business Studies, Journal of World Business, and ­European Management Journal. Since the very beginning of the transition to market economies after the fall of communism in Eastern Europe, he has been actively involved in management education programs sponsored by the U.S. Agency for International Development in Albania and Macedonia, and in U.S. Information Agency programs involving the Central Asian countries of Kazakhstan, Kyrgyzstan, and Tajikistan. Professor Luthans’s recent international research involves his construct of positive psychological capital (PsyCap). For example, he and colleagues have published their research demonstrating the impact of Chinese workers’ PsyCap on their performance in the International Journal of Human Resource Management and Management and Organization Review. He is applying his positive approach to positive organizational behavior (POB), PsyCap, and authentic leadership to effective global management and has been the keynote at programs in China (numerous times), Malaysia, South Korea, Indonesia, Philippines, Singapore, Taiwan, Japan, Vietnam, Costa Rica, Mexico, Chile, Fiji, Germany, France, England, Spain, Norway, Finland, Denmark, Netherlands, Italy, Russia, Macedonia, Albania, Morocco, South Africa, New Zealand, and Australia. xv Brief Contents Part One Environmental Foundation 1 Globalization and International Linkages 2 The Political, Legal, and Technological Environment 3 Ethics, Social Responsibility, and Sustainability Brief Integrative Case 1.1: Advertising or Free Speech? The Case of Nike and Human Rights Brief Integrative Case 1.2: TOMS Puts Its Right Foot Forward In-Depth Integrative Case 1.1: Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletic In-Depth Integrative Case 1.2: The Ethics of Global Drug Pricing Part Two The Meanings and Dimensions of Culture Managing Across Cultures Organizational Cultures and Diversity Cross-Cultural Communication and Negotiation Brief Integrative Case 2.1: Coca-Cola in India Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha In-Depth Integrative Case 2.1a: Euro Disneyland In-Depth Integrative Case 2.1b: Disney in Asia In-Depth Integrative Case 2.2: Walmart’s Global Strategies 107 113 122 156 182 208 248 255 262 273 279 International Strategic Management 8 Strategy Formulation and Implementation 9 Entry Strategies and Organizational Structures 10 Managing Political Risk, Government Relations, and Alliances 11 Management Decision and Control Brief Integrative Case 3.1: Google in China: Protecting Property and Rights In-Depth Integrative Case 3.1: Tata “Nano”: The People’s Car xvi 99 102 The Role of Culture 4 5 6 7 Part Three 2 44 74 290 328 360 388 415 421 xvii Brief Contents Organizational Behavior and Human Resource Management 12 Motivation Across Cultures 13 Leadership Across Cultures 14 Human Resource Selection and Development Across Cultures Brief Integrative Case 4.1: IKEA’s Global Renovations In-Depth Integrative Case 4.1: HSBC in China In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround Skill-Building and Experiential Exercises Glossary Indexes Part Four 432 468 508 555 563 575 583 599 605 Table of Contents Part One Environmental Foundation 1 Globalization and International Linkages 2 The World of International Management: An Interconnected World 2 Introduction 5 Globalization and Internationalization 7 Globalization, Antiglobalization, and Global Pressures for Change Global and Regional Integration 10 Changing Global Demographics 14 The Shifting Balance of Economic Power in the Global Economy 15 Global Economic Systems 22 Market Economy 22 Command Economy 23 Mixed Economy 23 Economic Performance and Issues of Major Regions 2 23 Established Economies 24 Emerging and Developing Economies 26 Developing Economies on the Verge 30 The World of International Management—Revisited 35 Summary of Key Points 37 Key Terms 37 Review and Discussion Questions 37 Answers to the In-Chapter Quiz 38 Internet Exercise: Global Competition in Fast Food 38 Endnotes 38 In the International Spotlight: India 42 The Political, Legal, and Technological Environment 44 The World of International Management: Social Media and Political Change 44 Political Environment 46 Ideologies 47 Political Systems 50 Legal and Regulatory Environment xviii 7 52 Basic Principles of International Law 53 Examples of Legal and Regulatory Issues 54 xix Table of Contents Privatization 57 Regulation of Trade and Investment 60 Technological Environment and Global Shifts in Production 3 60 Trends in Technology, Communication, and Innovation 60 Biotechnology 62 E-Business 63 Telecommunications 64 Technological Advancements, Outsourcing, and Offshoring 65 The World of International Management—Revisited 67 Summary of Key Points 68 Key Terms 68 Review and Discussion Questions 69 Internet Exercise: Hitachi Goes Worldwide 69 Endnotes 69 In the International Spotlight: Greece 73 Ethics, Social Responsibility, and Sustainability 74 The World of International Management: Sustaining Sustainable Companies 74 Ethics and Social Responsibility 77 Ethics and Social Responsibility in International Management 77 Ethics Theories and Philosophy 77 Human Rights 79 Labor, Employment, and Business Practices 80 Environmental Protection and Development 81 Globalization and Ethical Obligations of MNCs 83 Reconciling Ethical Differences across Cultures 85 Corporate Social Responsibility and Sustainability 85 Corporate Governance 89 Corruption 90 International Assistance 92 The World of International Management—Revisited 93 Summary of Key points 94 Key Terms 94 Review and Discussion Questions 94 Endnotes 94 In the International Spotlight: Cuba 98 Brief Integrative Case 1.1: Advertising or Free Speech? The Case of Nike and Human Rights 99 Endnotes 101 Brief Integrative Case 1.2: TOMS Puts Its Right Foot Forward 102 Endnotes 105 xx Part Two Table of Contents In-Depth Integrative Case 1.1: Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletic 107 Endnotes 111 In-Depth Integrative Case 1.2: The Ethics of Global Drug Pricing 113 Endnotes 120 The Role of Culture 4 The Meanings and Dimensions of Culture 122 The World of International Management: Culture Clashes in Cross-Border Mergers and Acquisitions 122 The Nature of Culture 124 Cultural Diversity 125 Values in Culture 128 Values in Transition Cultural Dimensions 129 Hofstede 129 Trompenaars 139 Integrating Culture and Management: The GLOBE Project 5 128 145 Culture and Management 146 GLOBE’s Cultural Dimensions 146 GLOBE Country Analysis 147 The World of International Management—Revisited 148 Summary of Key Points 150 Key Terms 150 Review and Discussion Questions 151 Internet Exercise: Renault-Nissan in South Africa 151 Endnotes 151 In the International Spotlight: South Africa 154 Managing Across Cultures 156 The World of International Management: Taking a Bite Out of Apple: Corporate Culture and an Unlikely Chinese Start-Up 156 The Strategy for Managing across Cultures 158 Strategic Predispositions 159 Meeting the Challenge 160 Cross-Cultural Differences and Similarities 162 Parochialism and Simplification 162 Similarities across Cultures 164 Many Differences across Cultures 165 Cultural Differences in Selected Countries and Regions 168 Using the GLOBE Project to Compare Managerial Differences 169 Managing Culture in Selected Countries and Regions 170 xxi Table of Contents 6 The World of International Management—Revisited 