\

eighth edition

Global Business Today

CharlesW. L Hill
University of Washington

McGraw-Hill
Irwin
 contents
PREFACE xiii PART TWO Country Differences 36

Chapter Two National Differences in Political

PART ONE Introduction and
Economy 37
Overview 2
Opening Case: Ghana: An African Dynamo 37
Chapter One Globalization 3 Introduction 38
Opening Case: Who Makes the Apple iPhone? 3 Political Systems 39
Introduction 4 Collectivism and Individualism 39
What Is Globalization? 6 Democracy and Totalitarianism 42 b
The Globalization of Markets 6 Economic Systems 44
The Globalization of Production 7 Market Economy 44
The Emergence of Global Institutions 9 Command Economy 45
Drivers of Globalization 11 Mixed Economy 45
Declining Trade and Investmen t Barriers 11 Legal Systems 46
The Role of Technological Change 14 Different Legal Systems 46
The Changing Demographics of the Global Differences in Contract Law 47
Economy 16
Property Rights and Corruption 48
The Changing World Output and World Trade
The Protection of Intellectual Property 51
Picture 16
Product Safety and Product Liability 53
The Changing Foreign Direct Investment
Focus on Managerial Implications 54
Picture 18
Key Terms 55
The Changing Nature of the Multinational
Chapter Summary 55
Enterprise 19
The Changing World Order 22 Critical Thinking and Discussion Questions 55

The Global Economy of the Twenty-First Research Task 56

Century 23 Closing Case:The Polish Surprise 56

The Globalization Debate 24 Chapter Three Political Economy and Economic

Antiglobalization Protests 24
Globalization, Jobs, and Income 26
Globalization, Labor Policies, and the
Environment 28
Globalization and,National Sovereignty 29
Globalization and the World's Poor 30
Managing in the Global Marketplace 31
Key Terms 33
Chapter Summary 33
Critical Thinking and Discussion Questions 34
Research Task 34
Closing Case: Legal Outsourcing 35
Development 59
Opening Case: Revolution in Egypt 59
Introduction 60
Differences in Economic Development 61
Broader Conceptions of Development: Amartya Sen 63
Political Economy and Economic Progress 66
Innovation and Entrepreneurship Are the Engines
of Growth 66
Innovation and Entrepreneurship Require a
Market Economy 68
Innovation and Entrepreneurship Require Strong
Property Rights 68

VI
 The Required Political System 69 Chapter Five Ethics in International
Economic Progress Begets Democracy 70 Business 123
Geography, Education, and Economic Development 70 Opening Case: Exporting Used Batteries
States in Transition 71 to Mexico 123
The Spread of Democracy 71 Introduction 124
The New World Order and Global Terrorism 74 Ethical Issues in International Business 125
The Spread of Market-Based Systems 75 Em ploymen t Practices 125
The Nature of Economic Transformation 77 Human Rights 125
Deregulation 77 Environmental Pollution 127
Privatization 77 Corruption 128
Legal Systems 79 Moral Obligations 130
Implications of Changing Political Economy 79 Ethical Dilemmas 131
Implications for Managers: benefits, costs and risks of doing The Roots of Unethical Behavior 132
business internationally 80 Personal Ethics 132
Key Terms 84 Decision-Making Processes 133
Chapter Summary 84 Organization Culture 134
Critical Thinking and Discussion Questions 85 Unrealistic Performance Expectations 134
Research Task 85 ' Leadership 134
Closing Case: Japan's Economic Malaise 85 Societal Culture 134
Philosophical Approaches to Ethics 135
Chapter Four Differences-in Culture 89
Straw Men 135
Opening Case: Why Did Walmart Fail in Germany? 89
Utilitarian and Kantian Ethics 137
Introduction 90
Rights Theories 138
What Is Culture? 91
Justice Theories 140
Values and Norms 91
Focus on Managerial Implications 141
Culture, Society, and the Nation-State 93
Key Terms 146
The Determinants of Culture 93
Chapter Summary 146
Social Structure 94 /
Critical Thinking and Discussion Questions 147
Individuals and Groups 94
Research Task 147
Social Stratification 96
Closing Case: Working Conditions in a
Religious and Ethical Systems 99 Chinese Factory 148
Christianity 101
Islam 102
Hinduism 105 PART THREE The Global Trade and Investment
Environment 150
Buddhism 106
Confucianism 106 ChapterSix International Trade Theory 151
Language 108 Opening Case: The Rise of India's Drug
Spoken Language 108 Industry 151
Unspoken Language 109 Introduction 152
Education 110 An Overview of Trade Theory 153
Culture and the Workplace 111 The Benefits of Trade 153
Cultural Change 113 The Pattern of International Trade 154
Focus on Managerial Implications 115 Trade Theory and Government Policy 155
Key Terms 118 Mercantilism 155
Chapter Summary 118 Absolute Advantage 156
Critical Thinking and Discussion Questions 119 Comparative Advantage 156
Research Task 119 The Gains from Trade 160
Closing Case: Culture and Business in Saudi Qualifications and Assumptions 161
Arabia 119 Extensions of the Ricardian Model 162