175 Summary of Key Points 176 Key Terms 176 Review and Discussion Questions 176 Internet Exercise: Haier’s Approach 176 Endnotes 177 In the International Spotlight: Poland 180 Organizational Cultures and Diversity 182 The World of International Management: Managing Culture and Diversity in Global Teams 182 The Nature of Organizational Culture 184 Definition and Characteristics Interaction between National and Organizational Cultures 186 Organizational Cultures in MNCs 190 Family Culture 192 Eiffel Tower Culture 192 Guided Missile Culture 193 Incubator Culture 194 Managing Multiculturalism and Diversity 7 185 196 Phases of Multicultural Development 196 Types of Multiculturalism 198 Potential Problems Associated with Diversity 199 Advantages of Diversity 200 Building Multicultural Team Effectiveness 201 The World of International Management—Revisited 203 Summary of Key Points 203 Key Terms 204 Review and Discussion Questions 204 Internet Exercise: Lenovo’s International Focus 205 Endnotes 205 In the International Spotlight: Nigeria 207 Cross-Cultural Communication and Negotiation 208 The World of International Management: Netflix’s Negotiations: China and Russia 208 The Overall Communication Process 210 Verbal Communication Styles 210 Interpretation of Communications 213 Communication Flows 214 Downward Communication 214 Upward Communication 215 xxii Table of Contents Communication Barriers Language Barriers 216 Perceptual Barriers 219 The Impact of Culture 221 Nonverbal Communication 223 Achieving Communication Effectiveness 226 Improve Feedback Systems 226 Provide Language Training 226 Provide Cultural Training 227 Increase Flexibility and Cooperation 229 Managing Cross-Cultural Negotiations Part Three 216 229 Types of Negotiation 229 The Negotiation Process 230 Cultural Differences Affecting Negotiations 231 Negotiation Tactics 234 Negotiating for Mutual Benefit 235 Bargaining Behaviors 237 The World of International Management—Revisited 240 Summary of Key Points 241 Key Terms 241 Review and Discussion Questions 241 Internet Exercise: Working Effectively at Toyota 242 Endnotes 242 In the International Spotlight: China 246 Brief Integrative Case 2.1: Coca-Cola in India 248 Endnotes 253 Brief Integrative Case 2.2: Danone’s Wrangle with Wahaha 255 Endnotes 260 In-Depth Integrative Case 2.1a: Euro Disneyland 262 Endnotes 272 In-Depth Integrative Case 2.1b: Disney in Asia 273 Endnotes 277 In-Depth Integrative Case 2.2: Walmart’s Global Strategies 279 Endnotes 286 International Strategic Management 8 Strategy Formulation and Implementation 290 The World of International Management: GSK’s Prescription for Global Growth 290 Strategic Management 293 The Growing Need for Strategic Management 294 Benefits of Strategic Planning 295 xxiii Table of Contents Approaches to Formulating and Implementing Strategy 295 Global and Regional Strategies 299 The Basic Steps in Formulating Strategy Environmental Scanning 302 Internal Resource Analysis 304 Goal Setting for Strategy Formulation 304 Strategy Implementation 306 Location Considerations for Implementation 306 Combining Country and Firm-Specific Factors in International Strategy 308 The Role of the Functional Areas in Implementation 310 Specialized Strategies 9 302 311 Strategies for Emerging Markets 311 Entrepreneurial Strategy and New Ventures 317 The World of International Management—Revisited 319 Summary of Key Points 320 Key Terms 320 Review and Discussion Questions 320 Internet Exercise: Infosys’s Global Strategy 321 Endnotes 321 In the International Spotlight: Saudi Arabia 327 Entry Strategies and Organizational Structures 328 The World of International Management: Building a Global Brand: Haier’s Alignment of Strategy and Structure 328 Entry Strategies and Ownership Structures 329 Export/Import 330 Wholly Owned Subsidiary 330 Mergers/Acquisitions 331 Alliances and Joint Ventures 332 Alliances, Joint Ventures, and M&A: The Case of the Automotive Industry 333 Licensing 335 Franchising 336 The Organization Challenge 337 Basic Organizational Structures 338 Initial Division Structure 338 International Division Structure 339 Global Structural Arrangements 340 Transnational Network Structures 344 xxiv Table of Contents Nontraditional Organizational Arrangements Organizational Arrangements from Mergers, Acquisitions, Joint Ventures, and Alliances The Emergence of the Network Organizational Forms 346 346 348 Organizing for Product Integration 349 Organizational Characteristics of MNCs 350 Formalization 350 Specialization 351 Centralization 352 Putting Organizational Characteristics in Perspective 352 The World of International Management—Revisited 354 Summary of Key points 354 Key Terms 355 Review and Discussion Questions 355 Internet Exercise: Organizing for Effectiveness 355 Endnotes 355 In the International Spotlight: Mexico 359 10 Managing Political Risk, Government Relations, and Alliances 360 The World of International Management: Russian Roulette: Risks and Political Uncertainty 360 The Nature and Analysis of Political Risk 362 Macro and Micro Analysis of Political Risk 364 Terrorism and Its Overseas Expansion 367 Analyzing the Expropriation Risk 368 Managing Political Risk and Government Relations 368 Developing a Comprehensive Framework or Quantitative Analysis 368 Techniques for Responding to Political Risk 373 Relative Bargaining Power Analysis 373 Managing Alliances 377 The Alliance Challenge 377 The Role of Host Governments in Alliances 378 Examples of Challenges and Opportunities in Alliance Management 379 The World of International Management—Revisited 381 Summary of Key points 381 Key Terms 382 Review and Discussion Questions 382 Internet Exercise: Nokia in China 382 Endnotes 382 In the International Spotlight: Brazil 386 xxv Table of Contents 11 Management Decision and Control 388 The World of International Management: Global Online Retail: Amazon v. Alibaba 388 Decision-Making Process and Challenges 390 Factors Affecting Decision-Making Authority 391 Cultural Differences and Comparative Examples of Decision Making 393 Total Quality Management Decisions 394 Decisions for Attacking the Competition 396 Decision and Control Linkages 397 The Controlling Process 398 Types of Control 399 Approaches to Control 401 Performance Evaluation as a Mechanism of Control 403 Financial Performance 403 Quality Performance 404 Personnel Performance 407 The World of International Management—Revisited 409 Summary of Key Points 410 Key Terms 410 Review and Discussion Questions 410 Internet Exercise: Looking at the Best 411 Endnotes 411 In the International Spotlight: Japan 414 Brief Integrative Case 3.1: Google in China: Protecting Property and Rights 415 Endnotes 419 In-Depth Integrative Case 3.1: Tata “Nano”: The People’s Car 421 Endnotes 429 Organizational Behavior and Human Resource Management 12 Motivation Across Cultures Part Four 432 The World of International Management: Motivating Employees in a Multicultural Context: Insights from Emerging Markets 432 The Nature of Motivation 434 The Universalist Assumption 435 The Assumption of Content and Process 436 The Hierarchy-of-Needs Theory 436 The Maslow Theory 436 International Findings on Maslow’s Theory 437 xxvi Table of Contents The Two-Factor Theory of Motivation 442 The Herzberg Theory 442 International Findings on Herzberg’s Theory 443 Achievement Motivation Theory 446 The Background of Achievement Motivation Theory 446 International Findings on Achievement Motivation Theory 447 Select Process Theories 449 Equity Theory 449 Goal-Setting Theory 450 Expectancy Theory 451 Motivation Applied: Job Design, Work Centrality, and Rewards 451 Job Design 451 Sociotechnical Job Designs 453 Work Centrality 454 Reward Systems 458 Incentives and Culture 458 The World of International Management—Revisited 459 Summary of Key Points 460 Key Terms 461 Review and Discussion Questions 461 Internet Exercise: Motivating Potential Employees 462 Endnotes 462 In the International Spotlight: Indonesia 467 13 Leadership Across Cultures 468 The World of International Management: Global Leadership Development: An Emerging Need 468 Foundation for Leadership 470 The Manager-Leader Paradigm 470 Philosophical Background: Theories X, Y, and Z 472 Leadership Behaviors and Styles 474 The Managerial Grid Performance: A Japanese Perspective 476 Leadership in the International Context 479 Attitudes of European Managers toward Leadership Practices 479 Japanese Leadership Approaches 481 Differences between Japanese and U.S. Leadership Styles 482 Leadership in China 483 Leadership in the Middle East 485 xxvii Table of Contents Leadership Approaches in India 485 Leadership Approaches in Latin America 486 Recent Findings and Insights about Leadership 487 Transformational, Transactional, and Charismatic Leadership 487 Qualities for Successful Leaders 489 Culture Clusters and Leader Effectiveness 489 Leader Behavior, Leader Effectiveness, and Leading Teams 491 Cross-Cultural Leadership: Insights from the GLOBE Study 493 Positive Organizational Scholarship and Leadership 495 Authentic Leadership 496 Ethical, Responsible, and Servant Leadership 497 Entrepreneurial Leadership and Mindset 500 The World of International Management—Revisited 500 Summary of Key Points 501 Key Terms 502 Review and Discussion Questions 502 Internet Exercise: Taking a Closer Look 502 Endnotes 503 In the International Spotlight: Germany 507 14 Human Resource Selection and Development Across Cultures 508 The World of International Management: The Challenge of Talent Retention in India 508 The Importance of International Human Resources 511 Getting the Employee Perspective 511 Employees as Critical Resources 511 Investing in International Assignments 512 Economic Pressures 512 Sources of Human Resources 513 Home-Country Nationals 513 Host-Country Nationals 514 Third-Country Nationals 514 Subcontracting and Outsourcing 516 Selection Criteria for International Assignments 518 General Criteria 518 Adaptability to Cultural Change 518 Physical and Emotional Health 519 Age, Experience, and Education 520 Language Training 520 xxviii Table of Contents Motivation for a Foreign Assignment 520 Spouses and Dependents or Work-Family Issues 521 Leadership Ability 522 Other Considerations 523 Economic Pressures and Trends in Expat Assignments 523 International Human Resource Selection Procedures 524 Testing and Interviewing Procedures 524 The Adjustment Process 525 Compensation 526 Common Elements of Compensation Packages 527 Tailoring the Package 530 Individual and Host-Country Viewpoints 531 Candidate Motivations 531 Host-Country Desires 531 Repatriation of Expatriates 533 Reasons for Returning 533 Readjustment Problems 533 Transition Strategies 534 Training in International Management 535 The Impact of Overall Management Philosophy on Training 537 The Impact of Different Learning Styles on Training and Development 538 Reasons for Training 539 Types of Training Programs 541 Standardized vs. Tailor-Made Cultural Assimilators Positive Organizational Behavior 541 544 545 Future Trends 546 The World of International Management—Revisited 546 Summary of Key Points 548 Key Terms 549 Review and Discussion Questions 549 Internet Exercise: Coke Goes Worldwide 549 Endnotes 550 In the International Spotlight: Russia 554 Brief Integrative Case 4.1: IKEA’s Global Renovations 555 Endnotes 562 In-Depth Integrative Case 4.1: HSBC in China 563 Endnotes 574 In-Depth Integrative Case 4.2: Chiquita’s Global Turnaround 575 Endnotes 582 xxix Table of Contents Skill-Building and Experiential Exercises 583 Personal Skill-Building Exercises 584 1. The Culture Quiz 584 2. “When in Bogotá . . .” 589 3. The International Cola Alliances 592 4. Whom to Hire? 596 In-Class Simulations (Available in Connect, connect.mheducation.com) 1. “Frankenfoods” or Rice Bowl for the World: The U.S.-EU Dispute over Trade in Genetically Modified Organisms 2. Cross-Cultural Conflicts in the Corning-Vitro Joint Venture Glossary 599 Name and Organization Index 605 Subject Index 621 PART ONE ENVIRONMENTAL FOUNDATION Chapter 1 OBJECTIVES OF THE CHAPTER GLOBALIZATION AND INTERNATIONAL LINKAGES Globalization is one of the most profound forces in our contemporary economic environment, although support for free trade and open borders is not universal. The practical impact of globalization can be felt on all aspects of society, and effective management of organizations in an increasingly complex global environment is crucial for success. In nearly every country, increasing numbers of large, medium, and even small corporations are engaging in international activities, and a growing percentage of company revenue is derived from overseas markets. Yet, continued economic and political uncertainties in many world regions, the rise of more nationalistic political movements, and continued concerns about the impact of immigration have caused some to question the current system for regulating and overseeing international trade, investments, migration, and financial flows. Nonetheless, international management—the process of applying management concepts and techniques in a multinational environment— continues to retain importance. Although globalization and international linkages have been part of history for centuries (see the International Management in Action box “Tracing the Roots of Modern Globalization” later in the chapter), the principal focus of this opening chapter is to examine the process of globalization in the contemporary world. The rapid integration of countries, advances in information technology, and the explosion in electronic communication have created a new, more integrated world and true global competition. Yet, the complexities of doing business in distinct markets persist. Since the environment of international management is all-encompassing, this chapter is mostly concerned with the economic dimensions, while the following two chapters are focused on the political, legal, and technological dimensions and ethical and social dimensions, respectively. The specific objectives of this chapter are 1. ASSESS the implications of globalization for countries, industries, firms, and communities. 2. REVIEW the major trends in global and regional integration. 3. EXAMINE the changing balance of global economic power and trade and investment flows among countries. 4. ANALYZE the major economic systems and recent developments among countries that reflect those systems. 