Contents vii
Heckscher-Olin Theory 166 1947-1979: GATT, Trade Liberalization, and
The Leontief Paradox 167 Economic Growth 203
The Product Life-Cycle Theory 168 1980-1993: Protectionist Trends 204
Evaluating the Product Life-Cycle The Uruguay Round and the World Trade
Theory 170 Organization 205
New Trade Theory 170 Experience to Date 206
Increasing Product Variety and Reducing The Future of the WTO: Unresolved Issues and the
Costs 171 Doha Round 207
Economies of Scale, First-Mover Advantages, Focus on Managerial Implications 212
and the Pattern of Trade 171 Key Terms 214
Implications of New Trade Theory 172 Chapter Summary 214
National Competitive Advantage: Porter's
Critical Thinking and Discussion Questions 215
Diamond 173
Research Task 215
Factor Endowments 174 Closing Case: U.S. Tariffs on Tire Imports
Demand Conditions 175 from China 215
Related and Supporting Industries 175
Firm Strategy, Structure, and Rivalry 175 Chapter Eight Foreign Direct
Investment 219
Evaluating Porter's Theory 177
Opening Case: Foreign Retailers in India 219
Focus on Managerial Implications 177
Introduction 220
Key Terms 180
Foreign Direct Investment in the World
Chapter Summary 180
Economy 221
Critical Thinking and Discussion Questions 181
Trends in FDI 221
Research Task 181
The Direction of FDI 222
Closing Case: The Rise of Bangladesh's Textile
The Source of FDI 223
Trade 182 s
The Form of FDI: Acquisitions versus Greenfield
Appendix A International Trade and the Balance
of Payments 183 Investments 224
Theories of Foreign Direct Investment 225
Chapter Seven The Political Economy of Why Foreign Direct Investment? 225
International Trade 189 The Pattern of Foreign Direct
Opening Case: China Limits Exports of Rare Investment 227
Earth Minerals 189 The Eclectic Paradigm 228
Introduction 190 Political Ideology and Foreign Direct
Instruments of Trade Policy 191 Investment 230
Tariffs 191 The Radical View 230
Subsidies 192 The Free Market View 231
Import Quotas and Voluntary Export Pragmatic Nationalism 232
Restraints 193 Shifting Ideology 232
Local Content Requirements 195 Benefits and Costs of FDI 233
Administration Policies 195 Host-Country Benefits 234 '
Antidumping Policies 196 Host-Country Costs 236
The Case for Government Intervention 197 Home-Country Benefits 237
Political Arguments for Intervention 197 Home-Country Costs 238
Economic Arguments for Intervention 199 International Trade Theory and FDI 238
The Revised Case for Free Trade 201 Government Policy Instruments
Retaliation and Trade War 202 and FDI 239
Domestic Politics 202 Home-Country Policies 239
Development of the World Trading Host-Country Policies 240
System 202 International Institutions and the Liberalization
From Smith to the Great Depression 203 ofFDI 241