2 The World of International Management An Interconnected World O nly 23 years old, Evan Spiegel faced a major business decision: whether or not to accept a US$3 billion offer from Facebook’s Mark Zuckerberg for his social media start-up Snapchat. Taking the deal would make Spiegel one of the youngest self-made billionaires in history. Just two years prior, Spiegel was a typical college junior at Stanford University, living in a fraternity house and working towards graduation. As a product-design student with a knack for computers, Spiegel was keenly aware that popular social media applications, such as Twitter and Facebook, record a digital “paper trail” of their users. Content uploaded to these social media sites, such as text, comments, and photos, are kept indefinitely on servers. For young college graduates trying to enter the workforce, this log of past activity has the potential to be particularly harmful; employers are often able to see this information by simply searching for a job applicant’s name online. Spiegel, however, had a clever solution: create a social networking application that would allow users to create and share content that “self-destructs” immediately after viewing. For a school project, Spiegel and co-founder Bobby Murphy programmed and developed the application, and the social media application Snapchat was born.1 Around the same time, Facebook executives were actively looking to expand their product line. Having just survived a rocky IPO and finally emerging as a profitable enterprise, Facebook began purchasing several social media applications, including Instagram and WhatsApp in 2012 and 2014, respectively, for several billion dollars each. By mid-2013, Facebook’s Mark Zuckerberg had taken notice of the rapidly expanding Snapchat; to Zuckerberg, the appeal of Snapchat seemed to align with that of the typical Facebook user. In an attempt to grab market share from the Snapchat user base, Facebook first introduced a copycat application, called Poke. Though heavily promoted, Poke quickly flopped. Snapchat, meanwhile, continued to grow exponentially. By the beginning of 2014, Snapchat had over 30 million active users and 400 million “snaps” were being received daily.2 Sensing defeat, Zuckerberg approached Spiegel with a lucrative offer: US$3 billion for the application. At that time, Snapchat had not made a single dollar in revenue. In a controversial and unexpected move, 23-year-old Spiegel gave Zuckerberg a firm answer: “No.” If Spiegel turned down a US$3 billion offer for a single application, just how valuable is social media to the global community? Instagram ∙ ∙ ∙ Social Media Has Changed How We Connect Though the market value of social media applications, such as Snapchat, are yet to be determined, one thing is certain: We currently live in a world interconnected by social media. Through online networking, the way we connect with others has drastically changed. The volume of content being created and shared is staggering, with virtually anyone on the globe only a few clicks away. In fact, the average number of links separating any two random people on Facebook is now only 4.74.3 Statistics from some of the most used social networking applications underscore how social media has connected people across the globe: Facebook Snapchat ∙ ∙ ∙ ∙ Social Media Has Changed Global Business Strategy Population in Millions 1600 1400 16% Canada & USA 1000 84% of users are located outside of the USA & Canada 800 600 400 200 0 Facebook China India Snapchat reached 100 million active members in less than four years.5 60 percent of 13–34 year olds in the United States are on Snapchat. More than 5 billion videos are viewed on Snapchat every day. Over 60 percent of Snapchat users create and share original content everyday.6 Certainly, social networks are a part of many people’s lives. Yet, has the virtual world of social media networks made a permanent impact in the world of international business? If Facebook were a country, it would be the largest. 1200 Over 300 million people create content on Instagram every month. Over 70 percent of Instagram users are from outside the United States. 70 million new photos are uploaded and shared every day.4 USA 900 million users, or about 90% of the daily users, access Facebook through their mobile devices. Globally, the average user has 338 “friends”: Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh, based on information from Facebook.com & Smith, Aaron, “6 New Facts About Facebook,” Pew Research Center, February 3, 2014. http://www.pewresearch.org. General Electric (GE), a company with a longstanding legacy in multiple industries, and one of the most recognizable brands on the planet, has strategically leveraged social media to improve its long-term image. By interacting daily with customers across a variety of social networks, the 100-year-old company aims to transform the way that its brand is perceived while simultaneously building a new generation of consumers. A section of GE’s website, called the “Social Hub,” serves as a central spot for this social media activity, compiling its pictures and videos posted to Facebook, Twitter, and Google+ into one location online. Since 2015, GE has strategically leveraged social media as an advertising tool. Geo-filters, which are graphic advertisements that Snapchat users can add to their “snaps” depending on their geographic location, have been utilized by GE on multiple occasions. Advertising through these filters provides GE with an opportunity to 3 4 Part 1 Environmental Foundation increase brand awareness with a younger, more tech-savvy generation while simultaneously linking their brand to specific events and locations. GE’s first Snapchat geo-filter, which was released for the summer solstice, was shared by nearly 5 million users.7 Through its “Ecomagination” program, GE utilizes social media to crowdsource sustainable solutions to current environmental issues. A central component of the program is the Open Innovation Challenges, in which teams work together to solve a specific problem specified by GE. Intellectual property rights are shared by GE and the participants, and winners receive funding to co-develop their ideas with GE scientists. Social Media Has Changed How We Do Business Globally In his book Socialnomics: How Social Media Transforms the Way We Live and Do Business, Erik Qualman writes, “Social media platforms like Facebook, YouTube, and Twitter are fundamentally changing the way businesses and consumers behave, connecting hundreds of millions of people to each other via instant communication.” In essence, social media is reshaping how “consumers and companies communicate and interact with each other.”8 Social media has changed how consumers search for products and services. Qualman gives the example of a woman who wants to take a vacation to South America, but she is not sure which country she wants to visit. In the past, she would have typed in “South American vacation” to Google, which would have brought her to travel websites such as TripAdvisor. After hours of research, she would have picked a destination. Then, after more research, she would pick a place to stay. With social media, this woman’s vacation planning becomes streamlined. When she types “South American vacation” into a social network, she finds that five of her friends have taken a trip to South America in the last year. She notices that two of her friends highly recommended their vacations to Chile with GoAhead Tours. She clicks on a link to GoAhead Tours and books her vacation. In a social network, online word of mouth among friends carries great weight for consumers. With the data available from their friends about products and services, consumers know what they want without traditional marketing campaigns.9 This trend means that marketers must be responsive to social networks. For example, an organization that gives travel tours has a group on Facebook. A marketer at that organization could create a Facebook application that allows its group members to select “places I’d like to visit.” Let’s say that 25 percent of group members who use the application choose Victoria Falls as a place they would like to visit. The organization could develop a tour to Victoria Falls, and then could send a message to all of its Facebook group members to notify them about this new tour. In this way, a social network serves as an inexpensive, effective means of marketing directly to a business’s target audience. Social Media Has Impacted International Diplomacy The United Nations (U.N.) has increasingly embraced social media as a tool to increase diplomacy and understanding worldwide. The U.N. maintains official accounts on Facebook, Twitter, YouTube, Flickr, Google+, Tumblr, Instagram, and LinkedIn, and, as of 2016, boasts over 2 million followers on its primary Facebook page. As part of its “2015: Time for Global Action” campaign, the U.N. utilized various social media platforms to spread its action plan and its new sustainable development goals worldwide. The hashtag “#action15” was used to link activities across various networks, while Twitter and Facebook served as primary platforms for disseminating information to its global audience (refer to Chapter 3, Table 3-3, for a further discussion of the U.N.’s 2015 sustainable development goals).10 In another pioneering move, the U.S. government sent an unconventional delegation to Moscow that included the creator of Twitter, the chief executive of eBay, and the actor Ashton Kutcher. One of the delegation’s goals was “to persuade Russia’s thriving online social networks to take up social causes like fighting corruption or human trafficking,” according to Jared Cohen, who served on former-Secretary of State Hillary Clinton’s policy planning staff. In Russia, the average adult spends 10.4 hours a month on social networking sites, based on comScore market research. This act of diplomacy by Washington underscores how important social networks have become in our world today, a world in which Twitter has helped mobilize people to fight for freedom from corruption. Social media networks have accelerated technological integration among the nations of the world. People across the globe are now linked more closely than ever before. This social phenomenon has implications for businesses as corporations can now leverage networks such as Facebook to achieve greater success. Understanding the global impact of social media is key to understanding our global society today. Social networks have rapidly diffused from the United States and Europe to every region of the world, underscoring the inexorable nature of globalization. As individuals who share interests and preferences link up, they are afforded opportunities to connect in ways that were unimaginable just a decade ago. Facebook, Twitter, LinkedIn, and others are all providing communication platforms for individuals and groups in disparate—and even isolated—locations around the world. Such networks also offer myriad business opportunities for companies large and small to identify and target discrete groups of consumers or other business partners. These networks are revolutionizing the nature of management—including international management—by allowing producers and consumers to interact directly Chapter 1 Globalization and International Linkages 5 without the usual intermediaries. Networks and the individuals who make them up are bringing populations of the world closer together and further accelerating the already rapid pace of globalization and integration. As evidenced by Evan Speigel’s rejection of a US$3 billion offer for his social networking application Snapchat, social media is, in many ways, invaluable to the global community. The pace of interconnectivity across the globe continues to increase with the new communication tools that social networking provides. Social media has altered the way that we interact with each other, and businesses, like GE, have gained real advantages by leveraging online networks. In this chapter, we examine the globalization phenomenon, the growing integration among countries and regions, the changing balance of global economic power, and examples of different economic systems. As you read this chapter, keep in mind that although there are periodic setbacks, globalization continues to move at a rapid pace and that all nations, including the United States, as well as individual companies and their managers, are going to have to keep a close watch on the current environment if they hope to be competitive in the years ahead. ■ Introduction Management is the process of completing activities with and through other people. International management is the process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural contexts. Many managers practice some level of international management in today’s increasingly diverse organizations. International management is distinct from other forms of management in that knowledge and insights about global issues and specific cultures are a requisite for success. Today more firms than ever are earning some of their revenue from international operations, even nascent organizations, as illustrated in The World of International Management chapter opening. Many of these companies are multinational corporations (MNCs). An MNC is a firm that has operations in more than one country, international sales, and a mix of nationalities among managers and owners. In recent years such well-known American MNCs as Apple, Chevron, Johnson & Johnson, Coca-Cola, Ford Motor Company, ­ExxonMobil, Caterpillar, Walmart, Microsoft, and Google have all earned more annual revenue in the international arena than they have in the United States. Table 1–1 lists management Process of completing activities efficiently and effectively with and through other people. international management Process of applying management concepts and techniques in a multinational environment and adapting management practices to different economic, political, and cultural environments. MNC A firm having operations in more than one country, international sales, and a nationality mix of managers and owners. Table 1–1 The World’s Top Nonfinancial MNCs, Ranked by Foreign Assets, 2015 (in millions of dollars) Rank Company Name Home Economy   1   2   3   4   5   6   7   8   9 10 Royal Dutch/Shell Plc Toyota Motor Corporation General Electric Total SA British Petroleum Company Plc Exxon Mobil Corporation Chevron Corporation Volkswagen Group Vodafone Group Plc Apple Computer Inc. United Kingdom Japan United States France United Kingdom United States United States Germany United Kingdom United States Foreign Assets Total Assets Foreign Sales Total Sales $288,283 273,280 257,742 236,719 216,698 193,493 191,933 181,826 166,967 143,652 $340,157 422,176 492,692 244,856 261,832 336,758 266,103 416,596 192,310 290,479 $169,737 165,195 64,146 123,995 145,640 167,304 48,183 189,817 52,150 151,983 $264,960 236,797 117,385 159,162 222,894 259,488 129,648 236,702 61,466 233,715 Source: UNCTAD, World Investment Report 2016 (June 21, 2016), Annex Table 24, http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx. 