viii Contents
Focus on Managerial Implications 241
Key Terms 244
Chapter Summary 244
Critical Thinking and Discussion Questions 244
Research Task 245
Closing Case: Walmart in Japan 245
Chapter Nine Regional Economic
Integration 249
Opening Case: I Want My GreekTV! 249
Introduction 250
Levels of Economic Integration 251
The Case for Regional Integration 253
The Economic Case for Integration 253
The Political Case for Integration 254
Impediments to Integration 254
The Case Against Regional Integration 255
Regional Economic Integration in Europe 256
Evolution of the European Union 256
Political Structure of the European Union 256
The Single European Act 259
The Establishment of the Euro 260
Enlargement of the European Union 264
Regional Economic Integration in the
Americas 265
The North American Free Trade Agreement 265
The Andean Community 268
Mercosur 269 /
Central American Common Market, CAFTA,
' andCARICOM 270
Free Trade Area of the Americas 270
Regional Economic Integration Elsewhere 271
Association of Southeast Asian Nations 271
Asia-Pacific Economic Cooperation 272
Regional Trade Blocs in Africa 272
Focus on Managerial Implications 274
Key Terms 276
Chapter Summary 276
Critical Thinking and Discussion Questions 277
Research Task 277
Closing Case: NAFTA and Mexican Trucking 277
PART FOUR Global Money System 280
Chapter Ten The Foreign Exchange
Market 281
Opening Case: Curse of the Strong Yen 281
Introduction 282
The Functions of the Foreign Exchange Market 283
Currency Conversion 283
Insuring against Foreign Exchange Risk 285
The Nature of the Foreign Exchange Market 287
Economic Theories of Exchange Rate
Determination 288
Prices and Exchange Rates 289
Interest Rates and Exchange Rates 294
Investor Psychology and Bandwagon
Effects 295
Summary of Exchange Rate Theories 296
Exchange Rate Forecasting 296
The Efficient Market School 297
The Inefficient Market School 297
Approaches to Forecasting 297
Currency Convertibility 298
Focus on Managerial Implications 300
Key Terms 303
Chapter Summary 303
Critical Thinking and Discussion Questions 304
Research Task 305
Closing Case: Billabong 305
Chapter Eleven The International Monetary
System 307
Opening Case: Currency Trouble in Malawi 307
Introduction 308
The Gold Standard 310
Mechanics of the Gold Standard 310
Strength of the Gold Standard 310
The Period between the Wars,
1918-1939 310
The Bretton Woods System 311
The Role of the IMF 312
The Role of the World Bank 313
The Collapse of the Fixed Exchange Rate
System 313
The Floating Exchange Rate Regime 314
The Jamaica Agreement 315
Exchange Rates since 1973 315
Fixed versus Floating Exchange Rates 318
The Case for Floating Exchange Rates 319
The Case for Fixed Exchange Rates 319
Who Is Right? 320
Exchange Rate Regimes in Practice 320
Pegged Exchange Rates 321
Currency Boards 321
Crisis Management by the IMF 322
Financial Crises in the Post-Bretton
Woods Era 323
Evaluating the IMF's Policy Prescriptions 324
Contents ix
Focus on Managerial Implications 327 Basic Entry Decisions 369
Key Terms 329 Which Foreign Markets? 369
Chapter Summary 329 Timing of Entry 370
Critical Thinking and Discussion Scale of En try and Strategic Commitments 371
Questions ^330 Market Entry Summary 372
Research Task 331 Entry Modes 374
Closing Case: Economic Turmoil in Exporting 374
Latvia 331 Turnkey Projects 375
Licensing 375
PART FIVE The Strategy Franchising 377
of International
Joint Ventures 378
Business 332
Wholly Owned Subsidiaries 379
Chapter Twelve The Strategy of International Selecting an Entry Mode 380
Business 333
Core Competencies and Entry Mode 380
Opening Case: Ford's Global Strategy 333
Pressures for Cost Reductions and Entry Mode 382
Introduction 334
Greenfield Venture or Acquisition? 382
Strategy and the Firm 335
Pros and Cons ofAcquisition 382
Value Creation 335
Pros and Cons of Greenfield Ventures 384
Strategic Positioning 337
Greenfield Venture or Acquisition? 385
Operations: The Firm as a Value Chain 338
Key Terms 386
Global Expansion, Profitability, and Profit Growth 343
Chapter Summary 386
Expanding the Market: Leveraging Products and
Critical Thinking and Discussion
Competencies 343
Questions 387
Location Economies 344
Research Task 387
Experience Effects 346
Closing Case: General Motors in China 387
Leveraging Subsidiary Skills 348
Profitability and Profit Growth Summary 348
Cost Pressures and Pressures for Local Responsiveness 349
PART SIX International Business
Pressures for Cost Reductions 350 Functions 390
Pressures for Local Responsiveness 350
Choosing a Strategy 353 Chapter Fourteen Exporting, Importing, and
Global Standardization Strategy 354 Countertrade 391