6 Part 1 Environmental Foundation the world’s top nonfinancial companies ranked by foreign assets through 2015. General Electric, headquartered in the United States, for example, now has more than 50% of its assets located outside of its home market. In addition, companies from developing economies, such as India, Brazil, and China, are providing formidable competition to their North American, European, and Japanese counterparts. Names like Cemex, Embraer, Haier, Lenovo, LG Electronics, Wipro, Telefonica, Santander, Reliance, Samsung, Grupo Televisa, Airtel, Tata, and ­Infosys are becoming well-known global brands. Globalization and the rise of emerging markets’ MNCs have brought prosperity to many previously underdeveloped parts of the world, notably the emerging markets of Asia. Since 2009, sales of automobiles in China have exceeded those in the United States. Boosted by tax breaks, vehicle sales in China reached a record 24.6 million units in 2015, according to the China Association of Automobile Manufacturers, far ahead of the 17.5 million cars and light trucks sold in the U.S.11 Moreover, a number of emerging market auto companies are becoming global players through their exporting, foreign investment, and international acquisitions, including the purchase of Volvo by Chinese automaker Geely and Tata’s acquisition of Jaguar-Land Rover (see the In-Depth Integrative Case at the end of Part Three). In a striking move, Cisco Systems, one of the world’s largest producers of network equipment, such as routers, announced it would establish a “Globalization Center East” in Bangalore, India. This center includes all the corporate and operational functions of U.S. headquarters, which have been mirrored in India. Under this plan, which includes an investment of over $1.1 billion, one-fifth of Cisco’s senior management will move to Bangalore.12,13 In March 2014, Procter and Gamble celebrated the grand opening of their ­Singapore Innovation Center (SgIC), which will function as the primary research and development center for P&G’s hair, skin, and home care products. According to P&G, the SgIC will contain more than 250 research laboratories and 500 researchers, focusing on more than 18 different fields of study. The Asian market, with nearly two billion customers and 25 different brands, is particularly important for P&G’s future growth plans.14 Similarly, Unilever has opened R&D centers in Bangalore, India, and Shanghai, China. The Shanghai Center is one of Unilever’s largest R&D buildings, covering some 30,000 square meters and housing more than 450 professionals from 22 nationalities.15 Citing the massive growth in the health care market in Asia, General Electric moved its X-ray business headquarters to China in 2011, and vice chairman John Rice relocated to Hong Kong.16,17 Accenture, another American archetype, had about 336,000 employees globally in 2015, with about 237,000 of those employees located outside of the United States. Originally focused on IT services within the United States, Accenture has quickly transformed into one of the largest consulting firms worldwide. The company’s operations in India now employ nearly 150,000 people, twice as many as in the United States.18 With offices in 200 cities across 55 countries, Accenture has focused on providing services for both developed and growing markets.19 In 2015, Accenture drew 47 percent of its revenue from outsourcing.20 These trends reflect the reality that firms are finding they must develop international management expertise, especially expertise relevant to the increasingly important developing and emerging markets of the world. Managers from today’s MNCs must learn to work effectively with those from many different countries. Moreover, more and more small and medium-sized businesses will find that they are being affected by internationalization. Many of these companies will be doing business abroad, and those that do not will find themselves doing business with MNCs operating locally. And increasingly, the MNCs are coming from the developing world as previously domestic-oriented companies from countries like China and India expand abroad through acquisitions or other means. Table 1–2 lists the world’s top nonfinancial companies from developing countries ranked by foreign assets in 2014. Chapter 1 Globalization and International Linkages 7 Table 1–2 The World’s Top Nonfinancial TNCs from Developing and Transitioning Economies, Ranked by Foreign Assets, 2014 (in millions of dollars) Rank Company Name Home Economy Foreign Assets Total Assets Foreign Sales Total Sales  1   2   3   4   5   6   7   8 Hutchison Whampoa Limited Hon Hai Precision Industries China National Offshore Oil Group Samsung Electronics Co., Ltd. Vale SA Petronas – Petroliam Nasional Bhd China Ocean Shipping (Group) Company America Movil SAB De CV Hong Kong/China $91,055 $113,909 $ 27,043 $ 35,098 Taiwan 73,010 77,803 138,023 139,018 China 71,090 182,282 26,084 99,557 South Korea 56,164 211,205 176,534 196,263 Brazil Malaysia 55,448 45,572 116,598 153,770 31,667 76,726 37,608 100,602 China 44,805 57,875 18,075 27,483 Mexico 41,627 86,795 41,547 63,793   9 10 Lukoil OAO Tata Motors Ltd. Russian Federation India 32,907 30,214 111,800 38,235 119,932 37,201 144,167 43,044 Source: UNCTAD, World Investment Report 2016 (June 21, 2016), Annex Table 25, http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx. ■ Globalization and Internationalization International business is not a new phenomenon; however, the volume of international trade has increased dramatically over the last decade. Today, every nation and an increasing number of companies buy and sell goods in the international marketplace. A number of developments around the world have helped fuel this activity. Globalization, Antiglobalization, and Global Pressures for Change Globalization can be defined as the process of social, political, economic, cultural, and technological integration among countries around the world. Globalization is distinct from internationalization in that internationalization is the process of a business crossing national and cultural borders, while globalization is the vision of creating one world unit, a single market entity. Evidence of globalization can be seen in increased levels of trade, capital flows, and migration. Globalization has been facilitated by technological advances in transnational communications, transport, and travel. Thomas Friedman, in his book The World Is Flat, identified 10 “flatteners” that have hastened the globalization trend, including the fall of the Berlin Wall, offshoring, and outsourcing, which have combined to dramatically intensify the effects of increasing global linkages.21 Hence, in recent years, globalization has accelerated, creating both opportunities and challenges to global business and international management. On the positive side, global trade and investment continue to grow, bringing wealth, jobs, and technology to many regions around the world. While some emerging countries have not benefited from globalization and integration, the emergence of MNCs from developing countries reflects the increasing inclusion of all regions of the world in the benefits of globalization. Yet, as the pace of global integration quickens, so have the cries against globalization and the emergence of new concerns over mounting global pressures.22 These