Localization Strategy 354 Opening Case: SteelMaster Buildings 391

Transnational Strategy 355 Introduction 392

International Strategy 356 The Promise and Pitfalls of Exporting 393

The Evolution of Strategy 357 Improving Export Performance 394

Strategic Alliances 358 An International Comparison 395

The Advantages of Strategic Alliances 358 Information Sources 395

The Disadvantages of Strategic Alliances 359 Utilizing Export Management Companies 396

Making Alliances Work 359 Export Strategy 397

Key Terms 362 Export and Import Financing 399

Chapter Summary 363 Lack of Trust 399

Critical Thinking and Discussion Questions 363 Letter of Credit 400

Research Task 364 Draft 401

Closing Case: Avon Products 364 Bill of Lading 402

A Typical International Trade Transaction 402
Chapter Thirteen Entering Foreign Markets 367 Export Assistance 403
Opening Case: JCB in India 367 Export-Import Bank 403
Introduction 368 Export Credit Insurance 404

Contents
Countertrade 404 Product Attributes 441
The Incidence of Countertrade 404 Cultural Differences 441
Types of Countertrade 405 Economic Development 442
The Pros and Cons of Countertrade 406 Product and Technical Standards 443
Key Terms 407 Distribution Strategy 443
Chapter Summary 407 Differences between Countries 444
Critical Thinking and Discussion Questions 408 Choosing a Distribution Strategy 446
Research Task 408 Communication Strategy 447
Closing Case: Vellus Products 409 Barriers to International Communication 447
Push Versus Pull Strategies 449
Chapter Fifteen Global Production, Outsourcing, Global Advertising 451
and Logistics 411
Pricing Strategy 453
Opening Case: Making the Amazon
Price Discrimination 453
Kindle 411
Strategic Pricing 455
Introduction 412
Regulatory Influences on Prices 456
Strategy, Production, and Logistics 412
Configuring the Marketing Mix 457
Where to Produce 415
New-Product Development 458
Country Factors 415
The Location of R&D 459
Technological Factors 416
Integrating R&D, Marketing, and Production 460
Product Factors 420
Cross-Functional Teams 461
Locating Production Facilities 420
Building Global R&D Capabilities 461
The Hidden Costs of Foreign
Key Terms 463
Locations 421
Chapter Summary 463
The Strategic Role of a Foreign
Production Site 422 Critical Thinking and Discussion
Outsourcing Production: Make-or-Buy Questions 464
Decisions 424 Research Task 464
The Advantages of Make 425 Closing Case: Domino's Pizza 465
The Advantages of Buy 427
Chapter Seventeen Global Human Resource
Trade-offs 428
Management 467
Strategic Alliances with Suppliers 428
Opening Case: MMC China 467
Managing a Global Supply Chain 429
Introduction 468
The Role ofJust-in-Time Inventory 430
The Strategic Role of International
The Role of Information Technology and HRM 469
the Internet 430 Staffing Policy 471
Key Terms 431 Types of Staffing Policy 471
Chapter Summary 431 Expatriate Managers 474
Critical Thinking and Discussion Questions 432 The Global Mind-Set 478
Research Task 433 Training and Management Development 478
Closing Case: The Rise of the Indian Automobile
Training for Expatriate Managers 479
Industry 433
Repatriation of Expatriates 480
Chapter Sixteen Global Marketing Management Development and
and R&D 437 Strategy 480
Opening Case: Burberry's Global Brand Performance Appraisal 482
Strategy 437 Performance Appraisal Problems 482
Introduction 438 Guidelines for Performance Appraisal 482
The Globalization of Markets and Compensation 483
Brands 439 National Differences in Compensation 483
Market Segmentation 440 Expatriate Pay 484

Contents xi
International Labor Relations 486 PHOTO CREDITS 521
The Concerns of Organized Labor 486
The Strategy of Organized Labor 487 INDEX 522
Approaches to Labor Relations 488
ACRONYMS
Key Terms 488
Chapter Summary 488 COUNTRIES AND THEIR CAPITALS
Critical Thinking and Discussion Questions 489
Research Task 490 WORLD MAP
Closing Case: AstraZeneca 490

GLOSSARY 491

ENDNOTES 499

xii Contents