pressures can be seen in protests at the meetings of the World Trade globalization The process of social, political, economic, cultural, and technological integration among countries around the world. offshoring The process by which companies undertake some activities at offshore locations instead of in their countries of origin. outsourcing The subcontracting or contracting out of activities to endogenous organizations that had previously been performed by the firm. International Management in Action Tracing the Roots of Modern Globalization Globalization is often presented as a new phenomenon associated with –World War II period. In fact, globalization is not new. Rather, its roots extend back to ancient times. Globalization emerged from long-standing patterns of transcontinental trade that developed over many centuries. The act of barter is the forerunner of modern international trade. During different periods of time, nearly every civilization contributed to the expansion of trade. Middle Eastern Intercontinental Trade In ancient Egypt, the King’s Highway or Royal Road stretched across the Sinai into Jordan and Syria and into the Euphrates Valley. These early merchants practiced their trade following one of the earliest codes of commercial integrity: Do not move the scales, do not change the weights, and do not diminish parts of the bushel. Land bridges later extended to the Phoenicians, the first middlemen of global trade. Over 2,000 years ago, traders in silk and other rare valued goods moved east out of the Nile basin to Baghdad and Kashmir and linked the ancient empires of China, India, Persia, and Rome. At its height, the Silk Road extended over 4,000 miles, providing a transcontinental conduit for the dissemination of art, religion, technology, ideas, and culture. Commercial caravans crossing land routes in Arabian areas were forced to pay tribute—a forerunner of custom duties—to those who controlled such territories. In his youth, the Prophet Muhammad traveled with traders, and prior to his religious enlightenment the founder of Islam himself was a trader. Accordingly, the Qur’an instructs followers to respect private property, business agreements, and trade. Trans-Saharan Cross-Continental Trade Early tribes inhabiting the triad cities of Mauritania, in ancient West Africa below the Sahara, embraced caravan trade with the Berbers of North Africa. Gold from the sub-Saharan area was exchanged for something even more prized—salt, a precious substance needed for retaining body moisture, preserving meat, and flavoring food. Single caravans, stretching five miles and including nearly 2,500 camels, earned their reputation as ships of the desert as they ferried gold powder, slaves, ivory, animal hides, and ostrich feathers to the northeast and returned with salt, wool, gunpowder, porcelain pottery, silk, dates, millet, wheat, and barley from the East. China as an Ancient Global Trading Initiator In 1421, a fleet of over 3,750 vessels set sail from China to cultivate trade around the world for the emperor. The voyage reflected the emperor’s desire to collect tribute in exchange for trading privileges with China and China’s protection. The Chinese, like modern-day multinationals, sought to extend their economic reach while recognizing principles of economic equity and fair trade. In the course of their global trading, the Chinese i­ntroduced uniform container measurements to enable merchants to transact business using common weight and dimension measurement systems. Like the early Egyptians and later the Romans, they used coinage as an intermediary form of value exchange or specie, thus eliminating complicated barter transactions. European Trade Imperative The concept of the alphabet came to the Greeks via trade with the Phoenicians. During the time of Alexander the Great, transcontinental trade was extended into Afghanistan and India. With the rise of the Roman Empire, global trade routes stretched from the Middle East through central Europe, Gaul, and across the English Channel. In 1215 King John of England signed the Magna Carta, which stressed the importance of crossborder trade. By the time of Marco Polo’s writing of The Description of the World, at the end of the 13th century, the Silk Road from China to the city-states of Italy was a well-traveled commercial highway. His tales, chronicled journeys with his merchant uncles, gave Europeans a taste for the exotic, further stimulating the consumer appetite that propelled trade and globalization. Around 1340, Francisco Balducci Pegolotti, a Florentine mercantile agent, authored Practica Della Mercatura (Practice of Marketing), the first widely distributed reference on international business and a precursor to today’s textbooks. The search for trading routes contributed to the Age of Discovery and encouraged Christopher Columbus to sail west in 1492. Globalization in U.S. History The Declaration of Independence, which set out grievances against the English crown upon which a new nation was founded, cites the desire to “establish Commerce” as a chief rationale for establishing an independent state. The king of England was admonished “for cutting off our trade with all parts of the world” in one of the earliest antiprotectionist free-trade statements from the New World. Globalization, begun as trade between and across territorial borders in ancient times, was historically and is even today the key driver of world economic development. The first paths in the creation of civilization were made in the footsteps of trade. In fact, the word meaning “footsteps” in the old Anglo-Saxon language is trada, from which the modern English word trade is derived. Contemporary globalization is a new branch of a very old tree whose roots were planted in antiquity. Source: Thomas Cahill, Sailing the Wine Dark Sea: Why Greeks Matter (New York: Doubleday, 2003), pp. 10, 56–57; Charles W. L. Hill, International Business, 4th ed. (New York: McGraw-Hill Irwin, 2003), p. 100; Nefertiti website, http://nefertiti.iweland.com/trade/internal_trade.htm, 2003 (ancient Egypt: domestic trade); Gavin Menzies, 1421: The Year China Discovered America (New York: William Morrow/HarperCollins, 2003), pp. 26–27; Milton Viorst, The Great Documents of Western Civilization (New York: Barnes & Noble Books, 1994), p. 115 (Magna Carta) and p. 168 (Declaration of Independence). Chapter 1 Globalization and International Linkages Organization (WTO), International Monetary Fund (IMF), and other global bodies and in the growing calls by developing countries to make the global trading system more responsive to their economic and social needs. These groups are especially concerned about rising inequities between incomes, and nongovernmental organizations (NGOs) have become more active in expressing concerns about the potential shortcomings of economic globalization.23 In addition, candidates in various election campaigns around the world often find themselves pressured to criticize globalization, including migration of people, for contributing to lost jobs and general economic insecurity even though these problems are obviously the result of a range of factors of which globalization is just one. Who benefits from globalization? Proponents believe that everyone benefits from globalization, as evidenced in lower prices, greater availability of goods, better jobs, and access to technology. Theoretically, individuals in established markets will strive for better education and training to be prepared for future positions, while citizens in emerging markets and underdeveloped countries will reap the benefits of large amounts of capital flowing into those countries, which will stimulate growth and development. Critics disagree, noting that the high number of jobs moving abroad as a result of the offshoring of business services jobs to lower-wage countries does not inherently create greater opportunities at home and that the main winners of globalization are the company executives. Proponents claim that job losses are a natural consequence of economic and technological change and that offshoring actually improves the competitiveness of American companies and increases the size of the overall economic pie.24 Critics point out that growing trade deficits and slow wage growth are damaging economies and that globalization may be moving too fast for some emerging markets, which could result in economic collapse. Moreover, critics argue that when production moves to countries to take advantage of lower labor costs or less regulated environments, it creates a “race to the bottom” in which companies and countries place downward pressure on wages and working conditions.25 India is one country at the center of the globalization debate. As noted above, India has been the beneficiary of significant foreign investment, especially in services such as software and information technology (IT). Limited clean water, power, paved roadways, and modern bridges, however, are making it increasingly difficult for companies to expand. There have even been instances of substantial losses for companies using India as an offshore base, such as occurred when several automakers, including Ford, Hyundai, Renault-Nissan, and Daimler, experienced the destruction of inventory and a week-long production stoppage due to flooding in southern India.26 India’s public debt has declined to about 65 percent of GDP over the last ten years, increasing macroeconomic stability and lowering its vulnerability to external risks. Expanding by over 7 percent in 2015, India has eclipsed China as the fastest-growing large economy.27 It is possible that India will follow in China’s footsteps and continue rapid growth in incomes and wealth; however, it is also possible that the challenges India faces are greater than the country’s capacity to respond to them. See In the International Spotlight at the end of this chapter for additional insights on India. This example illustrates just one of the ways in which globalization has raised particular concerns over environmental and social impacts. According to antiglobalization activists, if corporations are free to locate anywhere in the world, the world’s poorest countries will relax or eliminate environmental standards and social services in order to attract first-world investment and the jobs and wealth that come with it. Proponents of globalization contend that even within the developing world, it is protectionist policies, not trade and investment liberalization, that result in environmental and social damage. They believe globalization will force higher-polluting countries such as China and Russia into an integrated global community that takes responsible measures to protect the ­environment. However, given the significant changes required in many developing nations to support globalization, such as better infrastructure, greater educational opportunities, and other improvements, most supporters concede that there may be some short-term disruptions. Over the long term, globalization supporters believe industrialization will 9 A Closer Look Outsourcing and Offshoring The concepts of outsourcing and offshoring are not new, but these practices are growing at an extreme rate. ­Offshoring refers to the process by which companies undertake some activities at offshore locations instead of in their countries of origin. Outsourcing is the subcontracting or contracting out of activities to external organizations that had previously been performed within the firm and is a wholly different phenomenon. Often the two combine to create “offshore outsourcing.” Offshoring began with manufacturing operations. Globalization jump-started the extension of offshore outsourcing of services, including call centers, R&D, information services, and even legal work. American Express, GE, Sony, and Netflix all use attorneys from Pangea3, a Mumbai-based legal firm, to review documents and draft contracts. These companies benefit from the lower costs and higher efficiency that companies like Pangea3 can provide compared to domestic legal firms.28 This is a risky venture as legal practices are not the same across countries, and the documents may be too sensitive to rely on assemblyline lawyers. It also raises the question as to whether or not there are limitations to offshore outsourcing. Many companies, including Deutsche Bank, spread offshore outsourcing opportunities across multiple countries such as India and Russia for economic or political reasons. The advantages, concerns, and issues with offshoring span a variety of subjects. Throughout the text we will revisit the idea of offshore outsourcing as it is relevant. Here in Chapter 1 we see how skeptics of globalization wonder if there are benefits to offshore outsourcing, while in Chapter 2 we see how these are related to technology, and, finally, in Chapter 14 we see how offshore practices affect human resource management and the global distribution of work. Sources: Engardio, Pete; Shameen, Assif, “Let’s Offshore the Lawyers,” BusinessWeek, September 18, 2006, p. 42; Hallett, Tony; McCue, Andy, “Why Deutsche Bank Spreads Its Outsourcing,” BusinessWeek, March 15, 2007. create wealth that will enable new industries to employ more modern, environmentally friendly technology. We discuss the social and environmental aspects of globalization in more detail in Chapter 3. These contending perspectives are unlikely to be resolved anytime soon. Instead, a vigorous debate among countries, MNCs, and civil society will likely continue and affect the context in which firms do business internationally. Business firms operating around the world must be sensitive to different perspectives on the costs and benefits of globalization and adapt and adjust their strategies and approaches to these differences. Global and Regional Integration World Trade Organization (WTO) The global organization of countries that oversees rules and regulations for international trade and investment. 10 One important dimension of globalization is the increasing economic integration among countries brought about by the negotiation and implementation of trade and investment agreements. Here we provide a brief overview of some of the major developments in global and regional integration. Over the past six decades, succeeding rounds of global trade negotiations have resulted in dramatically reduced tariff and nontariff barriers among countries. Table 1–3 shows the history of these negotiation rounds, their primary focus, and the number of countries involved. These efforts reached their crest in 1994 with the conclusion of the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) and the creation of the World Trade Organization (WTO) to oversee the conduct of trade a…



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